-----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, AmIQSNkTENg6DDlRO0KTaDyLC6rZs6lbt3rqC6H80Zhi8GijTpW7J7U/E3KBEZiM EFHNAPOFvsT1xmIJQH5ODg== 0001047469-98-028982.txt : 19980803 0001047469-98-028982.hdr.sgml : 19980803 ACCESSION NUMBER: 0001047469-98-028982 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19980731 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOE RUN RESOURCES CORP CENTRAL INDEX KEY: 0001061112 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 131255630 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-52285 FILM NUMBER: 98675721 BUSINESS ADDRESS: STREET 1: 1801 PARK 270 DR CITY: ST LOUIS STATE: MO ZIP: 63146 BUSINESS PHONE: 3144537100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FABRICATED PRODUCTS INC CENTRAL INDEX KEY: 0001061113 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 431755268 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-52285-01 FILM NUMBER: 98675722 BUSINESS ADDRESS: STREET 1: 1801 PARK 270 DR CITY: ST LOUIS STATE: MO ZIP: 63146 BUSINESS PHONE: 3144537100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOE RUN CAYMAN LTD CENTRAL INDEX KEY: 0001061114 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 431755268 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-52285-02 FILM NUMBER: 98675723 BUSINESS ADDRESS: STREET 1: 1801 PARK 270 DR CITY: ST LOUIS STATE: MO ZIP: 63146 BUSINESS PHONE: 3144537100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOE RUN MINING SR LTDA CENTRAL INDEX KEY: 0001061115 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 431755268 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-52285-03 FILM NUMBER: 98675724 BUSINESS ADDRESS: STREET 1: 1801 PARK 270 DR CITY: ST LOUIS STATE: MO ZIP: 63146 BUSINESS PHONE: 3144537100 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOE RUN PERU SR LTDA CENTRAL INDEX KEY: 0001061116 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 431755268 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-52285-04 FILM NUMBER: 98675725 BUSINESS ADDRESS: STREET 1: 1801 PARK 270 DR CITY: ST LOUIS STATE: MO ZIP: 63146 BUSINESS PHONE: 3144537100 S-4/A 1 S-4/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1998 REGISTRATION NO. 333-52285 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ THE DOE RUN RESOURCES CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 1031, 3339, 3341 13-1255630 (State or other jurisdiction of (Primary Standard Industrial (I.R.S.Employer incorporation or organization) Classification Code Number) Identification No.) FABRICATED PRODUCTS, INC. (Exact name of registrant as specified in its charter) DELAWARE 1799, 2819, 3356, 3442 43-1755268 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) DOE RUN CAYMAN LTD. (Exact name of registrant as specified in its charter) CAYMAN ISLANDS 3331, 3339 98-0177422 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) DOE RUN MINING S.R. LTDA. (Exact name of registrant as specified in its charter) PERU 3331, 3339 98-0180347 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) DOE RUN PERU S.R. LTDA. (Exact name of registrant as specified in its charter) PERU 3331, 3339 98-0180348 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
------------------------------ MARVIN K. KAISER 1801 PARK 270 DRIVE 1801 PARK 270 DRIVE ST. LOUIS, MISSOURI 63146 ST. LOUIS, MISSOURI 63146 (314) 453-7100 (314) 453-7100 (Address, including zip code, and telephone number, including (Name, address, including zip code, and telephone number, area code, of registrant's principal executive offices) including area code, of agent for service)
COPIES TO: MICHAEL C. RYAN, ESQ. CADWALADER, WICKERSHAM & TAFT 100 MAIDEN LANE NEW YORK, NEW YORK 10038 (212) 504-6177 ------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE+ REGISTRATION FEE 11 1/4% Senior Notes due 2005, Series B........... $200,000,000 100% $200,000,000 $59,000 Guarantees of 11 1/4% Senior Notes due 2005, Series B........................................ $200,000,000 100% $200,000,000 ++ Floating Interest Rate Senior Notes due 2003, Series B........................................ $ 55,000,000 100% $ 55,000,000 $16,225 Guarantees of Floating Interest Rate Senior Notes due 2003, Series B........................ $ 55,000,000 100% $ 55,000,000 ++
+ Estimated solely for purposes of computing the registration fee pursuant to Rule 457(f). ++ Pursuant to Rule 457(n), no additional filing fee is required, as no separate consideration will be paid for each of the Guarantees by the Guarantors. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 JULY 31, 1998 PROSPECTUS [LOGO] OFFER TO EXCHANGE ITS 11 1/4% SENIOR NOTES DUE 2005, SERIES B AND FLOATING INTEREST RATE SENIOR NOTES DUE 2003, SERIES B, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING 11 1/4% SENIOR NOTES DUE 2005, SERIES A AND FLOATING INTEREST RATE SENIOR NOTES DUE 2003, SERIES A, RESPECTIVELY THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED The Doe Run Resources Corporation, a New York corporation ("Doe Run" and together with its subsidiaries, the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the "Letter of Transmittal" and together with this Prospectus, the "Exchange Offer"), to exchange its 11 1/4% Senior Notes due 2005, Series B (the "Fixed Rate Exchange Notes") and Floating Interest Rate Senior Notes due 2003, Series B (the "Floating Rate Exchange Notes" and together with the Fixed Rate Exchange Notes, the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement (as defined) of which this Prospectus is a part, for an equal principal amount of its outstanding 11 1/4% Senior Notes due 2005, Series A (the "Fixed Rate Old Notes" and together with the Fixed Rate Exchange Notes, the "Fixed Rate Notes") and Floating Interest Rate Senior Notes due 2003, Series A (the "Floating Rate Old Notes" and together with the Fixed Rate Old Notes, the "Old Notes," and together with the Floating Rate Exchange Notes, the "Floating Rate Notes"), respectively, of which $200.0 million and $55.0 million principal amount, respectively, is outstanding. The Exchange Notes and the Old Notes are collectively referred to herein as the "Notes." Doe Run will accept for exchange any and all Old Notes that are validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes will be issued and delivered promptly after the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. See "The Exchange Offer." Old Notes may be tendered only in integral multiples of $1,000. The Company has agreed to pay the expenses of the Exchange Offer. The Exchange Notes will be obligations of Doe Run evidencing the same debt as the Old Notes and will be entitled to the benefits of the same indenture, dated as of March 12, 1998 (the "Indenture"), by and among Doe Run, as issuer, and certain of Doe Run's existing subsidiaries, Fabricated Products, Inc., a Delaware corporation ("FPI"), Doe Run Cayman Ltd., a Cayman Islands company ("Doe Run Cayman"), Doe Run Mining S.R. Ltda., a Peruvian company ("Doe Run Mining"), and Doe Run Peru S.R. Ltda., a Peruvian company (together with its predecessors, "Doe Run Peru"), as guarantors (the "Guarantors"), and State Street Bank and Trust Company, as trustee (the "Trustee"). The form and terms of the Exchange Notes are substantially the same as the form and terms of the Old Notes except that the Exchange Notes have been registered under the Securities Act. See "The Exchange Offer." The Exchange Notes will bear interest from March 12, 1998. Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on the Old Notes accrued up until the date of the issuance of the Exchange Notes. Such waiver will not result in the loss of interest income to such holders because the Exchange Notes will bear interest from the issue date of the Old Notes. The Fixed Rate Exchange Notes will mature on March 15, 2005. The Floating Rate Exchange Notes will mature on March 15, 2003. Interest on the Exchange Notes will be payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 1998, at the rate of 11 1/4% per annum in the case of the Fixed Rate Exchange (COVER CONTINUES ON FOLLOWING PAGE) ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES. --------------------- 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 , 1998. (CONTINUATION OF COVER) Notes, and at a rate per annum equal to LIBOR (as defined) plus 6.29% (currently, 12.00875%) in the case of the Floating Rate Exchange Notes. Interest on the Floating Rate Exchange Notes will be reset semi-annually. The Fixed Rate Exchange Notes will be redeemable, in whole or in part, at the option of Doe Run, on or after March 15, 2002, and the Floating Rate Exchange Notes will be redeemable, in whole or in part, at the option of Doe Run, at any time, in each case at the redemption prices set forth herein, plus accrued interest to the date of redemption. In addition, at any time on or prior to March 15, 2001, Doe Run may redeem up to 35% of the aggregate principal amount of the Fixed Rate Exchange Notes with the net cash proceeds of one or more offerings of capital stock of Doe Run (other than to any subsidiary of Doe Run), at the redemption price set forth herein, plus accrued interest to the date of redemption, PROVIDED that at least 65% of the aggregate principal amount of the Fixed Rate Exchange Notes remains outstanding immediately following such redemption. Upon a change of control of Doe Run, its direct parent corporation or its ultimate parent corporation, each holder of Exchange Notes will have the right to require Doe Run to repurchase such holder's Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. In addition, Doe Run will be obligated to offer to repurchase the Exchange Notes at 100% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase in the event of certain asset sales outside the ordinary course. See "Description of the Notes." The Exchange Notes will be fully and unconditionally guaranteed (the "Guarantees") by the Guarantors. The Exchange Notes and the Guarantees will be general unsecured obligations of Doe Run and the Guarantors, respectively, and will rank senior in right of payment to all existing and future subordinated indebtedness of Doe Run and the Guarantors, respectively, and equally in right of payment with other senior indebtedness of Doe Run and the Guarantors, respectively, subject, in the case of the Guarantees of Doe Run Mining and Doe Run Peru, to statutorily preferred exceptions and statutorily mandated priorities based on the date of issuance with respect to payment of obligations under applicable Peruvian law. However, Doe Run's indebtedness under its new $100 million revolving credit facility (the "New Doe Run Revolving Credit Facility") is secured by substantially all of the current assets of Doe Run. In addition, Doe Run Peru has entered into a new $40.0 million revolving credit facility (the "New Doe Run Peru Revolving Credit Facility"), which is secured by substantially all of the current assets of Doe Run Peru. Holders of such secured indebtedness, and any other secured indebtedness of Doe Run and the Guarantors, will have claims that effectively rank prior to those of holders of Exchange Notes with respect to the assets securing such indebtedness. In addition, the Guarantee of Doe Run Peru will be contractually subordinated to the indebtedness of Doe Run Peru under the New Doe Run Peru Revolving Credit Facility. As of June 30, 1998, the Company had approximately $396.8 million of indebtedness outstanding (exclusive of aggregate unused commitments of $129.7 million under the New Doe Run Revolving Credit Facility and the New Doe Run Peru Revolving Credit Facility (collectively, the "New Revolving Credit Facilities"), and none of the Company's indebtedness was subordinated to the Old Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a Prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that, by so acknowledging and by delivering a Prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities. Doe Run has agreed that for a period of 180 days after consummation of the Exchange Offer, it will make this Prospectus, which Doe Run will update, amend or supplement from time to time as required by applicable law or regulations, available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." There has been no public market for the Old Notes. If a market for the Exchange Notes should develop, the Exchange Notes could trade at a discount from their principal amount. Doe Run does not intend to list the Exchange Notes on a national securities exchange or quotation system. There can be no assurance that an active public market for the Exchange Notes will develop. 2 AVAILABLE INFORMATION Doe Run and the Guarantors have filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-4 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act with respect to the Exchange Notes offered hereby. This Prospectus, which forms a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to Doe Run, and the Exchange Notes offered hereby, reference is made to the Registration Statement. Statements contained in this Prospectus as to the contents of certain documents filed as exhibits to the Registration Statement are not necessarily complete and, in each case, are qualified by reference to the copy of the document so filed. The Registration Statement can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material also can be reviewed through the Commission's Electronic Data Gathering, Analysis, and Retrieval System, which is publicly available through the Commission's web site (http://www.sec.gov). Doe Run intends to furnish to each holder of the Exchange Notes annual reports containing audited financial statements and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. Doe Run also will furnish to each holder of the Exchange Notes such other reports as may be required by applicable law. The principal executive offices of Doe Run and the Guarantors are located at 1801 Park 270 Drive, Suite 300, St. Louis, Missouri 63146, telephone number: (314) 453-7100. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Prospectus includes "forward-looking statements." All statements other than statements of historical facts included in this Prospectus, including without limitation, certain statements under the captions "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results Of Operations," "Industry" and "Business" and located elsewhere herein regarding the financial position and business strategy of the Company, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negatives thereof or variations thereon or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from Doe Run's expectations ("Cautionary Statements") are disclosed in this Prospectus, including, without limitation, in conjunction with the forward-looking statements included in this Prospectus and under "Risk Factors." All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. These forward-looking statements speak only as of the date of this Prospectus. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in their expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ENFORCEABILITY OF CIVIL LIABILITIES Each of Doe Run Peru and Doe Run Mining is organized under the laws of the Peru. Doe Run Cayman is incorporated under the laws of the Cayman Islands. Certain experts named herein with respect 3 to Doe Run Peru and Doe Run Mining reside outside of the United States, and substantially all of the assets of such persons and of Doe Run Peru and Doe Run Mining are located outside of the United States. As a result, it may not be possible for investors to effect service of process upon such persons or Doe Run Peru, Doe Run Cayman and Doe Run Mining or to enforce against them in the United States, or to realize judgments of courts located outside of the Cayman Islands or Peru predicated upon civil liability provisions of the federal or state securities laws of the United States. The Company believes that there are potential defenses to the enforceability, in original actions in Cayman Islands or Peruvian courts, of liabilities predicated solely on the U.S. federal and state securities laws and as to the enforceability in Cayman Islands or Peruvian courts of judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the U.S. federal and state securities laws. PRESENTATION OF CERTAIN FINANCIAL INFORMATION Unless otherwise specified or the context otherwise requires, references to "$," "US$," "U.S.$," "dollars," and "U.S. dollars" are to United States dollars and references to "S/.," "nuevo sol" or "nuevos soles" are to Peruvian nuevos soles. Each nuevo sol is divisible into 100 centimos. See "Exchange Rates." The financial statements of Empresa Minera del Centro Peru S.A.--Centromin Peru S.A., La Oroya Division included herein are prepared in U.S. dollars and in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). Doe Run Peru and Doe Run Mining maintain their financial records in nuevos soles, prepare financial information in accordance with generally accepted accounting principles in Peru ("Peruvian GAAP") and report such information to the Peruvian government on this basis for purposes of calculating their Peruvian tax liability. These amounts are calculated on the basis of Peruvian GAAP and, therefore, cannot be directly derived from the consolidated financial statements appearing in this Prospectus, which are prepared in accordance with U.S. GAAP. Peruvian GAAP requires the inclusion in the financial statements of Doe Run Peru and Doe Run Mining the Resultado de Exposicion a la Inflacion which seeks to account for the effects of inflation by adjusting the value of non-monetary assets and liabilities and equity by a factor corresponding to Peruvian wholesale price inflation rates during the period covered by the financial statements. Monetary assets and liabilities are not adjusted. EXCHANGE RATES During the last two decades, the Peruvian government has imposed various exchange controls ranging from strict control over exchange rates to market determination of rates. Prior to early 1991, the Peruvian foreign exchange market consisted of multiple exchange rates. Since early 1991, there have been no exchange controls in Peru and all foreign exchange transactions are based on free market exchange rates. Current Peruvian regulations on foreign investment allow foreign investors to receive and repatriate all earnings and investments in Peru. Investors are allowed to purchase foreign currency at free market exchange rates through any member of the Peruvian banking system and transfer such foreign currency outside Peru without restriction. Approximately 30.0% of Doe Run Peru's pro forma operating costs, or $115.4 million, for the twelve months ended October 31, 1997, are denominated in nuevos soles. Because substantially all the revenues of Doe Run Peru are denominated in U.S. dollars, when inflation in Peru is not offset by a corresponding devaluation of the nuevo sol versus the U.S. dollar, the financial position, results of operations and cash flows of Doe Run Peru will be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Inflation and Seasonality." Doe Run Peru has not in the past entered into any foreign exchange hedging arrangements. 4 The following table sets forth the high and low month-end, average month-end and end of period noon buying rates in New York City for customs purposes as set forth in INTERNATIONAL FINANCIAL STATISTICS published by the International Monetary Fund of nuevo soles for U.S. dollars for the periods indicated:
MONTH-END --------------------------------- END OF YEAR ENDED DECEMBER 31, HIGH LOW AVERAGE PERIOD - ------------------------------------------------ --------- --------- ----------- --------- (PER $) 1992............................................ S/.1.468 S/.0.960 S/.1.211 S/.1.468 1993............................................ 2.196 1.710 2.008 2.196 1994............................................ 2.250 2.160 2.193 2.180 1995............................................ 2.320 2.190 2.252 2.310 1996............................................ 2.600 2.360 2.460 2.600 1997............................................ 2.730 2.640 2.673 2.730
The noon buying rate in New York City for customs purposes as set forth in INTERNATIONAL FINANCIAL STATISTICS published by the International Monetary Fund as of October 31, 1997 and April 30, 1998 was S/.2.720 and S/.2.830, respectively, per $1.00. The Company currently does not, and does not intend to, engage in any hedging or other transactions which are intended to manage risks relating to foreign currency and interest rate fluctuations. 5 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION, FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, AND OTHER DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, AS USED HEREIN: "OUNCE" MEANS A TROY OUNCE (1.09 OUNCES); "TON" MEANS A SHORT TON (2,000 POUNDS); AND "WESTERN WORLD" MEANS THE ENTIRE WORLD EXCLUDING EASTERN EUROPE, THE FORMER SOVIET UNION AND CHINA. THE COMPANY'S FISCAL YEAR ENDS OCTOBER 31, AND THUS, FOR EXAMPLE, "FISCAL 1997" REFERS TO THE FISCAL YEAR ENDED OCTOBER 31, 1997. PRIOR TO THE ACQUISITION (AS DEFINED), DOE RUN PERU'S FISCAL YEAR ENDED DECEMBER 31. SEE "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA" FOR A DESCRIPTION OF THE TRANSACTIONS GIVEN EFFECT BY, AND THE ASSUMPTIONS REFLECTED IN, THE FINANCIAL INFORMATION DESIGNATED AS "PRO FORMA" OR "PRO FORMA AS ADJUSTED." THE COMPANY MAINTAINS ITS PRINCIPAL EXECUTIVE OFFICES AT 1801 PARK 270 DRIVE, ST. LOUIS, MISSOURI 63146, AND ITS TELEPHONE NUMBER IS (314) 453-7100. THE COMPANY Doe Run is the largest fully-integrated lead producer in North America and the second largest primary lead producer in the western world. Through its subsidiary Doe Run Peru, Doe Run operates one of the largest polymetallic processing facilities in the western world offering an extensive product mix of non-ferrous and precious metals, including copper, silver, zinc, lead and gold. The combined capabilities of Doe Run and Doe Run Peru represent the largest primary lead producer in the western world. On October 23, 1997, Doe Run Peru acquired (the "Acquisition") Empresa Metalurgica La Oroya S.A. ("Metaloroya") from Empresa Minera del Centro del Peru S.A., a Peruvian government-owned conglomerate ("Centromin"), as part of the ongoing privatization program sponsored by the government of the Republic of Peru ("Peru"). On December 30, 1997, Metaloroya was merged into Doe Run Peru (the "Merger"). The Company had pro forma net sales, net income and net income (loss) before extraordinary item plus the sum of net interest expense, income taxes and depletion, depreciation and amortization ("EBITDA") of $709.8 million, $.7 million and $74.5 million, respectively, for the twelve months ended October 31, 1997 and pro forma net sales, net loss and EBITDA of $343.4 million, $1.0 million and $40.4 million, respectively, for the six months ended April 30, 1998. DOE RUN Doe Run's integrated operations permit Doe Run to participate in and manage the entire lead life cycle, including the mining of lead ore, the production of refined lead metal, the fabrication of value-added lead products and the secondary recycling of spent lead-acid batteries and other lead-bearing materials. Doe Run believes its reputation for excellent service, product quality and timely delivery permits it to consistently realize premiums for its products, resulting in sales prices above the market price for lead quoted on the London Metal Exchange (the "LME"). In fiscal 1997, Doe Run shipped approximately 350,000 tons of refined lead metal and lead alloy products, including recycled lead, representing approximately 18% of North American consumption and 6% of western world consumption. Doe Run had net sales, net loss and EBITDA of $277.9 million, $1.1 million and $31.9 million, respectively, for fiscal 1997, excluding the results of operations of Doe Run Peru for the eight-day period from October 23, 1997 (the date of consummation of the Acquisition) through October 31, 1997 and net sales, net loss and EBITDA (excluding intercompany transactions) of $118.5 million, $14.2 million and $4.2 million, respectively, for the six months ended April 30, 1998. Refined lead product sales accounted for approximately 67% and 68% of Doe Run's total net sales, or $185.1 million and $80.6 million, respectively, in fiscal 1997 and for the six months ended April 30, 1998, respectively. The balance of Doe Run's net sales resulted from (i) tolling services provided to major U.S. lead-acid battery manufacturers, (ii) lead production by-products, including zinc and copper concentrates, and (iii) value-added fabricated lead products, such as lead sheet and bricks. These net sales from tolling services, by-products and fabricated products provide sources of revenue largely independent of lead prices. 6 Western world lead consumption in 1997 was estimated at 5.8 million tons which represents a total market of approximately $3.2 billion. Approximately 4.2 million tons, or 72%, of this lead was used in the production of lead-acid batteries, approximately 75% of which was for starting-lighting-ignition ("SLI") batteries. Approximately 77% of SLI battery sales are in the automotive replacement market, a market with stable demand characteristics, which is dependent upon the number of automobiles in service and battery life. The lead-acid battery remains the most cost competitive battery technology for SLI batteries, which management believes will not change in the foreseeable future. Other uses for refined lead include computer and television screens, ammunition, stationary batteries used as backup power sources and rolled and extruded lead products used in radiation shielding and roofing materials. The market for refined lead continues to grow primarily as a result of increasing demand for lead-acid batteries used for automobiles and other vehicles as a result of worldwide economic growth. As a result, western world lead consumption grew at a compound annual growth rate ("CAGR") of 2.0% between 1987 and 1997. Doe Run believes that this growth rate will accelerate in the future as batteries become an even larger portion of the lead market, particularly in light of expected economic growth leading to increased vehicle population in developing economies. Approximately 45% of annual western world lead consumption is supplied from newly mined or "primary" ore, and the balance is supplied from secondary sources, principally the recycling of spent lead-acid batteries and other lead-bearing materials. Since 1990, primarily due to heightened environmental awareness, secondary lead capacity has increased, whereas primary lead capacity has remained relatively constant. Management believes that secondary sources of lead will continue to account for an increasing share of the total worldwide lead market. The average LME price for refined lead was $.29 per pound in fiscal 1997. As of June 30, 1998, the LME price for lead was $.25 per pound, which was below the ten-year average price of $.28 per pound. Management believes that lead prices will remain relatively stable or will modestly increase for the remainder of fiscal 1998 and over the long term will reflect the historical industry average. As a result of the recent lead price decreases, the Company expects that it will incur an operating loss in its U.S. operations that will adversely affect its EBITDA in fiscal 1998. Doe Run conducts its mining operations along approximately 40 miles of the Viburnum Trend in Southeastern Missouri, one of the world's most productive lead deposits. Doe Run operates six production shafts, four processing mills one primary smelter and one secondary smelter. During fiscal 1997, Doe Run mined in excess of 5.0 million tons of ore containing average grades of 5.17% lead, 1.02% zinc and 0.27% copper. At the end of fiscal 1997, Doe Run's proven and probable reserves consisted of approximately 70 million tons, containing approximately 3.8 million tons of recoverable lead or approximately fourteen years of production at current mining rates. Doe Run's primary smelter in Herculaneum, Missouri is the largest in North America and the second largest in the world, with an annual production capacity of approximately 250,000 tons of refined lead. Since entering the recycling business in 1992, Doe Run has become a leading producer of secondary lead at its Buick recycling facility and secondary smelter located in Boss, Missouri. At this facility, Doe Run is reclaiming at a rate of approximately 105,000 tons of refined lead per year, approximately 60% of which is derived from tolling arrangements with major U.S. battery manufacturers. DOE RUN PERU Doe Run Peru's unique combination of base metal smelters, refineries and by-product circuits enable Doe Run Peru to process complex polymetallic concentrates and to recover base metals and by-products at international quality standards. Doe Run Peru's location in central Peru, approximately 110 miles from Lima, allows Doe Run Peru to source concentrates advantageously from mines located throughout the central Andes mountains, particularly in Peru. Moreover, Doe Run Peru's proximity to Lima's Callao port provides it ready access to major world markets for its products. 7 For the twelve months ended October 31, 1997 and the six months ended April 30, 1998, Doe Run Peru shipped approximately 70,000 tons and 35,000 tons, respectively, of refined copper, 107,000 tons and 55,000 tons, respectively, of refined lead, 71,000 tons and 40,000 tons, respectively, of refined zinc, 20.5 million ounces and 13.0 million ounces, respectively, of refined silver and 42,000 ounces and 26,000 ounces, respectively, of gold bullion. In addition, Doe Run Peru shipped various by-products including bismuth, indium, tellurium, antimony, cadmium and copper blister. Doe Run Peru had net sales, net income and EBITDA adjusted for certain non-recurring charges ("Adjusted EBITDA") of $431.9 million, $26.4 million and $50.7 million, respectively, for the twelve months ended October 31, 1997, including the period from October 23, 1997 through October 31, 1997, and net sales, net income and EBITDA (excluding intercompany transactions) of $224.9 million, $18.9 million and $36.2 million, respectively, for the six months ended April 30, 1998. Of Doe Run Peru's net sales, refined copper, silver, zinc, lead and gold accounted for 35%, 23%, 19%, 15% and 3%, respectively, for the twelve months ended October 31, 1997, and 25%, 34%, 17%, 13% and 4%, respectively, for the six months ended April 30, 1998, with the balance of net sales derived from sales of various by-products. For the twelve months ended December 31, 1997, Doe Run Peru was one of Peru's largest exporters, exporting approximately 80% of its total shipments to North America, Europe and Asia, as well as other Latin American countries. Doe Run Peru's customers include end-users of base metals and metal by-products, as well as international metal trading companies. Doe Run Peru's operations consist of smelting and refining complex concentrates that it purchases from unaffiliated mining operations. Doe Run Peru typically purchases concentrate feedstock pursuant to annual contracts at a price based on a percentage of the payable base metal and precious metal content of the concentrates. The price is reduced by processing fees or treatment charges to refine the concentrates, as well as by penalties charged to remove impurities within the concentrates, such as arsenic, antimony and bismuth. Base metal prices, treatment charges and penalties are generally established based upon prevailing market conditions by reference to prices in the world market, including on the LME. Currently, Doe Run Peru has entered into supply contracts, primarily with one-year terms, that meet approximately 95% of its concentrate requirements for fiscal 1998. Doe Run Peru pays concentrate suppliers for the majority of the metal content of the concentrates purchased and, thus, derives its operating profit primarily from treatment charges and penalties. In addition, Doe Run Peru generates operating profit from the sale of by-products, as well as from metals sold at a premium to the price paid for such metal. Moreover, since Doe Run Peru's metallurgical recoveries are typically in excess of the paid metal percentages, Doe Run Peru further increases its operating profit from the sale of the metal produced from such recoveries. The markets for Doe Run Peru's products are global and continue to grow as a result of worldwide economic growth. Given the diversity of its products and by-products, Doe Run Peru's financial performance is not solely dependent upon the prospects for any one of its products or by-products. Moreover, since Doe Run Peru is a processor of complex concentrates and does not presently own any mines from which it sources concentrates, Doe Run Peru's financial performance is less sensitive to the volatility of base metal prices. CONTROL OF THE COMPANY All of Doe Run's issued and outstanding capital stock is owned indirectly by Renco. In excess of 99% of the interests in Doe Run Peru is indirectly owned by Doe Run through Doe Run Cayman and Doe Run Mining (with a DE MINIMIS number of shares owned by employees of Doe Run Peru and Centromin pursuant to Peruvian law). 8 The following chart sets forth the corporate structure of Doe Run and the Guarantors. [GRAPHIC REPRESENTATION OF CORPORATE STRUCTURE] Renco is 97.9% owned by Mr. Ira Leon Rennert, the Chairman of Doe Run and Chairman and Chief Executive Officer of Renco, and by trusts established for himself and members of his family (but of which he is not a trustee). As a result of such ownership, Mr. Rennert controls the Company. 9 THE EXCHANGE OFFER The Exchange Offer.................. $1,000 principal amount of Fixed Rate Exchange Notes and Floating Rate Exchange Notes will be issued in exchange for each $1,000 principal amount of Fixed Rate Old Notes and Floating Rate Old Notes, respectively, validly tendered pursuant to the Exchange Offer. As of the date hereof, $200.0 million and $55.0 million in aggregate principal amount of Fixed Rate Old Notes and Floating Rate Old Notes, respectively, are outstanding. Doe Run will issue the Exchange Notes to tendering holders of Old Notes promptly after the Expiration Date. Resales............................. Based on an interpretation by the staff of the Commission set forth in Morgan Stanley & Co. Incorporated, SEC No-Action Letter (available June 5, 1991) (the "Morgan Stanley Letter"), Exxon Capital Holdings Corporation, SEC No-Action Letter (available May 13, 1988) (the "Exxon Capital Letter") and similar letters, Doe Run believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any person receiving such Exchange Notes, whether or not such person is the holder (other than any such holder or other person which is (i) a broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities, or (ii) an "affiliate" of Doe Run within the meaning of Rule 405 under the Securities Act (collectively, "Restricted Holders")) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that (a) such Exchange Notes are acquired in the ordinary course of business of such holder or other person (b) neither such holder nor such other person is engaged in or intends to engage in a distribution of such Exchange Notes and (c) neither such holder nor other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes. If any person were to be participating in the Exchange Offer for the purposes of participating in a distribution of the Exchange Notes in a manner not permitted by the Commission's interpretation, such person (a) could not rely upon the Morgan Stanley Letter, the Exxon Capital Letter or similar letters and (b) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Each broker or dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker or dealer as a result of market-making or other activities, must acknowledge that it will deliver a Prospectus in connection with any sale of such Exchange Notes. See "Plan of Distribution."
