-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OxboZ9ljznj2CmWB1TkA8/hFqr13AsNjJRFT2W4A6KsYunCNI5SMxDPTrCQeaW6D 8er+miaSP2gkkvqoYr5blw== 0000950134-97-009170.txt : 19971208 0000950134-97-009170.hdr.sgml : 19971208 ACCESSION NUMBER: 0000950134-97-009170 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19971205 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNSHINE MINING & REFINING CO CENTRAL INDEX KEY: 0000833376 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 752231378 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-41641 FILM NUMBER: 97733434 BUSINESS ADDRESS: STREET 1: 877 WEST MAIN STREET STREET 2: SUITE 600 CITY: BOISES STATE: ID ZIP: 83702 BUSINESS PHONE: 2083450660 MAIL ADDRESS: STREET 1: 877 W MAIN STREET SUITE 600 CITY: BOISE STATE: ID ZIP: 83702 FORMER COMPANY: FORMER CONFORMED NAME: SUNSHINE MINING CO /DE DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SUNSHINE HOLDINGS INC DATE OF NAME CHANGE: 19880915 S-3 1 FORM S-3 1 As filed with the Securities and Exchange Commission on December 5, 1997 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- SUNSHINE MINING AND REFINING COMPANY (Exact name of registrant as specified in its charter) DELAWARE 75-2618333 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 877 W. MAIN STREET, SUITE 600 BOISE, IDAHO 83702 (208) 345-0660 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) -------------------------- JOHN S. SIMKO, CHIEF EXECUTIVE OFFICER 877 W. MAIN STREET, SUITE 600 BOISE, IDAHO 83702 (208) 345-0660 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPY TO: JANICE V. SHARRY HAYNES AND BOONE, LLP 3100 NATIONSBANK PLAZA 901 MAIN STREET DALLAS, TEXAS 75202-3789 (214) 651-5000 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
================================================================================================================================== Proposed Maximum Proposed Maximum Aggregate Amount of Title of Each Class Amount to be Offering Price Offering Registration of Securities to be Registered Registered Per Share Price Fee - ---------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.01 per share . . . . . . . . . . . . . . . 25,000,000 shares $ 0.75 (1) $ 18,750,000 (1) $ 5,531.25 ==================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457, based on the last reported sale price of the Common Stock on the New York Stock Exchange on December 4, 1997. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION DATED DECEMBER 5, 1997 PROSPECTUS ______________________________ SUNSHINE MINING AND REFINING COMPANY UP TO 25,000,000 SHARES OF COMMON STOCK ______________________________ This Prospectus relates to the resale by certain selling stockholders named herein (the "Selling Stockholders") of up to an aggregate of 25,000,000 shares (the "Shares") of common stock, par value $.01 per share (the "Common Stock"), of Sunshine Mining and Refining Company, a Delaware corporation (the "Company"), which are issuable (i) upon the conversion and pursuant to other payment terms of the Company's currently outstanding $15,000,000 Senior Convertible Notes (the "Notes") and (ii) upon the exercise of certain warrants to purchase Common Stock (the "Warrants"). The Shares being registered represent a current estimate of the number of Shares subject to issuance from time to time by the Company pursuant to the terms of the Notes and Warrants. No assurance can be given that all such Shares will be issued because the issuance of a portion of the Shares is subject to, among other factors, the Company's determination to make interest and mandatory prepayments on the Notes in Shares rather than cash and the then current bid price of the Shares. Application has been made to list the Shares offered hereby on the New York Stock Exchange ("NYSE"). The Company's Common Stock is traded on the NYSE under the symbol "SSC." On December 4, 1997, the reported closing sale price of the Company's Common Stock was $0.75 per share. SEE "RISK FACTORS" WHICH BEGINS ON PAGE 2 FOR CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ______________________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is December ___, 1997 3 RISK FACTORS Investors should carefully consider the following matters in connection with an investment in the securities in addition to the other information contained or incorporated by reference in this Prospectus. Information contained or incorporated by reference in this Prospectus contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. The following matters constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements. Reference should be made to (i) the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and the Amendment to that Annual Report filed on Form 10-K/A on October 16, 1997 (collectively, the "Annual Report"), (ii) the Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, each as amended by Amendments on Form 10-Q/A to the identified Quarterly Reports filed on October 16, 1997, and the Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (collectively, the "Quarterly Reports"), (iii) the Prospectus/Proxy Statement on Form S-4 for the Special Meeting of Stockholders of the Company held on March 29, 1996 (the "Prospectus/Proxy Statement"), (iv) the Post-Effective Amendment No. 4 on Form S-3 to Form S-4 dated November 12, 1997, (v) the Proxy Statement for the Annual Meeting of Stockholders of the Company held on June 10, 1997, and (vi) all financial statements and notes thereto contained in the foregoing (all of which are incorporated herein by reference) for a more detailed discussion of the following matters. OPERATING LOSSES Substantially all of the Company's revenues are 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 net losses of $25.9 million, $15.5 million, and $4.9 million in each of 1996, 1995 and 1994, respectively. The Company expects to fund its losses for fiscal 1997 from the Company's cash and cash equivalents and silver bullion held for investment. On a pro forma basis after giving effect to the sale of the Notes, at September 30, 1997, Sunshine's cash and silver bullion held for investment totaled approximately $25.7 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 in the Annual Report and Quarterly Reports. 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 - 2 - 4 indicated the high, low and average closing spot prices per ounce of silver on the Commodity Exchange, Inc. ("COMEX") and also translates the average price as stated into constant 1996 dollars.
CONSTANT NOMINAL DOLLARS 1996 DOLLARS --------------------------------------- ------------ YEAR HIGH LOW AVERAGE AVERAGE - ------------------------------------------ ------ ----- ------- ------------ 1983 . . . . . . . . . . . . . . . . . . $14.74 $8.38 $11.46 $17.05 1984 . . . . . . . . . . . . . . . . . . 10.17 6.25 8.15 11.39 1985 . . . . . . . . . . . . . . . . . . 6.89 5.48 6.14 8.19 1986 . . . . . . . . . . . . . . . . . . 6.32 4.85 5.49 7.13 1987 . . . . . . . . . . . . . . . . . . 11.25 5.35 6.99 8.85 1988 . . . . . . . . . . . . . . . . . . 8.06 6.01 6.53 7.91 1989 . . . . . . . . . . . . . . . . . . 6.20 5.02 5.47 6.28 1990 . . . . . . . . . . . . . . . . . . 5.35 3.94 4.82 5.16 1991 . . . . . . . . . . . . . . . . . . 4.55 3.51 4.03 4.11 1992 . . . . . . . . . . . . . . . . . . 4.32 3.63 3.94 3.88 1993 . . . . . . . . . . . . . . . . . . 5.44 3.52 4.31 4.18 1994 . . . . . . . . . . . . . . . . . . 5.78 4.61 5.28 5.01 1995 . . . . . . . . . . . . . . . . . . 6.10 4.38 5.20 4.76 1996 . . . . . . . . . . . . . . . . . . 5.84 4.71 5.21 5.21
On December 4, 1997, the closing price of spot silver as reported on the COMEX was $5.24 per ounce. In constant 1996 dollars, the average spot silver price from 1990 through 1996 has been approximately $4.62. 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" included in the Annual Report. IMPRECISION OF RESERVE ESTIMATES The ore reserve estimates presented in the Annual Report and Quarterly Reports 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 the Company 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 - 3 - 5 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, 1997. 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" included in the Annual Report and under "Legal Proceedings" included in the Quarterly Reports, 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. RISKS INHERENT IN FOREIGN OPERATIONS The Company presently conducts international operations and anticipates that it will continue to conduct significant international operations in the future. Foreign properties, operations or investments may be adversely affected by local, political and economic developments, exchange controls, currency fluctuations, royalty and tax increases, retroactive tax claims, renegotiation of contracts with governmental entities, expropriation, import and export regulations and other foreign laws or policies governed by operations of foreign-based companies, as well as by laws of policies of the United States affecting foreign trade, taxation and investment. In addition, as certain of the Company's operations are governed by foreign laws, in the event of a dispute, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in the United States. The Company may also be hindered or prevented from enforcing the rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. DILUTION; EFFECT OF SALES OF COMMON STOCK ON MARKET PRICE As of October 14, 1997, there were 255.1 million shares of Common Stock outstanding (excluding 4.7 million treasury shares). The Company has previously registered with the Commission an aggregate of approximately 55 million shares of Common Stock for resale by certain stockholders of the Company, including approximately 30,000,000 of which are estimated to be issuable upon conversion of the Eurobonds at a current conversion price of $1.00 per share. In addition, the Company has reserved a significant number of shares of Common Stock for future issuance pursuant to the exercise of outstanding warrants and options. There can be no assurance that the sale of shares of Common Stock previously registered or to be registered for resale or the issuance of the shares of - 4 - 6 Common Stock which have been reserved for future issuance will not have a material adverse effect on the then prevailing market price of the Common Stock. Furthermore, issuance of the shares of Common Stock would result in significant dilution to the stockholders of the Company. THE COMPANY The Company is one of the world's leading silver producers. The Company owns the Sunshine Mine in the Coeur d'Alene Mining District of northern Idaho and the Pirquitas Mine in northwest Argentina. The Sunshine Mine, in operation for over 100 years, has produced more silver than any other primary silver producing mine in North America. Preliminary pre-feasibility studies at Pirquitas have already resulted in the classification as proven and probable reserves of 66.9 million ounces of silver. The Company is a Delaware corporation. The Company's principal executive office and mailing address are 877 W. Main Street, Suite 600, Boise, Idaho 83702 and its telephone number is (208) 345-0660. RECENT DEVELOPMENTS ISSUANCE OF NOTES On November 24, 1997, the Company completed a private placement of the Notes and Warrants to Stonehill Partners, L.P., GRS Partners, Aurora Limited Partnership and Stonehill Offshore Partners (collectively, the "Investors"). The Notes and Warrants were purchased pursuant to a purchase agreement dated as of November 24, 1997, and in connection with the sale of such Notes and Warrants, the Company granted registration rights covering the Shares to the Investors pursuant to a registration rights agreement (the "Registration Rights Agreement") dated as of November 24, 1997, between the Company and the Investors. The Notes rank senior to all subordinated obligations of the Company and are convertible into shares of Common Stock. The initial conversion price of the Notes is $0.95, subject to reset and adjustment as set forth in the terms of the Notes. In addition, the Company may, at its option, make interest payments, mandatory prepayments and certain other payments in respect of the Notes in shares of Common Stock. Interest on the Notes accrues at an initial rate of 10% per annum (subject to adjustment) and is payable semi-annually. The Notes are guaranteed by Sunshine Argentina, Inc. and Sunshine Exploration, Inc., subsidiaries of the Company, and may be guaranteed by Sunshine Precious Metals, Inc. ("SPMI"), also a subsidiary of the Company, upon the retirement or refinancing of SPMI's 8% Senior Exchangeable Notes due 2000. The Notes amortize in twelve equal quarterly installments commencing February 24, 2000 and mature on November 24, 2002. Warrants to purchase an aggregate of 1,500,000 shares of Common Stock were also issued to the Investors on November 24, 1997. The Warrants are exercisable beginning on the first date on which none of the Notes remain outstanding until November 24, 2002 (subject to extension as set forth in the Warrants). The exercise price of the Warrants is equal to 110% of the conversion price last in effect under the Notes. The number of shares of Common Stock issuable upon exercise of the Warrants is subject to adjustment based on certain anti-dilution provisions set forth in the Notes and Warrants. The Notes and the Warrants are subject to limitation on transfer which prohibit any transfer of the Notes or Warrants which would result in there being more that 10 holders of the Notes or Warrants, respectively. In addition, both the Notes and Warrants limit the number of shares of Common Stock which may be issued in respect of the Notes and Warrants. Such shares (which - 5 - 7 constitute the Shares offered hereby) may not exceed the maximum number (the "Maximum Number") of shares of Common Stock that can be issued without obtaining stockholder approval under the rules of the NYSE. In the event an issuance of shares of Common Stock under the terms of the Notes or Warrants would exceed the Maximum Number, the Company is required to make a cash payment in lieu thereof. The Company believes the sale of the Notes gives the Company more than sufficient liquidity to carry out the additional test work required to bring the Pirquitas Mine through its final feasibility studies and to do a significant amount of drilling at the La Joya del Sol in southern Argentina and at its other properties. The Company anticipates that additional capital may also be subsequently required to finance its contemplated exploration and development program. Although no assurance can be given that the additional financing will be available, the Company believes that advances in the status of its properties in Argentina and the major improvements to date at the Sunshine Mine, along with the prospects of silver prices improving significantly in the next year, will allow the Company access the capital markets on significantly better terms next year. NEW MINING TECHNIQUES The Company has been implementing mechanized cut and fill mining over the last two years as development of the West Change area has proceeded. The Company also expects to use the methodology in the development of future undeveloped areas in the mine, and in the extraction of a portion of the reserves in the mine not contained in the West Chance. The benefits of the method are two-fold. There can be a reduction in direct mining costs from the method if the ore body has characteristics to allow the benefits of the method to be fully implemented. This would normally mean that the ore body has sufficient continuity and strike length to allow the crew and equipment to access multiple headings in each shift. However, the biggest benefit of the method is the ability to rapidly develop an ore body and put it into production, as has been demonstrated in the West Chance area. Using the Company's traditional development methodology would likely have required an additional one to two years to bring the ore body into full production. Full production itself provides the biggest cost benefit to the mine versus its recent history as fixed costs, which represented 40-50% of total costs in 1996, are spread over a larger base of production. USE OF PROCEEDS The Company will not receive any proceeds from the resale of the Shares. The Company may, in the future, receive proceeds from the exercise of the Warrants, but only if and to the extent the Warrants are exercised. Management cannot predict the amount of proceeds, if any, that may be generated from the exercise of the Warrants. The net proceeds that may be realized by the Company upon exercise of the Warrants will not be utilized for any specific purpose other than to contribute to the Company's working capital and to continue the operations of the Company in accordance with the business strategy identified by management. In addition, the Company may have its indebtedness reduced as a result of conversion of the Notes, but only if the Notes are converted and then only in an amount equal to the outstanding principal amount of such Notes converted. Based upon the current outstanding principal amount of such Notes and assuming that all such Notes are converted, the aggregate reduction in the Company's indebtedness (on a consolidated basis) would be approximately $15.0 million. The Company incurred such indebtedness in order to fund the Company's exploration and development program at the Pirquitas Mine in northwest Argentina, its evaluation program at the Joya del Sol in southern Argentina, as well as the exploration program on its numerous properties. - 6 - 8 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of (i) 600 million shares of Common Stock, par value $.01 per share, of which 255.1 million shares were outstanding (excluding 4.7 million treasury shares) at October 14, 1997 and were held of record by approximately 30,000 holders, and (ii) 20 million shares of Preferred Stock, $1.00 par value, issuable in one or more series, with such dividend rates, liquidation preferences, redemption, conversion and voting rights and such further designations, powers, preferences, rights, limitations and restrictions as may be fixed and determined by the Board of Directors of the Company, all without a vote of the Company's stockholders. No shares of Preferred Stock are outstanding. The Company's outstanding capital stock is fully paid and nonassessable and none of the authorized capital stock is entitled to preemptive rights. The Company also has outstanding warrants to purchase Common Stock which are all currently exercisable, except for the Warrants which are exercisable when the Notes are no longer outstanding. For a summarized description of recent transactions which have affected the capital stock of the Company, see the Prospectus/Proxy Statement, the Consolidated Statements of Stockholders Equity contained in the Consolidated Financial Statements appearing in the Annual Report and the November 12 Post-Effective Amendment No. 4 on Form S-3. COMMON STOCK Subject to the rights of holders of any outstanding shares of Preferred Stock, holders of shares of the Common Stock are entitled to share equally in dividends from sources legally available when, as and if declared by the Board of Directors. The Company's payment of cash dividends on its shares of capital stock is restricted. Each stockholder is entitled to one vote for each share of Common Stock held by such holder. Because stockholders are not entitled to cumulate their votes, stockholders holding a majority of the outstanding Common Stock, and any shares of voting preferred stock which may be issued, are able to elect all members of the Board of Directors of the Company. Holders of Common Stock have no preemptive rights, and shares of Common Stock have no redemption, sinking fund or conversion privileges. In the event of any liquidation, dissolution or winding up of the affairs of the Company, subject to the rights of holders of any Preferred Stock, the holders of Common Stock are entitled to receive pro rata any assets of the Company after the satisfaction of corporate liabilities. Article Five of the Certificate of Incorporation of the Company requires the affirmative vote or consent of the holders of (i) a majority of the Company's shares entitled to vote thereon and (ii) a majority of any series or class of Preferred Stock entitled to vote as a class thereon, in order to approve any business combination, including any merger, consolidation, or the sale, lease, exchange or other disposition of all or substantially all of the Company's assets (including a disposition in connection with the dissolution or winding up or liquidation of the Company). Article Five may not be amended, altered, changed or repealed without the prior affirmative vote or consent of the holders of (i) 66 2/3% of all shares of stock entitled to vote thereon and (ii) 66 2/3% of any series or class of preferred stock upon which the right to vote as a class thereon has been conferred by the resolution or resolutions adopted by the Company's Board of Directors providing for the issue of such series or class of preferred stock. Such provisions may have the effect of delaying, deterring or preventing a change of control of the Company. - 7 - 9 The Company currently does not pay cash dividends on its shares of Common Stock and has not paid cash dividends on its shares of Common Stock since the third quarter of 1981. Any future declaration of dividends will be at the discretion of the Board of Directors of the Company, which will consider, among other factors, current and projected earnings and the liquidity position of the Company. The Company does not expect any resumption of dividends in the foreseeable future. The payment of cash dividends by the Company is subject to certain restrictions. Certain of the Company's debt securities impose restrictions on the Company's ability to declare or pay cash dividends and make certain distributions on its capital stock. Pursuant to the most restrictive of these provisions, at December 31, 1996, no funds were available for cash dividends on shares of the Company's capital stock, including its Common Stock. Meetings of the Stockholders. The By-Laws of the Company provide that the stockholders shall have annual meetings, at such date and time designated by the Board of Directors, and special meetings, called by the Chairman of the Board, the President or by the Board of Directors or by written order of a majority of the directors. The stockholders must be given written notice of each such meeting of stockholders. In the case of special meetings, the purpose or purposes for which the meeting is called shall be given to each stockholder entitled to vote, not less than ten nor more than sixty days before the meeting. In order to determine the stockholders entitled to notice of or to vote at any meeting of stockholders, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting. The Company shall prepare and make, at least ten days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting. Such list shall be open to the examination of any stockholder for a period of ten days prior to the meeting. The holders of a majority of the shares of capital stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. When a quorum is present at any meeting of the stockholders, the vote of the holders of a majority of the shares of capital stock entitled to vote, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which a different vote is required by law, the Certificate of Incorporation or the By-Laws. Limitation of Liability. As permitted by the Delaware General Corporation Law (the "DGCL"), the Company's Certificate of Incorporation provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of a fiduciary duty as a director, including gross negligence, except to the extent such exemption from liability is not permitted by the DGCL. This includes liability for (i) any breach of the director's duty of loyalty to the Company or its stockholders, (ii) any act or omission not in good faith or which involves intentional misconduct or a knowing violation of law, (iii) any transaction from which the director derived any improper personal benefit or (iv) any act or omission where the liability of the director is expressly provided by the statute. As a result of this provision, the Company and its stockholders may be unable to obtain monetary damages from a director for breach of the duty of care. Although stockholders may continue to seek injunctive or other equitable relief for an alleged breach of fiduciary duty by a director, stockholders may not have an effective remedy against the challenged conduct if equitable remedies are unavailable. In addition, the Company's Certificate of Incorporation and By-Laws provide certain rights of indemnification for all officers and directors. The Delaware Business Combination Act. The Company is subject to the provisions of Section 203 of the DGCL. Section 203 prohibits a publicly held Delaware corporation from engaging - 8 - 10 in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and certain other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, as defined therein, owns, or within three years did own, 15% or more of the corporation's voting stock. This statute contains provisions enabling a corporation to avoid the statute's restrictions if the stockholders holding a majority of the shares of the corporation's voting stock approve an amendment to the corporation's certificate of incorporation or bylaws. The Company does not intend to "elect out" of this statute. Miscellaneous. The Common Stock is listed on the NYSE. American Stock Transfer & Trust Company is the transfer agent and registrar for the Common Stock. PREFERRED STOCK The Board of Directors is authorized, subject to any limitations prescribed by Delaware law, to provide for the issuance of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions therein, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding), without any further vote or action by the stockholders. The Board of Directors may authorize the issuance of Preferred Stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of Common Stock. Thus, the issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no current plan to issue any shares of Preferred Stock. PLAN OF DISTRIBUTION The Company will not receive any of the proceeds of the sale of the Shares offered hereby. The Shares may be sold from time to time to purchasers directly by the Selling Stockholders. Alternatively, the Selling Stockholders may from time to time offer the Shares through brokers, dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders and/or the purchasers of the Shares for whom they may act as agent. The Selling Stockholders and any such brokers, dealers or agents who participate in the distribution of the Shares may be deemed to be "underwriters", and any profits on the sale of the Shares by them and any discounts, commissions or concessions received by any such brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent the Selling Stockholders may be deemed to be underwriters, the Selling Stockholders may be subject to certain statutory liabilities of the Securities Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. The Shares offered hereby may be sold from time to time by the Selling Stockholders, or, to the extent permitted, by pledgees, donees, transferees or other successors in interest. The Shares may be disposed of from time to time in one or more transactions through any one or more of the following: (i) the purchasers directly, (ii) in ordinary brokerage transactions and transactions in which the broker solicits purchasers, (iii) through underwriters or dealers who may receive compensation in the form of underwriting discounts, concessions, or commissions from the Selling Stockholders or such successors in interest and/or from the purchasers of the Shares for whom they may act as agent, (iv) the writing of options on the Shares, (v) the pledge of the Shares as security for any loan or obligation, including pledges to brokers or dealers who may, from time to time, themselves effect distributions of the Shares or interests therein, (vi) purchases by a broker or dealer as principal and resale by such - 9 - 11 broker or dealer for its own account, (vii) a block trade in which the broker or dealer so engaged will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction and (viii) an exchange distribution in accordance with the rules of such exchange or transactions in the over the counter market. Such sales may be made at prices and at terms then prevailing or at prices related to the then current market price or at negotiated prices and terms. In effecting sales, brokers or dealers may arrange for other brokers or dealers to participate. The Selling Stockholders or such successors in interest, and any underwriters, brokers, dealers or agents that participate in the distribution of the Shares, may be deemed to be "underwriters" within the meaning of the Securities Act, and any profit on the sale of the Shares by them and any discounts, commissions or concessions received by any such underwriters, brokers, dealers or agents may be deemed to be underwriting commissions or discounts under the Securities Act. At any time a particular offer of the Shares is made, a revised Prospectus or Prospectus Supplement, if required, will be distributed which will set forth the aggregate amount and type of Shares being offered and the terms of the offering, including the name or names of any underwriters, dealers or agents, any discounts, commissions and other items constituting compensation from the Selling Stockholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Such Prospectus Supplement and, if necessary, a post-effective amendment to the Registration Statement of which this Prospectus is a part, will be filed with the Commission to reflect the disclosure of additional information with respect to the distribution of the Shares. In addition, the Shares covered by this Prospectus may be sold in private transactions or under Rule 144 rather than pursuant to this Prospectus. To the best knowledge of the Company, there are currently no plans, arrangements or understandings between any Selling Stockholders and any broker, dealer, agent or underwriter regarding the sale of the Shares by the Selling Stockholders. There is no assurance that any Selling Stockholder will sell any or all of the Shares offered by it hereunder or that any such Selling Stockholder will not transfer, devise or gift such Shares by other means not described herein. The Selling Stockholders and other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the Shares by the Selling Stockholders and any other such person. Furthermore, under Regulation M under the Exchange Act, any person engaged in the distribution of the Shares may not simultaneously engage in market-making activities with respect to the particular Shares being distributed for certain periods prior to the commencement of such distribution. All of the foregoing may affect the marketability of the Shares and the ability of any person or entity to engage in market-making activities with respect to the Shares. Pursuant to the Registration Rights Agreement entered into in connection with the offer and sale of the Notes by the Company, each of the Company and the Selling Stockholders will be indemnified by the other against certain liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection therewith. The Company has agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the Shares to the public other than commissions, fees and discounts of underwriters, brokers, dealers and agents. SELLING STOCKHOLDERS The Selling Stockholders consist of Stonehill Partners, L.P., GRS Partners, Aurora Limited Partnership, and Stonehill Offshore Partners Limited. The Selling Stockholders - 10 - 12 currently hold Notes and Warrants convertible into or exercisable for the Shares. It is unknown if, when or in what amounts a Selling Stockholder may offer Shares for sale and the names of the Selling Stockholders who may sell the Shares. There can be no assurance that the Selling Stockholders will sell any or all of the Shares offered hereby. Because the Selling Stockholders may offer all or some of the Shares pursuant to the Offering contemplated by this Prospectus or understandings with respect to the sale of any of the Shares that will be held by the Selling Stockholders after completion of this Offering, no estimate can be given by the Selling Stockholder until after completion of this Offering. Other than as a result of the ownership of the Notes, to the best of the Company's knowledge, none of the Selling Stockholders had any material relationship with the Company within the three year period ending on the date of this Prospectus. SHARES ELIGIBLE FOR FUTURE SALE The up to 25,000,000 shares of Common Stock offered and sold in this Offering will be freely tradeable without restrictions or further registration under the Securities Act, except for any such securities owned by an "affiliate" of the Company as such term is defined under Rule 144. Shares owned by an "affiliate" of the Company may not be resold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned his or her shares for at least two years, including an "affiliate," as that term is defined below, is entitled to sell, within any three-month period, that number of shares that does not exceed the greater of 1% of the then outstanding shares or the average weekly trading volume of the then outstanding shares during the four calendar weeks preceding each such sale. A person (or persons whose shares are aggregated) who is not deemed an "affiliate" of the Company, and who has beneficially owned shares for at least three years, is entitled to sell such shares under Rule 144 without regard to the volume limitations described above. As defined in Rule 144, an "affiliate" of an issuer is a person that directly, or indirectly through the use of one or more intermediaries, controls, or is controlled by, or is under the common control with, such issuer. The Company is unable to estimate the number of shares that may be sold in the future by its existing and future stockholders or the effect, if any, that sales of shares by such stockholders will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock by existing stockholders could adversely affect the prevailing market price. - 11 - 13 LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed on for the Company by Haynes and Boone, LLP, Dallas, Texas. EXPERTS The consolidated financial statements of the Company appearing in the Company's Annual Report (Form 10-K) for the year ended December 31, 1996, as amended by the amendment filed on Form 10-K/A on October 16, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon included therein and incorporated herein by reference. Such consolidated financial statements are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the Exchange Act, the Company files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The reports, proxy statements, and other information can be inspected and copied at the public reference facilities that the Commission maintains at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of these materials can be obtained at prescribed rates from the Public Reference Section of the Commission at the principal offices of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the Commission. The address of the Commission's Web Site is http://www.sec.gov. The Company's Common Stock is listed for trading on the New York Stock Exchange under the symbol "SSC". Quarterly Reports and other information concerning the Company can be inspected at the offices of such Exchange, 20 Broad Street, New York, New York 10005. The Company has filed with the Commission the Registration Statement on Form S-3 under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, certain items of which are contained in schedules and exhibits to the Registration Statement as permitted by the rules and regulations of the Commission. Statements made in the Prospectus concerning the contents of any documents referred to herein are not necessarily complete. With respect to each such document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description, and each such statement shall be deemed qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by the Company with the Commission pursuant to the Exchange Act, are hereby incorporated by reference in this Prospectus: (i) Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as amended by the Amendment filed on form 10K/A on October 16, 1997, (file No. 001-10012); (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, each as amended by Amendments to the identified Quarterly Reports filed on Form 10-Q/A on October 16, 1997, and for the quarter ended - 12 - 14 September 30, 1997 (file No. 001-10012); (iii) the Proxy Statement for the Annual Meeting of Stockholders of the Company held on June 10, 1996 (File No. 001-10012); (iv) the description of Common Stock contained in Sunshine's Registration Statement No. 1-7966, as amended, filed pursuant to the Securities Exchange Act of 1934; and (v) all other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the fiscal year ended December 31, 1996. All documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the completion of the Offering shall be deemed to be incorporated by reference herein. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed superseded or modified for purposes of this Prospectus to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the documents incorporated by reference (other than exhibits to such documents which are not specifically incorporated by reference in such documents). Written requests for such copies should be directed to the Company, 877 W. Main Street, Suite 600, Boise, Idaho 83702, Attention: Rebecca L. Saunders, Secretary. Telephone requests may be directed to Rebecca L. Saunders, Secretary, at (208) 345-0660. - 13 - 15 ================================================================================ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ______________________________ TABLE OF CONTENTS
PAGE ---- RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
UP TO 25,000,000 SHARES OF COMMON STOCK SUNSHINE MINING AND REFINING COMPANY _________________________________ PROSPECTUS _________________________________ December __, 1997 ================================================================================ 16 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Securities and Exchange Commission Registration Fee . . . . . . . . . . . . . . . . . . . . . . . $ 5,700 NYSE Listing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,500 Printing and Photocopying Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,200 =========
All of the above expenses except the Securities and Exchange Commission registration fee and the NYSE listing fee listing fee are estimated. All of such expenses will be borne by the Registrant. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The information set forth pursuant to Item 20 of the Registrant's Registration Statement on Form S-4 (Registration No. 33-98876) is incorporated herein. ITEM 16. EXHIBITS
EXHIBIT NO. EXHIBIT ----------- ------- * 4.1 Certificate of Incorporation, filed as Exhibit 3.1 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-98876), which exhibit is incorporated herein by reference. * 4.2 Amendment to Certificate of Incorporation, filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated May 22, 1996 (File No. 33-98876), which exhibit is incorporated herein by reference. * 4.3 Bylaws, filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-99876), which exhibit is incorporated herein by reference. * 4.4 Specimen Common Stock Certificate, filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-63446), which exhibit is incorporated herein by reference. *** 5.1 Opinion of Haynes and Boone, LLP. * 10.1 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.9 to Sunshine's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, and incorporated herein by reference. * 10.2 Amendment No. 1 to the 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.8 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-63446), as amended and incorporated herein by reference. * 10.3 Amendment No. 2 to the 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.1 to Sunshine's Quarterly Report on Form 10-Q for the period ended June 30, 1994, and incorporated herein by reference. * 10.4 1993 Incentive Stock Option Plan of Sunshine, filed as Exhibit 10.18 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-63446), as amended and incorporated herein by reference.