10 Expiration Date..................... 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. Accrued Interest on the Exchange Notes and Old Notes............... The Exchange Notes will bear interest from March 12, 1998. Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on such Old Notes accrued to the date of issuance of the Exchange Notes. Conditions to the Exchange Offer.... The Exchange Offer is subject to certain customary conditions. The conditions are limited and relate in general to proceedings which have been instituted or laws which have been adopted that might impair the ability of Doe Run to proceed with the Exchange Offer. As of the date of this Prospectus, none of these events had occurred, and Doe Run believes their occurrence to be unlikely. If any such conditions exist prior to the Expiration Date, Doe Run may (a) refuse to accept any Old Notes and return all previously tendered Old Notes, (b) extend the Exchange Offer or (c) waive such conditions. See "The Exchange Offer-- Conditions." Procedures for Tendering Old Notes............................. Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Old Notes to be exchanged and any other required documentation to State Street Bank and Trust Company, as exchange agent ("the Exchange Agent"), at the address set forth herein and therein. Tendered Old Notes, the Letter of Transmittal and accompanying documents must be received by the Exchange Agent by 5:00 p.m. New York City time, on the Expiration Date. See "The Exchange Offer--Procedures for Tendering." By executing the Letter of Transmittal, each holder will represent to Doe Run that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person is engaged in or intends to engage in a distribution of the Exchange Notes or has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes, and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of Doe Run. Special Procedures for Beneficial Holders........................... Any beneficial holder whose Old Notes are registered in the name of his broker, dealer, commercial bank, trust company
11 or other nominee and who wishes to tender in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial holder wishes to tender on his own behalf, such beneficial holder must, prior to completing and executing the Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such holder's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. See "The Exchange Offer--Procedures for Tendering." Guaranteed Delivery Procedures...... Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes and a properly completed Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date may tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures." Withdrawal Rights................... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Old Notes and Delivery of Exchange Notes................. Subject to certain conditions, Doe Run will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly after the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." Certain U.S. Federal Income Tax Considerations.................... The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will not be a taxable event for federal income tax purposes. A holder's holding period for Exchange Notes will include the holding period for Old Notes. For a discussion summarizing certain U.S. federal income tax consequences to holders of the Exchange Notes, see "Certain U.S. Federal Income Tax Considerations." Exchange Agent...................... State Street Bank and Trust Company is serving as Exchange Agent in connection with the Exchange Offer. The mailing address of the Exchange Agent is State Street Bank and Trust Company, Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Claire Young--Corporate Trust Department. Deliveries by hand or overnight courier should be addressed to State Street Bank and Trust Company, 61 Broadway, 15th Floor, New York, New York 10016, Attention: Corporate Trust Department. For information with respect to the Exchange Offer, call the Exchange Agent at telephone number: (860) 244-1846 or facsimile number: (860) 244-1881.
12 SUMMARY OF TERMS OF EXCHANGE NOTES The Exchange Offer constitutes an offer to exchange up to $200.0 million and $55.0 million aggregate principal amount of the Fixed Rate Exchange Notes and Floating Rate Exchange Notes, respectively, for up to an equal aggregate principal amount of Fixed Rate Old Notes and Floating Rate Old Notes, respectively. The Exchange Notes will be obligations of Doe Run evidencing the same indebtedness as the Old Notes, and will be entitled to the benefit of the same Indenture. The form and terms of the Fixed Rate Exchange Notes and Floating Rate Exchange Notes are substantially the same as the form and terms of the Fixed Rate Old Notes and Floating Rate Old Notes, respectively, except that the Exchange Notes have been registered under the Securities Act. See "Description of the Notes." COMPARISON WITH OLD NOTES Freely Transferable................. The Exchange Notes will be freely transferable under the Securities Act by holders who are not Restricted Holders. Restricted Holders are restricted from transferring the Exchange Notes without compliance with the registration and prospectus delivery requirements of the Securities Act. The Fixed Rate Exchange Notes and Floating Rate Exchange Notes will be identical in all material respects (including interest rate, maturity and restrictive covenants) to the Fixed Rate Old Notes and Floating Rate Old Notes, respectively, with the exception that the Exchange Notes will be registered under the Securities Act. See "The Exchange Offer--Terms of the Exchange Offer." Registration Rights................. The holders of Old Notes currently are entitled to certain registration rights pursuant to the Registration Rights Agreement, dated as of March 12, 1998 (the "Registration Rights Agreement"), by and among Doe Run, the Guarantors and BT Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and UBS Securities LLC, the initial purchasers of the Old Notes (the "Initial Purchasers"), including the right to cause Doe Run and the Guarantors to register the Old Notes under the Securities Act if the Exchange Offer is not consummated prior to the date on which the earliest of the following events occurs: (a) any change in law or in currently prevailing interpretations of the staff of the Commission do not permit Doe Run and the Guarantors to effect the Exchange Offer, (b) the Exchange Offer is not consummated within 180 days of March 12, 1988, the date the Old Notes were issued (the "Issue Date"), or (c) any holder of Old Notes that participates in the Exchange Offer does not receive freely transferable Exchange Notes and so notifies Doe Run and the Guarantors within 30 days after such holder first becomes aware of such condition (the "Exchange Offer Termination Date"). See "The Exchange Offer--Conditions." However, pursuant to the Registration Rights Agreement, such registration rights will expire upon consummation of the Exchange Offer. Accordingly, holders of Old Notes who do not exchange their Old Notes for Exchange Notes in the Exchange Offer will not be able to
13 reoffer, resell or otherwise dispose of their Old Notes unless such Old Notes are subsequently registered under the Securities Act or unless an exemption from the registration requirements of the Securities Act is available. TERMS OF THE EXCHANGE NOTES Securities Offered.................. $200.0 million aggregate principal amount of 11 1/4% Senior Notes due 2005, Series B. $55.0 million aggregate principal amount of Floating Interest Rate Senior Notes due 2003, Series B. Issuer.............................. The Doe Run Resources Corporation Guarantors.......................... Fabricated Products, Inc., Doe Run Cayman Ltd., Doe Run Mining S.R. Ltda. and Doe Run Peru S.R. Ltda. Maturity Date....................... The Floating Rate Exchange Notes will mature on March 15, 2003, and the Fixed Rate Exchange Notes will mature on March 15, 2005. Interest Payment Dates.............. Interest on the Exchange Notes will be payable semi-annually on each March 15 and September 15, commencing September 15, 1998. The Fixed Rate Exchange Notes will bear interest at a rate of 11 1/4% per annum. The Floating Rate Exchange Notes will bear interest at a rate per annum equal to LIBOR plus 6.29% (currently, 12.00875%). Interest on the Floating Rate Exchange Notes will be reset semi- annually. Ranking............................. The Exchange Notes and the Guarantees will be general unsecured obligations of Doe Run and of the Guarantors, respectively, and will rank senior in right of payment to all existing and future subordinated indebtedness of Doe Run and the Guarantors, respectively, and equally in right of payment with other senior indebtedness of Doe Run and the Guarantors, respectively, subject, in the case of the Guarantees of Doe Run Mining and Doe Run Peru, to statutorily preferred exceptions and statutorily mandated priorities based on the date of issuance with respect to payment of obligations under applicable Peruvian law. However, Doe Run's indebtedness under the New Doe Run Revolving Credit Facility is secured by substantially all of the current assets of Doe Run. In addition, Doe Run Peru has entered into the New Doe Run Peru Revolving Credit Facility, which is secured by substantially all of the current assets of Doe Run Peru. Holders of such secured indebtedness, and any other secured indebtedness of Doe Run and the Guarantors, will have claims that effectively rank prior to those of holders of Exchange Notes with respect to the assets securing such indebtedness. In addition, the Guarantee of Doe Run Peru will be contractually subordinated to the indebtedness of Doe Run Peru under the New Doe Run Peru Revolving Credit Facility. As of June 30, 1998, the Company had approximately $396.8 million of
14 indebtedness outstanding (including the Back-to-Back Loan of $125.0 million but exclusive of aggregate unused commitments of $129.7 million under the New Revolving Credit Facilities), and none of the Company's indebtedness was subordinated to the Old Notes. Optional Redemption................. The Fixed Rate Exchange Notes will be redeemable, in whole or in part, at the option of Doe Run, on or after March 15, 2002, and the Floating Rate Exchange Notes will be redeemable, in whole or in part, at the option of Doe Run, at any time, in each case at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, at any time on or prior to March 15, 2001, Doe Run may redeem up to 35% of the aggregate principal amount of the Fixed Rate Exchange Notes with the net cash proceeds of one or more offerings of capital stock of Doe Run (other than to any subsidiary of Doe Run), at a redemption price equal to 111.25% of the principal amount thereof, plus accrued interest to the date of redemption; PROVIDED that at least 65% of the aggregate principal amount of Fixed Rate Notes remains outstanding immediately after any redemption. See "Description of the Notes-- Redemption." Change of Control................... Upon a change of control of Doe Run, its direct parent corporation or its ultimate parent corporation, each holder of Exchange Notes will have the right to require Doe Run to repurchase such holder's Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. See "Description of the Notes--Certain Covenants--Change of Control." Certain Covenants................... The Indenture contains certain covenants that limit the ability of Doe Run and its Restricted Subsidiaries (as defined) to, among other things, incur additional indebtedness, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, incur liens, impose restrictions on the ability of a subsidiary to pay dividends or make certain payments to Doe Run and its Restricted Subsidiaries, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of Doe Run and its Restricted Subsidiaries. These restrictions and qualifications are subject to a number of important qualifications and exceptions. See "Description of the Notes--Certain Covenants."
For additional information regarding the Exchange Notes, see "Description of the Notes." 15 USE OF PROCEEDS Doe Run will not receive any proceeds from the Exchange Offer. See "Use of Proceeds." Doe Run has agreed to bear the expenses of the Exchange Offer pursuant to the Registration Rights Agreement. No underwriter is being used in connection with the Exchange Offer. See "--Recent Transactions and Events--Old Notes Offering" for a description of the use of proceeds from the Old Notes Offering. RECENT TRANSACTIONS AND EVENTS THE ACQUISITION Doe Run Peru consummated the Acquisition on October 23, 1997 pursuant to the terms of the Contract of Stock Transfer, Capital Increase and Stock Subscription (the "Subscription Agreement") whereby Doe Run Peru acquired in excess of 99.97% of Metaloroya's shares for approximately $247.0 million, which consisted of a capital contribution to Metaloroya of $126.5 million and a purchase price payment of $120.5 million. The Acquisition was structured as a direct subscription and payment for newly issued shares of Metaloroya representing a 51% ownership interest in Metaloroya and a contemporaneous purchase from Centromin of substantially all the previously outstanding shares, except for a DE MINIMIS number of shares purchased from Centromin pursuant to Peruvian law by employees of Centromin. In order to finance the Acquisition, Doe Run Mining borrowed $225.0 million in term loans under the Credit Agreement, dated as of October 23, 1997 (the "Existing Doe Run Mining Credit Facility," which was repaid in full with the proceeds of the Old Notes Offering (as defined) and thereupon terminated), among Doe Run Mining, as borrower, Doe Run, Doe Run Cayman, Doe Run Peru and Metaloroya, each as guarantors, and various financial institutions. In addition, Doe Run Mining received a $2.0 million capital contribution from Doe Run Cayman and a $23.0 million subordinated loan from Doe Run (the "Subordinated Loan"). Doe Run Mining used the foregoing funds to make a capital contribution to Doe Run Peru of approximately $248.0 million which was used to complete the Acquisition and for general corporate purposes. On December 30, 1997, the Merger of Metaloroya into Doe Run Peru was consummated with the surviving company being named Doe Run Peru S.R. Ltda. As part of the Subscription Agreement, Doe Run Peru is obligated to invest $120.0 million through October 23, 2002 (the "Investment Commitment") to expand and modernize Doe Run Peru's operations, including certain expenditures to comply with environmental regulations within Peru as set forth in the Programa de Adecuacion y Manejo Ambiental (Environmental Remedy and Management Program) (the "PAMA"), an environmental adjustment and management program. In the event that Doe Run Peru does not fulfill its obligations under the Investment Commitment, Doe Run Peru will be obligated to pay in 2002 a penalty payment to Centromin equal to 30% of any shortfall (a maximum of $36.0 million if none of the Investment Commitment is made during the five year period) (the "Penalty Payment"). As of March 31, 1998, Doe Run Peru had expended $1.2 million toward fulfillment of the Investment Commitment. In addition to term loans, the Existing Doe Run Mining Credit Facility provided for a working capital facility of $50.0 million, of which $3.0 million was drawn on the closing date of the Acquisition. As of October 31, 1997, Doe Run Mining had outstanding borrowings of $103.0 million under the Existing Doe Run Mining Credit Facility, $100.0 million in term loans and $3.0 million under the working capital facility. In addition, Doe Run Mining has an intercompany payable due to Doe Run Peru reflecting an interest free loan of $125.0 million made by Metaloroya to Doe Run Mining on the closing date of the Acquisition. The proceeds of the intercompany payable were used to reduce the outstanding term loans obtained by Doe Run Mining under the Existing Doe Run Mining Credit Facility to consummate the Acquisition. DOE RUN FINANCING As part of Renco's acquisition of Doe Run from Fluor Corporation ("Fluor") in April 1994, Doe Run undertook certain obligations to Fluor. These obligations included annual payments by Doe Run in exchange for an eight-year covenant not to compete, a profit participation arrangement and promissory notes (collectively, the "Fluor Indebtedness"). 16 Doe Run borrowed $130.0 million under a term loan (the "Doe Run Term Loan") pursuant to the Credit Agreement, dated as of October 23, 1997, among Doe Run, as borrower, DR Acquisition Corp. ("DRA"), as parent guarantor, Fabricated Products, Inc., as subsidiary guarantor, and various financial institutions. Doe Run used the net proceeds of the Doe Run Term Loan to pay $60.0 million to Fluor in full settlement of the Fluor Indebtedness, to make the Subordinated Loan and to make a $2.0 million capital contribution to Doe Run Cayman. In addition, Doe Run used a portion of the net proceeds of the Doe Run Term Loan to repay all amounts outstanding under Doe Run's then existing revolving credit facility and entered into a $100.0 million revolving credit facility (the "Existing Doe Run Revolving Credit Facility"). OLD NOTES OFFERING On March 12, 1998, Doe Run sold and issued the Old Notes (the "Old Notes Offering"). The net proceeds from the Old Notes Offering were approximately $248.6 million. Doe Run used $125.0 million of such net proceeds to make a deposit (the "Special Term Deposit") in a bank, which in turn loaned such amount (the "Back-to-Back Loan") to Doe Run Mining. The Special Term Deposit and the Back-to-Back Loan have payment terms that match the timing and amount of the payments on $125.0 million of the Fixed Rate Notes, except that additional interest of 0.50% for the first six months and 0.25% thereafter through September 2004 is payable on the Back-to-Back Loan. The Back-to-Back Loan is secured by the Special Term Deposit. Doe Run Mining used the proceeds of the Back-to-Back Loan to (i) repay amounts outstanding under the Existing Doe Run Mining Credit Facility and (ii) repay the Subordinated Loan from Doe Run of $23.0 million. Doe Run used the remaining approximately $123.6 million of the net proceeds from the Old Notes Offering, together with the proceeds from the repayment of the Subordinated Loan, to (i) repay amounts outstanding under the Doe Run Term Loan, (ii) repay amounts under the Existing Doe Run Revolving Credit Facility, (iii) redeem all of Doe Run's preferred stock held by Renco and pay accrued dividends thereon and (iv) pay related fees and expenses, including a transaction fee to Renco. The Old Notes Offering and the application of the proceeds therefrom are collectively referred to herein as the "Transactions." POTENTIAL ACQUISITIONS On July 28, 1998, Doe Run and ASARCO Incorporated ("ASARCO") entered into an Asset Purchase and Sale Agreement (the "Asset Purchase Agreement") pursuant to which Doe Run will purchase (the "Potential ASARCO MLD Acquisition") certain assets relating to ASARCO's Missouri Lead Division (the "ASARCO MLD"), including a smelter and refinery and two mines. The purchase price for these assets is approximately $54.5 million payable at closing, plus contingent deferred payments, if any. Such deferred payments are contingent upon prevailing LME lead prices during the five-year period subsequent to the Potential ASARCO MLD Acquisition. Specifically, Doe Run's obligations under the deferred purchase price arrangement are determined annually and are only due if the annual LME spot lead price exceeds $.28 per pound, with such payments not to exceed $12.5 million in the aggregate. See "Business--Potential Acquisition of ASARCO's Missouri Lead Division." On July 10, 1998, the Company was informed that it was the winning bidder to acquire the Cobriza mine and related assets located approximately 500 kilometers southeast of Lima, Peru and owned by Centromin. Doe Run Peru's La Oroya complex is located approximately 330 kilometers from the Cobriza mine between it and Lima. The Cobriza mine produces copper concentrates, all of which currently are purchased by Doe Run Peru. The Cobriza mine supplies approximately 40% of Doe Run Peru's copper concentrate requirements. The anticipated purchase price for these assets is approximately $7.5 million, $3.0 million of which is payable at closing, with the balance payable in equal annual installments over three years. This transaction is subject to satisfactory completion of the Company's due diligence review and negotiation of a definitive agreement to provide for, among other things, ownership structure, environmental and other liability allocations, capital contribution requirements and operational management. In 17 addition, certain regulatory and tax matters must be negotiated with the Peruvian government, and the Company must arrange satisfactory financing for the transaction. Accordingly, there can be no assurance that a definitive agreement related to this transaction will be entered into, that negotiations with the Peruvian government will result in a feasible transaction or that satisfactory financing can be obtained. RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered in evaluating an investment in the Exchange Notes. 18 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA The following tables set forth historical financial data of (i) the Company for each of the three fiscal years ended October 31, 1997, which have been derived from the Company's audited consolidated financial statements, and for the six months ended April 30, 1997 and 1998 and as of April 30, 1998, which are unaudited, (ii) Doe Run Peru's predecessors ("Doe Run Peru's Predecessor") for each of the two fiscal years ended December 31, 1996, which have been derived from Doe Run Peru's Predecessor's audited consolidated financial statements, and for the period November 1, 1996 to October 23, 1997 (the date of consummation of the Acquisition) and the six months ended April 30, 1997, which are unaudited, (iii) Doe Run Cayman for the six months ended April 30, 1998, which are unaudited, and (iv) pro forma financial data of the Company for the fiscal year ended October 31, 1997. The pro forma statement of operations data and other data for the fiscal year ended October 31, 1997 give effect to the Acquisition as if it had occurred on November 1, 1996. The information contained in this table should be read in conjunction with "Unaudited Pro Forma Consolidated Financial Data," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited financial statements of Doe Run and Doe Run Peru's Predecessor, and the notes thereto, included elsewhere herein. THE COMPANY
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, -------------------------------------------- -------------------- 1995 1996 1997 1997 1998 --------- --------- ---------------------- --------- --------- ACTUAL PRO FORMA --------- ----------- (DOLLARS AND TONS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales................................................. $ 225,143 $ 274,930 $ 280,467 $ 709,780 $ 135,905 $ 343,405 Cost of sales............................................. 180,398 215,489 234,351 608,812 108,478 283,105 Depletion, depreciation and amortization.................. 12,486 13,654 14,718 21,460 7,323 11,461 Selling, general and administrative expenses.............. 8,405 10,079 10,959 26,169 5,804 17,700 Exploration expense....................................... 1,926 2,912 2,705 2,705 1,365 1,599 --------- --------- --------- ----------- --------- --------- Operating income.......................................... 21,928 32,796 17,734 50,634 12,935 29,540 OTHER DATA: EBITDA(a)................................................. $ 34,282 $ 46,805 $ 32,415 $ 74,479 $ 20,264 $ 40,366 Capital expenditures...................................... 5,377 10,534 13,476 13,476 4,145 10,908 OTHER OPERATING DATA: Average LME lead price per pound(b)....................... $ .28 $ .35 $ .29 $ .31 $ .25 Tons of primary lead metal sold........................... 218.0 228.9 245.1 117.5 170.1 Tons of secondary lead metal sold......................... 27.9 39.7 44.1 13.5 22.8 Tons of secondary lead metal tolled....................... 52.4 51.7 60.9 29.4 25.4 Tons of zinc concentrates sold............................ 55.5 68.3 69.7 36.0 33.1 Tons of copper concentrates sold.......................... 23.9 31.3 26.6 12.8 9.5 Tons of copper metal sold................................. -- -- 0.8 -- 35.2 Ounces of silver metal sold (in millions)................. -- -- 0.1 -- 13.0 Tons of zinc metal sold................................... -- -- -- -- 39.7 Primary smelter lead tons per manshift(c)................. 2.1 2.2 2.4 2.5 2.6
19
AS OF APRIL 30, 1998 -------------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash........................................................................................................ $ 12,142 Working capital............................................................................................. 100,609 Property, plant and equipment, net.......................................................................... 205,867 Total assets................................................................................................ 566,878 Total debt (including current portion)...................................................................... 390,576 Shareholders' equity........................................................................................ 15,876
DOE RUN PERU'S PREDECESSOR AND DOE RUN CAYMAN
DOE RUN PERU'S PREDECESSOR(D) ---------------------------------------------- DOE RUN PERIOD CAYMAN(E) YEAR ENDED NOVEMBER 1, SIX MONTHS ----------- DECEMBER 31, 1996 TO ENDED APRIL SIX MONTHS -------------------- OCTOBER 23, 30, ENDED APRIL 1995 1996 1997(F) 1997 30, 1998(G) --------- --------- ----------- ----------- ----------- (DOLLARS AND TONS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales............................................ $ 450,929 $ 456,797 $ 429,313 $ 217,731 $ 227,359 Cost of sales........................................ 397,524 397,158 364,901 177,535 181,631 Depreciation and amortization........................ 4,729 5,353 5,623 2,753 3,396 Selling, general and administrative expenses......... 15,950 17,420 18,524 10,435 16,870 --------- --------- ----------- ----------- ----------- Operating income..................................... 32,726 36,866 40,265 27,008 25,462 OTHER DATA: EBITDA(a)............................................ $ 35,657 $ 18,702 $ 45,025 $ 28,323 $ 28,496 Adjusted EBITDA(h)................................... 38,161 47,716 50,190 31,614
OTHER OPERATING DATA: Tons of lead metal sold.............................. 98.7 104.1 106.7 52.4 55.4 Tons of copper metal sold............................ 70.0 71.3 68.9 35.7 35.2 Ounces of silver metal sold (in millions)............ 19.6 21.2 20.4 10.0 13.0 Tons of zinc metal sold.............................. 74.3 77.6 71.0 35.4 39.7 Average LME copper price per pound................... $ 1.33 $ 1.04 $ 1.07 $ 1.07 $ .80 Average LBMA silver price per ounce(i)............... 5.20 5.10 4.79 4.90 5.96 Average LME zinc price per pound..................... .47 .47 .59 .52 .50
- ------------------------------ (a) EBITDA is defined as net income (loss) before extraordinary item plus the sum of net interest expense, income taxes and depletion, depreciation and amortization. The trends of EBITDA generally follow the trends of operating income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the recent trends of operating income. Information regarding EBITDA is presented because management believes that certain investors use EBITDA as one measure of an issuer's ability to service its debt. EBITDA should not be considered an alternative to, or more meaningful than, operating income or cash flow as an indicator of an issuer's operating performance. EBITDA is not necessarily a measure of the funds available for debt service because such funds could be used to fund operating requirements or other expenditures required by the Company's business instead of debt service. Furthermore, caution should be used in comparing EBITDA to similarly titled measures of other companies as the definitions of these measures may vary. (b) The average lead price per pound realized by Doe Run generally is at a premium over the average LME price. (c) Primary smelter lead tons per manshift is computed by dividing metal produced at Doe Run by the shifts required to produce the related tons. Shifts are computed by dividing the sum of actual hours worked during the period for hourly employees and 52 hours per week for salaried employees by eight hours. (d) Metaloroya was acquired by Doe Run Peru effective October 23, 1997. (e) Doe Run Cayman, a wholly-owned subsidiary of Doe Run, is the parent company of Doe Run Mining and currently has no independent operations. (f) Doe Run Cayman's net sales, operating income and EBITDA for the eight-day period October 23, 1997 to October 31, 1997 were $2.6 million, $.4 million and $.5 million, respectively. (g) These results include intercompany transactions. Net sales, cost of sales and selling, general and administrative expense excluding the effects of intercompany transactions were $224.9 million, $179.3 million and $9.1 million, respectively. (h) Adjusted EBITDA is defined as EBITDA adjusted for the following non-recurring charges: (i) for 1995, $2.5 million relating to personnel reduction costs, (ii) for 1996, $3.9 million relating to personnel reduction costs, $21.6 million relating to one-time environmental expenses and $3.6 million relating to privatization costs, (iii) for the period November 1, 1996 to October 23, 1997, $3.2 million relating to privatization costs and $2.0 million relating to personnel reduction costs and (iv) for the six months ended April 30, 1997, $2.8 million relating to privatization costs and $.5 million relating to personnel reduction costs. (i) "LBMA" means the London Bullion Market Association. 20 RISK FACTORS PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION APPEARING IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE EXCHANGE NOTES. SUBSTANTIAL INDEBTEDNESS The Company has substantial indebtedness and debt service requirements. As of June 30, 1998, the Company had $396.8 million of indebtedness outstanding (including the Back-to-Back Loan of $125.0 million but exclusive of aggregate unused commitments of $129.7 million under the New Revolving Credit Facilities), and none of the Company's indebtedness was subordinated to the Old Notes. Pro forma long-term debt as of April 30, 1998, would have been $445.1 million, reflecting the financing of the Potential ASARCO MLD Acquisition of $54.5 million. In addition, the Indenture permits the Company to incur certain other indebtedness. See "Description of the Notes--Certain Covenants--Limitation on Indebtedness." The Company's level of indebtedness will have several important effects on its future operations, including the following: (a) a significant portion of the Company's cash flow from operations will be dedicated to the payment of interest on its indebtedness and will not be available for other purposes, (b) the financial covenants and other restrictions contained in the New Revolving Credit Facilities require Doe Run and Doe Run Peru, as applicable, to meet certain financial tests and limit their ability to borrow additional funds or to dispose of assets and (c) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired. In addition, the ability of the Company to meet its debt service obligations and to reduce its total debt will be dependent upon its future performance, which will be subject to general economic conditions and to financial, business and other factors affecting its operations, many of which are beyond their control. Moreover, an inability of Doe Run or Doe Run Peru to meet the financial covenants contained in the New Revolving Credit Facilities or other indebtedness could result in an acceleration of amounts due thereunder. Doe Run was not in compliance with the minimum net worth and maximum leverage ratio covenants under the Doe Run Term Loan and the Existing Doe Run Revolving Credit Facility for the fiscal quarter ended January 31, 1998, for which Doe Run received waivers. RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS The terms and conditions of the New Revolving Credit Facilities and the Indenture impose restrictions that affect, among other things, the ability of the Company to incur debt, pay dividends, make acquisitions, create liens, make capital expenditures and make certain investments. The ability of the Company to comply with the foregoing provisions can be affected by events beyond the Company's control. The breach of any of these covenants could result in a default under the Company's indebtedness, including the New Revolving Credit Facilities and the Indenture. In the event of any such default, depending on the actions taken by the lenders under the New Revolving Credit Facilities, Doe Run may be unable to make any payments of principal or interest on the Exchange Notes for a period of time. In addition, the lenders under the New Revolving Credit Facilities could elect to declare all amounts borrowed, together with accrued and unpaid interest, to be due and payable. If Doe Run or Doe Run Peru, as the case may be, were unable to repay such amounts, the lenders under the New Revolving Credit Facilities could proceed against certain collateral. If such indebtedness under the New Revolving Credit Facilities were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full such indebtedness and the other indebtedness of the Company, including the Exchange Notes. See "Description of New Revolving Credit Facilities" and "Description of the Notes." 21 DEPENDENCE ON CASH FLOW FROM PERUVIAN SUBSIDIARIES The Company is dependent upon payments from Doe Run Mining and Doe Run Peru, including loans, advances, distributions and dividends from Doe Run Peru, to meet a portion of its debt service requirements. Doe Run, Doe Run Mining and Doe Run Peru have entered into various intercompany agreements which provide for certain payments to Doe Run. See "Certain Transactions--Intercompany Transactions." The Company believes that these intercompany agreements and the availability of dividends, distributions, loans or advances from Doe Run Mining or Doe Run Peru will provide Doe Run sufficient funds, combined with Doe Run's available resources, to adequately service Doe Run's debt service requirements. However, no assurance can be given that such amounts will be sufficient or that changes in the laws of Peru will not adversely affect such payments, loans, advances, distributions or dividends. See "--Governmental Regulation." VOLATILITY OF BASE METAL PRICES; TREATMENT CHARGES AND PENALTIES Base metal prices fluctuate and are affected by numerous factors beyond the Company's control, including expectations for inflation, speculative activities, global and regional demand and production, political and economic conditions and production costs in major producing regions. The aggregate effect of these factors is impossible for the Company to predict; however, these factors could have a material adverse effect on the results of operations, financial condition and liquidity of the Company. If the market price for lead falls below Doe Run's production costs and remains at such level for a sustained period, Doe Run will experience losses and may curtail or discontinue the development of a project or mining at one or more of its properties. In fiscal 1992 and 1993, Doe Run experienced operating losses due in part to unfavorable lead prices. As of June 30, 1998, the LME price for lead was $.25 per pound, which was below the ten-year average price of $.28 per pound. As a result of the recent lead price decreases, the Company expects that it will incur an operating loss in its U.S. operations that will adversely affect its EBITDA in fiscal 1998. There can be no assurance that lead prices will not decrease further in the future to levels resulting in operating losses for Doe Run. If Doe Run Peru acquires the Cobriza mine, it would become an integrated copper producer and, as such, Doe Run Peru's results of operations and financial condition would be sensitive to copper price fluctuations. If base metal prices, treatment charges or penalties fall to such levels that Doe Run Peru cannot cover its production costs and remain at such levels for a sustained period, or result in the closure of the mines providing concentrate feedstock, Doe Run Peru will experience losses. There can be no assurance that base metal prices, treatment charges or penalties will not decrease in the future to levels resulting in operating losses for Doe Run Peru. While the Company may periodically use hedging techniques to reduce a portion of its exposure to the volatility of base metal prices, there can be no assurance that it will be able to do so effectively. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Liquidity and Capital Resources--Hedging Activities." GOVERNMENTAL REGULATION The mining operations of Doe Run are subject to inspection and regulation by the Mine Safety and Health Administration of the Department of Labor ("MSHA") under provisions of the Federal Mine Safety and Health Act of 1977. All other operations of Doe Run are subject to inspection and regulation by the Occupational Safety and Health Administration of the Department of Labor ("OSHA") under the provisions of the Occupational Safety and Health Act of 1970. It is Doe Run's policy to comply with the directives and regulations of MSHA and OSHA. In addition, Doe Run takes such necessary actions as, in its judgment, are required to provide for the safety and health of its employees. MSHA and OSHA 22 directives have had no material adverse impact on Doe Run's results of operations or financial condition, and Doe Run believes that it is substantially in compliance with the regulations promulgated by MSHA and OSHA; however, compliance with new, more stringent MSHA and/or OSHA directives could have a material adverse effect on results of operations, financial condition and liquidity of Doe Run. In connection with the Acquisition, Doe Run Peru, Doe Run Mining and Doe Run Cayman entered into a series of agreements (the "Stabilization Agreements") with two Peruvian government agencies, the Ministry for Energy and Mines (the "MEM") and the National Commission for Foreign Investments. Pursuant to terms of the Stabilization Agreements, the Peruvian government has guaranteed that, for a period of ten years from the date of the Acquisition, Doe Run Peru, Doe Run Mining and Doe Run Cayman will not be adversely affected by changes in Peruvian legal regimes relating to, among other things, income tax, employment, free access to foreign exchange, right to remit investments and profits outside Peru and non-discrimination based on non-Peruvian ownership. No assurance can be given that the Peruvian government will not impose other conditions that may adversely affect Doe Run Peru's business, financial condition or results of operations or that there will not be changes in Peruvian legal regimes that will adversely affect Doe Run Peru, Doe Run Mining or Doe Run Cayman after the expiration of the Stabilization Agreements. ENVIRONMENTAL MATTERS AND CLAIMS Doe Run is subject to numerous federal, state and local environmental laws and regulations governing, among other things, air emissions, waste water discharge, solid and hazardous waste storage, treatment and disposal, and remediation of releases of hazardous materials. Doe Run also is a defendant in four lawsuits filed in 1995 claiming property damage and personal injury from alleged releases of lead from the Herculaneum smelter. Punitive damages are also being sought in these cases. Environmental laws and regulations have changed rapidly in recent years and may become more stringent in the future. Insurance against environmental risks (including potential for pollution or other hazards as a result of disposal of waste products occurring from mining, milling and smelting) is not generally available to Doe Run or to other companies within the industry. Should Doe Run be unable to fund fully the cost of compliance or of remediating an environmental problem, Doe Run might be required to suspend operations or enter into interim compliance measures requiring additional expenditures pending completion of the required remedy. Compliance with environmental laws and regulations, as well as personal injury and property and other damage claims, could have a material adverse effect on Doe Run's results of operations, financial condition and liquidity. See "Business--Doe Run--Environmental Matters." Doe Run Peru is subject to numerous environmental laws and regulations enacted in the last ten years in Peru governing, among other things, air emissions, waste water discharge, solid and hazardous waste storage, treatment and disposal, and remediation of releases of hazardous materials. The current and future application of these laws and regulations to Doe Run Peru is modified by certain agreements with the MEM, a Peruvian governmental agency. Given the developing nature of environmental law and enforcement policies in Peru, however, there can be no assurance that the Peruvian government will not in the future require compliance with additional environmental requirements that could adversely affect Doe Run Peru's business, financial condition or results of operations. Further, there can be no assurance that the Peruvian government or other interested persons will not seek changes in the future to the terms and conditions of any of the agreements made by Doe Run Peru with the MEM that may adversely affect Doe Run Peru's business, financial conditions or results of operations. Doe Run Peru also is subject to claims for alleged personal injury and property and other damages resulting from release of certain substances into the environment, including lead, to the extent such liabilities were not retained and are not satisfied by Centromin. Compliance with environmental laws and regulations, as well as personal injury and property and other damage claims, could have a material adverse effect on Doe Run Peru's business, financial condition or results of operations. Insurance against environmental risks (including potential for pollution or other hazards as a result of disposal of waste products occurring from exploration and production) is not 23 generally available to Doe Run Peru or to other companies within the industry. To the extent Doe Run Peru is subject to environmental liabilities, the payment of such liabilities would reduce its available funds. Should Doe Run Peru be unable to fund fully the cost of remediating an environmental problem, it could be required to suspend operations or take interim compliance measures pending completion of the required remedy. See "Business--Doe Run Peru--Environmental Matters." OPERATING RISKS The business of mining is generally subject to a number of risks and hazards, including environmental hazards, industrial accidents, labor disputes, encountering unusual or unexpected geologic formations, cave-ins, rockbursts, flooding and periodic interruptions due to inclement or hazardous weather conditions. Such risks could result in damage to, or destruction of, mineral properties or producing facilities, personal injury, environmental damage, delays in mining, monetary losses and possible legal liability. Although Doe Run maintains insurance within ranges of coverage consistent with industry practice, no assurance can be given that such insurance will be available at economically feasible premiums. In July 1992, Doe Run experienced a strike by the workers at the Herculaneum smelter resulting in metal output significantly lower than planned levels and higher operating expenses due to increased security costs and outside services. Although Doe Run's work force is no longer significantly unionized, there can be no assurance that Doe Run will not experience labor disputes in the future. In July and August 1993, production at the Herculaneum smelter was curtailed significantly due to flooding of the Mississippi River. There can be no assurance that Doe Run's operations will not be adversely affected in the future by flooding or other adverse conditions beyond Doe Run's control. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." The business of smelting and refining complex concentrates generally is subject to a number of risks and hazards, including environmental hazards, industrial accidents and labor disputes. Such risks could result in personal injury, environmental damage, delays in operation, monetary losses and possible legal liability. Although Doe Run Peru maintains insurance within ranges of coverage consistent with industry practice, no assurance can be given that such insurance will be available at economically feasible premiums. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." FACTORS RELATING TO DOE RUN DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS Doe Run relies heavily on a small number of customers which purchase a significant portion of its lead to produce lead-acid batteries. Johnson Controls, Inc. ("JCI") purchased lead and tolling services representing approximately 12% of Doe Run's fiscal 1997 net sales. In addition, Big River Zinc Corporation ("Big River") purchased zinc concentrates representing approximately 10% of Doe Run's fiscal 1997 net sales. The loss of any of Doe Run's largest customers or curtailment of purchases by such customers could have a material adverse effect on the results of operations, financial condition and liquidity of Doe Run. DEPENDENCE ON LEAD-ACID BATTERY USE Doe Run sells a significant portion of its lead production for use in lead-acid batteries. Lead-acid battery producers or their suppliers accounted for approximately 63% of Doe Run's fiscal 1997 net sales. The obsolescence of, or any curtailment in the use of, lead-acid batteries could have a material adverse effect on the results of operations, financial condition and liquidity of Doe Run. RESERVES The ore reserve figures presented in this Prospectus are, in large part, estimates made by Doe Run's technical personnel, and no assurance can be given that the indicated level of recovery of these metals will 24 be realized. Market price fluctuations of lead, as well as increased production costs or reduced recovery rates, may render ore reserves containing relatively lower grades of mineralization uneconomic and may ultimately result in a restatement of reserves. Moreover, short-term operating factors relating to the ore reserves, such as the need for sequential development of ore bodies and the processing of new or different ore grades, may adversely affect Doe Run's results of operations in any particular accounting period. Doe Run assumes certain metal prices for its mineral reserve calculations, which approximate current market prices, but these lead prices may vary from current market prices based on a number of factors likely to influence lead prices over the near term. See "Business--Doe Run--Reserves." EXPLORATION AND DEVELOPMENT Doe Run competes to acquire properties producing or capable of producing lead and other minerals, conducts exploration activities and engages in development projects. As a result of the competition for property, some of which is with companies with greater financial resources than Doe Run, Doe Run may be unable to acquire attractive mining properties on terms it considers acceptable. Mineral exploration is highly speculative in nature, involves many risks and frequently is nonproductive, and there can be no assurance that Doe Run's mineral exploration efforts will be successful. Once mineralization is discovered, it may take a number of years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Doe Run's ability to increase its production longevity is dependent on the successful development of new ore bodies and/or expansion of existing mining operations. It is possible that actual cash operating costs and economic returns of any and all development projects may materially differ from the estimated costs and returns. Accordingly, there can be no assurance that Doe Run's programs will yield new reserves to expand and replace existing reserves that are being depleted by current production. FACTORS RELATING TO DOE RUN PERU EXPANSION AND MODERNIZATION PROGRAM Doe Run Peru is undertaking an expansion and modernization program to enhance its competitive position and financial performance and to comply with certain environmental regulatory requirements (see "Business--Doe Run Peru--Environmental Matters") and the Subscription Agreement related to the Acquisition. Doe Run Peru believes that it will invest approximately $195.0 million over ten years in order to comply with such environmental requirements. Under the Subscription Agreement, Doe Run Peru has five years to fulfill its $120.0 million Investment Commitment. The maximum penalty that may be assessed for failure to comply with the Investment Commitment of the Subscription Agreement is 30% of the unfulfilled Investment Commitment. Doe Run Peru has developed a ten-year Capital Investment Program of approximately $300.0 million designed to improve its operations, as well as to address these environmental requirements and fulfill the Investment Commitment. Although management expects that cash from existing and future operations and available borrowings under the New Doe Run Peru Revolving Credit Facility and from anticipated borrowings in the future will be sufficient to cover the costs of Doe Run Peru's Capital Investment Program, there can be no assurance that Doe Run Peru will not be required to seek additional funds in order to complete its expansion and modernization program. Upon the incurrence of any borrowings under the New Doe Run Peru Revolving Credit Facility, there can be no assurance that Doe Run Peru's increased leverage will not have an adverse impact on Doe Run Peru's liquidity. If additional funds are necessary, there can be no assurance that Doe Run Peru will be able to obtain the required funds on terms and conditions acceptable to it. If such additional financing is unavailable, Doe Run Peru may have to delay completion of the expansion and modernization program until additional financing or sufficient internally generated funds become available, and any such delay could have a material adverse effect on the business, financial condition or results of operations of Doe Run Peru. 25 AVAILABILITY OF CONCENTRATES Doe Run Peru, as presently constituted, does not own any of the mines from which it sources concentrates. Accordingly, Doe Run Peru purchases all of its concentrates feedstock requirements from unaffiliated mining operations. Doe Run Peru obtains approximately 84% of its copper concentrates from the Peruvian domestic market, approximately 48% of which are sourced from the Cobriza mine. All of Doe Run Peru's lead and zinc concentrates are sourced from the Peruvian domestic market. Doe Run Peru's current concentrate contracts are predominately for one-year terms expiring December 31, 1998. There can be no assurance that these contracts will be renewed or that, if renewed, they will not be on terms less favorable to Doe Run Peru. The closure of mines supplying concentrates due to exhaustion of reserves, low metals prices or otherwise or the inability of Doe Run Peru to obtain concentrates, or to obtain them on favorable terms, could have a material adverse effect on the business, financial condition or results of operations of Doe Run Peru. SUPPLY AND COST OF RAW MATERIALS In addition to concentrates feedstock, Doe Run Peru's operations are heavily dependent on the supply of various raw materials, including water, hydroelectric power, oxygen, coal and fluxes. Doe Run Peru produces its oxygen requirements from its oxygen plant and extracts limestone and silica fluxes from deposits close to its facility. Doe Run Peru purchases its coal requirements through annual contracts based on market prices. Doe Run Peru has entered into a long-term contract with Empresa de Electricidad de Los Andes, S.A. ("Electroandes") to supply its electricity needs on satisfactory terms, though at costs higher than those paid by Doe Run Peru's Predecessor. The availability of raw materials could be affected by natural disasters or other factors beyond Doe Run Peru's control. Any protracted interruption in the availability of any raw materials could have a material adverse effect on the business, financial condition or results of operations of Doe Run Peru. LABOR MATTERS Approximately 89% of Doe Run Peru's workforce is represented by labor unions. Doe Run Peru recently entered into new five-year collective bargaining agreements with its labor unions. Although management believes its present labor relations are generally good, in the past, work stoppages and strikes have occurred. There can be no assurance that a work stoppage or strike will not occur prior to the expiration of the current labor agreements or during negotiations for new labor agreements (including extensions of the existing labor agreements) or as to the effect of any such work stoppage or strike on Doe Run Peru's production levels. Work stoppages or other labor-related developments affecting Doe Run Peru could have a material adverse effect on the business, financial condition or results of operations of Doe Run Peru. See "Business--Doe Run Peru--Employees" and "--Benefit Plans." ENFORCEABILITY OF JUDGMENTS UNDER PERUVIAN LAW Substantially all of the assets of Doe Run Peru are located in Peru. In the event that the holders of Exchange Notes were to obtain a judgment in the United States against Doe Run Mining or Doe Run Peru and seek to enforce such judgment in Peru, the holders' ability to enforce the judgment in Peru would be subject to Peruvian laws regarding recognition and enforcement of foreign judgments. According to the rules of recognition and enforcement of foreign judgments provided by the Peruvian Civil Code, a judgment issued by a competent court outside Peru would be recognized and enforced by Peruvian courts provided that there is in effect a treaty between the country where said foreign court sits and Peru, regarding the recognition and enforcement of foreign judgments. In the absence of such treaty, as is the case between the United States and Peru, Peruvian courts will give to the foreign judgment the same force and treatment that is given by the country where such foreign court sits to the judgments enacted by Peruvian courts, PROVIDED that the foreign judgment complies with the following statutory limitations set forth in Article 2104 of the Peruvian Civil Code: (i) the judgment must not resolve matters for which 26 exclusive jurisdiction of Peruvian courts applies (I.E., disputes relating to real estate located in Peru); (ii) the competence of the foreign court which issued the judgment must be recognized by Peruvian conflicts of law rules; (iii) the party against whom the judgment was obtained must have been properly served in connection with the foreign proceedings; (iv) the judgment of the foreign court must be a final judgment, not subject to any further appeal; (v) no pending proceedings may exist in Peru among the same parties and on the same subject; (vi) the judgment by the foreign court cannot be in violation of public policy; and (vii) the foreign court must grant reciprocal treatment to judgments issued by Peruvian courts. FACTORS RELATING TO PERU POLITICAL AND ECONOMIC SITUATION IN PERU During the past 30 years, Peru has experienced political instability under both civilian and military governments. These governments have pursued various policies, including frequent intervention in the economic and social structure. Past governments have imposed controls on prices, exchange rates, local and foreign investment and international trade, restricted the ability of companies to dismiss employees, expropriated private sector assets, and prohibited the remittance of profits to foreign investors and payments to foreign creditors. In 1974, the government of Peru expropriated the assets of Doe Run Peru's Predecessor and transferred them to Centromin, a government-owned conglomerate. Since the current administration took office in July 1990, the Peruvian government has implemented a broad-based