II-1 17 * 10.5 1995 Employee Nonqualified Stock Option Plan of Sunshine. * 10.6 Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and John S. Simko, filed as Exhibit 10.8 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-73608), as amended and incorporated herein by reference. * 10.7 Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and William W. Davis, filed as Exhibit 10.9 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-73608), as amended and incorporated herein by reference. * 10.8 Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and Harry F. Cougher, filed as Exhibit No. 10.10 to Sunshine's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. * 10.9 Mining Lease, dated March 15, 1994, by and between Revenue-Virginiuus Mines Corporation, a Colorado corporation, as lessor, and Sunshine, as lessee, filed as Exhibit No. 10.1 to Sunshine's Quarterly Report on Form 10-Q for the period ended March 31, 1994, and incorporated herein by reference. * 10.10 Agreement dated July 1, 1995 by and between Consolidated Silver Corporation and Sunshine Precious Metals, Inc., as purchaser, for the purchase of a certain mining property, filed as Exhibit 10.1 to Sunshine's Quarterly Report on Form 10-Q for the period ended June 10, 1995, and incorporated herein by reference. ** 10.11 Registration Rights Agreement dated November 24, 1997, between the Company and Stonehill Partners, L.P., GRS Partners, Aurora Limited Partnership and Stonehill Offshore Partners Limited. ** 10.12 Specimen form of Warrant to Purchase Common Stock issued on November 24, 1997, to affiliates of Stonehill Investment Corp. ** 10.13 Specimen form of Senior Convertible Promissory Note issued on November 24, 1997, to affiliates of Stonehill Investment Corp. *** 23.1 Consent of Haynes and Boone, LLP (included in the opinion filed as Exhibit 5.1). ** 23.2 Consent of Ernst & Young LLP. ** 24.1 Power of Attorney (set forth on signature page hereof). - --------------------------
* Previously filed. ** Filed herewith. *** To be filed by amendment. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement (notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar of securities would not exceed that which II-2 18 was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if in the aggregate, the changes in volume and price represents no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement); and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. II-3 19 (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 20 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, as of the 5th day of December, 1997. SUNSHINE MINING AND REFINING COMPANY By:/s/ JOHN S. SIMKO ----------------------------------------- John S. Simko Chief Executive Officer and Chairman of the Board POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and directors of Sunshine Mining and Refining Company (the "Company") hereby constitutes and appoints John S. Simko and William W. Davis, or either of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file any of the documents referred to below relating to the proposed issuance and registration of shares of Common Stock and the Registration Statement on Form S-3 under the Securities Act of 1933, as amended, pertaining thereto, including any amendments increasing the amount of securities for which registration is being sought, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself might or could do if personally present, thereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the 5th day of December, 1997:
SIGNATURE TITLE --------- ----- /s/ JOHN S. SIMKO Director, Chief Executive Officer and - ----------------------------------------------- Chairman of the Board John S. Simko /s/ G. CHRIS ANDERSEN Director - ----------------------------------------------- G. Chris Andersen /s/ DANIEL D. JACKSON Director - ----------------------------------------------- Daniel D. Jackson /s/ V. DALE BABBITT Director - ----------------------------------------------- V. Dale Babbitt /s/ WILLIAM W. DAVIS Executive Vice President, - ----------------------------------------------- Chief Financial and William W. Davis Accounting Officer
II-5 21 /s/ ROBERT B. SMITH, JR. Director - ----------------------------------------------- Robert B. Smith, Jr. /s/ OREN G. SHAFFER Director - ----------------------------------------------- Oren G. Shaffer /s/ GEORGE M. ELVIN Director - ----------------------------------------------- George M. Elvin
II-6 22 INDEX TO EXHIBITS
EXHIBIT EXHIBIT ------- ------- NO. --- * 4.1 Certificate of Incorporation, filed as Exhibit 3.1 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-98876), which exhibit is incorporated herein by reference. * 4.2 Amendment to Certificate of Incorporation, filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated May 22, 1996 (File No. 33-98876), which exhibit is incorporated herein by reference. * 4.3 Bylaws, filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-4 (Registration No. 33-99876), which exhibit is incorporated herein by reference. * 4.4 Specimen Common Stock Certificate, filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 33-63446), which exhibit is incorporated herein by reference. *** 5.1 Opinion of Haynes and Boone, LLP. * 10.1 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.9 to Sunshine's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, and incorporated herein by reference. * 10.2 Amendment No. 1 to the 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.8 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-63446), as amended and incorporated herein by reference. * 10.3 Amendment No. 2 to the 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.1 to Sunshine's Quarterly Report on Form 10-Q for the period ended June 30, 1994, and incorporated herein by reference. * 10.4 1993 Incentive Stock Option Plan of Sunshine, filed as Exhibit 10.18 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-63446), as amended and incorporated herein by reference. * 10.5 1995 Employee Nonqualified Stock Option Plan of Sunshine. * 10.6 Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and John S. Simko, filed as Exhibit 10.8 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-73608), as amended and incorporated herein by reference. * 10.7 Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and William W. Davis, filed as Exhibit 10.9 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-73608), as amended and incorporated herein by reference. * 10.8 Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and Harry F. Cougher, filed as Exhibit No. 10.10 to Sunshine's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by reference. * 10.9 Mining Lease, dated March 15, 1994, by and between Revenue-Virginiuus Mines Corporation, a Colorado corporation, as lessor, and Sunshine, as lessee, filed as Exhibit No. 10.1 to Sunshine's Quarterly Report on Form 10-Q for the period ended March 31, 1994, and incorporated herein by reference. * 10.10 Agreement dated July 1, 1995 by and between Consolidated Silver Corporation and Sunshine Precious Metals, Inc., as purchaser, for the purchase of a certain mining property, filed as Exhibit 10.1 to Sunshine's Quarterly Report on Form 10-Q for the period ended June 10, 1995, and incorporated herein by reference.
23 ** 10.11 Registration Rights Agreement dated November 24, 1997, between the Company and Stonehill Partners, L.P., GRS Partners, Aurora Limited Partnership and Stonehill Offshore Partners Limited. ** 10.12 Specimen form of Warrant to Purchase Common Stock issued on November 24, 1997, to affiliates of Stonehill Investment Corp. ** 10.13 Specimen form of Senior Convertible Promissory Note issued on November 24, 1997, to affiliates of Stonehill Investment Corp. *** 23.1 Consent of Haynes and Boone, LLP (included in the opinion filed as Exhibit 5.1). ** 23.2 Consent of Ernst & Young LLP. ** 24.1 Power of Attorney (set forth on signature page hereof). - --------------------------
* Previously filed. ** Filed herewith. *** To be filed by amendment. EX-10.11 2 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.11 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is entered into as of November 24, 1997, by and among SUNSHINE MINING AND REFINING COMPANY, a Delaware corporation (the "Company"), on the one hand, and Stonehill Partners, L.P., GRS Partners, Aurora Limited Partnership and Stonehill Offshore Partners Limited (collectively, the "Stockholders"), on the other hand. R E C I T A L S A. This Agreement is entered into pursuant to the Purchase Agreement dated as of November 24, 1997 (the "Purchase Agreement"), by and among the Company and each of the Stockholders. B. The Purchase Agreement provides for the issuance by the Company of an aggregate of $15,000,000 of senior unsecured notes (the "Notes") which are convertible into shares of the Company's common stock, par value $.01 per share (each share of such class being referred to herein as a share of "Common Stock", and the shares to be issued on conversion of the Notes being referred to herein as the "Conversion Shares"), to the Stockholders on the date hereof. C. The Purchase Agreement also provides for the issuance by the Company of shares of Common Stock to the Stockholders (i) in lieu of cash to satisfy the coupon payments and certain other payments on the Notes (the "Payment Shares") and (ii) upon the exercise of certain warrants issued to them pursuant to the Purchase Agreement (the "Warrant Shares"). D. The Company and the Stockholders wish to provide for the registration of the Conversion Shares, the Coupon Shares and the Warrant Shares on the terms and conditions set forth herein. A G R E E M E N T Based on the recitals set forth above and the promises contained herein, the parties agree as follows: 1. Definitions. Any capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Notes or the Purchase Agreement. As used herein, the following terms shall have the following meanings: "Agreement" has the meaning set forth in the preamble. "Average Bid Price" has the meaning set forth in the Purchase Agreement. "Business Day" means a day other than a Saturday, a Sunday, a day on which the banking institutions in the State and City of New York are authorized or obligated by law or executive order to close or a day that is declared a national or New York state holiday. 2 "Closing Date" means the date of this Agreement. "Company" has the meaning set forth in the preamble. "Company Counsel" has the meaning set forth in Section 2(a). "Common Stock" has the meaning set forth in the Recitals. "Conversion Price" means, with respect to any Note, the conversion price then in effect with respect to such Note as specified therein. "Conversion Shares" has the meaning set forth in the Recitals. "Default" means a Registration Default or an Effectiveness Default, as the case may be. "Effectiveness Default" has the meaning set forth in Section 3(a). "Effectiveness Period" has the meaning set forth in Section 2(a). "Effectiveness Target Date" means the 90th day after the Closing Date. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Liquidated Damages" has the meaning set forth in Section 3(a). "Notes" has the meaning set forth in the Recitals. "Outstanding Principal" has the meaning set forth in Section 3(a). "Payment Shares" has the meaning set forth in the Recitals. "Person" means a corporation, an association, a partnership, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or political subdivision thereof. "Prospectus" means the prospectus included in the Registration Statement, as amended or supplemented including, without limitation, by any post-effective amendments thereto, and all material incorporated by reference into such prospectus. "Purchase Agreement" has the meaning set forth in the Recitals. "Registration Default" has the meaning set forth in Section 3(a). "Registration Statement" has the meaning set forth in Section 2(a). - 2 - 3 "Requisite Information" has the meaning set forth in Section 2(b). "Rule 144" means Rule 144 (as currently in effect or as amended or any successor or similar provision) promulgated by the SEC under the Securities Act. "Rule 415" means Rule 415 (as currently in effect or as amended or any successor or similar provision) promulgated by the SEC under the Securities Act. "SEC" or "Commission" means the United States Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Selling Stockholder" means any Stockholder whose Shares (in whole or in part) are included in a Registration Statement. "Shares" means (a) the Conversion Shares, the Coupon Shares and the Warrant Shares and (b) any securities issued or issuable in respect of the Conversion Shares, the Coupon Shares or the Warrant Shares by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, merger, consolidation or similar event, and any other securities issued pursuant to any other pro rata distribution with respect to such shares of Common Stock. For purposes hereof, a share of Common Stock ceases to be an Conversion Share, a Coupon Share, a Warrant Share or a Share (each as defined herein) when (i) it has been effectively registered under the Securities Act and sold or distributed pursuant to an effective Registration Statement covering it or (ii) it has become eligible, in the opinion of counsel to the Company, to be sold or distributed pursuant to Rule 144(k). "Stockholders" has the meaning set forth in the preamble. "Trading Day" has the meaning set forth in the Purchase Agreement. "Underwritten Offering" means a registration in which securities of the Company are sold to an underwriter for reoffering to the public. "Violations" has the meaning set forth in Section 8(a). "Warrant Shares" has the meaning set forth in the Recitals. 2. Shelf Registration. (a) The Company hereby agrees to use all reasonable efforts to: (i) as soon as practicable after the date hereof, file with the SEC a registration statement for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any successor provision thereto) covering all of the Shares (the "Registration Statement"); and - 3 - 4 (ii) cause the Registration Statement to be declared effective pursuant to the Securities Act as soon as practicable after the date hereof but not later than the Effectiveness Target Date, and subject to Sections 4(d) and 4(f), use all reasonable efforts to keep the Registration Statement continuously effective and available for resale of the Shares under the Securities Act for the period (the "Effectiveness Period") ending on the earlier of (A) the date on which there ceases to be outstanding any Shares and (B) the date on which the Company receives an opinion from its legal counsel ("Company Counsel") to the effect that all Shares can be freely traded without the continued effectiveness of the Registration Statement, and, in the case of (A) or (B), no further Shares are issuable under the Notes or the Warrants. (b) The Company may require each Selling Stockholder to furnish to the Company, within three (3) Business Days after the Closing Date and thereafter promptly as any additional information becomes known to such Selling Shareholder, such information regarding the Selling Stockholder and the distribution of such Selling Stockholder's Shares as is required by law to be disclosed in the Registration Statement (the "Requisite Information"). Subject to Section 4(f), the Company shall file within three (3) Business Days of the receipt of notice from any Selling Stockholder which includes the Requisite Information with respect to such Selling Stockholder, a prospectus supplement pursuant to Rule 424 under the Securities Act (or any successor provision thereto) to amend or supplement the Registration Statement to include in the Registration Statement the Requisite Information as to such Selling Stockholder (and the Shares held by such Selling Stockholder). The Company shall provide each Selling Stockholder a copy of such Prospectus as so amended or supplemented containing the Requisite Information within three (3) Business Days of filing such Prospectus with the Commission in order to permit such Selling Stockholder to comply with the prospectus delivery requirements of the Securities Act in a timely manner with respect to any proposed disposition of such Selling Stockholder's Shares. No Selling Stockholder shall be entitled to use the Prospectus unless and until such Selling Stockholder shall have furnished the information required by this Section 2(b) in accordance with the first or second paragraph hereof and such information with respect to such Selling Stockholder shall have been included in the Prospectus. If any information furnished to the Company by a Selling Stockholder for inclusion in the Registration Statement or the Prospectus becomes materially misleading, such Selling Stockholder agrees (i) to furnish promptly to the Company all information required to be disclosed in such Registration Statement in order to make the information previously furnished to the Company not materially misleading and (ii) to stop selling or offering for sale Shares pursuant to the Registration Statement until such Selling Stockholder's receipt of the copies of a supplemented or amended Prospectus as contemplated by Section 4(b)(xi) hereof. 3. Liquidated Damages. (a) The Company and the Stockholders agree that the Selling Stockholders will suffer damages if the Company fails to fulfill its obligations pursuant to Section 2 hereof and that it would not be possible to ascertain the extent of such damages. Accordingly, the - 4 - 5 Company hereby agrees to pay liquidated damages ("Liquidated Damages") to each Selling Stockholder under the circumstances and to the extent set forth below: (i) if the Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Target Date (a "Registration Default"); or (ii) if, at any time during the Effectiveness Period for a period of time which shall exceed 20 days in the aggregate in any 360-day period, the Registration Statement has been declared effective by the Commission and such Registration Statement ceases to be effective (without being succeeded on the same day by a post-effective amendment to such Registration Statement that cures such failure and that is immediately declared effective) or use of the Prospectus is suspended pursuant to Section 4(c), except as set forth in Sections 4(e) and 4(f) (an "Effectiveness Default"). In the event of any such Registration Default, the Company shall pay as the sole remedy Liquidated Damages to each Selling Stockholder an amount equal to one percent (1%) of the aggregate principal amount of such Notes held by such Selling Stockholder during such Default (the "Outstanding Principal"), for each 30-day period following the Effectiveness Target Date during which a Registration Default has occurred and is continuing and during which the Average Bid Price of the Common Stock exceeds the Conversion Price by ten percent (10%) during any ten (10) consecutive Trading Days during such 30-day period. In the event of an initial Effectiveness Default during any 360-day period, the Company shall pay as the sole remedy Liquidated Damages to each Selling Stockholder an amount equal to one percent (1%) of the Outstanding Principal and shall pay an additional amount equal to one and one-half percent (1 1/2%) of the Outstanding Principal for each subsequent 35 day period in such 360-day period during which the Effectiveness Default is continuing. The Company may elect, at its sole option, by notice to the Holders given at any time prior to the 15 Trading Day period referred to below, to pay any amounts due pursuant to this Section 3, in whole or in part in cash. To the extent the Company does not elect to pay such amounts in cash within such specified time period, the Company shall, by issuing on the next Interest Payment Date following the event that gave rise to the Liquidated Damages the number of shares of the Company's Common Stock (rounded to the nearest whole number), valued as provided below, with an aggregate value equal to the amount of Liquidated Damages to be paid in stock. For this purpose, the shares of the Company's Common Stock shall be valued at the Average Bid Price for the 15 Trading Days ending five (5) days prior to the Interest Payment Date, less a discount of 5% of such Average Bid Price, or if the Conversion Price is then being determined pursuant to the Issuer's Election, less a discount of 10% of such Average Bid Price. In that event, the Company shall, as soon as practicable after the Interest Payment Date, issue and deliver to the Holders a certificate or certificates for the number of shares of Common Stock (rounded to the nearest whole number) issuable to the Holders in payment of Liquidated Damages or shall issue and deliver such shares as otherwise agreed to by the Company and the Holders. Following the cure of all Registration Defaults or Effectiveness Defaults relating to any Shares, the accrual of Liquidated Damages with respect to such Shares will cease (without - 5 - 6 in any way limiting the effect of any subsequent Registration Default or Effectiveness Default). A Registration Default shall be cured on the date that Prospectuses are delivered to the Selling Stockholders after the Registration Statement is declared effective by the Commission; and an Effectiveness Default shall be cured on the date Prospectuses are delivered