reform of Peru's political system, economy and social conditions, aimed at stabilizing the economy, restructuring the national government by reducing bureaucracy, privatizing state-owned companies, promoting private investment, developing and strengthening free markets, institutionalizing democratic representations, and enacting programs for the strengthening of basic services related to education, health, housing and infrastructure. Its then existing congressional body was dissolved in April 1992, and a new democratically elected congressional body was established in November 1992. A new Constitution was enacted and ratified in the fourth quarter of 1993. Under the current administration, inflation, as measured by the Peruvian Banco Central de Reserva (the "Central Bank"), has decreased from 7,649.7% in 1990 to 11.8% for 1996 and 6.5% for 1997. In addition, Peru's gross domestic product ("GDP"), as measured by the Central Bank, in real terms increased by 6.4% in 1993, 13.1% in 1994, 7.2% in 1995, 2.6% in 1996 and 7.4% in 1997. Notwithstanding the progress achieved in restructuring Peru's political institutions and revitalizing the economy during the administration's first term, there can be no assurance that the current administration or future administrations can sustain such progress. While the Peruvian economy has experienced strong growth in recent years, there can be no assurance that such growth will continue at similar rates in the future or at all. Doe Run Peru's financial condition and results of operations could be adversely affected by changes in economic or other policies of the Peruvian government, including the trend toward privatization, or other political or economic developments in Peru. EXCHANGE CONTROLS During the 1970s and 1980s, government policies restricted the ability of companies in Peru to, among other things, repatriate funds and import products, including oil, from abroad. In addition, currency exchange rates were strictly controlled and all export sales revenues were required to be deposited in the Central Bank where they were exchanged from U.S. dollars to the then local currency at less-than-market rates of exchange. The current Peruvian legal framework imposes no restrictions on the ability of a company operating in Peru to transfer foreign currency from Peru to other countries or to convert Peruvian currency into foreign currency or foreign currency into Peruvian currency. Prior to 1991, Peru had restrictive exchange controls and exchange rates. In the 1970s and 1980s, all foreign exchange proceeds were required to be deposited with the Central Bank. There can be no assurance that the Peruvian government will continue its current policy of permitting currency transfers and conversions without 27 restriction or that Doe Run Peru would be able to service its debt obligations in a timely manner were the Peruvian government to reinstitute exchange controls. Notwithstanding the foregoing, certain of the Stabilization Agreements relate to free access to foreign exchange. However, no assurance can be given that there will not be changes in the Peruvian legal regimes that could adversely effect Doe Run Peru, Doe Run Mining or Doe Cayman upon expiration of the Stabilization Agreements. TERRORIST ACTIVITY Peru experienced significant terrorist activity in the 1980s and early 1990s, during which period terrorist groups escalated their acts of violence against the government, the private sector and Peruvian residents. According to Peruvian government estimates, terrorist activity in Peru during the last sixteen years has resulted in an estimated 25,000 deaths and damage to property and the economy estimated at $25 billion. There has been substantial progress in suppressing terrorist activity since 1990, in part as a result of the arrest of the leaders and approximately 2,000 members of the two principal terrorist groups. Approximately 6,000 additional persons have agreed to cooperate with the government under an amnesty law. Notwithstanding the success achieved, some incidents of terrorist activity continue to occur, including the recently resolved hostage incident at the residence of the ambassador of Japan to Peru. Although Doe Run Peru has implemented certain anti-terrorist practices, there can be no assurance that future terrorist activity will not have a material adverse effect on the business, financial condition or results of operations of Doe Run Peru. INFLATION AND CURRENCY DEVALUATION Peru has in the past experienced high levels of inflation. However, the inflation rate in Peru, as measured by the Central Bank consumer price index, has fallen from 7,649.7% in 1990 to 139.2% in 1991, 56.7% in 1992, 39.5% in 1993, 15.4% in 1994, 10.2% in 1995, 11.8% in 1996 and 6.5% in 1997. Although the Peruvian government's stabilization plan has reduced inflation significantly, there can be no assurance that domestic inflation will not increase from its current level. In addition, the Peruvian currency has been devalued numerous times during the last twenty years. The devaluation rate, as measured by the Central Bank, was 4,012.9% in 1990, 77.0% in 1991, 69.8% in 1992, 31.9% in 1993, 1.4% in 1994, 6.0% in 1995, 12.6% in 1996 and 5.9% in 1997. A portion of the operating costs of Doe Run Peru are denominated in nuevos soles and therefore could be significantly affected by the rate of inflation in Peru. If inflation in Peru were to increase significantly without a corresponding devaluation of the nuevo sol, the financial condition and results of operations of Doe Run Peru could be materially and adversely affected. CONTROL BY RENCO Doe Run and the Guarantors are indirect subsidiaries of Renco, of which Mr. Ira Leon Rennert is the controlling shareholder. As a result of his indirect ownership of Doe Run and the Guarantors, Mr. Rennert is, and will continue to be, able to direct and control the policies of Doe Run and the Guarantors, including mergers, sales of assets and similar transactions. ABSENCE OF A PUBLIC MARKET The Exchange Notes will be new securities for which there is currently no public market. Doe Run does not intend to list the Exchange Notes on any national securities exchange or quotation system. The Initial Purchasers have advised Doe Run that they currently intend to make a market in the Exchange Notes, but they are not obligated to do so and, if commenced, may discontinue such market making at any time. Accordingly, there can be no assurance as to the development of any market or liquidity of any market that may develop for the Exchange Notes. To the extent that Old Notes are tendered and accepted 28 in the Exchange Offer, the aggregate principal amount of Old Notes outstanding will decrease, with a resulting decrease in the liquidity of the market therefor. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of the Old Notes set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. In general, Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Doe Run currently does not anticipate that it will register the Old Notes under the Securities Act. USE OF PROCEEDS Doe Run will not receive any proceeds from the Exchange Offer. In consideration for issuing the Fixed Rate Exchange Notes and Floating Rate Exchange Notes as contemplated in this Prospectus, Doe Run will receive in exchange Fixed Rate Old Notes and Floating Rate Old Notes, respectively, of like principal amount, the terms of which are identical in all material respects to the Fixed Rate Exchange Notes and Floating Rate Exchange Notes, respectively. The Old Notes surrendered in exchange for Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase in the indebtedness of Doe Run. Doe Run has agreed to bear the expenses of the Exchange Offer pursuant to the Registration Rights Agreement. No underwriter is being used in connection with the Exchange Offer. See "Prospectus Summary--Recent Transactions--Old Notes Offering" for a description of the use of proceeds from the Old Notes Offering. 29 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of April 30, 1998 on an actual basis and as adjusted for the Potential ASARCO MLD Acquisition. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes thereto appearing elsewhere herein.
AS OF APRIL 30, 1998 ----------------------- ACTUAL AS ADJUSTED ---------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Long-term debt (including current portion): New Doe Run Revolving Credit Facility(a)............................................ $ 4,681 $ 4,681 New Doe Run Peru Revolving Credit Facility(b)....................................... -- -- Fixed Rate Old Notes................................................................ 200,000 200,000 Floating Rate Old Notes............................................................. 55,000 55,000 Back-to-Back Loan(c)................................................................ 125,000 125,000 Financing for Potential ASARCO MLD Acquisition(d)................................... -- 54,500 Industrial revenue bonds............................................................ 895 895 ---------- ----------- Total long-term debt.................................................................. $ 385,576 $ 440,076 Doe Run Peru short-term borrowings.................................................... 5,000 5,000 ---------- ----------- Total debt............................................................................ $ 390,576 $ 445,076 Shareholders' equity: Common stock, par value $.10 per share, 1,000 shares authorized, issued and outstanding....................................................................... 0 0 Additional paid-in capital.......................................................... 5,000 5,000 Retained earnings................................................................... 10,876 10,876 ---------- ----------- Total shareholders' equity............................................................ 15,876 15,876 ---------- ----------- Total capitalization.................................................................. $ 406,452 $ 460,952 ---------- ----------- ---------- -----------
- ------------------------ (a) Represents the $100.0 million New Doe Run Revolving Credit Facility which will expire in March 2001. See "Description of New Revolving Credit Facilities--New Doe Run Revolving Credit Facility." (b) Represents the $40.0 million New Doe Run Peru Revolving Credit Facility. See "Description of Revolving Credit Facilities--New Doe Run Peru Revolving Credit Facility." (c) Represents a $125.0 million loan to Doe Run Mining from proceeds of the Old Notes Offering deposited in a bank by Doe Run. See "Prospectus Summary--Recent Transactions--Old Notes Offering." (d) Represents the financing of the purchase price for the assets of the ASARCO MLD. 30 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following unaudited pro forma balance sheet data has been prepared to give effect to the Potential ASARCO MLD Acquisition as if it had occurred on April 30, 1998. The following unaudited pro forma consolidated statement of operations and other data has been prepared to give effect to the Acquisition by Doe Run Peru of Metaloroya from Centromin, a Peruvian government-owned conglomerate, as part of the ongoing privatization program sponsored by the government of Peru and the Transactions, consisting of the Old Notes Offering, repayment of amounts outstanding under the Existing Doe Run Mining Credit Facility, repayment of the Subordinated Loan of $23.0 million from Doe Run to Doe Run Mining, repayment of amounts under the Doe Run Term Loan, repayment of amounts under the Existing Doe Run Revolving Credit Facility, redemption of all of Doe Run's preferred stock held by Renco and payment of accrued dividends thereon and payment of related fees and expenses. The unaudited pro forma as adjusted consolidated statement of operations and other data give further effect to the Potential ASARCO MLD Acquisition. The unaudited pro forma consolidated statement of operations and other data for the year ended October 31, 1997 give effect to the Acquisition and the Transactions and for the six months ended April 30, 1998 give effect to the Transactions as if they had occurred on November 1, 1996. The unaudited pro forma as adjusted consolidated statement of operations and other data for the year ended October 31, 1997 and for the six months ended April 30, 1998 give further effect to the Potential ASARCO MLD Acquisition as if it had occurred on November 1, 1996. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. Pro forma adjustments are applied to account for the Acquisition and the Potential ASARCO MLD Acquisition under the purchase method of accounting. Under the purchase method of accounting, the total purchase price was allocated to Doe Run Peru's or ASARCO MLD's, as the case may be, assets and liabilities based on their relative fair values. The pro forma consolidated financial information has been prepared in accordance with U.S. GAAP and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the audited financial statements of Doe Run, Doe Run Peru's Predecessor and the ASARCO MLD, and the notes thereto, and the other financial information included elsewhere herein. The unaudited pro forma consolidated financial data do not purport to be indicative of the results which would have actually been obtained had the Acquisition, the Transactions and the Potential ASARCO MLD Acquisition been consummated on the dates indicated or which may be expected to occur in the future. 31 THE DOE RUN RESOURCES CORPORATION UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET APRIL 30, 1998 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ADJUSTMENTS FOR THE POTENTIAL ASARCO MLD HISTORICAL ACQUISITION(A) PRO FORMA ---------- -------------- ------------- ASSETS Current assets: Cash.............................................................. $ 12,142 $ -- $ 12,142 Trade accounts receivable, net of allowance for doubtful accounts........................................................ 66,927 -- 66,927 Inventories....................................................... 100,867 9,500 110,367 Prepaid expenses and other current assets......................... 29,543 -- 29,543 ---------- ------- ------------- Total current assets............................................ 209,479 9,500 218,979 Property, plant and equipment, net.................................. 205,867 46,233 252,100 Special term deposit................................................ 125,000 -- 125,000 Net deferred tax assets............................................. 9,145 -- 9,145 Other noncurrent assets, net........................................ 17,387 -- 17,387 ---------- ------- ------------- Total assets.................................................... $ 566,878 $ 55,733 $ 622,611 ---------- ------- ------------- ---------- ------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt...... $ 5,895 $ -- $ 5,895 Accounts payable.................................................... 50,725 -- 50,725 Accrued liabilities................................................. 42,783 727 43,510 Net deferred tax liabilities........................................ 9,467 -- 9,467 ---------- ------- ------------- Total current liabilities......................................... 108,870 727 109,597 Long-term debt, less current maturities............................... 384,681 54,500 439,181 Postretirement benefits............................................... 12,608 -- 12,608 Reclamation and environmental costs................................... 31,085 506 31,591 Other noncurrent liabilities.......................................... 13,758 -- 13,758 ---------- ------- ------------- Total liabilities................................................. 551,002 55,733 606,735 Shareholders' equity: Common stock, $.10 par value, 1,000 shares authorized, issued, and outstanding....................................................... -- -- -- Additional paid in capital.......................................... 5,000 -- 5,000 Retained earnings................................................... 10,876 -- 10,876 ---------- ------- ------------- Total shareholders' equity........................................ 15,876 -- 15,876 ---------- ------- ------------- Total liabilities and shareholders' equity........................ $ 566,878 $ 55,733 $ 622,611 ---------- ------- ------------- ---------- ------- -------------
32 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET APRIL 30, 1998 (a) Represents the estimated purchase price allocation related to the Potential ASARCO MLD Acquisition and the related financing. This allocation is management's best estimate at this time and is subject to refinement at the closing date of the Potential ASARCO MLD Acquisition. 33 THE DOE RUN RESOURCES CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1998 (DOLLARS IN THOUSANDS)
ADJUSTMENTS FOR THE ADJUSTMENTS POTENTIAL FOR THE ASARCO ASARCO MLD PRO FORMA HISTORICAL TRANSACTIONS PRO FORMA MLD(A) ACQUISITION AS ADJUSTED ---------- ------------ ----------- --------- ----------- ----------- Net sales.................................... $ 343,405 $ -- $ 343,405 $ 34,543 $ -- $ 377,948 Costs and expenses: Cost of sales.............................. 283,105 -- 283,105 29,801 (639)(b) 312,267 Depletion, depreciation and amortization... 11,461 -- 11,461 4,300 (1,052)(c) 14,709 Selling, general and administrative expenses................................. 17,700 -- 17,700 2,349 (1,929)(d) 18,120 Exploration expense........................ 1,599 -- 1,599 -- -- 1,599 ---------- ------------ ----------- --------- ----------- ----------- Total costs and expenses................. 313,865 -- 313,865 36,450 (3,620) 346,695 ---------- ------------ ----------- --------- ----------- ----------- Income from operations................... 29,540 -- 29,540 (1,907) 3,620 31,253 Other income (expense): Interest expense........................... (14,505) (8,278)(e) (22,783) -- (3,066)(f) (25,849) Interest income............................ 2,359 -- 2,359 -- -- 2,359 Other, net................................. (635) -- (635) -- -- (635) ---------- ------------ ----------- --------- ----------- ----------- (12,781) (8,278) (21,059) -- (3,066) (24,125) Income before income taxes and extraordinary item..................... 16,759 (8,278) 8,481 (1,907) 554 7,128 Income tax expense (benefit)................. 5,761 (2,897)(g) 2,864 (100) (374)(g) 2,390 ---------- ------------ ----------- --------- ----------- ----------- Income (loss) before extraordinary item................................... $ 10,998 $ (5,381) $ 5,617 $ (1,807) $ 928 $ 4,738 ---------- ------------ ----------- --------- ----------- ----------- ---------- ------------ ----------- --------- ----------- ----------- Other data: EBITDA(h)................................ $ 40,366 $ 45,327
34 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1998 (a) Represents the historical results of operations of the ASARCO MLD for the period November 1, 1997 to April 30, 1998. (b) Represents the difference between the salaries, wages and benefits reflected in the historical results of operations of the ASARCO MLD and those that would have been expensed under Doe Run's programs, into which substantially all of the employees of the ASARCO MLD will be enrolled pursuant to the Asset Purchase Agreement. (c) Reflects the decrease in depreciation based upon allocating the effective purchase price to the fair value of the assets to be purchased in the Potential ASARCO MLD Acquisition. (d) Represents primarily the elimination of selling, general and administrative expenses allocated to the ASARCO MLD by ASARCO in the historical results of operations. Doe Run does not intend to incur additional corporate overhead costs as a result of the Potential ASARCO MLD Acquisition. (e) Pro forma interest expense reflects the elimination of historical interest expense due to the retirement of substantially all of the existing debt obligations. Interest expense, as adjusted, includes interest of $14.6 million on the Old Notes, interest on the Back-to-Back Loan of $7.2 million and amortization of debt issuance costs totaling $1.0 million. The pro forma consolidated statement of operations does not reflect interest income on the Special Term Deposit of $7.0 million. (f) Reflects incremental interest at 11.25% on debt obligations of $54.5 million to finance the Potential ASARCO MLD Acquisition. (g) Reflects the income tax effect of pro forma adjustments at, and adjusts the ASARCO MLD tax provision to, an assumed statutory tax rate of 35%. (h) EBITDA is defined as net income (loss) before extraordinary item plus the sum of net interest expense, income taxes and depletion, depreciation and amortization. The trends of EBITDA generally follow the trends of operating income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of recent trends of operating income. Information regarding EBITDA is presented because management believes that certain investors use EBITDA as one measure of an issuer's ability to service its debt. EBITDA should not be considered an alternative to, or more meaningful than, operating income or cash flow as an indicator of an issuer's operating performance. EBITDA is not necessarily a measure of the funds available for debt service because such funds could be used to fund operating requirements or other expenditures required by the Company's business instead of debt service. Furthermore, caution should be used in comparing EBITDA to similarly titled measures of other companies as the definitions of these measures may vary. 35 THE DOE RUN RESOURCES CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1997 (DOLLARS IN THOUSANDS)
DOE RUN ADJUSTMENTS ADJUSTMENTS PERU'S FOR THE FOR THE ASARCO HISTORICAL PREDECESSOR(A) ACQUISITION TRANSACTIONS PRO FORMA MLD(I) ----------- --------------- ------------- ------------ ----------- ----------- Net sales........................... $ 280,467 $ 429,313 $ -- $ -- $ 709,780 $ 85,308 Costs and expenses: Cost of sales..................... 234,351 364,901 9,560(b) -- 608,812 68,429 Depletion, depreciation and amortization.................... 14,718 5,623 1,119(c) -- 21,460 8,209 Selling, general and administrative expenses......... 10,959 18,524 (3,314)(d) -- 26,169 4,954 Exploration expense............... 2,705 -- -- -- 2,705 -- ----------- --------------- ------------- ------------ ----------- ----------- Total costs and expenses........ 262,733 389,048 7,365 -- 659,146 81,592 ----------- --------------- ------------- ------------ ----------- ----------- Income from operations.......... 17,734 40,265 (7,365) -- 50,634 3,716 Other income (expense): Interest expense.................. (13,740) (1,211) -- (30,798)(e) (45,749) -- Interest income................... 21 -- -- -- 21 -- Other, net........................ (37) (863) 3,285(f) -- 2,385 -- ----------- --------------- ------------- ------------ ----------- ----------- (13,756) (2,074) 3,285 (30,798) (43,343) -- Income before income taxes and extraordinary item............ 3,978 38,191 (4,080) (30,798) 7,291 3,716 Income tax expense (benefit)........ 4,331 11,513 482(g) (10,779)(h) 5,547 (168) ----------- --------------- ------------- ------------ ----------- ----------- Income (loss) before extraordinary item............ $ (353) $ 26,678 $ (4,562) $ (20,019) $ 1,744 $ 3,884 ----------- --------------- ------------- ------------ ----------- ----------- ----------- --------------- ------------- ------------ ----------- ----------- EBITDA(o)......................... $ 74,479 ADJUSTMENTS FOR THE POTENTIAL ASARCO MLD PRO FORMA ACQUISITION AS ADJUSTED ----------- ----------- Net sales........................... $ -- $ 795,088 Costs and expenses: Cost of sales..................... (1,562)(i) 675,679 Depletion, depreciation and amortization.................... (1,712)(k) 27,957 Selling, general and administrative expenses......... (4,134)(l) 26,989 Exploration expense............... -- 2,705 ----------- ----------- Total costs and expenses........ (7,408) 733,330 ----------- ----------- Income from operations.......... 7,408 61,758 Other income (expense): Interest expense.................. (6,131)(m) (51,880) Interest income................... -- 21 Other, net........................ -- 2,385 ----------- ----------- (6,131) (49,474) Income before income taxes and extraordinary item............ 1,277 12,284 Income tax expense (benefit)........ 1,916(n) 7,295 ----------- ----------- Income (loss) before extraordinary item............ $ (639) $ 4,989 ----------- ----------- ----------- ----------- EBITDA(o)......................... $ 92,100
36 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1997 (a) Represents the historical results of operations for Doe Run Peru's Predecessor for the period from November 1, 1996 through October 23, 1997. (b) Represents a $9.6 million increase in power costs associated with a market-price contract negotiated in conjunction with the Acquisition. (c) Reflects the increase in depreciation and amortization, based upon allocating the effective purchase price to the fair values of the assets purchased in the Acquisition. (d) Represents the elimination of $2.0 million of unusual personnel reduction costs related to the privatization program and a decrease of $1.3 million in workers' profit sharing expense as a result of the adjustments. (e) Pro forma interest expense reflects the elimination of historical interest expense due to the retirement of substantially all of the existing debt obligations. Interest expense, as adjusted, includes interest of $29.1 million on the Old Notes, interest on the Back-to-Back Loan of $14.5 million, amortization of debt issuance costs totaling $2.0 million and $.1 million on other obligations. The pro forma consolidated statement of operations does not reflect interest income on the Special Term Deposit of $14.1 million. (f) Represents the elimination of $3.2 million of costs related to the privatization program and $.1 million of tax fines and penalties that would not have been incurred had the Acquisition occurred on November 1, 1996. (g) Represents the income tax effects of the above adjustments at the U.S. statutory rate, which reduced income tax expense by $1.4 million. The adjustment also reflects the incremental U.S. tax at a rate of 5% on the income before taxes of Doe Run Peru's Predecessor for the period from November 1, 1996 to October 23, 1997, which increased income tax expense by $1.9 million. (h) Reflects the income tax effect of the pro forma adjustments at an assumed statutory tax rate of 35%. (i) Represents the historical results of operations of the ASARCO MLD for the period from January 1, 1997 to December 31, 1997. (j) Represents the difference between the salaries, wages and benefits reflected in the historical results of operations of the ASARCO MLD and those that would have been expensed under Doe Run's programs, into which substantially all of the employees of the ASARCO MLD will be enrolled pursuant to the Asset Purchase Agreement. (k) Represents the decrease in depreciation based upon allocating the effective purchase price to the fair value of the assets to be purchased in the Potential ASARCO MLD Acquisition. (l) Represents primarily the elimination of selling, general and administrative expenses allocated to the ASARCO MLD by ASARCO in the historical results of operations. Doe Run does not intend to incur additional corporate overhead costs as a result of the Potential ASARCO MLD Acquisition. (m) Reflects incremental interest at 11.25% on debt obligations of $54.5 million to finance the Potential ASARCO MLD Acquisition. (n) Reflects the income tax effect of pro forma adjustments at, and adjusts the ASARCO MLD tax provision to, an assumed statutory rate of 35%. (o) EBITDA is defined as net income (loss) before extraordinary item plus the sum of net interest expense, income taxes and depletion, depreciation and amortization. The trends of EBITDA generally follow the trends of operating income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the recent trends of operating income. Information regarding EBITDA is presented because management believes that certain investors use EBITDA as one measure of an issuer's ability to service its debt. EBITDA should not be considered an alternative to, or more meaningful than, operating income or cash flow as an indicator of an issuer's operating performance. EBITDA is not necessarily a measure of the funds available for debt service because such funds could be used to fund operating requirements or other expenditures required by the Company's business instead of debt service. Furthermore, caution should be used in comparing EBITDA to similarly titled measures of other companies as the definitions of these measures may vary. 37 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following tables set forth historical financial data of (i) Doe Run's predecessor ("Doe Run's Predecessor") as of and for the year ended October 31, 1993 and for the five months ended March 31, 1994, which have been derived from Doe Run's Predecessor's unaudited consolidated financial statements, (ii) the Company as of and for the seven months ended October 31, 1994 and as of and for each of the three fiscal years ended October 31, 1997, which have been derived from the Company's audited consolidated financial statements, and for the six months ended April 30, 1997 and as of and for the three months ended April 30, 1998, which are unaudited, (iii) Doe Run Peru's Predecessor as of and for each of the three fiscal years ended December 31, 1996 and for the period January 1, 1997 to October 23, 1997 (the date of consummation of the Acquisition), which have been derived from Doe Run Peru's Predecessor's audited consolidated financial statements, and for the period November 1, 1996 to October 23, 1997 and the six months ended April 30, 1997, which are unaudited, and (iv) Doe Run Cayman as of and for the six months ended April 30, 1998, which are unaudited. The information contained in this table should be read in conjunction with "Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited financial statements of Doe Run and Doe Run Peru's Predecessor, and the notes thereto, included elsewhere herein. DOE RUN'S PREDECESSOR AND THE COMPANY