to the Selling Stockholders after a post-effective amendment to the Registration Statement is declared effective or suspension of the use of the Prospectus is withdrawn. Notwithstanding the foregoing, no Selling Stockholder shall be entitled to Liquidated Damages unless and until such Selling Stockholder shall have provided all information required by Section 2(b). (b) The Company shall notify the Stockholders of a Registration Default or an Effectiveness Default within three (3) Business Days after each and every date on which such Default occurs. Liquidated Damages shall be paid by the Company to the Selling Stockholders entitled to Liquidated Damages on the next Interest Payment Date under the Notes. (c) All of the Company's obligations set forth in this Section 3 which are outstanding with respect to any Shares at the time such security ceases to be a Share shall survive until such time as all such obligations with respect to such security have been satisfied in full. 4. Registration Procedures. (a) The parties hereto agree that the Shares shall not be sold in any Underwritten Offering and the Company shall in no event be required to cooperate with or pay for any Underwritten Offering. (b) In connection with the Registration Statement and any Prospectus required by this Agreement, during the Effectiveness Period the Company shall, subject to any notice by the Company of the existence of any fact or the happening of any event described in Section 4(b)(iv)(D) and the provisions of Sections 4(d) and 4(g): (i) use all reasonable efforts to keep the Registration Statement continuously effective for the Effectiveness Period; upon the occurrence of any event that would cause the Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) to not be effective or to not be usable for resales of Shares during the Effectiveness Period, the Company shall in the case of clause (A) file promptly an appropriate amendment to the Registration Statement or a supplement to the Prospectus correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use all reasonable efforts to cause such amendment, if applicable, to be declared effective or the Registration Statement and the related Prospectus to become usable for their intended purposes as soon as practicable thereafter; (ii) furnish to each of the Selling Stockholders and to counsel for the Selling Stockholders, before filing with the Commission, copies of the Registration Statement and the Prospectus included therein, and any - 6 - 7 pre-effective amendments thereof, which documents shall be subject to the review of the Selling Stockholders and such counsel for a period of at least three (3) Business Days; and shall consider any requests for additions to or modifications of the Registration Statement and the Prospectus, included therein and any pre-effective amendments thereto reasonably made by any Selling Stockholder or counsel for the Selling Stockholders; (iii) use all reasonable efforts to prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective during the Effectiveness Period; use all reasonable efforts to cause the Prospectus to be supplemented by any required Prospectus supplement within the time period specified in Section 2(b) hereof, and as so supplemented, cause the Prospectus to be filed pursuant to Rule 424 under the Securities Act and to comply fully with the applicable provisions of Rule 424 under the Securities Act in a timely manner; and use all reasonable efforts to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by the Registration Statement during the Effectiveness Period in accordance with the intended method or methods of distribution by the sellers thereof set forth in the Registration Statement or supplement to the Prospectus; (iv) use all reasonable efforts to notify the Selling Stockholders promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus, any Prospectus supplement or any post-effective amendment to the Registration Statement applicable to such Stockholder has been filed, and, with respect to the Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Securities Act or of the suspension by any state securities commission of the qualification of the Shares for offering or sale in any jurisdiction or of the initiation of any proceeding for any of the preceding purposes or (D) of the existence of any fact or of the happening of any event (but not the substance or details of any such fact or event) that makes untrue any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading; (v) if at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission shall issue an order suspending the qualification or exemption from qualification of the Shares under state securities or Blue Sky laws, use all reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time; - 7 - 8 (vi) if requested by any Selling Stockholder, within the period specified in Section 2(b) hereof, use all reasonable efforts to incorporate in the Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment, if necessary, such Requisite Information as such Selling Stockholders request to have included therein, and use all reasonable efforts to make all required filings of any such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 4(b)(vi) that would, in the opinion of Company Counsel, violate applicable law or to include information to which the Company reasonably objects; (vii) deliver to each Selling Stockholder, without charge, as many copies of the Registration Statement and the Prospectus (including each preliminary prospectus intended for public distribution) (including documents incorporated by reference therein and exhibits thereto) and any amendment or supplement thereto as such Selling Stockholder reasonably may request; subject to Section 4(c) below, the Company hereby consents to the use of the Prospectus and any amendment or supplement thereto by each of the Selling Stockholders in connection with the offering and the sale of the Shares covered by the Prospectus or any amendment or supplement thereto in conformity with the Plan of Distribution set forth in the Prospectus and in compliance with all applicable laws and this Agreement; (viii) take all such other actions in connection therewith as are reasonable and customary in order to expedite or facilitate the disposition of the Shares pursuant to the Registration Statement contemplated by this Agreement, all to such extent as may be reasonably requested by any Stockholder in connection with any sale or resale pursuant to the Registration Statement contemplated by this Agreement; (ix) prior to any public offering of Shares, cooperate with the Selling Stockholders, and their respective counsel in connection with the registration and qualification of the Shares under the securities or Blue Sky laws of such domestic jurisdictions as the Selling Stockholders may reasonably request; and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Shares covered by the Registration Statement; provided, however, that in no event shall the Company be obligated to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it is not now so qualified, (ii) file any general consent to service of process in any jurisdiction where it is not as of the date hereof so subject or (iii) subject itself to taxation in any jurisdiction if it is not so subject; (x) cooperate with the Selling Stockholders to facilitate the timely (but in no event later than one (1) Business Day after such request) preparation and delivery of certificates representing Shares to be sold and not bearing any restrictive legends; and enable such Shares to be in such - 8 - 9 denominations and registered in such names as the Selling Stockholders may request; (xi) as soon as reasonably practicable after the occurrence of any fact or event of the kind described in Section 4(b)(iv)(D) above, use all reasonable efforts to prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Shares, the Prospectus shall not contain an untrue statement of a material fact or omit to state any material fact necessary, to make the statements made therein not misleading in the light of the circumstances in which they were made; provided, however, that notwithstanding anything to the contrary herein, the Company shall not be required to prepare and file such a supplement or post-effective amendment or document if the fact no longer exists; (xii) make generally available to its security holders, in a regular filing on Form 10-Q or Form 10-K, a consolidated earnings statement meeting the requirements of Rule 158 under the Securities Act (which need not be audited) for the twelve-month period commencing after the effective date of the Registration Statement. (xiii) cause the Common Stock covered by the Registration Statement to be listed on the New York Stock Exchange or such other national securities exchange or automated quotation system on which the Common Stock is then listed or quoted; and (xiv) provide promptly to each Stockholder upon request any document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act. (c) Each Stockholder agrees by acquisition of a Share that, upon receipt of any notice from the Company of the existence of any fact or event of the kind described in Section 4(b)(iv)(D) hereof, such Stockholder shall: (i) keep the fact of such notice confidential and (ii) stop selling or offering for sale Shares pursuant to the Registration Statement until such Stockholder's receipt of the copies of a supplemental or amended Prospectus as contemplated by Section 4(b)(xi) hereof, or until it receives advice in writing from the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Company, each Stockholder shall deliver to the Company (at the expense of the Company) all copies, other than permanent file copies then in such Stockholder's possession, of the Prospectus covering such Shares that was current at the time of receipt of such notice. (d) Notwithstanding any provision of this Agreement to the contrary, it shall not be a breach or violation of any obligation of the Company hereunder if the Company fails to take any action otherwise required hereunder because, in its reasonable determination, such action would require the Company to disclose material, non-public information that the Company has a bona fide business or legal reason for not disclosing regardless of whether the - 9 - 10 Company caused such material, non-public information to exist; provided, that any suspension of the use of the Prospectus included in the Registration Statement as a result of this Section 4(d) shall not effect the Company's obligation to pay Liquidated Damages pursuant to Section 3. (e) The Company shall have no obligation to keep a Prospectus usable or to give notice that a Prospectus is not usable by a particular Selling Stockholder to the extent such Prospectus is not usable by such Selling Stockholder because current Requisite Information with respect to such Selling Stockholder is not included therein because such Selling Stockholder has not provided such information to the Company in accordance with Section 2(b). (f) Notwithstanding anything to the contrary contained herein, the Company shall not be obligated to amend the Registration Statement or amend or supplement the Prospectus more often than quarterly if the sole reason for such amendment or supplement is the furnishing of new or amended information from one or more Selling Stockholders, and until any such amendment or supplement is filed, such Selling Stockholder or Selling Stockholders shall not sell any Shares pursuant to the then current Registration Statement and Prospectus. 5. Registration Expenses. All expenses incident to the Company's performance of or compliance with this Agreement shall be borne by the Company regardless of whether the Registration Statement becomes effective, including, but not limited to, the following: (i) all registration and filing fees and expenses; (ii) all fees and expenses associated with compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing of copying (including printing of any certificates evidencing the Shares and copying of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of Company Counsel; (v) all application and filing fees in connection with listing any securities on a national securities exchange or automated quotation system; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company shall, in any event, bear its own internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. 6. Other Securities. The Company may, in its sole discretion, include in any Registration Statement the issuance of securities by the Company and the sale or distribution of securities previously issued to, or securities issuable upon exercise of options or warrants previously issued to, other persons. 7. Stockholder Undertakings. Each Stockholder covenants with the Company as follows: - 10 - 11 (a) No Stabilization. No Stockholder shall effect any stabilization transactions or engage in any stabilization activity proscribed by Regulation M under the Exchange Act in connection with any securities of the Company during the period of any distribution of the Shares by Selling Stockholders pursuant to any Registration Statement. (b) Brokers. Each Selling Stockholder (i) shall furnish each broker through whom such Selling Stockholder offers the Shares such number of copies of any Prospectus and any supplements thereto or amendments thereof which such broker may require (provided that the Company has provided such Selling Stockholder with such Prospectus, supplements and amendments), (ii) shall inform such broker as to the number of Shares offered through such broker, that such Shares are part of a distribution and that such broker is subject to the provisions of Regulation M under the Exchange Act until such time as such broker has completed the sale of all such Shares, and (iii) shall notify such broker when distribution of the Shares by such Selling Stockholder pursuant to any Registration Statement has been completed or any Registration Statement is no longer effective or is withdrawn. (c) Amendments and Supplements. Each Selling Stockholder shall promptly furnish to each person (including each broker) to whom such Selling Stockholder has delivered copies of the Prospectus an equivalent number of copies of any amendment thereof or supplement thereto (provided that the Company has provided such Selling Stockholder with such amendment or supplement). (d) Transaction Information. Each Stockholder shall report promptly to the Company upon completion of the distribution of such Selling Stockholder's Shares pursuant to any Registration Statement. (e) Exchange Act Compliance. Each Selling Stockholder shall, at any time such Selling Stockholder is engaged in a distribution of the Shares under any Registration Statement, comply to the extent required with Rules 10b-5 and Regulation M (as currently in effect or as amended or any successor or similar provisions) promulgated under the Exchange Act and shall distribute the Shares solely in the manner described in any Registration Statement, and shall not do any of the following during the period from the effective date of any Registration Statement until the completion of any offering of the Shares by such Selling Stockholder pursuant to such Registration Statement: (i) Bid for or purchase, for any account in which such Selling Stockholder or any affiliate of such Selling Stockholder has a beneficial interest, any securities of the Company other than in transactions permitted by Regulation M under the Exchange Act; (ii) Attempt to induce any person to purchase any securities of the Company other than in transactions permitted by Regulation M under the Exchange Act; and (iii) Pay or offer or agree to pay to anyone, directly or indirectly, any compensation for soliciting another to purchase any securities of the Company on a national securities exchange or pay or offer or agree to pay to anyone any - 11 - 12 compensation for purchasing securities of the Company on a national securities exchange other than those securities offered by such Selling Stockholder. (f) Publicity; Selling Efforts. Each Selling Stockholder shall not, during the period of any offering by such Selling Stockholder of any Shares under any Registration Statement, use or disseminate any information concerning the Company other than the Prospectus (or any amendment thereof or supplement thereto furnished by the Company) and may not undertake any form of publicity with respect to the Company or engage in any similar activities that may be deemed to be an unlawful selling effort within the meaning of Section 10 of the Exchange Act. (g) Material Nonpublic Information. A Stockholder shall not offer to sell, sell or otherwise enter into any transaction in connection with any Shares if the Stockholder is aware of material nonpublic information regarding the Company or its subsidiaries. (h) Brokerage Commissions. Except as disclosed in the Prospectus, a Selling Stockholder will not pay unusual or special brokerage commissions (other than ordinary brokerage arrangements) on any sales effected through a broker, and no selling arrangement will have been entered into between a Selling Stockholder and any securities dealer or broker. 8. Indemnification; Contribution. (a) Indemnification by Company. The Company shall indemnify and hold harmless, to the extent permitted by law, each Selling Stockholder, its officers and directors, partners and stockholders, and each person, if any, who controls such Selling Stockholder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (including without limitation reasonable attorneys' fees) insofar as such losses, claims, damages, liabilities and expenses arise out of or are based on (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which Shares owned by such Selling Stockholder were registered under the Securities Act, any Prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any documents filed under state securities or "Blue Sky" laws in connection therewith, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, in the light of the circumstances under which they were made) not misleading or (iii) any violations or alleged violation of the Securities Act, the Exchange Act, any applicable state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any applicable state securities law in connection with the offering covered by such Registration Statement (items (i), (ii) and (iii) are collectively referred to herein as "Violations"); and the Company will reimburse each such Selling Stockholder, its officers and directors, partners and stockholders and each person, if any, who controls such Selling Stockholder for reasonable legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any loss, claim, damage, liability or action to the extent that it arises out of or is based on a Violation that occurs in reliance upon and - 12 - 13 in conformity with written information furnished expressly for use in connection with such registration by any Selling Stockholder, officer, director, or controlling person of any Selling Stockholder; and provided further, however, that the foregoing indemnity shall not inure to the benefit of any Selling Stockholder to the extent such loss, liability claim, damage or expense occurred as a result of any Selling Stockholder's breach of this Agreement. (b) Indemnification by Each Selling Stockholder. In connection with any Registration Statement, the Selling Stockholders shall jointly and severally indemnify and hold harmless, to the extent permitted by law, the Company, the Company's directors and officers, partners and stockholders and each person, if any, who controls (within the meaning of the Securities Act) the Company against any losses, claims, damages, liabilities and expenses (including without limitation reasonable attorneys' fees) insofar as such losses, claims, damages, liabilities and expenses arise out of or are based on a Violation which occurs (i) in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any Selling Stockholder, officer, director, or controlling person of any Selling Stockholder or (ii) in connection with any Selling Stockholder's breach of this Agreement; and the Selling Stockholders will reimburse the Company, its officers and directors, partners and stockholders and each person, if any, who controls the Company for reasonable legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action. (c) Indemnification Procedures. Any person entitled to indemnification hereunder shall give prompt written notice to the indemnifying party after the receipt by such person of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such person will claim indemnification or contribution pursuant hereto and permit the indemnifying party to participate therein and, to the extent that it desires, jointly with any other indemnifying party similarly situated, to assume the defense of such claim with counsel reasonably satisfactory to such indemnified party. If the indemnifying party elects to assume the defense of a claim, it shall not be liable to such indemnified party for legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and except as otherwise provided below; provided, however, that such indemnified party shall, at all times, cooperate in the defense of the indemnified party. The indemnifying party shall be liable to the indemnified party for legal or other expenses incurred by the indemnified party even if the indemnifying party has offered to assume the defense thereof if (i) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (ii) the indemnified party shall have reasonably concluded that there may be a conflict of interest between the indemnified party and the indemnifying party in conduct of the defense of such action or (iii) the indemnifying party shall not in fact have employed counsel to assume the defense of such action. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, then it will not be obligated to pay the fees and expenses of more than one counsel with respect to such claim. The indemnifying party will not be subject to any liability for any settlement made without its consent. If the failure of any person to give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification prejudices such indemnifying party, such indemnifying party shall be relieved of its obligation to indemnify such person to the extent that such indemnifying party has been prejudiced; provided, however, that the indemnifying party shall not be so relieved if the failure to give - 13 - 14 prompt notice to the indemnifying party was beyond the control of the indemnified party. No indemnifying party will consent to entry of any judgment or enter into any settlement agreement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. (d) Contribution. If the indemnification provided for in this Section from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses (including without limitation reasonable attorneys' fees) referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (including without limitation reasonable attorneys' fees) in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other, but also the relative fault of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statements of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses (including without limitation reasonable attorneys' fees) referred to above shall be deemed to include, subject to the limitations set forth in Section 7(c), any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto acknowledge that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately-preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Paragraph 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. 9. Termination. This Agreement and the obligations of the Company hereunder shall terminate on the earliest of (a) the first date on which no shares of Common Stock held by any Stockholder constitute Shares hereunder, (b) sixty (60) days after no further Shares are issuable under the Notes or Warrants and (c) the date on which each party hereto agrees in writing to such termination. 10. Rule 144 Reporting. With a view to making available to the Stockholders the benefits of certain rules and regulations of the SEC that may permit the sale of the Shares to the public without registration, the Company agrees to use commercially reasonable efforts during the term of this Agreement to (a) make and keep public information available, as those terms are understood and defined in Rule 144, (b) file with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act and (c) so long as any Stockholder owns any Shares, furnish to such Stockholder upon written request a written statement by the Company as to the Company's compliance with the - 14 - 15 reporting requirements of Rule 144, a copy of the most recent annual or quarterly report of the Company and such other reports, documents and information as a Stockholder may reasonably request in availing himself or itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 11. Miscellaneous. (a) Successors and Assigns. The registration rights provided hereunder are transferable only to permitted transferees of the Notes and the Warrants as set forth in the terms thereof. Any transfer or assignment in contravention of this Section shall be null and void. (b) Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto and referenced herein constitute the full and entire understanding and agreement between the parties and supersede any other agreement, written or oral, with regard to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. (c) Notices, Etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by certified or registered mail, postage prepaid with return receipt requested, telecopy (with hardcopy delivered by overnight courier service), or delivered by hand, messenger or overnight courier service, and shall be deemed given when received at the addresses of the parties set forth below, or at such other address furnished in writing to the other parties hereto. If to the Company: SUNSHINE MINING AND REFINING COMPANY 877 W. Main Street, Suite 600 Boise, Idaho 83702 Attention: John S. Simko, President (208) 342-0004 (fax) with a copy to: Haynes and Boone, LLP Suite 3100 901 Main Street Dallas, Texas 75202 Attention: Janice V. Sharry (214) 651-5940 (fax) If to the Stockholders: c/o Stonehill Investment Corp. 110 E. 59th Street 30th Floor New York, New York 10022 Attention: John Motulsky (212) 355-5200 (fax) with a copy to: Proskauer Rose Goetz & Mendelsohn, LLP 1585 Broadway New York, New York 10036 Attention: Lawrence H. Budish (212) 969-2900 (fax) - 15 - 16 (d) No Third Party Beneficiary, Etc. There shall be no third party beneficiary hereof. Neither the availability of, nor any limit on, any remedy hereunder shall limit the remedies of any party hereto against third parties. (e) Reformation; Severability. In case any provision hereof shall be invalid, illegal or unenforceable, such provision shall be reformed to best effectuate the intent of the parties and permit enforcement thereof, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. If such provision is not capable of reformation, it shall be severed from this agreement and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (f) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. Any counterpart may be delivered by facsimile; provided, however, that attachment thereof shall constitute the representation and warranty of the person delivering such signature that such person has full power and authority to attach such signature and to deliver this Agreement. Any facsimile signature shall be replaced with an original signature as promptly as practicable. (g) Titles and Subtitles. The titles of the paragraphs and subparagraphs hereof are for convenience of reference only and are not to be considered in construing this Agreement. References to "Sections" herein are references to sections of this Agreement. The words "herein," "hereof," "hereto" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. (h) Governing Law; Attorneys' Fees. This Agreement shall be governed by, construed, interpreted and applied in accordance with the laws of the State of New York, without giving effect to any conflict of laws rules that would refer the matter to the laws of another jurisdiction. * * * * * - 16 - 17 This Agreement has been executed and delivered as of the date first written above. The Company: SUNSHINE MINING AND REFINING COMPANY By: /s/ WILLIAM W. DAVIS ---------------------------------- William W. Davis, Executive Vice President and Chief Financial Officer The Stockholders: STONEHILL PARTNERS, L.P. By: /s/ JOHN MOTULSKY ---------------------------------- John Motulsky, General Partner STONEHILL INVESTMENT CORP., for and on behalf of GRS PARTNERS and AURORA LIMITED PARTNERSHIP By: /s/ JOHN MOTULSKY ---------------------------------- John Motulsky, Vice President STONEHILL OFFSHORE PARTNERS LIMITED By: STONEHILL ADVISORS, LLC By: /s/ JOHN MOTULSKY -------------------------------- John Motulsky, Managing Member - 17 - EX-10.12 3 WARRANT TO PURCHASE SHARES OF COMMON STOCK 1 EXHIBIT 10.12 NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, UNLESS REGISTERED, MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE SHARES OF COMMON STOCK OF SUNSHINE MINING AND REFINING COMPANY This certifies that Neuberger & Berman, LLC, as nominee (the "Holder"), for value received, is entitled to purchase from Sunshine Mining and Refining Company, a Delaware corporation (the "Company"), seven hundred ninety-five thousand (795,000) fully paid and nonassessable shares of the Company's Common Stock, par value $.01 per share (the "Stock"), at the Stock Purchase Price (as defined herein) at any time or from time to time on or after the Commencement Date (as defined below) but not later than 5:00 p.m. (New York time) on the Expiration Date (as defined below), upon surrender to the Company at its principal office at 5956 Sherry Lane, Suite #1621, Dallas, Texas 75202 (or at such other location as the Company may advise Holder in writing) of this Warrant with the Form of Subscription attached hereto duly filled in and signed and upon payment by cash, certified or bank check or wire transfer of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Stock Purchase Price and, in certain instances, the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. "Commencement Date" means the date on which none of the Senior Convertible Promissory Notes (the "Notes") issued pursuant to the Purchase Agreement referred to below remain outstanding. "Expiration Date" means the earlier of (i) November 24, 2002, or (ii) the occurrence of an event which causes termination of this Warrant under clause (d) of Section 3.6; provided, however, if for the 90 days prior to November 24, 2002 the Registration Statement (as defined in the Registration Rights Agreement referred to below) was not continuously effective (other than black-outs not exceeding 10 days in the aggregate and other than the last three business days prior to November 24, 2002), then the November 24, 2002 date shall be extended until such Registration Statement has been continuously effective for 90 days (other than such black-outs). This Warrant is issued pursuant to the Purchase Agreement, dated as of November 24, 1997, among the Company, the Holder and certain other persons (the "Purchase Agreement"). This Warrant is subject to the following terms and conditions: 1. Exercise; Issuance of Certificates; Payment for Shares. Subject to compliance with the conditions set forth herein, this Warrant is exercisable at the option of Holder at any time or from time to time on or after the Commencement Date but not later than the Expiration Date for all or a portion of the shares of Stock which may be purchased 2 hereunder. The Company agrees that the shares of Stock purchased under this Warrant shall be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares. Subject to the provisions of Section 2, certificates for the shares of Stock so purchased, together with any other securities or property to which Holder is entitled upon such exercise, shall be delivered to Holder by the Company's transfer agent at the Company's expense within a reasonable time (but in no event more than ten days) after the rights represented by this Warrant have been exercised. Each stock certificate so delivered shall be in such denominations of Stock as may be requested by Holder and shall be registered in the name of Holder or such other name as shall be designated by Holder, subject to the limitations contained in Section 6. If, upon exercise of this Warrant, fewer than all of the shares of Stock evidenced by this Warrant are purchased prior to the Expiration Date, one or more new warrants substantially in the form of, and on the terms in, this Warrant will be issued for the remaining number of shares of Stock not purchased upon exercise of this Warrant. 2. Shares to be Fully Paid: Reservation of Shares. The Company covenants and agrees that all shares of Stock which may be issued upon the exercise of the rights represented by this Warrant (the "Warrant Shares") will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Stock for such exercise. Notwithstanding anything to the contrary in this Warrant, in the event that the shares of Stock to be issued upon exercise of this Warrant, in whole or in part, would, upon issuance, exceed the Maximum Number (as defined in the Notes), the Company shall, in lieu of issuing such shares, pay to the Holder an amount equal to the difference between the Stock Purchase Price and the Closing Bid Price (as defined in the Notes) on the date of exercise for each share that would otherwise be issuable upon such exercise. 3. Adjustment of Stock Purchase Price; Number of Shares. The Stock Purchase Price shall be equal to 110% of the Conversion Price last in effect under the Notes. If, as a result of an adjustment pursuant to Section 6.1(a) of the Notes or otherwise, there are different Conversion Prices in effect for different portions of the Notes, then the Stock Purchase Price shall be 110% of the lowest Conversion Price pursuant to the Notes. Upon any adjustments of the Stock Purchase Price based on any adjustment to the Conversion Price of the Notes pursuant to Section 6.2 of the Notes only, the holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustments, the number of shares obtained by multiplying the Stock Purchase Price without giving effect to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustments, and dividing the product thereof by the Stock Purchase Price resulting from such adjustments. In case of any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving corporation) or the sale of all or substantially all of the assets of the Company to another - 2 - 3 corporation, this Warrant thereafter shall be exercisable into the kind and amount of shares of stock or other securities or property to which a Holder of the number of shares of the Company's Common Stock issuable upon exercise of this Warrant would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions in this Section 3, to the end that the provisions set forth in this Section 3 (including provisions with respect to changes in and adjustments of the number of shares of Common Stock into which this Warrant is exercisable) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. 3.1 Notice of Adjustment. On or immediately after the Commencement Date, the Company shall give written notice thereof and of the Stock Purchase Price then in effect, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice shall be signed by the Company's chief financial officer and shall state the Commencement Date and the Stock Purchase Price resulting from any adjustment of the Stock Purchase Price and, if applicable, the increase or decrease in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3.2 Other Notices. If at any time: (a) the Company shall propose to declare any cash dividend upon its Stock; (b) the Company shall propose to declare or make any dividend or other distribution to the holders of its Stock, whether in cash, property or other securities; (c) the Company shall propose to effect any reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with or into another corporation or any sale, lease or conveyance of all or substantially all of the assets of the Company; or (d) the Company shall propose to effect a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in any one or more of said cases, the Company shall give, by certified or registered mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the Company, (i) at least 30 days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend or distribution or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, lease, conveyance, dissolution, liquidation or winding-up, and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, lease, conveyance, dissolution, liquidation or winding- up, at least 30 days' written notice of the date when the same shall take place. Upon the occurrence of an event described in clause (c), the holder of this Warrant shall be entitled thereafter to receive upon exercise of this Warrant the kind and amount of shares of stock or other securities or assets which the holder would have been entitled to receive after the occurrence of such event had - 3 - 4 this Warrant been exercised immediately prior to such event; and in any such case, appropriate provision shall be made with respect to the rights and interests of the holder to the end that the provisions of this Warrant (including, without limitation, provisions with respect to changes in and adjustments of the Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, or other securities or assets, thereafter deliverable upon the exercise of this Warrant. The Company will not effect any of the transactions described in clause (c) above unless, prior to the consummation thereof, each person (other than the Company) that may be required to deliver any cash, stock, securities or other assets upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the holder of this Warrant, (x) the obligations of the Company under this Warrant (and if the Company shall survive the consummation of any such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Warrant) and (y) the obligation to deliver to such holder such cash, stock, securities or other assets as such holder may be entitled to receive in accordance with the provisions of this Section 3. Upon the occurrence of an event described in clause (d), this Warrant shall terminate. The provisions of this Section 3.2 shall similarly apply to successive transactions. 4. Issue Tax. The issuance of certificates for shares of Stock upon the exercise of this Warrant shall be made without charge to the holder of this Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then holder of the Warrant being exercised. 5. No Voting Rights; Limitation of Liability. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder to purchase shares of Stock, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a stockholder of the Company whether such liability is asserted by the Company or by its creditors. 6. Restrictions on Transferability of Securities; Compliance With Securities Act. 6.1 Restrictions on Transferability. Notwithstanding anything in this Warrant to the contrary, neither any of the Warrants nor any of the shares of Stock issuable upon exercise of any of the Warrants shall be transferable, except upon compliance by the Holder with any applicable provisions of the Securities Act and any applicable state securities or blue sky laws. 6.2 Restrictive Legend. Each certificate representing the Securities or any other securities issued in respect of the Securities upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (except with respect to the Warrant Shares only until such Shares are registered pursuant to the Registration Rights Agreement executed and delivered pursuant to the Purchase Agreement) be stamped or - 4 - 5 otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR SUCH LAWS AND RULES AND REGULATIONS THEREUNDER. 6.3 Effect of Transfer. Subject to the provisions of Section 6.1 hereof and this section 6.3, the Holder may transfer all or any portion of this Warrant by surrendering this Warrant to the Company together with a completed assignment in the form attached hereto as Exhibit B. Upon such surrender, the Company shall deliver a new Warrant or Warrants to the person or persons entitled thereto and, if applicable, shall deliver to the Holder a new Warrant evidencing the right of the Holder to purchase the balance of the Warrant Shares subject to purchase hereunder. The term "Holder" as used herein shall include any transferee to whom this Warrant has been transferred in accordance with this Section 6.3. The Holder may assign this Warrant to any other Holder of the Warrants or to any affiliate (as defined under the Securities Exchange Act of 1934) of the Holder, but shall not assign this Warrant to any other person without the consent of the Company, which consent shall not be unreasonably withheld and which consent shall be deemed given if not denied within three (3) business days of receipt of a notice requesting consent. Notwithstanding the foregoing, this Warrant may not be assigned or transferred, in whole or in part, if as a result of such assignment or transfer, there would be more than an aggregate of 10 Holders of this Warrant (or portions hereof) and the other Warrants (or portions thereof) issued pursuant to the Purchase Agreement. Any transfer or assignment in contravention of this Section shall be null and void. 7. Registration Procedures. The Warrant Shares constitute "Registrable Securities" as defined in Section 1 of the Registration Rights Agreement and shall be entitled to registration rights in accordance with such Agreement. 8. Modification and Waiver. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 9. Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder hereof or the Company shall be personally delivered or shall be sent by certified or registered mail, postage prepaid, to the Holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant. Any notice given by personal delivery shall be deemed given upon receipt, and any notice given by certified or registered mail shall be deemed given five days after registration or certification thereof, as the case may be. 10. Descriptive Headings and Governing Law. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and - 5 - 6 do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of New York, without giving effect to rules governing conflicts of law. 11. Lost Warrants or Stock Certificates. The Company represents and warrants to, and agrees with, the Holder that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity, or in the case of any such mutilation, upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 12. Fractional Shares. No fractional shares shall be issued upon exercise of this Warrant. - 6 - 7 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by an officer, thereunto duly authorized this 24th day of November, 1997. SUNSHINE MINING AND REFINING COMPANY By: /s/ WILLIAM W. DAVIS --------------------------------- Name: William W. Davis Title: Executive Vice President and Chief Financial Officer - 7 - 8 FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To: ___________________________ The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, _____________________ (_______) shares of Common Stock, par value $.01 per share (the "Stock"), of Sunshine Mining and Refining Company (the "Company") and herewith makes payment of _________________ _____________________________ Dollars ($__________) therefor and requests that the certificates for such shares be issued in the name of, and delivered to, ____________________________________________________________________, whose address is ____________________________________________________________________. The undersigned represents, unless the exercise of this Warrant has been registered under the Securities Act of 1933, as amended (the "Securities Act"), that the undersigned is acquiring such Stock for his own account for investment and not with a view to or for sale in connection with any distribution thereof (except for any resale pursuant to a Registration Statement under the Securities Act). DATED: --------------- --------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) --------------------------------------- --------------------------------------- (Address) 9 EXHIBIT B FORM OF ASSIGNMENT (To be executed by the registered Holder if such Holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, ____________________________ hereby sells, assigns, and transfers unto ___________________________ a Warrant to Purchase ____________ shares of Common Stock, par value $.01 per share, of Sunshine Mining and Refining Company (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint ___________ attorney to transfer such Warrant on the books of the Company, with full power of substitution. DATED: --------------- Signature: ---------------------------- NOTICE This signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. EX-10.13 4 SENIOR CONCERTIBLE PROMISSORY NOTE 1 EXHIBIT 10.13 NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, UNLESS REGISTERED, MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES LAWS. SUNSHINE MINING AND REFINING COMPANY SENIOR CONVERTIBLE PROMISSORY NOTE $7,950,000 New York, New York November 24, 1997 SUNSHINE MINING AND REFINING COMPANY, a corporation duly organized and validly existing under the laws of the State of Delaware (the "Company"), for value received, hereby promises to pay to Neuberger & Berman, LLC, as nominee, or its permitted assigns (the "Holder"), the principal sum of Seven Million Nine Hundred Fifty Thousand ($7,950,000) together with interest thereon from the date hereof (computed on the basis of a 360-day year and actual days elapsed) at the initial rate of ten percent (10%) per annum, subject to adjustment as provided in Sections 2.1 and 2.3 hereof, and additional interest as provided in Section 3 hereof. Interest on this Note shall be payable semi-annually on each April 1 and October 1, commencing April 1, 1998 (an "Interest Payment Date"). Subject to the provisions of Section 1.2 hereof with respect to mandatory prepayments on this Note and Section 5 hereof relating to conversion of this Note, the principal on this Note and any accrued and unpaid interest shall be due and payable on the earlier to occur of (i) November 24, 2002 (the "Maturity Date") and (ii) when declared due and payable by the Holder upon the occurrence of an Event of Default (as defined below). The payment of principal and interest on this Note shall be made either in shares of the Company's Common Stock valued as provided in Sections 1.3, 2.2 or 3.1 hereof or in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. Principal and interest on this Note payable in cash shall be paid by wire transfer of federal funds in accordance with the written instructions of the Holder or, in the absence of such instructions, by check of the Company mailed to the Holder's address set forth in Section 9.10. Principal and interest on this Note payable in shares of the Company's Common Stock shall be paid as provided in Sections 1.3, 2.2 or 3.1 hereof. 2 The Company's obligations under this Note are guaranteed by certain subsidiaries of the Company as provided pursuant to a separate Guaranty dated the date hereof, and the Holder of this Note is entitled to the benefits of the Guaranty. This Note is subject to the terms and provisions of the Purchase Agreement (the "Purchase Agreement") dated as of the date hereof by and between the Company and the initial Holders, including the right of the Company to offset in certain circumstances certain amounts due on this Note against damages incurred in connection therewith. This Note is one of a series of Notes (collectively, the "Notes") issued by the Company on the date hereof in the aggregate principal amount of $15,000,000. The holders of all of the Notes are collectively referred to herein as the "Holders" and individually as a "Holder". 1. Prepayments. 1.1 No Optional Prepayments. No prepayments may be made on principal of this Note, except as provided in Section 1.2 hereof. 1.2 Mandatory Prepayments. Commencing on February 24, 2000, and quarterly thereafter on each May 24, August 24, November 24 and February 24 up to and including through August 24, 2002 (each a "Mandatory Prepayment Date"), the Company shall make mandatory prepayments ("Mandatory Prepayments") on the Notes in the aggregate amount of $1,250,000 (or such lesser amount of Notes then outstanding) each, in shares of the Company's Common Stock valued as provided in Section 1.3 hereof, unless the Company elects to make such payment in cash as set forth below. Notwithstanding the foregoing, a Mandatory Prepayment shall not be made on any Mandatory Prepayment Date if (a) the average (the "Average Bid Price") of the closing bid price (the "Closing Bid Price") of the Company's Common Stock on the New York Stock Exchange for the 15 Trading Days (as defined below) preceding the Mandatory Prepayment Date equals or exceeds 106% of the Conversion Price (as defined in Section 5.1 hereof) in effect on that Mandatory Prepayment Date (or if there are two Conversion Prices in effect on Notes on that Date, the lower Conversion Price), (b) the number of shares of the Company's Common Stock into which all of the Notes were converted during the 30 Trading Days immediately preceding the Mandatory Prepayment Date exceeded 5% of the aggregate number of shares of the Company's Common Stock traded on those days during that 30 Trading Day period on which the Registration Statement (as defined in Section 3.2) was effective except that this clause (b) shall not be applicable if the Registration Statement was not effective for 15 or more Trading Days in that 30-Day period, and (c) the sum of the aggregate amount of Mandatory Prepayments made prior to that date and the - 2 - 3 aggregate principal amount of the Notes converted into shares of the Company's Common Stock prior to that Mandatory Prepayment Date exceeded the aggregate amount of Mandatory Prepayments due through and including that Mandatory Prepayment Date. Any Mandatory Prepayment on the Notes shall be applied pro rata to all of the Notes, except that if on any Mandatory Prepayment Date, as a result of a reset of the Conversion Price pursuant to Section 6.1(a), some of the Notes are convertible at a Conversion Price higher than the Conversion Price of the other Notes, the Mandatory Prepayment of $1,250,000 (or such lesser amount) payable on that Date shall be applied first pro rata to the Notes with the higher Conversion Price, and the remainder, if any, of the Mandatory Prepayment shall then be applied pro rata to the Notes with the lower Conversion Price. As used in this Note, "Trading Days" means any day (other than a Saturday or Sunday) on which the New York Stock Exchange or the Alternative Stock Exchange (as defined in Section 6.3(a)(vi)), as the case may be, is open for business. 1.3 Mandatory Prepayment in Common Stock. The Company may elect, at its sole option, by notice to the Holders of the Notes given at any time prior to the 15 Trading Day period referred to below in accordance with Section 9.10 below, to pay any Mandatory Prepayment in whole or in part in cash. To the extent the Company does not elect to make any Mandatory Prepayment in cash within such specified time period, the Company shall pay that Mandatory Prepayment by issuing that number of shares of the Company's Common Stock (rounded to the nearest whole number), valued as provided below, with an aggregate value equal to the aggregate amount of the Mandatory Prepayments on all of the Notes to be paid in shares. For this purpose, the shares of the Company's Common Stock shall be valued at the Average Bid Price for the 15 Trading Days immediately preceding the Mandatory Prepayment Date, less a discount of 6% of such Average Bid Price, or if the Conversion Price is then being determined pursuant to the Issuer's Election (as defined in Section 6.1(d)), less a discount of 14% of such Average Bid Price. In that event, the Company shall, as soon as practicable after the Mandatory Prepayment Date, issue and deliver to the Holder at its address set forth in Section 9.10 hereof a share certificate or certificates for the number of shares of Common Stock (rounded to the nearest whole number) issuable to the Holder in payment of the Mandatory Prepayment or shall issue and deliver such shares as otherwise agreed to by the Company and the Holder. 1.4 Issuance of New Note upon Mandatory Prepayment. Upon any Mandatory Prepayment of this Note pursuant to Section 1.2, this Note shall be cancelled and a new note for the unpaid portion of the principal amount bearing the date of original issue and having the same rights and privileges as this Note shall be delivered to the Holder. - 3 - 4 2. Interest. 2.1 Adjustment of Interest Rate. The Notes shall bear interest initially at a rate per annum equal to 10%; provided, however, that (i) if the Closing Bid Price has been at least 125% but less than 133% of the Conversion Price then in effect on each of the 120 Trading Days ending five Trading Days prior to any Interest Payment Date, then the annual interest rate on the Notes for the period ending on that Interest Payment Date shall be reduced to 8%; (ii) if the Closing Bid Price has been at least 133% but less than 150% of the Conversion Price then in effect on each of the 120 Trading Days ending five Trading Days prior to any Interest Payment Date, then the annual interest rate on the Notes for the period ending on that Interest Payment Date shall be reduced to 6%; (iii) if the Closing Bid Price has been at least 150% but less than 175% of the Conversion Price then in effect on each of the 120 Trading Days ending five Trading Days prior to any Interest Payment Date, then the annual interest rate on the Notes for the period ending on that Interest Payment Date shall be reduced to 3%; or (iv) if the Closing Bid Price has been at least 175% of the Conversion Price then in effect on each of the 120 Trading Days ending five Trading Days prior to any Interest Payment Date, then there shall be no interest due and payable for the period ending on that Interest Payment Date. For purposes of determining if the Closing Bid Price exceeded a specified level for 120 consecutive Trading Days, any trading day for which a Registration Statement was not effective shall not be deemed a Trading Day. Together with any interest payment at a rate reduced pursuant to this Section 2.1, the Company shall deliver to the Holder an officer's certificate certifying to the Closing Bid Price of the Company's Common Stock during such 120 Trading Day period. 2.2 Interest Payment in Common Stock. The Company may elect, at its sole option, by notice to the Holders of the Notes given at any time prior to the 15 Trading Day period referred to below in accordance with Section 9.10 below, to make any interest payment in whole or in part in cash. To the extent the Company does not elect to make any interest payment in cash within such specified time period, the Company shall pay the interest payable, in whole or in part, by issuing that number of shares (rounded to the nearest whole number) of the Company's Common Stock, valued as provided below, with an aggregate value equal to the aggregate amount of interest payable in shares on that Interest Payment Date. For this purpose, the shares of the Company's Common Stock shall be valued at the Average Bid Price for the 15 Trading Days ending five Trading Days prior to the Interest Payment Date, less a discount of 5% of such Average Bid Price, or if the Conversion Price is then being determined pursuant to the Issuer's Election, less a discount of 10% of such Average Bid Price. In that event, the Company shall, as soon as practicable after the Interest Payment Date, issue and deliver to the Holder at its address set forth in Section 9.10 hereof a share certificate or certificates for the number of shares of Common Stock (rounded to the nearest whole number) issuable - 4 - 5 in payment of the interest payable to the Holder on that date or shall issue and deliver such shares as otherwise agreed to by the Company and the Holder. 2.3 Default. Notwithstanding anything to the contrary in this Note, upon the occurrence and during the continuance of an Event of Default pursuant to Section 4(i), the annual interest rate shall be 18% per annum, and upon the occurrence and during the continuance of any other Event of Default (other than an Event of Default under Section 4(ii), (iii) or (x) hereof), the annual interest rate shall be 12%, without, in either case, reduction pursuant to Section 2.1. 3. Additional Interest. 3.1 Payments with respect to Eurobonds. If prior to maturity on March 21, 2000 the entire $30,000,000 principal amount of Senior Exchangeable Notes due 2000 (the "Eurobonds") issued by Sunshine Precious Metals, Inc., a wholly-owned subsidiary of the Company ("SPMI"), has neither been converted into shares of the Company's Common Stock or refinanced with Junior Debt (as defined below), then on March 21, 2000, the Company shall pay to each Holder of the Notes, as additional interest on the Notes, an amount equal to 10% of the then outstanding principal amount of the Notes held by such Holder. The Company may elect, at its sole option, by notice to the Holders of the Notes given at any time prior to the 15 Trading Day period referred to below, to make the additional payment payable pursuant to this Section 3.1, in whole or in part, in cash. To the extent the Company does not elect to make any additional payment in cash within such specified time period, the Company shall make the additional payment by issuing that number of shares of the Company's Common Stock (rounded to the nearest whole number), valued as provided below, with an aggregate value equal to the aggregate amount of the additional interest payable in shares. For this purpose, the shares of the Company's Common Stock shall be valued at the Average Bid Price for the 15 Trading Days prior to March 21, 2000, less a discount of 5% of such Average Bid Price, or if the Conversion Price is then being determined pursuant to the Issuer's Election, less a discount of 10% of such Average Bid Price. In that event, the Company shall, as soon as practicable after March 21, 2000, issue and deliver to the Holder at its address set forth in Section 9.10 hereof a share certificate or certificates for the number of shares of Common Stock (rounded to the nearest whole number) issuable to the Holder as payment of the additional interest or shall issue and deliver such shares as otherwise agreed by the Company and the Holder. Additional interest is also payable as provided in Section 4.2 of the Purchase Agreement. As used in this Agreement, Junior Debt means Indebtedness of the Company which is subordinated to the Notes or Indebtedness of SPMI which is - 5 - 6 subordinated to the Guaranty to be delivered by SPMI to the Holders pursuant to Section 8.2. 4. Events of Default. If any of the events specified in this Section 4 shall occur (herein individually referred to as an "Event of Default"), the Holder of this Note may, so long as such condition exists, declare the entire principal and unpaid accrued interest hereon immediately due and payable, by notice in writing to the Company: (i) Default is made for a period of five (5) business days or more in the payment of any principal or accrued interest due in respect of this Note or in the issuance of shares of Common Stock to be issued as payment hereunder; (ii) Any representation or warranty made by the Company in this Note or the Note Purchase Agreement shall have been false in any material respect when made; (iii) The Company shall default in the performance or observance of any covenant or agreement contained in this Note and, if capable of being remedied, such default shall continue unremedied for a period of 10 days after written notice shall have been given by the Holder to the Company; (iv) If (i) any other Indebtedness (as defined below) of the Company or any Principal Subsidiary (as defined below) becomes due and repayable prior to its stated maturity by reason of an event of default (howsoever described) or (ii) any such Indebtedness is not paid when due or within any applicable grace period (as originally provided) or (iii) the Company or any Principal Subsidiary fails to pay when due (or, as the case may be, within any originally applicable grace period) any amount payable by it under any present or future guarantee for, or indemnity in respect of, any Indebtedness of any Person (as defined in Section 6.2) or (iv) any security given by the Company or any Principal Subsidiary for any Indebtedness or any guarantee or indemnity of Indebtedness of any Person or any guarantee or indemnity of such Indebtedness of any Person becomes enforceable by reason of default in relation thereto and steps are taken to enforce such security save in any such case where there is a bona fide dispute as to whether the relevant Indebtedness or any such guarantee or indemnity as aforesaid shall be due and payable; provided that in each such case the Indebtedness exceeds in the aggregate $1,000,000 and in each such case such event continues unremedied for a period of 30 calendar days (or such longer period as a Majority of the Holders (as defined in Section 6.2) may in their sole discretion consent to in writing upon receipt of written notice from the Company); - 6 - 7 (v) If there is any final judgment or judgments for the payment of money exceeding in the aggregate $1,000,000 outstanding against the Company or any Principal Subsidiary which has been outstanding for more than 60 calendar days from the date of its entry and shall not have otherwise been discharged in full or stayed by appeal, bond or otherwise; (vi) If the Company or any Principal Subsidiary shall fail to pay its debts as such debts become due (except debts which the Company or such Principal Subsidiary, as the case may be, may contest in good faith) generally or shall be declared or adjudicated by a competent court to be insolvent or bankrupt, consents to the entry of an order of relief against it in an involuntary bankruptcy case, shall enter into any assignment or other similar arrangement for the benefit of its creditors or consents to the appointment of a custodian (including, without limitation, a receiver, liquidator or trustee); (vii) If a receiver, administrative receiver, administrator or other similar official shall be appointed in relation to the Company or any Principal Subsidiary or in relation to the whole or a substantial part of the undertaking or assets of any of them or a distress, execution or other process shall be levied or enforced upon or sued out against, or an encumbrancer shall take possession of, the whole or a substantial part of the assets of any of them and in any of the foregoing cases it or he shall not be paid out or discharged within 90 calendar days (or such longer period as a Majority of the Holders may in their absolute discretion consent to in writing upon receipt of written notice from the Company); (viii) If the Company or any Principal Subsidiary institutes proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking organization under the laws of the Federal Bankruptcy Code or any similar applicable Federal or State law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee (or other similar official) in bankruptcy or insolvency of it or its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they come due; (ix) if a decree or order by a court having jurisdiction in the premises shall have been entered adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking the reorganization of the Company under the Federal Bankruptcy Code or any other