DOE RUN'S PREDECESSOR(A) THE COMPANY -------------------------------------------------------------------------------------------- FIVE SEVEN YEAR MONTHS MONTHS SIX MONTHS ENDED ENDED ENDED ENDED YEAR ENDED OCTOBER 31, APRIL 30, OCTOBER 31, MARCH 31, OCTOBER 31, ------------------------------- -------------------- 1993(B) 1994 1994 1995 1996 1997 1997 1998 ----------- ----------- ----------- --------- --------- --------- --------- --------- (DOLLARS AND TONS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales........................... $ 121,101 $ 70,668 $ 123,335 $ 225,143 $ 274,930 $ 280,467 $ 135,905 $ 343,405 Cost of sales....................... 140,107 65,511 102,582 180,398 215,489 234,351 108,478 283,105 Depletion, depreciation and amortization...................... 22,515 8,808 6,251 12,486 13,654 14,718 7,323 11,461 Selling, general and administrative expenses.......................... 8,243 3,295 4,360 8,405 10,079 10,959 5,804 17,700 Exploration expense................. 1,525 271 912 1,926 2,912 2,705 1,365 1,599 ----------- ----------- ----------- --------- --------- --------- --------- --------- Operating income (loss)............. (51,289) (7,217) 9,230 21,928 32,796 17,734 12,935 29,540 Interest expense.................... 206 65 8,375 14,361 14,348 13,740 7,568 14,505 Interest income..................... 404 31 12 140 113 21 2 2,359 Other income (expense).............. 1,684 (652) 151 (132) 355 (37) 6 (635) ----------- ----------- ----------- --------- --------- --------- --------- --------- Income (loss) before income tax expense and extraordinary item.... (49,407) (7,903) 1,018 7,575 18,916 3,978 5,375 16,759 Income tax expense.................. -- -- 2,523 3,252 6,451 4,331 1,826 5,761 ----------- ----------- ----------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item.............................. (49,407) (7,903) (1,505) 4,323 12,465 (353) 3,549 10,998 Extraordinary item net of income tax benefit........................... -- -- -- -- -- (1,062) (314) (6,607) ----------- ----------- ----------- --------- --------- --------- --------- --------- Net income (loss)................... $ (49,407) $ (7,903) $ (1,505) $ 4,323 $ 12,465 $ (1,415) $ 3,235 $ 4,391 ----------- ----------- ----------- --------- --------- --------- --------- --------- ----------- ----------- ----------- --------- --------- --------- --------- --------- FINANCIAL RATIOS AND OTHER DATA: EBITDA(c)........................... $ (27,090) $ 939 $ 15,632 $ 34,282 $ 46,805 $ 32,415 $ 20,264 $ 40,366 Capital expenditures................ 9,487 2,146 1,599 5,377 10,534 13,476 4,145 10,908 Ratio of earnings to fixed charges(d)........................ -- -- 1.12x 1.51x 2.19x 1.22x 1.59x 2.06x
38
DOE RUN'S PREDECESSOR(A) THE COMPANY -------------------------------------------------------------------------------------------- FIVE SEVEN SIX MONTHS ENDED YEAR MONTHS MONTHS ENDED ENDED ENDED YEAR ENDED OCTOBER 31, APRIL 30, OCTOBER 31, MARCH 31, OCTOBER 31, ------------------------------- -------------------- 1993(B) 1994 1994 1995 1996 1997 1997 1998 ----------- ----------- ----------- --------- --------- --------- --------- --------- (DOLLARS AND TONS IN THOUSANDS) OTHER OPERATING DATA: Average LME lead price per pound(e)........................... $ .19 $ .21 $ .25 $ .28 $ .35 $ .29 $ .31 $ .25 Tons of primary lead metal sold...... 169.2 92.4 134.5 218.0 228.9 245.1 117.5 170.1 Tons of secondary lead metal sold.... 39.1 18.9 22.1 27.9 39.7 44.1 13.5 22.8 Tons of secondary lead metal tolled............................. 26.4 15.1 23.3 52.4 51.7 60.9 29.4 25.4 Tons of zinc concentrates sold....... 35.9 20.1 23.3 55.5 68.3 69.7 36.0 33.1 Tons of copper concentrates sold..... 17.5 11.9 15.5 23.9 31.3 26.6 12.8 9.5 Tons of copper metal sold............ -- -- -- -- -- 0.8 -- 35.2 Ounces of silver metal sold (in millions).......................... -- -- -- -- -- 0.1 -- 13.0 Tons of zinc metal sold.............. -- -- -- -- -- -- -- 39.7 Primary smelter lead tons per manshift(f)........................ 2.0 2.0 2.0 2.1 2.2 2.4 2.5 2.6
DOE RUN'S PREDECESSOR(A) THE COMPANY ---------------------------------------------------------------------- AS OF AS OF OCTOBER 31, OCTOBER 31, ------------------------------------------ AS OF APRIL 1993 1994 1995 1996 1997 30, 1998 ------------- --------- --------- --------- --------- ----------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash................................................ -- -- -- -- $ 8,943 $ 12,142 Working capital..................................... $ 51,057 $ 35,373 $ 32,571 $ 33,989 76,951 100,609 Property, plant and equipment, net.................. 131,926 109,700 102,606 104,162 206,348 205,867 Total assets........................................ 212,993 197,563 195,246 203,914 380,841 566,878 Total debt (including current portion).............. 4,952 98,834 90,645 82,791 234,740 390,576 Shareholders' equity................................ 122,536 5,995 10,318 20,830 14,174 15,876
39 DOE RUN PERU'S PREDECESSOR AND DOE RUN CAYMAN
DOE RUN DOE RUN PERU'S PREDECESSOR(G) CAYMAN(H) ----------------------------------------------------------------------------------- PERIOD PERIOD JANUARY 1, NOVEMBER 1, YEAR ENDED DECEMBER 31, 1997 TO 1996 TO SIX MONTHS SIX MONTHS ------------------------------- OCTOBER 23, OCTOBER 23, ENDED APRIL ENDED APRIL 1994 1995 1996 1997 1997(I) 30, 1997 30, 1998(J) --------- --------- --------- ----------- ----------- ----------- ----------- (DOLLARS AND TONS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales................ $ 367,057 $ 450,929 $ 456,797 $ 352,805 $ 429,313 $ 217,731 $ 227,359 Cost of sales............ 339,302 397,524 397,158 305,959 364,901 177,535 181,631 Depreciation and amortization........... 4,448 4,729 5,353 4,730 5,623 2,753 3,396 Selling, general and administrative expenses............... 11,097 15,950 17,420 13,805 18,524 10,435 16,870 --------- --------- --------- ----------- ----------- ----------- ----------- Operating income......... 12,210 32,726 36,866 28,311 40,265 27,008 25,462 Interest expense......... 6,784 2,100 3,332 832 1,211 770 5,667 Interest income.......... -- -- -- -- -- -- 456 Other income (expense)... (402) (1,798) (23,517) (1,217) (863) (1,438) (362) --------- --------- --------- ----------- ----------- ----------- ----------- Income before income tax expense and extraordinary item..... 5,024 28,828 10,017 26,262 38,191 24,800 19,889 Income tax expense....... 2,803 10,332 4,128 7,879 11,513 7,495 6,668 Income before extraordinary item..... -- -- -- -- -- 17,305 13,221 Extraordinary item net of income tax benefit..... -- -- -- -- -- -- (2,369) --------- --------- --------- ----------- ----------- ----------- ----------- Net income............... $ 2,221 $ 18,496 $ 5,889 $ 18,383 $ 26,678 $ 17,305 $ 10,852 --------- --------- --------- ----------- ----------- ----------- ----------- --------- --------- --------- ----------- ----------- ----------- ----------- OTHER DATA: EBITDA(c)................ $ 16,256 $ 35,657 $ 18,702 $ 31,824 $ 45,025 $ 28,323 $ 28,496 Adjusted EBITDA(k)....... 16,256 38,161 47,716 36,514 50,190 31,614 OTHER OPERATING DATA: Tons of lead metal sold................... 95.1 98.7 104.1 87.1 106.7 52.4 55.4 Tons of copper metal sold................... 65.6 70.0 71.3 56.7 68.9 35.7 35.2 Ounces of silver metal sold (in millions)..... 18.5 19.6 21.2 17.3 20.4 10.0 13.0 Tons of zinc metal sold................... 72.6 74.3 77.6 58.4 71.0 35.4 39.7 Average LME copper price per pound.............. $ 1.05 $ 1.33 $ 1.04 $ 1.07 $ 1.07 $ 1.07 $ .80 Average LBMA silver price per ounce.............. 5.28 5.20 5.10 4.77 4.79 4.90 5.96 Average LME zinc price per pound.............. 0.45 0.47 0.47 0.61 0.59 .52 .50
DOE RUN PERU'S PREDECESSOR(G) DOE RUN CAYMAN(H) --------------------------------------------------------- AS OF DECEMBER 31, AS OF AS OF ------------------------------- OCTOBER 31, APRIL 30, 1994 1995 1996 1997 1998 --------- --------- --------- ----------- ----------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash..................................................... $ 61 $ 62 $ 582 $ 7,364 $ 12,142 Working capital.......................................... 6,081 54,208 44,319 7,713 50,415 Property, plant and equipment, net....................... 46,092 55,557 50,814 97,739 95,921 Total assets............................................. 146,482 188,474 148,314 170,969 223,219 Total debt (including current portion)................... 23,160 19,626 15,068 103,000 130,000 Net assets............................................... 51,481 107,667 78,575 1,729 12,581
(FOOTNOTES COMMENCE ON FOLLOWING PAGE) 40 (a) Doe Run was acquired by Renco effective as of April 1, 1994. (b) Results for fiscal 1993 were affected by a strike at the Herculaneum smelter and curtailment of production at the Herculaneum smelter due to flooding of the Mississippi River. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." (c) EBITDA is defined as net income (loss) before extraordinary item plus the sum of net interest expense, income taxes and depletion, depreciation and amortization. The trends of EBITDA generally follow the trends of operating income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the recent trends of operating income. Information regarding EBITDA is presented because management believes that certain investors use EBITDA as one measure of an issuer's historical ability to service its debt. EBITDA should not be considered an alternative to, or more meaningful than, operating income or cash flow as an indicator of an issuer's operating performance. EBITDA is not necessarily a measure of the funds available for debt service because such funds could be used to fund operating requirements or other expenditures required by the Company's business instead of debt service. Furthermore, caution should be used in comparing EBITDA to similarly titled measures of other companies as the definitions of these measures may vary. (d) Fixed charges consist of cash interest expense net of interest income, capitalized interest, amortization of deferred financing costs and the portion of rental expense that is representative of interest expense. Earnings consist of income before income tax expense and extraordinary item plus fixed charges less capitalized interest. (e) The average lead price per pound realized by Doe Run generally is at a premium over the average LME price. (f) Primary smelter lead tons per manshift is computed by dividing metal produced at Doe Run by the shifts required to produce the related tons. Shifts are computed by dividing the sum of actual hours worked during the period for hourly employees and 12 hours per week for salaried employees by eight hours. (g) Metaloroya was acquired by Doe Run Peru effective October 23, 1997. (h) Doe Run Cayman, a wholly-owned subsidiary of Doe Run, is the parent company of Doe Run Mining and currently has no independent operations. (i) Doe Run Cayman's net sales, operating income and EBITDA for the eight-day period October 23, 1997 to October 31, 1997 were $2.6 million, $.4 million and $.5 million, respectively. (j) These results include intercompany transactions. Net sales, cost of sales and selling, general and administrative expenses excluding the effects of intercompany transactions were $224.9 million, $179.3 million and $9.1 million, respectively. (k) Adjusted EBITDA is defined as EBITDA adjusted for the following non-recurring charges: (i) for 1995, $2.5 million relating to personnel reduction costs, (ii) for 1996, $3.9 million relating to personnel reduction costs, $21.6 million relating to one-time environmental expenses and $3.6 million relating to privatization costs, (iii) for the period January 1, 1997 to October 23, 1997, $3.2 million relating to privatization costs and $1.5 million relating to personnel reduction costs, (iv) for the period November 1, 1996 to October 23, 1997, $3.2 million relating to privatization costs and $2.0 million relating to personnel reduction costs and (v) for the six months ended April 30, 1997, $2.0 million relating to privatization costs and $.5 million relating to personnel reduction costs. 41 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER GENERAL In connection with the sale of Old Notes to the Initial Purchasers pursuant to the Purchase Agreement, dated March 6, 1998, among Doe Run, the Guarantors and the Initial Purchasers, the holders of the Old Notes became entitled to the benefits of the Registration Rights Agreement. Under the Registration Rights Agreement, Doe Run became obligated to (a) file a registration statement in connection with a registered exchange offer within 60 days after the Issue Date, and (b) cause the registration statement relating to such registered exchange offer to become effective within 150 days after the Issue Date. The Exchange Offer being made hereby, if consummated within the required time periods, will satisfy Doe Run's obligations under the Registration Rights Agreement. Doe Run understands that there are approximately beneficial owners of such Old Notes. This Prospectus, together with the Letter of Transmittal, is being sent to all such beneficial holders known to Doe Run. Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, Doe Run will accept all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. Doe Run will issue $1,000 principal amount of Fixed Rate Exchange Notes and Floating Rate Exchange Notes in exchange for each $1,000 principal amount of outstanding Fixed Rate Old Notes and Floating Rate Old Notes, respectively, accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. Based on an interpretation by the staff of the Commission set forth in the Morgan Stanley Letter, the Exxon Capital Letter and similar letters, Doe Run believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any person who received such Exchange Notes, whether or not such person is the holder (other than Restricted Holders) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's or other person's business, neither such holder nor such other person is engaged in or intends to engage in any distribution of the Exchange Notes and such holders or other persons have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. If any person were to be participating in the Exchange Offer for the purposes of participating in a distribution of the Exchange Notes in a manner not permitted by the Commission's interpretation, such person (a) could not rely upon the Morgan Stanley Letter, the Exxon Capital Letter or similar letters and (b) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as result of market-making activities or other trading activities. Doe Run has agreed that, for a period of 180 days after consummation of the Exchange Offer, it will make this Prospectus, which Doe Run will update, amend or supplement from time to time as required by applicable law or regulations, available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 42 Doe Run will not receive any proceeds from the Exchange Offer. See "Use of Proceeds." Doe Run has agreed to bear the expenses of the Exchange Offer pursuant to the Registration Rights Agreement. No underwriter is being used in connection with the Exchange Offer. Doe Run shall be deemed to have accepted validly tendered Old Notes when, as and if Doe Run has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Old Notes for the purposes of receiving the Exchange Notes from Doe Run and delivering Exchange Notes to such holders. If any tendered Old Notes are not accepted for exchange because of an invalid tender or the occurrence of certain conditions set forth herein under "--Conditions" without waiver by Doe Run, certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders of Old Notes who tender in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. Doe Run will pay all charges and expenses, other than certain applicable taxes in connection with the Exchange Offer. See "--Fees and Expenses." In the event the Exchange Offer is consummated, Doe Run will not be required to register the Old Notes. In such event, holders of Old Notes seeking liquidity in their investment would have to rely on exemptions to registration requirements under the securities laws, including the Securities Act. See "Risk Factors--Consequences of Failure to Exchange." EXPIRATION DATE; EXTENSIONS; AMENDMENT The term "Expiration Date" shall mean the expiration date set forth on the cover page of this Prospectus, unless Doe Run, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date to which the Exchange Offer is extended. In order to extend the Expiration Date, Doe Run will notify the Exchange Agent of any extension by oral or written notice and will issue a public announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Such announcement may state that Doe Run is extending the Exchange Offer for a specified period of time. Doe Run reserves the right (a) to delay accepting any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer and not accept Old Notes not previously accepted if any of the conditions set forth herein under "--Conditions" shall have occurred and shall not have been waived by Doe Run (if permitted to be waived by Doe Run), by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (b) to amend the terms of the Exchange Offer in any manner deemed by it to be advantageous to the holders of the Old Notes. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof. If the Exchange Offer is amended in a manner determined by Doe Run to constitute a material change, Doe Run will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the Old Notes of such amendment, and Doe Run may extend the Exchange Offer for a period of up to ten business days, depending upon the significance of the amendment and the manner of disclosure to holders of the Old Notes, if the Exchange Offer would otherwise expire during such extension period. Without limiting the manner in which Doe Run may choose to make public announcement of any extension, amendment or termination of the Exchange Offer, Doe Run shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. 43 INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest from March 12, 1998, payable semiannually on March 15 and September 15 of each year, commencing September 15, 1998, at the rate of 11 1/4% per annum in the case of the Fixed Rate Exchange Notes and at a rate per annum equal to LIBOR plus 6.29% in the case of the Floating Rate Exchange Notes. Interest on the Floating Rate Exchange Notes will be reset semi-annually. Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on the Old Notes accrued up until the date of the issuance of the Exchange Notes. PROCEDURES FOR TENDERING To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by instruction 3 of the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Old Notes and any other required documents. To be validly tendered, such documents must reach the Exchange Agent on or before 5:00 p.m., New York City time, on the Expiration Date. The tender by a holder of Old Notes will constitute an agreement between such holder and Doe Run in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Delivery of all documents must be made to the Exchange Agent at its address set forth below. Holders may also request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect such tender for such holders. The method of delivery of Old Notes and the Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the holders. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to the Exchange Agent on or before 5:00 p.m. New York City time, on the Expiration Date. No Letter of Transmittal or Old Notes should be sent to Doe Run or the Guarantors. Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. The term "holder" with respect to the Exchange Offer means any person in whose name Old Notes are registered on the books of Doe Run or any other person who has obtained a properly completed bond power from the registered holder. Any beneficial holder whose Old Notes are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial holder wishes to tender on his own behalf, such registered holder must, prior to completing and executing the Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such holder's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States (an "Eligible Institution") unless the Old Notes tendered pursuant thereto are tendered (a) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (b) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by an Eligible Institution. If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, such Old Notes must be endorsed or accompanied by appropriate bond powers and a proxy 44 which authorizes such person to tender the Old Notes on behalf of the registered holder, in each case signed as the name of the registered holder or holders appears on the Old Notes. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by Doe Run, evidence satisfactory to Doe Run of their authority so to act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), and withdrawal of the tendered Old Notes will be determined by Doe Run in its sole discretion, which determination will be final and binding. Doe Run reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes Doe Run's acceptance of which would, in the opinion of counsel for Doe Run, be unlawful. Doe Run also reserves the right to waive any irregularities or conditions of tender as to particular Old Notes. Doe Run's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as Doe Run shall determine. None of Doe Run, the Guarantors, the Exchange Agent or any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost to such holder by the Exchange Agent to the tendering holders of Old Notes, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, Doe Run reserves the right in its sole discretion to (a) purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date or, as set forth under "-- Conditions," to terminate the Exchange Offer in accordance with the terms of the Registration Rights Agreement and (b) to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers will differ from the terms of the Exchange Offer. By tendering, each holder will represent to Doe Run that, among other things, (a) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of such holder or other person, (b) neither such holder nor such other person is engaged in or intends to engage in a distribution of the Exchange Notes (c) neither such holder or other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes, and (d) such holder or other person is not an "affiliate," as defined under Rule 405 of the Securities Act, of Doe Run or, if such holder or other person is such an affiliate, will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as result of market-making activities or other trading activities. Doe Run has agreed that, for a period of 180 days after consummation of the Exchange Offer, it will make this Prospectus, which Doe Run will update, amend or supplement from time to time as required 45 by applicable law or regulations, available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Doe Run will not receive any proceeds from the Exchange Offer. See "Use of Proceeds." Doe Run has agreed to bear the expenses of the Exchange Offer pursuant to the Registration Rights Agreement. No underwriter is being used in connection with the Exchange Offer. The Old Notes were issued on March 12, 1998 and there is no public market for them at present. To the extent Old Notes are tendered and accepted in the Exchange Offer, the principal amount of outstanding Old Notes will decrease with a resulting decrease in the liquidity in the market therefor. Following the consummation of the Exchange Offer, holders of Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Old Notes could be adversely affected. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (a) whose Old Notes are not immediately available or (b) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (i) the tender is made through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder of the Old Notes, the certificate number or numbers of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby, and guaranteeing that, within three business days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes to be tendered in proper form for transfer and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing all tendered Old Notes in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within three business days after the Expiration Date. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date, unless previously accepted for exchange. To withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (a) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (b) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes), (c) be signed by the Depositor in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the Depositor withdrawing the tender and (d) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by Doe Run, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or 46 termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, Doe Run will not be required to accept for exchange, or exchange Exchange Notes for, any Old Notes not theretofore accepted for exchange, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes, if Doe Run or the holders of at least a majority in principal amount of Old Notes reasonably determine in good faith that any of the following conditions exist: (a) the Exchange Notes to be received by such holders of Old Notes in the Exchange Offer, upon receipt, will not be tradable by each such holder (other than a holder which is an affiliate of Doe Run at any time on or prior to the consummation of the Exchange Offer) without restriction under the Securities Act and the Exchange Act and without material restrictions under the blue sky or securities laws of substantially all of the states of the United States, (b) the interests of the holders of the Old Notes, taken as a whole, would be materially adversely affected by the consummation of the Exchange Offer or (c) after conferring with counsel, the Commission is unlikely to permit the making of the Exchange Offer prior to August 7, 1998. Pursuant to the Registration Rights Agreement, if an Exchange Offer shall not be consummated prior to the Exchange Offer Termination Date, Doe Run will be obligated to cause to be filed with the Commission a shelf registration statement with respect to the Old Notes (the "Shelf Registration Statement") as promptly as practicable after the Exchange Offer Termination Date and thereafter use its best efforts to have the Shelf Registration Statement declared effective. If any of the conditions described above exist, Doe Run will refuse to accept any Old Notes and will return all tendered Old Notes to exchanging holders of the Old Notes. EXCHANGE AGENT State Street Bank and Trust Company has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance and requests for additional copies of this Prospectus or of the Letter of Transmittal and deliveries of completed Letters of Transmittal with tendered Old Notes should be directed to the Exchange Agent addressed as follows: BY MAIL BY HAND/OVERNIGHT DELIVERY State Street Bank and Trust Company State Street Bank and Trust Company Two International Place, 4th Floor 61 Broadway, 15th Floor Boston, Massachusetts 02110 New York, New York 10006 Attention: Claire Young--Corporate Trust Attention: Corporate Trust Department Department