similar applicable Federal or State law, and such decree or order shall have continued undischarged or unstated for a period of 90 calendar days; or a decree or order - 7 - 8 of a court having jurisdiction in the premises for the appointment of a receiver or liquidator or trustee or assignee (or other similar official) in bankruptcy or insolvency of the Company or of all or substantially all of its property, or for the winding up or liquidation of its affairs, shall have been entered, and such decree or order shall have continued undischarged and unstayed for a period of 90 calendar days; or (x) The Registration Statement has not been declared effective by the Securities and Exchange Commission within 240 days after the date hereof, or if, after the Registration Statement is declared effective, the Registration Statement ceases to be effective for 100 days within any 12-month period. As used in this Note, "Indebtedness" of any Person, means any present or future obligations, which shall include all (i) obligations which in accordance with the generally accepted accounting principles, shall be classified upon the balance sheet of such Person as liabilities, (ii) obligations for borrowed money, (iii) obligations which have been incurred in connection with the acquisition of any property (including without limitation, all obligations evidenced by any indenture, bond, note, commercial paper or other similar security, but excluding, in any case, obligations arising from the endorsement in the ordinary course of business of negotiable instruments for deposit or collection, (iv) obligations secured by any lien existing on property owned, even though such Person has not assumed or become liable for the payment of such obligations, (v) obligations created or arising under conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of such property, (vi) obligations for capitalized leases, (vii) obligations for all guarantees, whether or not reflected in the balance sheet of such Person, and (viii) reimbursement and other payment obligations (whether contingent, mature or otherwise) of such Person in respect of acceptance or documentary credit. Notwithstanding the foregoing, Indebtedness shall not include (i) Indebtedness incidental to the operation of the business of the Person in the ordinary course and in the aggregate not to exceed $1,000,000 and (ii) Indebtedness represented by purchase, rental or lease obligations which would cause the direct or contingent liabilities of the Person and its subsidiaries on a consolidated basis, in respect of all such obligations, not to exceed $1,000,000 in any period of 12 months. As used in this Note, a "Principal Subsidiary" at any time means a subsidiary of the Company: - 8 - 9 (A) whose gross assets represent 15 percent or more of the consolidated gross assets of the Company and its subsidiaries as calculated by reference to the then latest audited financial statements of the Company and its subsidiaries; or (B) to which is transferred all or substantially all of the business, undertaking and assets of a subsidiary of the Company which immediately prior to such transfer is a Principal Subsidiary, whereupon the transferor Subsidiary shall immediately cease to be a Principal Subsidiary and the transferee Subsidiary shall cease to be a Principal Subsidiary under the provisions of this sub-paragraph (B) (but without prejudice to the provisions of sub- paragraph (A) above), upon publication of its next audited financial statements; or (C) which owns at least 33-1/3% of the Company's interest in the Pirquitas mine in Argentina. A report by the Auditors that in their opinion a subsidiary of the Company is or is not or was or was not at any particular time or throughout any specified period a Principal Subsidiary pursuant to clause (A) or (B) above shall, in the absence of manifest error, be conclusive and binding on all parties. The Company shall send to each Holder, within 14 days after its annual audited consolidated balance sheet and profit and loss account being made available to its shareholders, and also within 14 days after any request by a Majority of the Holders, a certificate signed by two duly authorized officers of the Company on behalf of the Company to the effect that, having made all reasonable enquiries, to the best of the knowledge, information and belief of the Company as at a date (the "Certification Date") being not more than five days before the date of the certificate no Event of Default had occurred since the date of this Note or the Certification Date of the last such certificate (if any) or, if such an event had occurred, giving details of it together with a list of subsidiaries which are Principal Subsidiaries of the Company. 5. Conversion. 5.1 Optional Conversion. Subject to the terms and provisions of this Section 5, the Holder shall have the right, at the Holder's option, at any time and from time to time, to convert the principal amount of this Note or such portion of such principal amount (but not any accrued and unpaid interest thereon) as the Holder may elect into fully paid and nonassessable shares of the Company's Common Stock . The number of shares of Common Stock into which this Note may be converted shall be determined by dividing the principal amount to be converted by the Conversion Price (as defined below) in effect at the time of such conversion. The price at which this Note may be converted into shares of the Company's Common Stock (the "Conversion Price") shall initially be equal to $.95, subject to the adjustments set forth - 9 - 10 in Section 6 hereof. The accrued interest on any portion of the Note that is converted shall be paid on the following Interest Payment Date in shares or cash, at the Company's option, as provided in Section 2.2. 5.2 Partial Conversion. Upon any partial conversion of this Note pursuant to Section 5.1 hereof, a new note for the unconverted portion of the principal amount bearing the date of original issue and having the same rights and privileges as this Note shall be delivered to the Holder. 5.3 Mechanics and Effect of Conversion. To optionally convert this Note into Common Stock pursuant to Section 5.1 hereof, the Holder shall surrender this Note at the principal offices of the Company (the date of surrender being referred to as the "Conversion Date"), together with a written notice (the "Conversion Notice") to the Company of the Holder's election to convert. At its expense, the Company shall, as soon as practicable thereafter, issue and deliver to such Holder at such principal office, a share certificate or certificates for the number of shares of Common Stock to which such Holder is entitled upon such conversion or shall issue and deliver such shares as otherwise agreed by the Company and the Holder. Any conversion of this Note pursuant to Section 5.1 hereof shall be deemed to have been made immediately prior to the close of business on the date of the surrender and delivery of this Note and the corresponding Conversion Notice. 6. Anti-Dilution and Other Provisions. 6.1 Reset of Conversion Price. (a) If the Average Bid Price for the 15 Trading Days immediately preceding May 1, 1999 is less than the Conversion Price then in effect, then the Conversion Price for $7,500,000 of the Notes shall be reset downward on May 1, 1999 to a Conversion Price equal to such Average Bid Price. If the Average Bid Price for the 15 Trading Days immediately preceding April 1, 2000 is less than the Conversion Price then in effect, then the Conversion Price for $7,500,000 of the Notes shall be reset downward on April 1, 2000 to a Conversion Price equal to such Average Bid Price. If the Conversion Price is reset on April 1, 2000, and, as a result of the reset on May 1, 1999, some of the Notes are convertible at a Conversion Price higher than the Conversion Price of other Notes, the Conversion Price of the Notes with the higher Conversion Price shall be reset first and then the Conversion Price of the Notes with the lower Conversion Price shall be reset, until the Conversion Price of $7,500,000 of the Notes shall have been reset. If pursuant to this Section 6.1(a) the Conversion Price is reset with respect to less than all of the outstanding Notes, then the Conversion Price for this Note shall be reduced with respect to that portion of the principal amount of this Note equal to the principal amount of this Note times a fraction of which the numerator is $7,500,000 and the denominator is the aggregate - 10 - 11 principal amount of the Notes outstanding; provided, however, that if pursuant to this Section 6.1(a) the Conversion Price is reset on May 1, 1999 and reset again on April 1, 2000 with respect to less than all of the Notes with a lower Conversion Price, then the Conversion Price for such Notes shall be reduced with respect to that portion of each such Note equal to the principal amount of that Note times a fraction of which the numerator is the remainder of the $7,500,000 principal amount of Notes to be reset (after the Conversion Price of the Notes with the higher Conversion Price has been reset) and the denominator is the aggregate principal amount of the Notes with the lower Conversion Price. In each such event, the Company shall issue and deliver to the Holder two new Notes in exchange for this Note, each bearing the date of original issue and having the same rights and privileges as this Note, one in the principal amount for which the Conversion Price is not changing reflecting the Conversion Price prior to the reset pursuant to this Section 6.1(a) and the other in the principal amount for which the Conversion Price is changing and reflecting the reset Conversion Price. (b) If after the later of the date hereof or the last date on which the Conversion Price had been reset pursuant to this Section 6.1, (1) the Company shall issue more than 12 million shares of the Company's Common Stock (excluding shares issued pursuant to this Note but including shares issuable upon exercise or conversion of any rights, options, warrants or convertible or exchangeable securities referred to in clause (2) below), or (2) the Company shall issue rights, options or warrants to purchase, or securities convertible or exchangeable into, an aggregate of more than 12 million shares of the Company's Common Stock, then on the 210th day after the last such issuance which resulted in the aggregate exceeding 12 million shares, if the Average Bid Price for the 15 Trading Days immediately preceding such day is less than the Conversion Price as then in effect, then the Conversion Price shall be reset to equal such Average Bid Price. (c) If after the date hereof there is a reverse stock split of shares of the Company's Common Stock into a lesser number of shares, then on the 90th day after such split, if the Average Bid Price for the 15 Trading Days immediately preceding such day is less than the Conversion Price as then in effect, then the Conversion Price shall be reset to equal such Average Bid Price. (d) Notwithstanding anything to the contrary in this Note, the Company may elect, by notice to the Holders of the Notes (the "Issuer's Election") given on or before any date on which the Conversion Price would be reset pursuant to this Section 6.1, to set on such reset date the Conversion Price instead at the lower of $.50 per share (subject to reduction pursuant to the anti-dilution provisions of Section 6.2 hereof) or the lowest price at which any shares of the Company's Common Stock were issued after the date hereof. - 11 - 12 6.2 Adjustment of Conversion Price. (a) Definitions. As used in this Section 6, the following terms have the following meanings: (i) "Shares" means shares of the Company's Common Stock (and any other shares of stock resulting from any sub-division, consolidation or reclassification of such shares). (ii) "Stock Split" means any kind of stock split in relation to the Shares and includes a free share distribution, a stock dividend and a sub-division. (iii) "Current Market Price" means the closing bid price on the New York Stock Exchange. (iv) "Auditors" means the Company's independent public accountants. (v) "Majority of the Holders" means the Holders of more than 50% of the outstanding principal amount of the Notes. (vi) "Person" means any individual, trust, corporation, partnership, limited liability company or other entity or organization. (b) Adjustment of Conversion Price. The Conversion Price shall be adjusted as follows: (i) If and whenever there shall be an alteration to the number of Shares as a result of consolidation, reclassification or subdivision of the Shares, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately before such alteration by the following fraction: A -- B where: A is the number of Shares in issue immediately before such alteration; and - 12 - 13 B is the number of Shares in issue immediately after such alteration. Such adjustment shall become effective on the date the alteration takes effect. (ii) If and whenever the Company shall issue any Shares credited as fully paid to its shareholders by way of capitalization of profits or reserves (including any share premium account and capital redemption reserve), or may make any Stock Split the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately before such issue by the following fraction: A -- B where: A is the aggregate nominal amount of the issued Shares immediately before such issue; and B is the aggregate nominal amount of the issued Shares immediately after such issue. Such adjustment shall become effective on the date of such issue. (iii) If and whenever the Company shall issue any Shares, or shall issue or grant any securities (including options, warrants and other rights) carrying rights to subscribe for or purchase any Shares, in each case at a price per Share which is less than the Current Market Price per Share on the Trading Day last preceding the date on which the terms of such issue or grant are publicly announced, the Conversion Price shall be adjusted by multiplying the Conversion Price in force - 13 - 14 immediately before such issue or grant by the following fraction: A + B ----- A + C where: A is the number of Shares in issue immediately before such announcement; B is the number of Shares which the aggregate consideration receivable for the Shares so issued, or for the maximum number of Shares to be issued upon exercise in full of such rights, would purchase at such Current Market Price per Share; and C is the number of Shares so issued or such maximum number of Shares. Such adjustment shall become effective on the date of such issue or grant. (iv) If and whenever the Company shall issue any securities (other than Shares and any securities, options, warrants or other rights referred to in paragraph (iii) of this Section 6.2(b)) to its shareholders as a class by way of rights, or shall issue or grant to its shareholders as a class by way of rights securities (including options, warrants and other rights) carrying rights to subscribe for or purchase any securities (other than Shares and any securities, options, warrants or other rights referred to in such paragraph (iii) or shall distribute assets, cash or other property to its shareholders (other than usual annual or interim dividends in cash), the Conversion Price shall be adjusted by multiplying the Conversion - 14 - 15 Price in force immediately before such issue or grant or distribution by the following fraction: A - B ------ A where: A is the Current Market Price per Share on the dealing day last preceding the date on which the terms of such issue or grant or distribution are publicly announced; and B is the fair market value on the date of such announcement, as determined in good faith by an investment banker of national repute, acting as an expert, appointed by the Company and approved in writing by a Majority of the Holders or, in default of such appointment or in the absence of such approval, appointed by a Majority of the Holders, of the portion of the rights attributable to one Share. Such adjustment shall become effective on the date of such issue or grant or distribution. (v) If and whenever the Company or (at the direction or request of or pursuant to any arrangements with the Company or any subsidiary) any subsidiary or any other company, Person or entity (otherwise than as mentioned in paragraph (iii) or (iv) of this Section 6.2(b)) shall issue or grant wholly for cash or for no consideration any securities (other than the Notes but including options, warrants and other rights) carrying rights of conversion into, or exchange or subscription for, Shares, or securities which by their terms might be redesignated as Shares or so as to carry rights of conversion into, or exchange or subscription for, Shares, where the consideration per Share receivable upon exercise of such rights or upon such redesignation is less than the Current Market Price per Share on the dealing day last - 15 - 16 preceding the date on which the terms of such issue or grant are publicly announced, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately before such issue or grant by the following fraction: A + B ------ A + C where: A is the number of Shares in issue immediately before such issue or grant; B is the number of Shares which the aggregate consideration receivable for the maximum number of Shares to be issued upon exercise in full of such rights, or arising from such redesignation, would purchase at such Current Market Price per Share; and C is the maximum number of Shares to be issued upon exercise in full of such rights at the initial conversion, exchange or subscription price or rate or to arise upon such redesignation. Such adjustment shall become effective on the date of such issue or grant. (vi) If the Company (after consultation with a Majority of the Holders) or a Majority of the Holders (after consultation with the Company) determines that an adjustment should be made to the Conversion Price as a result of one or more events or circumstances not referred to in paragraphs (i) to (v) of this Section 6.2(b) (even if the relevant event or circumstance is specifically excluded from the operation of those paragraphs or any of them) the Company, shall, at its own expense and acting reasonably, request the Auditors, acting as experts, to determine as soon as practicable what adjustment (if any) to the Conversion Price is fair and reasonable to take - 16 - 17 account of such event or circumstance and the date on which such adjustment should take effect, and upon such determination such adjustment (if any) shall be made and shall take effect in accordance with such determination, but so that an adjustment shall be made pursuant to this sub-paragraph (vi) if the Auditors are so requested to make such a determination not more than 21 days after the occurrence of the relevant event or circumstance. Provided that where the circumstances giving rise to any adjustment pursuant to this Section 6.2(b) have already resulted or will result in an adjustment to the Conversion Price or where the circumstances giving rise to any adjustment arise by virtue of any other circumstances which have already given or will give rise to an adjustment to the Conversion Price, such modification (if any) shall be made to the operation of the provisions of this Section 6.2(b) as may be advised by the Auditors, acting as experts, to be in their opinion appropriate in order to give the intended effect. (c) Calculation of Consideration Receivable. For the purpose of any calculation of the consideration receivable pursuant to Section 6.2(b) the following provisions shall apply: (i) the aggregate consideration receivable for Shares issued for cash shall be the amount of such cash received or receivable by the Company, provided that in no case shall any deduction be made for any commission or any expenses paid or incurred by the Company for any underwriting of the issue or otherwise in connection therewith; (ii) the aggregate consideration receivable for Shares to be issued upon the exercise of rights of exchange or subscription shall be the consideration received or receivable by the Company which is attributed by the Company to such rights or, if no part of such consideration is so attributed or the Majority of the Holders so requires by notice in writing to the Company, the fair market value of such rights as at the date on - 17 - 18 which the terms of issue of the relevant securities (including options, warrants and other rights) are publicly announced (as determined in good faith by an investment banking firm of national repute, acting as an expert, appointed by the Company and approved in writing by a Majority of the Holders or, in default of such appointment or in the absence of such approval, appointed by a Majority of the Holders) plus the additional consideration to be received by the Company as a consequence of such exercise, such additional consideration to be the amount (including any premium) to be treated by the Company as paid up on the Shares or other securities arising from such exercise (the consideration in all such cases to be determined subject to the proviso in paragraph (i) of this Section 6.2(c)); (iii) the consideration per Share receivable upon the exercise of rights, exchange or subscription shall be the aggregate consideration referred to in paragraph (ii) of this