Doe Run will indemnify the Exchange Agent and its agents for any loss, liability or expense incurred by them, including reasonable costs and expenses of their defense, except for any such loss, liability or expense caused by negligence or bad faith. FEES AND EXPENSES The expenses of soliciting tenders pursuant to the Exchange Offer will be borne by Doe Run. The principal solicitation for tenders pursuant to the Exchange Offer is being made by mail. Additional solicitations may be made by officers and regular employees of Doe Run and its affiliates in person, by telephone or facsimile. 47 Doe Run will not make any payments to brokers, dealers, or other persons soliciting acceptances of the Exchange Offer. Doe Run, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith. Doe Run may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus, Letters of Transmittal and related documents to the beneficial owners of the Old Notes, and in handling or forwarding tenders for exchange. The expenses to be incurred in connection with the Exchange Offer, including fees and expenses of the Exchange Agent and Trustee and accounting and legal fees and expenses, will be paid by Doe Run, and are estimated in the aggregate to be approximately $500,000. Doe Run will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes (or Old Notes for principal amounts not tendered or accepted for exchange) are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. ACCOUNTING TREATMENT Doe Run will not recognize any gain or loss for accounting purposes upon the consummation of the Exchange Offer. The expense of the Exchange Offer will be amortized by Doe Run over the term of the Exchange Notes under U.S. GAAP. 48 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Doe Run is the largest fully-integrated lead producer in North America and the second largest primary lead producer in the western world. Renco acquired Doe Run on April 1, 1994. Through its subsidiary Doe Run Peru, Doe Run operates one of the largest polymetallic processing companies in the world offering an extensive product mix of non-ferrous and precious metals, including copper, silver, lead, zinc and gold. Doe Run acquired Doe Run Peru on October 23, 1997. The combined capabilities of Doe Run and Doe Run Peru represent the largest primary lead producer in the western world. The following discussion and analysis of Doe Run and Doe Run Peru should be read in conjunction with the historical and pro forma financial statements of Doe Run and Doe Run Peru, and the notes thereto, and other financial information included elsewhere herein. DOE RUN Doe Run is engaged in exploration, development, mining and processing of base metals, primarily lead, and recycling of spent lead-acid batteries and other lead-bearing materials. Doe Run also fabricates and repairs lead-lined process equipment and lead products used in radiation shieldings, pollution control devices and medical equipment, and produces lead oxide for use in automotive batteries. Doe Run's principal product, refined lead, is actively quoted and traded on the LME. The LME provides an efficient and orderly market on which to trade lead and other non-ferrous metals. The market provides reference prices for worldwide pricing of activities relating to non-ferrous metals and provides for storage facilities to enable market participants to make or take physical delivery of approved brands of metals, such as Doe Run lead. Lead options and futures are also traded on the LME which enable participants to hedge against risks arising from price fluctuations. During fiscal 1993, Doe Run experienced certain non-recurring events, which contributed to Doe Run's operating losses during this period. Beginning in July 1992, Doe Run experienced a 29-month labor strike at its primary smelter. Although Doe Run was able to keep the smelter operational and satisfy most of its obligations during the strike by utilizing salaried employees from throughout Doe Run, as well as outside contractors, metal output fell significantly short of planned levels. Despite lower production levels, operating expenses increased due to substantially increased security costs and outside services. These factors combined to increase the conversion cost per ton of metal by approximately 25%. In July and August 1993, flooding of the Mississippi River caused Doe Run to shut down the Herculaneum smelter, thereby reducing fiscal 1993 production by approximately 10%. During the shut down, Doe Run continued to incur full production level costs. In addition to the non-recurring events at Doe Run, Doe Run's results of operations were adversely affected by lower lead prices for a portion of the period from 1993 to 1994. These lower lead prices were primarily a result of an increased supply of lead due to increased net exports of lead from Eastern Europe, the former Soviet Union and China. See "Industry--Lead." Subsequent to these events and its acquisition by Renco in April 1994, Doe Run undertook various changes to improve profitability under all market conditions and diversify its revenue sources. Specifically, as part of its program to improve profitability, Doe Run has increased production at both its Herculaneum and Buick smelting facilities. Primary lead production at Herculaneum grew from approximately 162,000 tons per year in fiscal 1993 to approximately 241,000 tons in fiscal 1997, while secondary production at Buick grew from approximately 66,000 tons per year in fiscal 1993 to approximately 102,000 tons in fiscal 1997. Recent blast furnace productivity improvements have increased the annual production capacity at Herculaneum from the original capacity of approximately 225,000 tons to approximately 250,000 tons presently. Increased production capacity enables Doe Run to lower unit costs by better leveraging its fixed cost base. 49 In recent years, Doe Run has made two strategic acquisitions of lead fabrication operations. Margins on these products are relatively insensitive to lead price fluctuations as Doe Run is generally able to reflect such fluctuations in the price of the end product. In addition, Doe Run has a growing tolling business with major U.S. lead-acid battery manufacturers pursuant to contractual agreements under which recycled lead is returned to the supplier in exchange for a processing fee which is largely independent of lead prices. The average LME price for refined lead was $.29 per pound in fiscal 1997. As of March 31, 1998, the LME price for lead was $.26 per pound, which was below the ten-year average price of $.28 per pound. Management believes that lead prices will remain relatively stable or will modestly increase for the remainder of fiscal 1998 and over the long term will reach historical industry averages. As a result of the recent lead price decreases, the Company expects that it will incur an operating loss in its U.S. operations that will adversely affect its EBITDA in fiscal 1998. RESULTS OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997 NET SALES for the six months ended April 30, 1998 (the "1998 period") were $343.4 million compared to $135.9 million for the six months ended April 30, 1997 period (the "1997 period"). Of this increase, $224.9 million is attributable to the addition of Doe Run Peru resulting from the Acquisition on October 23, 1997. See "Doe Run Peru--Results of Operations." Lead metal net sales decreased 9.1% from $88.7 million in the 1997 period to $80.6 million in the 1998 period. An increase in sales volume of 6,473 tons, or 4.9%, added $4.4 million to net sales. The volume increase was offset by a $12.5 million decrease due to lower realized prices for lead metal. The average LME price for lead metal for the 1998 period decreased $.0622 per pound, or 20.1%, from the 1997 period. As a result, Doe Run's net realized price was 13.4% lower in the 1998 period compared to the 1997 period (realized prices are net of hedge transactions; see "--Liquidity and Capital Resources--Hedging Activities"). Copper concentrate net sales were lower by $2.4 million, or 53.3%, in the 1998 period compared to the 1997 period due to a 3,312 ton, or a 25.9%, decrease in volume and a 37.0% decrease in net realized price. The volume decrease is primarily due to lower production resulting from a focus on lead, rather than copper, production. The net realized price decrease is the result of a $.2701 per pound, or 25.2%, decrease in the LME average price of copper. Net sales of the smelter by-product, kettle dross, were lower by $2.2 million in the 1998 period compared to the 1997 period. Lower volumes of kettle dross accounted for $1.3 million of the decrease, as improved refined metal recovery and increased recycling of dross material resulted in less kettle dross available for sale. Decreased realized prices due to lower lead and copper prices accounted for the remaining $.9 million of the decrease in kettle dross sales. Sales by Seafab were $3.7 million lower in the 1998 period compared to the 1997 period, primarily as a result of the planned relocation of the fabrication plant from Seattle, Washington to Casa Grande, Arizona and the related startup. A slowdown in oxide sales due to lower battery demand also contributed to the reduction in sales by Seafab. COST OF SALES for the 1998 period was $283.1 million compared to $108.5 million for the 1997 period. Of this increase, $179.3 million is attributable to the addition of Doe Run Peru. See "--Doe Run Peru-- Results of Operations." Increased volume of lead metal offset by lower zinc, copper and lead concentrate and toll volumes accounted for $.7 million of the cost increase. The cost of purchased lead concentrates and higher costs for salaries and fringes and purchased feed were offset by reduced spending on purchased services, purchased lead metal and materials and supplies, and the impact of an 8.9% increase in lead metal production volume. As a result, the average cost per ton produced was approximately 0.8% lower in the 1998 period, compared to the 1997 period, reducing cost of sales by $3.3 million from the 1997 period. Lower volume at Seafab, primarily related to the relocation of the fabrication plant reduced cost of sales by $2.8 million. The sales of imported zinc metal increased cost of sales by $1.8 million. DEPLETION, DEPRECIATION AND AMORTIZATION for the 1998 period increased by $4.1 million compared to the 1997 period. The addition of Doe Run Peru accounted for $3.4 million of the increase. See "--Doe Run 50 Peru--Results of Operations." The remainder of the increase is primarily due to depreciation of plant and equipment on recent capital additions. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by $11.9 million for the 1998 period compared to the 1997 period. The addition of Doe Run Peru accounted for an increase of $9.1 million. See "--Doe Run Peru--Results of Operations." The remainder of the increase in the 1998 period is primarily the result of increases in general and administrative, expenses associated with the Acquisition of Doe Run Peru and associated financing discussed above. EXPLORATION EXPENSE for the 1998 period increased $.2 million, or 14.3%, compared to the 1997 period, due to increased drilling and pre-development activities on potential mineral properties. OPERATING INCOME for the 1998 period was $29.5 million compared to $12.9 million for the 1997 period. Doe Run Peru added $33.2 million, which increase was offset by a $3.7 million decrease at Doe Run attributable to the factors discussed above. See "--Doe Run Peru--Results of Operations." The reminder of the increase is due to the factors discussed above. INTEREST EXPENSE for the 1998 period was $14.5 million compared to $7.6 million for the 1997 period. The increase was primarily due to the increase in indebtedness associated with the Acquisition and the Transactions. INTEREST INCOME for the 1998 period increased $2.4 million from the 1997 period, primarily due to interest income on the $125.0 million Special Term Deposit. INCOME TAX EXPENSE Doe Run Peru's income tax expense is provided for on the "separate return method," which assumes that Doe Run Peru, on a stand-alone basis, would not file a return in the United States. Doe Run Peru's provision, therefore, reflects the Peruvian statutory rate of 30%. Differences between the effective rate and the statutory rate are due primarily to book losses of Doe Run Peru subsidiaries that are not deductible for Peruvian income taxes. Due to the fact that the Company files a consolidated return and has elected to include Doe Run Peru's earnings in its return as a branch, the residual U.S. income tax effect of Doe Run Peru's earnings is reflected on the financial statements of Doe Run. FISCAL 1997 COMPARED TO FISCAL 1996 NET SALES in fiscal 1997 (including the results for Doe Run Peru for the eight-day period October 23, 1997 (the date of the Acquisition) to October 31, 1997 (the "Acquisition Stub Period")) were $280.5 million compared to $274.9 million in fiscal 1996, an increase of 2.0%. Lead metal net sales decreased from $195.7 million to $185.1 million, a decrease of 5.4%. This change is attributable to an increase in lead metal sales volume of 17,046 tons or 6.4% offset by a $23.1 million reduction due to lower realized prices. The average LME price for lead metal decreased by $.0577 per pound or 16.4% from fiscal 1996 to fiscal 1997. As a result, the Company's net realized price was 11.1% less than fiscal 1996 (realized prices are net of hedge transactions; see "--Liquidity and Capital Resources--Hedging Activities"). Net sales of lead concentrates to third parties were reduced by $8.3 million in fiscal 1997 from fiscal 1996, as these lead concentrates were used in Doe Run's production. Tolling net sales for fiscal 1997 increased $7.3 million from fiscal 1996 due to a 17.9% increase in volume, as well as 25.5% increase in tolling processing charges per ton. Zinc concentrate net sales in fiscal 1997 increased $2.4 million or 10.8% from fiscal 1996 due primarily to higher realized prices. Copper concentrate net sales in fiscal 1997 decreased $3.6 million or 29.0% from fiscal 1996, and $1.8 million of this decrease is attributable to lower realized prices and $1.8 million is due to lower volume resulting from an emphasis on production of lead/zinc ore. The addition of Seafab, resulting from the acquisition of the assets of Seafab Metal Corporation in August 1996 added $15.9 million to net sales and the inclusion of Doe Run Peru from October 23, 1997, the acquisition date, 51 through October 31, 1997 added $2.6 million. Other net sales were lower by $.1 million accounting for the remainder of the change. COST OF SALES for fiscal 1997 (including the results for Doe Run Peru for the Acquisition Stub Period) was $234.4 million, an increase of $18.9 million or 8.8% compared to fiscal 1996. Increased volumes of lead metal, tolling and zinc concentrates offset by lower copper and lead concentrate volumes accounted for $6.8 million of the increase. Higher costs of salaries and wages, materials and supplies, and purchased feed, primarily related to increased production, were more than offset by reduced costs of purchased lead and the impact of greater production volume. As a result, the average cost per ton produced was approximately 1.1% lower than the prior year reducing cost of sales by $3.1 million. The addition of Seafab contributed $13.0 million to the cost of sales increase while the inclusion of Doe Run Peru added $2.0 million to cost of sales. Other costs of sales were higher by $.2 million accounting for the remainder of the change. DEPLETION, DEPRECIATION AND AMORTIZATION for fiscal 1997 (including the results for Doe Run Peru for the Acquisition Stub Period) increased by 7.8% primarily due to depreciation of property, plant and equipment on recent capital additions. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for fiscal 1997 (including the results for Doe Run Peru for the Acquisition Stub Period) increased by $.9 million or 8.7% compared to fiscal 1996, primarily due to the addition of Seafab. EXPLORATION EXPENSE for fiscal 1997 (including the results for Doe Run Peru for the Acquisition Stub Period) was $2.7 million, a decrease of 7.1% from fiscal 1996. This change is attributable to less drilling on potential mineral properties. OPERATING INCOME for fiscal 1997 (including the results for Doe Run Peru for the Acquisition Stub Period) was $17.7 million compared to $32.8 million for fiscal 1996. This decrease is attributable to the factors discussed above. INTEREST EXPENSE for fiscal 1997 (including the results for Doe Run Peru for the Acquisition Stub Period) was $13.7 million or 4.2% less than fiscal 1996. Lower interest on subordinated notes of $.9 million was offset by the interest under the Existing Doe Run Mining Credit Facility entered into in connection with the acquisition of Doe Run Peru which added $.3 million to interest expense. INCOME TAX EXPENSE reflected an effective tax rate of 109% in fiscal 1997 and 34% in fiscal 1996. In both years, the income tax expense was provided on the basis of alternative minimum taxes paid, which exceeded the income tax provision based on pre-tax book income. Higher pre-tax book income in fiscal 1996 reduced the impact of the alternative minimum taxes paid on the effective tax rate for that year. Because of the uncertainty of the future benefit of net deferred tax assets, Doe Run has recorded a valuation allowance against its net deferred tax assets. FISCAL 1996 COMPARED TO FISCAL 1995 NET SALES in fiscal 1996 were $274.9 million compared to $225.1 million in fiscal 1995, an increase of 22.1%. Lead metal net sales increased from $167.2 million to $195.7 million, an improvement of 17.0%. The average LME price for lead metal was $.3524 per pound during fiscal 1996, $.0716 per pound greater than the average during fiscal 1995. The higher LME price and more favorable market conditions improved Doe Run's net realized price for both lead metal and lead concentrates generating increases in net sales of $13.7 million and $2.9 million, respectively. An increase in mine output along with production improvements at Doe Run's smelters generated a $14.8 million and $5.1 million increase in net sales from lead metal and lead concentrate volume, respectively. Zinc and copper concentrate net sales increased by $4.1 million and $3.6 million, respectively, primarily as a result of increased sales volume. The addition of Lone Star, resulting from the acquisition of the assets of Lone Star Lead Construction Corp. in August 1995, and the addition of Seafab in August 1996 contributed $7.7 million to the increase in net 52 sales. Such increases were offset by a $2.1 million decrease in net sales due to lower realized prices on copper concentrates and changes in other by-products. COST OF SALES for fiscal 1996 was $215.5 million, an increase of $35.1 million or 19.5% over fiscal 1995. The greater production volume, primarily of lead metal and lead, copper and zinc concentrates, accounts for $20.3 million of this increase. Higher costs for certain raw materials, supplies, purchased services, and increased incentive compensation of $1.9 million resulting from significantly improved profitability were partially offset by the impact of greater production volume. As a result, the average cost per ton produced in fiscal 1996 was approximately 2.6% higher than the prior year, adding $6.1 million to cost of sales. The inclusion of Lone Star and Seafab contributed $6.4 million to the increase, while changes in other costs, primarily smelter by-products, account for the remaining $.4 million increase. DEPLETION, DEPRECIATION AND AMORTIZATION for fiscal 1996 increased by $1.2 million or 9.4% from fiscal 1995 primarily due to depreciation of property, plant and equipment related to recent capital expenditures. SELLING, GENERAL AND ADMINISTRATIVE expenses increased by $1.7 million or 19.9% from fiscal 1995 to fiscal 1996. Higher incentive compensation as a result of higher profitability accounts for $1.1 million of this increase. Increased legal costs associated with various defenses of lawsuits (see "Business-Environmental Matters") and consulting costs for operational efficiency studies initiated during fiscal 1996 account for the remainder of this increase. EXPLORATION EXPENSE increased by $1.0 million or 51.2% in fiscal 1996 compared to fiscal 1995 due primarily to increased drilling on potential mineral properties. OPERATING INCOME for fiscal 1996 was $32.8 million compared to $21.9 million for fiscal 1995. This increase is attributable to the factors discussed above. INCOME TAX EXPENSE reflected an effective tax rate of 34% in fiscal 1996 and 43% in fiscal 1995. In both years, income tax expense was provided on the basis of alternative minimum taxes paid, which exceeded the income tax provision based on pre-tax book income. Higher pre-tax book income in fiscal 1996 reduced the impact of the alternative minimum taxes paid on the effective tax rate for that year. Because of the uncertainty of the future benefit of net deferred tax assets, Doe Run has recorded a valuation allowance against its net deferred tax assets. DOE RUN PERU Doe Run Peru is engaged in the smelting and refining of concentrates of polymetallic ores, including copper, silver, zinc, lead and gold, which are sold primarily to customers outside of Peru. These activities are the same as those that were carried out by Metaloroya and Centromin. Metaloroya was established on September 20, 1997, and commenced operations on October 23, 1997, as the successor company to the operations of the former La Oroya Metallurgical Complex of Centromin, pursuant to the Subscription Agreement. Given the diversity of its products and by-products, Doe Run Peru's financial performance is not solely dependent upon the prospects for one of its products or by-products. Moreover, since Doe Run Peru is a processor of complex concentrates and does not presently own any mines from which it sources concentrates, Doe Run Peru's financial performance is less sensitive to the volatility of base metal prices. The primary factors affecting Doe Run Peru's results of operations are (i) commercial terms under which Doe Run Peru purchases concentrates and (ii) Doe Run Peru's operating costs and other expenses. RESULTS OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997 NET SALES increased 4.5% from $217.7 million in the 1997 period to $227.4 million in the 1998 period. Net sales of copper decreased 28.1% from $77.1 million in the 1997 period to $55.4 million in the 1998 53 period, due to a decrease in the average price per pound of 26.9% from $1.08 in the 1997 period to $.79 in the 1998 period, and a decrease in volume of 1.5% from 35,695 tons in the 1997 period to 35,155 tons in the 1998 period. Net sales of silver increased 54.8% from $49.6 million in the 1997 period to $76.8 million in the 1998 period, due to a volume increase of 30.0% from 10.0 million ounces in the 1997 period to 13.0 million ounces in the 1998 period, as well as an increase in the average price per ounce of 19.2% from $4.95 in the 1997 period to $5.90 in the 1998 period. Net sales of gold increased 9.6% from $7.3 million in the 1997 period to $8.0 million in the 1998 period, due to a volume increase of 32.3% from 20,030 ounces in the 1997 period to 26,492 ounces in the 1998 period, offset by a decrease in the average price per ounce of 17.3% from $363.76 in the 1997 period to $300.92 in the 1998 period. Refined lead net sales decreased 15.0% from $34.0 million in the 1997 period to $28.9 million in the 1998 period, due to a decrease in the average price per pound of 18.8% from $.32 in the 1997 period to $.26 in the 1998 period, offset by a volume increase of 5.8% from 52,406 tons in the 1997 period to 55,437 tons in the 1998 period. Refined zinc net sales increased 13.4% from $35.8 million in the 1997 period to $40.6 million in the 1998 period, due primarily to a volume increase of 12.3% from 35,351 tons in the 1997 period to 39,692 tons in the 1998 period. By products net sales increased by 25.7% from $14.0 million in the 1997 period to $17.6 million in the 1998 period primarily due to the sale of 5,434 tons of bullion lead for $6.0 million in the 1998 period. No bullion lead was sold in the 1997 period. This increase was offset by a decrease in net sales of blister copper of 21.2% from $6.6 million in the 1997 period to $5.2 million in the 1998 period, due to a decrease in the average price per pound of 12.6% from $1.35 in the 1997 period to $1.18 in the 1998 period and a volume decrease of 10.5% from 2,461 tons in the 1997 period to 2,203 tons in the 1998 period. COST OF SALES increased 2.3% from $177.5 million in the 1997 period to $181.6 million in the 1998 period due to higher power costs resulting from a new electricity contract as of October 23, 1997, and an increase in sales volume of approximately 9.5% and the inclusion of $1.7 million of workers' profit sharing expense which was classified as cost of sales in the 1998 period. These increases were partially offset by the impact of improved metallurgical recoveries. DEPRECIATION AND AMORTIZATION EXPENSES increased 21.4% from $2.8 million in the 1997 period to $3.4 million in the 1998 period, primarily due to the change in asset basis resulting from the Acquisition. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased 13.3% from $10.5 million in the 1997 period to $9.1 million in the 1998 period. Selling expenses decreased 12.9% from $3.1 million in the 1997 period to $2.7 million in the 1998 period, due to a decrease in freight expenses and sales commissions based on new terms agreed with third parties. General and administrative expenses were $1.0 million lower in the 1998 period. Of this decrease, $.5 million was due to the personnel reduction program undertaken by Centromin, which was completed during the 1997, and $2.2 million was due to the reclassification of workers' profit sharing to cost of sales. These decreases were offset by increases in audit and legal fees and other expenses related to the Old Notes Offering and by higher salaries and fringes and other administrative costs. OPERATING INCOME decreased 5.6% from $27.0 million in the 1997 period to $25.5 million in the 1998 period as a result of the factors discussed above. OTHER EXPENSE decreased 71.4% from $1.4 million in the 1997 period to $.4 million in the 1998 period primarily due to the completion of the privatization program which was in effect during the 1997 period, partially offset by translation gains. INTEREST EXPENSE increased from $.8 million in the 1997 period to $5.7 million in the 1998 period, due primarily to the loans obtained to finance the Acquisition. 54 PERIOD FROM JANUARY 1, 1997 TO OCTOBER 23, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 The results of operations for the period January 1, 1997 to October 23, 1997 are not necessarily comparable with the results of operations for the year ended December 31, 1996 due to the shorter period included in the 1997 results. NET SALES decreased 22.8% from $456.8 million in 1996 to $352.8 million in the 1997 period, due principally to the shorter period in 1997, changes in the mix of existing products and a significant blister copper sale made in 1996. Net sales of copper decreased 17.8% from $148.4 million in 1996 to $122.0 million in the 1997 period, due to a volume decrease of 20.4% from 71,287 tons in 1996 to 56,725 tons. This decrease included a volume decrease of 96.6% from 5,537 tons in 1996 to 186 tons in the 1997 period, when two years' of accumulated stock of copper blister was sold. The volume changes were offset partially by an increase in the average price per pound of 3.8% from $1.04 in 1996 to $1.08 in the 1997 period. Net sales of silver decreased 25.9% from $111.0 million in 1996 to $82.2 million in the 1997 period, due to a volume decrease of 18.4% from 21.2 million ounces in 1996 to 17.3 million ounces in the 1997 period as well as a decrease in the average price per ounce of 10.2% from $5.23 in 1996 to $4.70 in the 1997 period. Net sales of gold decreased 42.2% from $20.4 million in 1996 to $11.8 million in the 1997 period, due to a volume decrease of 34.4% from 52,277 ounces in 1996 to 34,305 ounces in the 1997 period and a decrease in the average price per ounce of 11.9% from $389.5 in 1996 to $342.9 in the 1997 period. Refined lead net sales decreased 31.6% from $76.3 million in 1996 to $52.2 million in the 1997 period, due to a volume decrease of 16.3% from 104,063 tons in 1996 to 87,135 tons in the 1997 period and a decrease in the average price per pound of 18.9% from $.37 in 1996 to $.30 in the 1997 period. Refined bismuth net sales increased 37.5% from $4.8 million in 1996 to $6.6 million in the 1997 period, due primarily to a volume increase of 53.0% from 660 tons in 1996 to 1,010 tons in the 1997 period and a decrease in the average refined bismuth price per pound of 10.3% from $3.30 to $2.96. COST OF SALES decreased 23.0% from $397.2 million in 1996 to $305.9 million in the 1997 period, due principally to the shorter period, 18.1%, as well as lower labor expenses resulting from the personnel reduction costs carried out in 1996. DEPRECIATION AND AMORTIZATION EXPENSES decreased 13.0% from $5.4 million in 1996 to $4.7 million in the 1997 period, due primarily to the shorter period in 1997 as well as the adjustment to the depreciation of initial balances of fixed assets made in 1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDING MARKETING EXPENSE) decreased 20.7% from $17.4 million in 1996 to $13.8 million in 1997. Personnel reduction costs decreased 61.5% from $3.9 million in 1996 to $1.5 million in the 1997 period, as Doe Run Peru had substantially completed its personnel reduction program in 1996. Selling, marketing and administrative expenses were lower by $2.3 million, or 18.6%, in the 1997 period, primarily due to the shorter period in 1997. Worker's profit sharing was greater by $1.1 million, or 91%, in the 1997 period due primarily to improved profitability. OPERATING INCOME declined from $36.9 million in 1996 to $28.3 million in the 1997 period due to the factors discussed above. INTEREST AND BANK CHARGES decreased 75.8% from $3.3 million in 1996 to $0.8 million in the 1997 period, due primarily to a decrease of debt levels through 1997, which was offset by the effects of a slight increase in the weighted average interest rate in the 1997 period. OTHER, NET decreased 94.9% from $23.5 million in 1996 to $1.2 million in the 1997 period. In 1996, the Company incurred special charges related primarily to (i) costs related to relocating residents away from the metallurgical complex of La Oroya, such as demolition, and construction of apartments, schools and parks at a new location and (ii) an accrual to provide for estimated future expenditures under the PAMA of $21.5 million. 55 INCOME TAX increased 92.7% from $4.1 million in 1996 to $7.9 million in the 1997 period as a result of the increase in pretax income due to reasons discussed above. NET INCOME increased 212.2% from $5.9 million in 1996 to $18.4 million in the 1997 period, due to reasons discussed above. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 NET SALES increased 1.3% from $450.9 million in 1995 to $456.8 million in 1996, due principally to sale of a new product and changes in the mix of existing products. In 1996, Doe Run Peru commenced sale of a new product, blister copper, amounting to $14.0 million. Refined lead net sales increased 29.4% from $58.9 million in 1995 to $76.3 million in 1996, due to a volume increase of 5.4% from 98,746 tons in 1995 to 104,063 tons in 1996 and an increase in the average price per pound of 23.3% from $.30 in 1995 to $.37 in 1996. Refined bismuth net sales also increased 17.1% from $4.1 million in 1995 to $4.8 million in 1996, due primarily to a volume increase of 26.7% from 574 tons in 1995 to 728 tons in 1996 and a decrease in the average price per pound of 6.8% from $3.54 in 1995 to $3.30 in 1996. Although the volume of refined copper sold in 1996 increased 1.8% from 70,006 tons in 1995 to 71,287 tons in 1996, the decrease in the price per pound of refined copper of 21.8% from $1.33 in 1995 to $1.04 in 1996 resulted in a decrease in net sales of refined copper of 20.6% from $186.9 million in 1995 to $148.4 million. COSTS OF SALES decreased 0.1% from $397.5 million in 1995 to $397.2 million in 1996, due to the effects of the 1996 personnel reduction program, which was offset by the additional cost related to the use of independent contractors in place of terminated employees. This reduction in cost was achieved despite a moderate increase in the volume of concentrates processed in 1996. DEPRECIATION AND AMORTIZATION EXPENSES increased 14.9% from $4.7 million in 1995 to $5.4 million in 1996 due primarily to adjustment of the depreciation of the initial balances of the fixed assets. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDING MARKETING EXPENSE) increased by 8.8% from $16.0 million in 1995 to $17.4 million in 1996. Personnel reduction costs increased 56.0% from $2.5 million in 1995 to $3.9 million in 1996 due to the implementation of a second personnel reduction program of 600 workers in 1996. Administrative expenses increased 26.7% from $4.5 million in 1995 to $5.7 million in 1996 primarily due to the shift to use of independent contractors in place of employees. Selling and marketing expenses increased 11.7% from $6.0 million in 1995 to $6.7 million in 1996 due to the increased volume of metal sold in 1996 as discussed above. OPERATING INCOME increased from $32.7 million in 1995 to $36.9 million in 1996 due to the factors discussed above. INTEREST AND BANK CHARGES increased 57.1% from $2.1 million in 1995 to $3.3 million in 1996, due primarily to higher average borrowings, which was offset by the effects of a slight decrease in the weighted average interest rate in 1996. OTHER, NET increased from $1.8 million in 1995 to $23.5 million in 1996. In 1996, Doe Run Peru incurred special charges related primarily to (i) costs related to relocating residents away from the metallurgical complex of La Oroya, such as demolition, and construction of apartments, schools and parks at a new location and (ii) an accrual to provide for estimated future expenditures under the PAMA of $21.5 million. INCOME TAX decreased 60.2% from $10.3 million in 1995 to $4.1 million in 1996 as a result of the decrease in pretax income due primarily to the special charges discussed above. NET INCOME decreased 68.1% from $18.5 million in 1995 to $5.9 million in 1996, due to reasons discussed above. As a percentage of net sales, net income was 4.1% in 1995 compared to 1.3% in 1996. 56 LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity requirements arise from working capital requirements, capital investments and interest payment obligations. Doe Run's primary available sources of liquidity are cash provided by operating activities and existing cash balances in the United States, as well as cash receipts from certain management services and sales agency agreements, loans, advances, distributions or dividends between Doe Run and Doe Run Peru. See "Certain Transactions--Intercompany Transactions." Doe Run also has available the New Doe Run Revolving Credit Facility that provides for advances by the lender to a maximum of $100.0 million less outstanding letters of credit, based on specific percentages of eligible receivables and inventories. As of June 30, 1998, $4.8 million was outstanding, exclusive of $4.9 million of letters of credit, under the New Doe Run Revolving Credit Facility. See "Description of New Revolving Credit Facilities--New Doe Run Revolving Credit Facility." Doe Run was not in compliance with the minimum net worth and maximum leverage ratio covenants under the Doe Run Term Loan and the Existing Doe Run Revolving Credit Facility for the fiscal quarter ended January 31, 1998, for which Doe Run received waivers. Doe Run repaid all amounts outstanding under the Existing Doe Run Credit Facility with the net proceeds of the Old Notes Offering. Doe Run Peru's primary available source of liquidity is cash provided by operating activities. Doe Run Peru also has available the New Doe Run Peru Revolving Credit Facility that provides for advances by the lender to a maximum of $40.0 million less outstanding letters of credit, based upon specific percentages of eligible receivables and inventories. As of June 30, 1998, no amounts were outstanding under the New Doe Run Peru Revolving Credit Facility, other than existing letters of credit. See "Description of New Revolving Credit Facilities--New Doe Run Peru Revolving Credit Facility." With respect to the Company, for the six months ended April 30, 1998, of the $3.2 million net increase in cash, $1.7 million was used in operating activities, $135.9 million was used in investing activities and $140.8 million was provided by financing activities, and in fiscal 1997, $18.0 million was provided by operating activities, $141.7 million was used in investing activities and $132.6 million was provided by financing activities. As part of its financing activities, Doe Run borrowed $130.0 million under the Doe Run Term Loan to finance, in part, the Acquisition. The net proceeds of the Doe Run Term Loan were used to pay $60.0 million to Fluor in full settlement of the Fluor Indebtedness, to make the $23.0 million Subordinated Loan, to make a $2.0 million capital contribution to Doe Run Cayman and to repay all amounts outstanding under Doe Run's then existing revolving credit facility. Doe Run has budgeted approximately $13.3 million for capital expenditures for fiscal 1998, primarily for replacement and maintenance of operations, and environmental improvements. In addition to ongoing capital investments, Doe Run has expended an average of approximately $59.5 million per year on maintenance from fiscal 1995 through fiscal 1997. As a result of these expenditures and ongoing efforts, Doe Run believes that it operates and will continue to maintain modern and efficient facilities. With respect to Doe Run Peru, for the six months ended April 30, 1998, of the $4.8 million net increase in cash, $7.0 million was used in operating activities, $1.5 million was used in investing activities and $13.3 million was provided by financing activities, and for the period January 1, 1997 to October 23, 1997, $28.1 million was provided by operating activities and $28.6 million was used in financing activities. Historical cash flows from Doe Run Peru's operating and investing activities for the period January 1, 1997 to October 23, 1997 are not necessarily comparable with the historical cash flows for the year ended December 31, 1996 due to the shorter period included in the 1997 period. As a division of Centromin, Doe Run Peru's Predecessor was historically dependent on Centromin for its working capital management and liquidity requirements. As part of the Acquisition, Doe Run Peru will undertake over a ten-year period the Capital Investment Program of approximately $300.0 million, in part to satisfy its Investment Commitment of $120.0 million as set forth in the Subscription Agreement. Doe Run Peru has budgeted approximately 57 $16.0 million for capital expenditures for fiscal 1998, primarily for replacement and maintenance of operations, and environmental improvements. The Company has significant indebtedness outstanding. See "Risk Factors--Substantial Indebtedness." In addition, the Company will borrow approximately $54.5 million to finance the Potential ASARCO MLD Acquisition. Management believes that cash flow from operations at Doe Run and Doe Run Peru, in addition to availability under the New Revolving Credit Facilities, will be sufficient to provide for the Company's liquidity needs for the foreseeable future. The New Revolving Credit Facilities, as well as the Indenture, contain numerous covenants and prohibitions that impose limitations on the liquidity of the Company, including requirements that Doe Run and Doe Run Peru satisfy certain financial ratios and limitations on the incurrence of additional indebtedness. See "Risk Factors--Restrictions Imposed by Terms of the Company's Indebtedness," "Description of New Revolving Credit Facilities" and "Description of the Notes--Certain Covenants." The ability of the Company to meet its debt service requirements and to comply with such covenants will be dependent upon future operating performance and financial results which will be subject to financial, economic, political, competitive and other factors affecting the Company, many of which are beyond the Company's control. INFLATION AND SEASONALITY In general, the Company's cost of sales and selling, general and administrative expenses are affected by inflation and the effects of inflation may be experienced by the Company in future periods. Management believes, however, that such effects have not been material to Doe Run during the past three years. With respect to Doe Run Peru, its labor costs and selling, general and administrative expenses, are denominated in local currency, whereas substantially all of its net sales are denominated in U.S. dollars. Doe Run's business is somewhat seasonal; typically in excess of 60% of annual lead metal shipments are made in the months of July through December as a result of seasonal demand from battery manufacturers. Doe Run Peru's business is generally not affected by seasonal factors. ENVIRONMENTAL MATTERS The Company has incurred and will continue to incur capital and operating expenditures for matters relating to environmental control and monitoring. Capital expenditures by Doe Run for environmental control and monitoring were $1.8 million, $6.8 million and $7.3 million for the fiscal years 1995, 1996 and 1997, respectively. Due to the pending sale and associated uncertainties, Metaloroya environmental expenditures in 1995, 1996 and 1997 were modest. Doe Run and Doe Run Peru estimate their environmental capital expenditures will be approximately $4.8 million and $2.7 million, respectively, in fiscal 1998, and $3.3 and $3.7, respectively, in fiscal 1999. See "Business--Doe Run--Environmental Matters" and "--Doe Run Peru--Environmental Matters." Doe Run expended on all environmental matters, which includes amounts capitalized, amounts charged to operating expense and amounts charged to reserves, approximately $17.5 million in fiscal 1997, and the Company estimates such expenditures will be $18.0 million and $18.2 million in fiscal 1998 and 1999, respectively. Environmental laws and regulations have changed rapidly in recent years, and the Company may become subject to more stringent environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations could have a material adverse effect on the Company's consolidated financial position, results of operations and liquidity. The Environmental Protection Agency (the "EPA") has asserted certain alleged environmental violations against Doe Run, which are described in "Business--Doe Run--Environmental Matters." 58 HEDGING ACTIVITIES In the normal course of its business, Doe Run has used in the past and may use in the future forward sales commitments and commodity put and call option contracts to manage its exposure to fluctuations in the prices of lead, copper, zinc and silver. Contract positions are designed to ensure that the Company will receive a defined minimum price for certain quantities of its production. Gains and losses, and the related costs paid or premiums received, for option contracts which hedge the sales prices of commodities are recognized in net sales when the related production is sold. None of the aforementioned activities have been entered into for speculative purposes. Metaloroya, as a government-owned enterprise, did not undertake hedging activities. Doe Run has implemented hedging activities on behalf of Doe Run Peru consistent with the practices at Doe Run. YEAR 2000 BUSINESS MATTERS Many information and process control systems used in the current business environment were designed to use only two digits in the date field, and thus may not function properly in the year 2000. The Company has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the "year 2000 problem" and has implemented a plan to resolve the issues identified. Any of the Company's programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in a major system failure or in miscalculation. Currently, most of the major systems of the Company have been modified to be year 2000 compliant. The Company anticipates that the appropriate modifications to all information and process control systems will be completed by the end of 1998. The cost of achieving year 2000 compliance is included in the Company's operating and administrative expenses. The Company does not currently expect year 2000 issues to have any material effect the Company's costs or to cause any significant disruption in operations. 59 INDUSTRY Doe Run's principal product is refined lead, and Doe Run Peru's principal products include base metals, copper, lead and zinc, and precious metals, silver and gold. Market prices for these metals tend to be cyclical and reflect a combination of factors, including prevailing economic conditions, market demand, prevailing trends of inventory levels and, to a lesser extent, inventory carrying costs (primarily interest rates), international exchange rates and the actions of participants in the commodity markets. These factors have been of varying importance in influencing the prevailing metal prices and often have had divergent impacts on such price. Lead, copper, silver, zinc and gold are all publicly traded on one or more commodity exchanges, including the LME. The LME provides an efficient and orderly market on which to trade non-ferrous metals. The market provides reference prices for worldwide pricing of activities relating to non-ferrous metals, and it provides storage facilities to enable market participants to make or take physical delivery of approved brands of metals. Summarized below is a general overview of the lead, copper, zinc and silver markets. LEAD Lead is a versatile metal used in both its pure form and in alloys, due to its electrochemical characteristics, density, malleability and corrosion resistance. Primary uses for refined lead include lead-acid batteries, lead pigments and compounds, rolled and extruded products, cable sheathing and ammunition. Similar to other base metals, lead prices fluctuate generally based on world supply and demand. Western world consumption of lead for 1997 was estimated at 5.8 million tons, which represents a total market of approximately $3.2 billion. The following table sets forth western world lead consumption by end use for the period 1960 through 1997: WESTERN WORLD LEAD CONSUMPTION BY END USE
1960 1970 1980 1990 1997 --------- --------- --------- --------- --------- (TONS IN THOUSANDS) Batteries.............................................................. 767 1,305 2,046 3,124 4,120 Pigments and Compounds................................................. 251 440 740 645 598 Rolled and Extruded Products........................................... 285 280 392 496 464 Cable Sheathing........................................................ 474 430 350 248 141 Gasoline............................................................... 206 422 348 50 50 Other.................................................................. 459 962 478 396 439 --------- --------- --------- --------- --------- Total.............................................................. 2,442 3,839 4,354 4,959 5,812 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- CAGR 1960 TO 1997 ----------- Batteries.............................................................. 4.6% Pigments and Compounds................................................. 2.4 Rolled and Extruded Products........................................... 1.3 Cable Sheathing........................................................ (3.2) Gasoline............................................................... (3.8) Other.................................................................. (0.1) Total.............................................................. 2.4%
Lead demand has increased consistently at a CAGR of approximately 2.4% for the period 1960 to 1997 and approximately 2.0% for the period 1987 to 1997, driven primarily by demand for lead-acid batteries. Approximately 4.2 million tons, or 72%, of the lead consumed in 1997 was used in the production of lead-acid batteries, 75% of which was for SLI batteries. Approximately 77% of SLI battery sales are in the automotive replacement market, a market with stable demand characteristics, which is dependent upon the number of automobiles in service and battery life. Lead pigments and compounds are the second largest use of lead and include such end uses as computer and television screens, leaded glass and crystal and printed circuit boards. Uses of rolled and extruded lead products include lead anode plates used in the production of refined copper, radiation shielding for health care applications and roof flashings construction applications. Historically, lead has also been used as an additive in gasoline to reduce engine knock and for insulation of underground cables. 60 Environmental concerns arising in the early 1980s, however, caused a significant reduction in the amount of lead utilized for gasoline, and technical considerations have reduced usage of lead in cable sheathings. The western world supply of refined lead is dependent upon the availability of lead ore, the principal raw material for primary smelters, secondary sources and net exports of lead from non-western world countries, such as the former Soviet Union and China. The following table summarizes western world refined lead supply for the period 1988 to 1997: WESTERN WORLD REFINED LEAD SUPPLY
1988 1989 1990 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- --------- --------- --------- (TONS IN THOUSANDS) Western World: Primary Production....................... 2,628 2,583 2,431 2,503 2,563 2,550 2,540 2,531 Secondary Production..................... 2,308 2,489 2,495 2,385 2,369 2,316 2,528 2,722 Non-Western World Net Exports.............. (44) (31) 88 75 205 165 255 241 --------- --------- --------- --------- --------- --------- --------- --------- Total supply........................... 4,892 5,041 5,014 4,963 5,137 5,031 5,323 5,494 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 1996 1997 --------- --------- Western World: Primary Production....................... 2,477 2,562 Secondary Production..................... 2,858 2,981 Non-Western World Net Exports.............. 328 243 --------- --------- Total supply........................... 5,663 5,786 --------- --------- --------- ---------
Since 1991, primary lead production has remained relatively constant. Management believes that due to capital costs and environmental concerns, no new primary smelting capacity will be added in the world in the foreseeable future. As a result, primary production is expected to remain relatively constant, with any increase resulting from operational improvements at existing facilities. Refined lead supply is also affected by the availability of lead ore which is the principal raw material for primary production facilities throughout the world. The following table summarizes western world lead mine production for the period 1988 to 1997: WESTERN WORLD LEAD MINE PRODUCTION
1988 1989 1990 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- --------- --------- --------- (TONS IN THOUSANDS) North America.............................. 820 745 779 804 769 548 558 624 Australia.................................. 482 517 592 588 582 548 528 485 Latin America.............................. 425 462 459 442 427 428 472 455 Western Europe............................. 411 381 374 335 306 276 301 270 Africa..................................... 216 192 181 187 185 213 203 200 Asia....................................... 131 123 119 121 115 91 86 98 --------- --------- --------- --------- --------- --------- --------- --------- Total.................................. 2,485 2,420 2,504 2,477 2,384 2,104 2,148 2,132 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 1996 1997 --------- --------- North America.............................. 707 665 Australia.................................. 540 535 Latin America.............................. 477 486 Western Europe............................. 267 289 Africa..................................... 202 194 Asia....................................... 109 91 --------- --------- Total.................................. 2,302 2,260 --------- --------- --------- ---------
Although primary production has remained relatively constant, lead production from secondary sources has increased, driven primarily by the greater availability of spent lead-acid batteries and other lead-bearing materials. Due to heightened environmental awareness, stockpiling of lead-bearing materials such as batteries became economically unviable during the early 1990s. As a result, battery manufacturers established outlets for spent batteries returned in connection with replacement battery sales, which has resulted in the development of secondary facilities throughout the world. By 1997, approximately 3.0 million tons of lead were being converted from secondary materials. Secondary processing of lead results in approximately 98% recovery of lead from the lead-bearing materials. Battery manufacturers have increasingly integrated their operations into the secondary market in addition to purchasing primary and secondary lead from third parties such as Doe Run. Management estimates that the secondary supply of lead will continue to increase in the foreseeable future, as the availability of spent lead-acid batteries and 61 other lead bearing materials requiring recycling increases. This trend is expected to result in a more predictable pattern of lead supply. Lead supply in the western world is also impacted by net exports of lead from Eastern Europe, the former Soviet Union and China. Prior to 1990, these regions were net importers of refined lead. In the early 1990s, these regions experienced adverse economic conditions and consequently began exporting lead and other metals to build hard currency reserves. Since 1994, exports from Eastern Europe and the former Soviet Union have declined, which management believes reflects both a reduction in inventories and production capabilities resulting from the closure of inefficient facilities. Increased exports from China have more than offset this reduction, resulting in an increase of net exports to the western world in 1996. Industry data for 1997 indicates that net exports from China declined 30.0% from 1996, and consumption in China increased 4.0%. The price of refined lead in the western world reflects a combination of factors including prevailing economic conditions, lead demand and the availability of refined lead in the market. Lead prices are also affected by international trade with non-western world producers that export lead into the western world. The following table sets forth the average LME prices for lead during each of the years 1988 to 1997.