Section 6.2(c), converted into dollars if such consideration is expressed in a currency other than dollars at such rate of exchange as may be determined in good faith by an investment banking firm of national repute, acting as an expert, appointed by the Company and approved in writing by a Majority of the Holders or, in default of such appointment or in the absence of such approval, appointed by a Majority of the Holders, to be the spot rate ruling at the close of business on the date on which the terms of issue of the relevant securities (including options, warrants and other rights) are publicly announced, divided by the number of Shares to be issued upon such exercise at the initial conversion, exchange or subscription price or rate; and (iv) if the consideration receivable for Shares or upon the exercise of rights, exchange or subscription is property other than cash, then the amount of the consideration receivable shall be the fair market - 18 - 19 value of such property as determined in good faith by the chief financial officer of the Company, except that if the market value of the Shares issued exceeds $10,000,000 and a Majority of the Holders dispute the determination by the chief financial officer, then as determined in good faith by an investment banking firm of national repute, acting as an expert, appointed by the Company and approved in writing by a Majority of the Holders; provided, however, that if the Eurobonds are exchanged, the fair market value of the Eurobonds shall be deemed to be the face value of the Eurobonds (regardless of any price at which they may be traded). (d) Post-record date Adjustments. If the Conversion Date in relation to any Note shall be after the record date for any such issue, grant or offer as is mentioned in Section 6.2(b), but before the relevant adjustment becomes effective under Section 6.2(b), the Company shall (conditional upon such adjustment becoming effective) procure that there shall be issued to the converting Holder or in accordance with the instructions contained in the Conversion Notice (subject to any applicable exchange control or other laws or other regulations) such additional number of Shares as, together with the Shares issued or to be issued on conversion of the relevant Note, is equal to the number of Shares which would have been required to be issued on conversion of such Note if the relevant adjustment (more particularly referred to in such paragraphs) to the Conversion Price had in fact been made and become effective immediately after the relevant record date. Such additional Shares will be allotted as at, and within one month after, the relevant Conversion Date or of the date of issue of Shares if the adjustment results from the issue of Shares and certificates for such Shares will be despatched within such period of one month. (e) Other Provisions Relating to Adjustments. The Company may at any time or from time to time reduce the Conversion Price either permanently or temporarily (a "Voluntary Reduction"). Notwithstanding a Voluntary Reduction, the determination of the interest rate payable pursuant to Section 2.1 and the determination of whether a Mandatory Prepayment is due pursuant to Section 1.2 shall be made without giving effect to the Voluntary Reduction. Notwithstanding the provisions of this Section 6.2, the Conversion Price will not be reduced as a result of any adjustment, and the Company covenants not to take any action, if, after giving effect thereto, the Conversion Price would be reduced to such an extent that, under applicable law then in effect, Notes may not be converted at such reduced Conversion Price for legally issued, fully paid and non-assessable Shares. The Conversion Price may also not be reduced so that, on exchange of Notes, Shares would be issued at a - 19 - 20 discount to their par value (the Company hereby agreeing not to take any action to increase the par value of the shares of the Company's Common Stock). No adjustment will be made where such adjustment would be less than 5 percent of the Conversion Price then in effect. Any adjustment not so made will be carried forward and taken into account in any subsequent adjustment. On any adjustment, the resultant Conversion Price, if not an integral multiple of one cent shall be rounded down to the nearest one cent. Where more than one event which gives or may give rise to an adjustment to the Conversion Price occurs within such a short period of time that in the opinion of the Auditors the foregoing provisions would need to be operated subject to some modification in order to give the intended result, such modification shall be made to the operation of the foregoing provisions as may be advised by the Auditors to be in their opinion appropriate in order to give such intended result. No adjustment will be made to the Conversion Price when Shares or other securities (including rights or options) are issued, offered or granted to employees (including directors holding executive office) of the Company or any subsidiary or any associated company of the Company pursuant to any employee benefit, compensation or profit sharing plan, whether now in effect or hereafter created or amended. 6.3 Covenants Relating to Conversion. (a) The Company hereby undertakes to and covenants with the Holders of the Notes that so long as any Conversion Right remains exercisable, it will, save with the prior written approval of all of the Holders of the Notes: (i) Issue and ensure sufficient share capital: issue Shares to Holders of the Notes on the exercise of Conversion Rights in accordance with the terms of the Notes and at all times keep available for issue free from pre-emptive rights out of its authorized but unissued capital such number of Shares as would enable the Conversion Rights and all other rights of subscription and exchange for and exchange into Shares to be satisfied in full; (ii) Limited modification of rights: not in any way modify the rights attaching to the Shares with respect to voting, dividends or liquidation nor issue any other class of equity share capital - 20 - 21 carrying any rights which are more favorable than the rights attaching to the Shares; (iii) Restricted action: not make any issue, grant or distribution or take any other action if the effect thereof would be that, on the conversion of Notes, Shares would have to be issued at a discount or otherwise could not, under any applicable law then in effect, be legally issued as fully paid; (iv) Officers' certificate on adjustment of Conversion Price: upon the happening of an event as a result of which the Conversion Price will be adjusted pursuant to the Notes, as soon as reasonably practicable deliver to the Holders of the Notes a certificate signed by two duly authorized officers of the Company on behalf of the Company setting forth brief particulars of the event, the adjusted Conversion Price, the date on which such adjustment takes effect and such other particulars and information as the Holders may reasonably require; and (v) Maintain Listing: maintain a listing for all the issued shares of the Company's Common Stock on the New York Stock Exchange, it being understood that if the Company is unable to obtain or maintain such listing of the shares, it will seek to obtain and maintain a listing for all the shares issued on conversion of the Notes on the American Stock Exchange or the NASDAQ National Market System, or if it is unable to obtain a listing thereon, on any other stock exchange or on NASDAQ or on the National Quotation Bureau Incorporated (each an "Alternative Stock Exchange") as the Company may from time to time (with the written consent of a Majority of the Holders which consent shall not be unreasonably withheld and which consent shall be deemed given if not denied within three (3) business days of receipt of a notice requesting consent) determine and will forthwith give notice to the Holders of the listing, de-listing or - 21 - 22 quotation or lack of quotation of the Shares (as a class) by any such Alternative Stock Exchange. 6.4 Adjustment for Consolidations and Mergers. In case of any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving corporation) or the sale of all or substantially all of the assets of the Company to another corporation, this Note thereafter shall be convertible into the kind and amount of shares of stock or other securities or property to which a Holder of the number of shares of the Company's Common Stock issuable upon conversion of this Note would have been entitled upon such consolidation, merger or sale; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions in this Section 6, to the end that the provisions set forth in this Section 6 (including provisions with respect to changes in and adjustments of the number of shares of Common Stock into which this Note is convertible) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of this Note. 6.5 No Impairment. The Company will not, by amendment of its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Holder against impairment. 6.6 Notices to Holder. If at any time, (a) The Company shall take any action which would require an adjustment pursuant to this Section 6 in the Conversion Price or in the number of shares issuable upon conversion of this Note; or (b) The Company shall issue any additional shares of Common Stock or declare any dividend (or any other distribution) on its Common Stock; or (c) there shall be any capital reorganization or reclassification of the Common Stock, or any consolidation or merger to which the Company is a party, or any sale or transfer of all or substantially all of the assets of the Company; or - 22 - 23 (d) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in any one or more of such cases, the Company shall give written notice to the Holder, not less than 20 days before any record date or other date set for definitive action, or of the date on which such reorganization, reclassification, sale, consolidation, merger, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the current Conversion Price and the kind and amount of shares of the Company's Common Stock and other securities and property deliverable upon conversion of this Note. Such notice shall also specify the date as of which the holders of the Company's Common Stock of record shall be entitled to exchange their shares of the Company's Common Stock for securities or other property deliverable upon such reorganization, reclassification, sale, consolidation, merger, dissolution, liquidation or winding up, as the case may be. 7. Put Upon Merger. In case of any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving corporation) in which the shareholders of the Company receive solely cash for their shares of the Company's Common Stock, the Holder may elect, at its sole option, by notice to the Company given at any time within 30 days after the notice from the Company of the consummation of the consolidation or merger, to require the Company to purchase the Note at a purchase price equal to 100% of the principal amount of the Note, plus all accrued and unpaid interest. If the Holder so elects, a closing shall be held at the principal offices of the Company on a date determined by the Company not later than 30 days after the notice from the Holder; at the closing, the Holder shall surrender the Note to the Company, and the Company shall pay the purchase price for the Note in cash. 8. Covenants by the Company. 8.1 Ranking. The Notes are direct, unconditional and unsecured obligations of the Company and rank, and will rank pari passu, without any preference among themselves, and such obligations will rank senior to all other outstanding and unsecured subordinated obligations of the Company, present and future, but, in the event of bankruptcy or insolvency of the Company, only to the extent permitted by the applicable laws relating to creditors' rights. - 23 - 24 8.2 Additional Guaranty. At such time as the Eurobonds are repaid or converted into shares of the Company's Common Stock so that no Eurobonds are outstanding or if the Eurobonds are refinanced with Junior Debt or on a pari passu basis with the guaranty to be issued by SPMI as referred to below, the Company shall cause SPMI to guaranty the Company's obligations pursuant to the Notes pursuant to a Guaranty in the same form as the Guaranty executed by the Company's other subsidiaries on the date hereof. If the Eurobonds are refinanced on a basis that requires the Guaranty to be issued by SPMI to be subordinated to such refinanced debt, then the Guaranty shall be so subordinated to the refinanced indebtedness. At such time as the Company forms any additional subsidiary, the Company shall cause the subsidiary to guaranty the Company's obligations pursuant to the Notes pursuant to a Guaranty in the same form as the Guaranty executed by the Company's other subsidiaries on the date hereof. 8.3 Additional Debt. Except for Project Debt (as defined in Section 8.3), neither the Company nor any of its subsidiaries shall issue or incur any additional Indebtedness that is secured by any assets of the Company or its subsidiaries unless the Notes are equally secured on a pari passu basis by such assets. As used in this Note, Project Debt means Indebtedness incurred by a subsidiary of the Company expressly to fund the construction or development of a specific project by that subsidiary. 8.4 Federal Tax Matters. The Company shall deduct for Federal income tax purposes the interest payable on the Notes only to the extent of the interest paid or payable on the Notes in cash or shares of the Company's Common Stock pursuant to Sections 2 and 3 hereof. 8.5 Financial Information. The Company shall deliver to the Holder promptly, but in any event within 10 days, after any distribution to its shareholders generally of an annual report, proxy statement, registration statement or other similar report or communication, a copy of each such report, proxy statement, registration statement or other similar report or communication; and promptly, but in any event within 10 days after any filing with the Securities and Exchange Commission or with any national securities exchange or with the NASD of any publicly available annual or periodic or special report or proxy statement or registration statement, a copy of such report or statement; and promptly, but in any event within two business days, after released, copies of all press releases and other statements made available generally by the Company to the public concerning material developments. - 24 - 25 8.6 Merger. The Company shall not merge or consolidate with or sell, convey or otherwise dispose of all or substantially all of its assets to any other corporation, partnership or other legal entity unless (i) the Company shall be the surviving corporation, partnership or other legal entity in the case of a merger, or the surviving, resulting or transferee corporation, partnership or other legal entity ("the successor corporation") shall expressly assume the due and punctual payment of the principal of and interest on all the Notes, according to their tenor, and due and punctual performance of all of the covenants and obligations of the Company under the Notes, and (ii) the Company or such successor corporation, as the case may be, shall not immediately after such merger, consolidation, sale or conveyance be in default in the performance of any covenants or obligations of the Company under the Notes. 9. Miscellaneous. 9.1 Waiver. The Company hereby waives presentment for payment, demand, notice of non-payment, protest and notice of protest. 9.2 Binding Effect. This Note shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Holder and its successors, assigns and transferees. The Holder may assign this Note to any Investor (as defined in the Purchase Agreement) or to any affiliate (within the meaning of the Securities Exchange Act of 1934) of any Investor, but shall not assign this Note to any other Person without the consent of the Company, which consent shall not be unreasonably withheld and which consent shall be deemed given if not denied within three (3) business days of receipt of a notice requesting consent. Notwithstanding the foregoing, this Note may not be assigned or transferred in whole or in part, if as a result of such transfer or assignment there would be more than an aggregate of 10 Holders. Any such permitted assignee or transferee shall be bound by the terms and provisions hereof and the Note Purchase Agreement. Any transfer or assignment in contravention of this Section shall be null and void. 9.3 Legal Fees. The Company shall pay to the Holder all costs of suit, including reasonable attorneys' fees, should legal proceedings be instituted at any time to collect any amount due hereon or otherwise to enforce this Note. 9.4 Governing Law. This Note shall be governed by and construed in accordance with the internal laws of the State of New York (without reference to its rules as to conflicts of law). - 25 - 26 9.5 Headings. All headings used herein are for convenience only and shall not be used to construe or interpret this Note. 9.6 Other Exchange. If the Company's Common Stock is not traded on the New York Stock Exchange, any reference to the New York Stock Exchange shall be deemed a reference to the principal exchange on which the Company's Common Stock is traded. 9.7 Restriction on Right to Issue Common Stock. Notwithstanding anything to the contrary in this Note, the Company shall have no right to make any principal or interest payment or any payment pursuant to Section 3.1 or 3.2 in shares of the Company's Common Stock at a time when no Registration Statement is effective or at a time when the Company's Common Stock is not traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market System, without the consent of a Majority of the Holders. 9.8 Limit on Number of Shares. Notwithstanding anything to the contrary in this Note, the Purchase Agreement or the Warrants, the aggregate number of shares of the Company's Common Stock issuable pursuant to the Notes and the Warrants shall not exceed the maximum number of shares of the Company's Common Stock that can be issued without obtaining shareholder approval under the rules of the New York Stock Exchange (the "Maximum Number"). The Company shall not make any principal or interest payment in shares of the Company's Common Stock to the extent such issuance, together with all shares previously issued pursuant to the Notes or the Warrants, would exceed the Maximum Number. Notwithstanding anything to the contrary in the Notes, the Purchase Agreement or the Warrants, in the event that the shares of the Company's Common Stock to be issued upon conversion of this Note, in whole or in part, would, upon issuance, exceed the Maximum Number, the Company shall, in lieu of issuing such shares, pay to the Holder an amount equal to the difference between the Conversion Price and the Closing Bid Price on the date of conversion for each share that would otherwise be issuable upon such conversion. 9.9 Limitation on Ownership. Notwithstanding anything to the contrary in this Note, during the term of the Notes the Holder and its affiliates (within the meaning of the Securities Exchange Act of 1934) shall not have the right to convert this Note into shares of the Company's Common Stock that would result in the Holder and its affiliates becoming, the beneficial owners (as defined in Rule 13d-3 under that Exchange Act) of more than 4.75% of the Company's Common Stock; provided that the Holders shall have the right to waive this restriction upon 61 days prior notice to the Company. - 26 - 27 9.10 Notices. Any notice or other communication under this Note shall be in writing and shall be considered given when delivered personally or by facsimile, one day after being sent by a reputable overnight courier, or four days after being mailed by registered mail, return receipt requested, to the Company or the Holder to the address set forth below (or at such other address as the Company or the Holder may specify by notice to the other): If to the Holder, to it at: c/o Stonehill Investment Corporation 110 East 5th Street - 30th Floor New York, New York, 10022 Attn: John Motulsky If to the Company, to it at: Sunshine Mining and Refining Company 5956 Sherry Lane Suite #1621 Dallas, Texas 75225 with a copy to: Haynes and Boone, LLP 901 Main Street - Suite 3100 Dallas, Texas 75202 Attn: Janice V. Sharry, Esq. - 27 - 28 IN WITNESS WHEREOF, the Company has caused this Note to be signed by a duly authorized officer and has caused its corporate seal to be affixed and attested by its secretary. SUNSHINE MINING AND REFINING COMPANY By: /s/ WILLIAM W. DAVIS -------------------------------- Name: William W. Davis Title: Executive Vice President and Chief Financial Officer - 28 - EX-23.2 5 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of Sunshine Mining and Refining Company for the registration of 25,000,000 shares of its common stock and to the incorporation by reference therein of our report dated February 21, 1997 (except Note 5, as to which the date is September 10, 1997), with respect to the consolidated financial statements of Sunshine Mining and Refining Company, as amended, included in its Form 10-K/A. ERNST & YOUNG LLP Dallas, Texas December 3, 1997 -----END PRIVACY-ENHANCED MESSAGE-----