1988 1989 1990 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- --------- --------- --------- LME Prices (per pound)..................... $ .30 $ .31 $ .37 $ .25 $ .24 $ .18 $ .25 $ .29 1996 1997 --------- --------- LME Prices (per pound)..................... $ .35 $ .28
The LME price for lead as of June 30, 1998 was $.25 per pound. Management attributes the decline from 1997 levels to a general slowdown in replacement battery sales resulting from more moderate weather conditions in late 1996 and early 1997 in North America and Europe. COPPER Copper ranks second to aluminum as the most widely used non-ferrous metal in the world. Recognized for its metallurgical and physical properties, including high electrical and thermal conductivity, corrosion resistance, ductility, malleability and strength, copper is a versatile metal, used in its pure form and in alloys in a variety of industrial markets. These markets include construction, electrical and electronic parts, industrial machinery and equipment, transportation and consumer products. From 1987 to 1997, western world copper demand grew at a CAGR of approximately 3.3%, during which time copper prices averaged $1.08 per pound. In 1997, western world copper consumption was estimated at 12.3 million tons, a record level for the twelfth consecutive year, which represents a total market of $25.3 billion. The following table sets forth the average LME prices for copper during each of the years 1988 to 1997.
1988 1989 1990 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- --------- --------- --------- LME Prices (per pound)..................... $ 1.18 $ 1.29 $ 1.21 $ 1.06 $ 1.04 $ .87 $ 1.05 $ 1.33 1996 1997 --------- --------- LME Prices (per pound)..................... $ 1.04 $ 1.03
The LME price for copper as of June 30, 1998 was $.73 per pound. Management attributes the decline from 1997 levels to a general increase in metal inventories following higher production levels against softening demand in Asia. ZINC Zinc is the third most widely used non-ferrous metals in the world, with annual consumption exceeded only by aluminum and copper. Zinc is principally used as an anti-corrosive coating to produce galvanized steel, which ultimately is consumed in the automotive and construction industries. The galvanizing of steel sheet and strip accounts for approximately 50% of annual zinc consumption and is the largest growth sector for zinc. Other uses for zinc include alloys, such as brass, used in a variety of consumer products and zinc-aluminum used in the production of pressure die cast parts. From 1987 to 1997, western world zinc 62 demand grew at a CAGR of approximately 2.5%, during which time zinc prices averaged $.53 per pound. In 1997, western world zinc consumption was estimated at 7.1 million tons, which represents a total market of $8.5 billion. The following table sets forth the average LME prices for zinc during each of the years 1988 to 1997.
1988 1989 1990 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- --------- --------- --------- LME Prices (per pound)..................... $ .56 $ .78 $ .69 $ .51 $ .56 $ .44 $ .45 $ .47 1996 1997 --------- --------- LME Prices (per pound)..................... $ .47 $ .60
The LME price for zinc as of June 30, 1998 was $.45 per pound. Management attributes the decline from 1997 levels to an increase in the availability of zinc concentrates in the market. SILVER Silver historically has been used principally in coinage, reflecting its monetary value as a precious metal. Presently, however, demand for silver is predominately commercial, with uses in photography, electrical and electronic products, tableware, jewelry, medicine and dentistry. Industrial demand, which accounts for approximately 98% of total silver demand, increased 5.5% in 1997 to 799 million ounces, which represents a total market of $3.9 billion. From 1987 to 1997, western world silver demand grew at a CAGR of approximately 5.8%, during which time silver prices averaged $4.97 per ounce. The following table sets forth the average LBMA prices for silver during each of the years 1988 to 1997.
1988 1989 1990 1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- --------- --------- --------- LBMA Prices (per ounce).................... $ 6.53 $ 5.50 $ 4.83 $ 4.05 $ 3.95 $ 4.30 $ 5.28 $ 5.20 1996 1997 --------- --------- LBMA Prices (per ounce).................... $ 5.20 $ 4.90
The LBMA silver price as of June 30, 1998 was $5.32 per ounce. Management believes that increases in 1998 reflect an imbalance between supply and demand for silver, with the demand for silver for commercial applications exceeding the available supply from producers. 63 BUSINESS GENERAL Doe Run is the largest fully-integrated lead producer in North America and the second largest primary lead producer in the western world. Through its subsidiary Doe Run Peru, Doe Run operates one of the largest polymetallic processing facilities in the western world offering an extensive product mix of non-ferrous and precious metals, including copper, silver, zinc, lead and gold. The combined capabilities of Doe Run and Doe Run Peru represent the largest primary lead producer in the western world. On October 23, 1997, Doe Run Peru acquired Metaloroya from Centromin, a Peruvian government-owned conglomerate, as part of the ongoing privatization program sponsored by the government of Peru. On December 30, 1997, Metaloroya was merged into Doe Run Peru. The Company had pro forma net sales, net income and EBITDA of $709.8 million, $.7 million and $74.5 million, respectively, for the twelve months ended October 31, 1997 and pro forma net sales, net loss and EBITDA of $343.4 million, $1.0 million and $40.4 million, respectively, for the six months ended April 30, 1998. DOE RUN Doe Run's integrated operations permit Doe Run to participate in and manage the entire lead life cycle, including the mining of lead ore, the production of refined lead metal, the fabrication of value-added lead products and the secondary recycling of spent lead-acid batteries and other lead-bearing materials. Doe Run believes its reputation for excellent service, product quality and timely delivery permits it to consistently realize premiums for its products, resulting in sales prices above the market price for lead quoted on the LME. In fiscal 1997, Doe Run shipped approximately 350,000 tons of refined lead metal and lead alloy products, including recycled lead, representing approximately 18% of North American consumption and 6% of western world consumption. Doe Run had net sales, net loss and EBITDA of $277.9 million, $1.1 million and $31.9 million, respectively, for fiscal 1997, excluding the results of operations of Doe Run Peru for the eight-day period from October 23, 1997 (the date of consummation of the Acquisition) through October 31, 1997 and net sales, net loss and EBITDA (excluding intercompany transactions) of $118.5 million, $14.2 million and $4.2 million, respectively, for the six months ended April 30, 1998. Refined lead product sales accounted for approximately 67% and 68% of Doe Run's total net sales, or $185.1 million and $80.6 million, respectively, in fiscal 1997 and for the six months ended April 30, 1998, respectively. The balance of Doe Run's net sales resulted from (i) tolling services provided to major U.S. lead-acid battery manufacturers, (ii) lead production by-products, including zinc and copper concentrates, and (iii) value-added fabricated lead products, such as lead sheet and bricks. These net sales from tolling services, by-products and fabricated products provide sources of revenue largely independent of lead prices. Western world lead consumption in 1997 was estimated at 5.8 million tons which represents a total market of approximately $3.2 billion. Approximately 4.2 million tons, or 72%, of this lead was used in the production of lead-acid batteries, approximately 75% of which was for SLI batteries. Approximately 77% of SLI battery sales are in the automotive replacement market, a market with stable demand characteristics, which is dependent upon the number of automobiles in service and battery life. The lead-acid battery remains the most cost competitive battery technology for SLI batteries, which management believes will not change in the foreseeable future. Other uses for refined lead include computer and television screens, ammunition, stationary batteries used as backup power sources and rolled and extruded lead products used in radiation shielding and roofing materials. 64 The market for refined lead continues to grow primarily as a result of increasing demand for lead-acid batteries used for automobiles and other vehicles as a result of worldwide economic growth. As a result, western world lead consumption grew at a CAGR of 2.0% between 1987 and 1997. Doe Run believes that this growth rate will accelerate in the future as batteries become an even larger portion of the lead market, particularly in light of expected economic growth leading to increased vehicle population in developing economies. Approximately 45% of annual western world lead consumption is supplied from newly mined or "primary" ore, and the balance is supplied from secondary sources, principally the recycling of spent lead-acid batteries and other lead-bearing materials. Since 1990, primarily due to heightened environmental awareness, secondary lead capacity has increased, whereas primary lead capacity has remained relatively constant. Management believes that secondary sources of lead will continue to account for an increasing share of the total worldwide lead market. The average LME price for refined lead was $.29 per pound in fiscal 1997. As of June 30, 1998, the LME price for lead was $.25 per pound, which was below the ten-year average price of $.28 per pound. Management believes that lead prices will remain relatively stable or will modestly increase for the remainder of fiscal 1998 and over the long term will reflect the historical industry average. As a result of the recent lead price decreases, the Company expects that it will incur an operating loss in its U.S. operations that will adversely affect its EBITDA in fiscal 1998. Doe Run conducts its mining operations along approximately 40 miles of the Viburnum Trend in Southeastern Missouri, one of the world's most productive lead deposits. Doe Run operates six production shafts, four processing mills, one primary smelter and one secondary smelter. During fiscal 1997, Doe Run mined in excess of 5.0 million tons of ore containing average grades of 5.17% lead, 1.02% zinc and 0.27% copper. At the end of fiscal 1997, Doe Run's proven and probable reserves consisted of approximately 70 million tons, containing approximately 3.8 million tons of recoverable lead or approximately fourteen years of production at current mining rates. Doe Run's primary smelter in Herculaneum, Missouri is the largest in North America and the second largest in the world, with an annual production capacity of approximately 250,000 tons of refined lead. Since entering the recycling business in 1992, Doe Run has become a leading producer of secondary lead at its Buick recycling facility and secondary smelter located in Boss, Missouri. At this facility, Doe Run is reclaiming at a rate of approximately 105,000 tons of refined lead per year, approximately 60% of which is derived from tolling arrangements with major U.S. battery manufacturers. DOE RUN PERU Doe Run Peru's unique combination of base metal smelters, refineries and by-product circuits enable Doe Run Peru to process complex polymetallic concentrates and to recover base metals and by-products at international quality standards. Doe Run Peru's location in central Peru, approximately 110 miles from Lima, allows Doe Run Peru to source concentrates advantageously from mines located throughout the central Andes mountains, particularly in Peru. Moreover, Doe Run Peru's proximity to Lima's Callao port provides it ready access to major world markets for its products. For the twelve months ended October 31, 1997 and the six months end April 30, 1998, Doe Run Peru shipped approximately 70,000 tons and 35,000 tons, respectively, of refined copper, 107,000 tons and 55,000 tons, respectively, of refined lead, 71,000 tons and 40,000 tons, respectively, of refined zinc, 20.5 million ounces and 13.0 million ounces, respectively, of refined silver and 42,000 ounces and 26,000 ounces, respectively, of gold bullion. In addition, Doe Run Peru shipped various by-products including bismuth, indium, tellurium, antimony, cadmium and copper blister. Doe Run Peru had net sales, net income and Adjusted EBITDA of $431.9 million, $26.4 million and $50.7 million, respectively, for the twelve months ended October 31, 1997, including the period from October 23, 1997 through October 31, 65 1997, and net sales, net income and EBITDA (excluding intercompany transactions) of $224.9 million $18.9 million and $36.2 million, respectively, for the six months ended April 30, 1998. Of Doe Run Peru's net sales, refined copper, silver, zinc, lead and gold accounted for 35%, 23%, 19%, 15% and 3%, respectively, for the twelve months ended October 31, 1997, and 25%, 34%, 17%, 13% and 4%, respectively, for the six months ended April 30, 1998, with the balance of net sales derived from sales of various by-products. For the twelve months ended December 31, 1996, Doe Run Peru was one of Peru's largest exporters, exporting approximately 80% of its total shipments to North America, Europe and Asia, as well as other Latin American countries. Doe Run Peru's customers include end-users of base metals and metal by-products, as well as international metal trading companies. Doe Run Peru's operations consist of smelting and refining complex concentrates that it purchases from unaffiliated mining operations. Doe Run Peru typically purchases concentrate feedstock pursuant to annual contracts at a price based on a percentage of the payable base metal and precious metal content of the concentrates. The price is reduced by processing fees or treatment charges to refine the concentrates, as well as by penalties charged to remove impurities within the concentrates, such as arsenic, antimony and bismuth. Base metal prices, treatment charges and penalties are generally established based upon prevailing market conditions by reference to prices in the world market, including on the LME. Currently, Doe Run Peru has entered into supply contracts, primarily with one-year terms, that meet approximately 95% of its concentrate requirements for fiscal 1998. Doe Run Peru pays concentrate suppliers for the majority of the metal content of the concentrates purchased and, thus, derives its operating profit primarily from treatment charges and penalties. In addition, Doe Run Peru generates operating profit from the sale of by-products, as well as from metals sold at a premium to the price paid for such metal. Moreover, since Doe Run Peru's metallurgical recoveries are typically in excess of the paid metal percentages, Doe Run Peru further increases its operating profit from the sale of the metal produced from such recoveries. The markets for Doe Run Peru's products are global and continue to grow as a result of worldwide economic growth. Given the diversity of its products and by-products, Doe Run Peru's financial performance is not solely dependent upon the prospects for any one of its products or by-products. Moreover, since Doe Run Peru is a processor of complex concentrates and does not presently own any mines from which it sources concentrates, Doe Run Peru's financial performance is less sensitive to the volatility of base metal prices. COMPETITIVE STRENGTHS The Company believes that its competitive strengths include the following: FOCUSED BUSINESS STRATEGY The production of lead and related products is Doe Run's primary business, whereas lead generally represents a small percentage of its competitors' overall operations. As a result, Doe Run believes that its ability to quickly recognize and respond to various trends that affect the lead industry and its customers provide Doe Run with a preferred status with its customers. This responsiveness, along with its reputation for excellent service, product quality and timely delivery, permits Doe Run to consistently realize premiums for its products, resulting in sales prices above the market price for lead quoted on the LME. With the assistance and direction provided by Doe Run, Doe Run Peru, as a private enterprise, is well positioned to recognize and respond to various trends that affect the smelting and refining industry, as well as its customers. Doe Run Peru will implement its business strategy with the operating flexibility to (i) make discretionary capital expenditures and (ii) purchase an optimum mix of concentrate feedstock from a wider range of suppliers than it could under the constraints that existed as a government-owned enterprise. 66 DIVERSE PROCESSING CAPABILITIES The combination of Doe Run's and Doe Run Peru's processing capabilities provides the Company greater diversity in its net sales and EBITDA. Specifically, with the Acquisition, approximately 74% and 77% of the Company's net sales for the twelve months ended October 31, 1997 and the six months ended April 30, 1998, respectively, were derived from (i) the treatment and processing of base metal concentrates, including copper, silver, zinc, lead and gold, (ii) the fabrication of lead and lead related products, (iii) the tolling and recycling of spent lead-acid batteries for major U.S. lead-acid battery manufacturers and (iv) the sale of zinc and copper concentrates. Such value-added tolling and other products and services are less sensitive to base metal price fluctuations. FAVORABLE ACCESS TO RAW MATERIALS Peru and its neighboring Latin American countries, primarily Bolivia, are significant producers of complex concentrates that contain multiple metals and high levels of impurities. Doe Run Peru obtains substantially all of its lead and zinc concentrates and approximately 80% of its copper concentrates from Peruvian sources. Since Doe Run Peru operates one of the few complex concentrate processing facilities in the world, Doe Run Peru obtains favorable pricing terms from its concentrate suppliers due to the complex nature of the concentrates and its proximity to the producing mines. As a result, Doe Run Peru believes that it operates at a geographic competitive advantage to comparable facilities located farther from their sources of complex concentrates. Currently, Doe Run Peru has entered into supply contracts, primarily with one-year terms, that meet approximately 95% of its concentrate requirements for fiscal 1998. FLEXIBLE MINING OPERATIONS Due to its extensive polymetallic ore resources, Doe Run has flexibility in developing its mining and milling plans to take advantage of prevailing market conditions for lead, zinc and copper. Depending on lead, zinc and copper prices, Doe Run has the ability, to a certain extent, to optimize its mine production by targeting certain ore grades in order to enhance operating margins. By maintaining such flexibility, Doe Run is able to reduce its exposure to metal price volatility. U.S. DOLLAR-BASED REVENUES The mining industry in which Doe Run Peru is a major participant is Peru's largest export industry, representing approximately 45% of Peru's total export sales in 1997. For the twelve months ended October 31, 1997 and the six months ended April 30, 1998, exports accounted for 78% and 77%, respectively, of Doe Run Peru's shipments and more than 79% and 72%, respectively, of its net sales. In addition, substantially all of Doe Run Peru's net sales are denominated in U.S. dollars. As a result, Doe Run Peru's net sales is less sensitive to foreign currency fluctuations. EXPERIENCED MANAGEMENT AND LABOR FORCE Doe Run's management team has extensive experience in the mining and metals production industry with an average of 23 years in the industry. The extensive experience of the Doe Run management team complements the skills of Doe Run Peru's executive personnel to provide Doe Run Peru with the strong management team necessary to compete as a private enterprise in the world markets. In addition, the Company employs a highly skilled workforce whose average tenure with the Company is more than 20 years. HIGH BARRIERS TO ENTRY Management believes that the capital costs and environmental requirements associated with constructing facilities comparable to those of the Company result in high barriers to entry for prospective entrants. Management estimates that it would cost approximately $700 million to establish mining, milling 67 and smelting operations with the production capacity and efficiency of Doe Run. Moreover, management is not aware of any significant mineral deposit in North America with lead grades and reserves similar to that of the Viburnum Trend. With respect to Doe Run Peru, management estimates that it would cost approximately $950 million to establish smelting and refining operations with the production capacity and efficiency of Doe Run Peru. Management believes that the cost and time commitment required to achieve commercial production for any new mining, milling, smelting or processing operation, including regulatory approvals, heightens the barriers to entry. BUSINESS STRATEGY The Company's business strategy is to improve its operations and financial performance by focusing on the following principal elements: INCREASE CAPACITY AND IMPROVE OPERATING EFFICIENCIES Doe Run is committed to improving its operating efficiencies through focused capital investments that increase capacity utilization, enhance productivity and lower costs. Since the acquisition of Doe Run by Renco in April 1994, Doe Run has completed approximately $40.4 million of capital investments through April 30, 1998 designed in part to reduce production costs and improve product quality. Additionally, Doe Run seeks to identify non-capital cost reduction opportunities throughout its operations. Doe Run has increased its primary lead production capacity from the original annual capacity of 225,000 tons to approximately 250,000 tons presently with minimal capital investment. In addition, Doe Run has increased its secondary lead production capacity from the original annual capacity of 60,000 tons to approximately 105,000 tons presently with minimal capital investment. The Company has identified a number of strategic initiatives designed to improve Doe Run Peru's operating efficiencies and its competitive position within the industry through focused capital investment. In furtherance of this strategy, Doe Run Peru has adopted a ten-year Capital Investment Program of approximately $300.0 million in an effort to enhance various elements of Doe Run Peru's operations. The Capital Investment Program will target specific areas of Doe Run Peru's facilities, such as the copper and lead circuits, to improve product quality, increase capacity, improve productivity and reduce costs in the targeted area, thereby enhancing Doe Run Peru's net sales and EBITDA. In addition, the Capital Investment Program is designed to help achieve compliance with applicable environmental standards in Peru. MAINTAIN AND BUILD STRONG RELATIONSHIPS WITH STRATEGIC CUSTOMERS Through its ongoing research and development efforts and customer service initiatives, Doe Run strives to build and maintain strong relationships with its customers. Since lead is Doe Run's principal business, Doe Run sales and technical professionals are dedicated to working closely with Doe Run's customers to be responsive to their needs, such as small order quantities, specialized shapes, sizes and alloys, technical assistance and flexible deliveries. As a private enterprise, Doe Run Peru is implementing many of the successful customer service initiatives utilized by Doe Run to build and maintain strong relationships with its customers. Such initiatives will include ongoing research and development efforts, technical assistance and other customer service practices that will encourage a close working relationship with Doe Run Peru's customers. In addition, Doe Run Peru is shifting the focus of its marketing efforts to end users of its products from international trading companies. OPTIMIZE CONCENTRATE SUPPLY AT DOE RUN PERU As a private enterprise, Doe Run Peru is endeavoring to optimize the mix of complex concentrates from a wider range of suppliers than it purchased as a government-owned enterprise. Historically, Doe 68 Run Peru obtained the vast majority of its concentrate requirements from Centromin mines, typically pursuant to annual contracts. Given Doe Run Peru's unique position as one of the few processing facilities in the world for complex concentrates, Doe Run Peru will source its raw materials on a competitive basis within Peru from both Centromin mines and private mines, as well as from other Latin American suppliers. Currently, Doe Run Peru has entered into supply contracts, primarily with one-year terms, that meet approximately 95% of its concentrate requirements for fiscal 1998. GROW DOE RUN'S CORE LEAD BUSINESS Doe Run seeks to increase sales and operating cash flow through the growth of its core lead operations. Such efforts include increased sales of refined lead resulting from the expansion of its primary lead production capacity. In addition, Doe Run strives to expand its product offerings of value-added fabricated products including various shapes, sizes and alloys. Margins on fabricated products are relatively insensitive to lead price fluctuations because such fluctuations are generally reflected in the price of the end product. Doe Run is also growing its recycling and related tolling business with U.S. lead-acid battery manufacturers pursuant to contractual agreements under which recycled lead is returned to the supplier in exchange for a processing fee. Such processing fee is generally independent of lead prices. BROADEN REVENUE SOURCES THROUGH STRATEGIC ACQUISITIONS The Company seeks to broaden its revenue sources through the acquisition of related resource assets or businesses that capitalize on the combined experience of Doe Run and Doe Run Peru in mining, milling, smelting and refining base and precious metals. With respect to Doe Run, such opportunities, domestic or international, could be operations in primary or secondary lead production, lead fabrication or non-lead resource businesses. With respect to Doe Run Peru, such opportunities could include the acquisition of mining assets in Peru or other Latin American countries, including, without limitation, those presently undergoing privatization in Peru. The Acquisition reflects the Company's business strategy of broadening its revenue sources through a strategic acquisition, focusing on treatment and processing of base metal concentrates, as well as other metal related services. In particular, Doe Run Peru represented a unique opportunity for Doe Run to capitalize on Doe Run's extensive experience in efficiently managing mature smelter operations. Through the focused investment of capital and the implementation of Doe Run's operating practices, Doe Run Peru believes that it will increase its refined metals capacities and improve product quality, thereby enhancing financial performance through increased revenues and EBITDA. The Company from time to time engages in discussions with potential acquisition targets; except as set forth herein, the Company has not entered into any letter of intent or definitive agreement with respect to any possible acquisition. There can be no assurance that any potential acquisition pursued by the Company will be consummated. See "--Potential Acquisition of the ASARCO MLD" and "Prospectus Summary-- Potential Acquisitions." DOE RUN PRODUCTS AND SERVICES Doe Run's principal products include refined lead from primary and secondary sources, fabricated products, zinc and copper concentrates and other by-products. In addition, Doe Run provides tolling 69 services where it receives a processing fee for recycling spent lead-acid batteries and other lead-bearing materials. The following table sets forth net sales for each of Doe Run's products and services:
YEAR ENDED OCTOBER 31, ---------------------------------- 1995 1996 1997 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Primary Lead................................................................. $ 148,067 $ 165,932 $ 156,077 Secondary Lead: Tolling...................................................... 14,435 15,119 22,369 Metal Sales................................................... 19,156 29,782 29,039 Other......................................................... 3,175 3,910 6,063 Fabricated Products.......................................................... 1,643 9,294 24,121 Zinc Concentrates............................................................ 17,694 22,363 24,772 Copper Concentrates.......................................................... 11,619 12,431 8,822 Other........................................................................ 9,354 16,099 6,633 ---------- ---------- ---------- Total.................................................................... $ 225,143 $ 274,930 $ 277,896 ---------- ---------- ---------- ---------- ---------- ----------
PRIMARY LEAD Doe Run produces high quality refined lead products at its primary Herculaneum smelter, including 99.99% pure lead, the purest commercial lead available. Doe Run also provides a wide variety of product shapes and sizes, as well as a complete series of lead alloys to meet the specialty demands of its customers. Primary lead is used in automotive batteries, computer and television screens, forklift, marine and golfcart batteries, stationary batteries used as backup power sources, as well as rolled and extruded lead products in radiation shielding and roofing materials. High purity lead is required for newer high technology batteries, and is preferred by battery manufacturers for lead oxide, the electrically active component of lead-acid batteries. Doe Run's lead alloy products are used in the manufacture of numerous fabricated products, as well as for ammunition. SECONDARY LEAD Doe Run produces secondary lead at its recycling facility located in Boss, Missouri, where it recycles spent lead-acid batteries and other lead-bearing materials. Of Doe Run's secondary lead production, approximately 60% is derived from tolling arrangements with battery manufacturers. Under such multi-year arrangements, manufacturers send spent batteries to Doe Run, which recovers the lead and returns it to the battery manufacturer for a processing fee. As part of such arrangements, Doe Run offers its tolling customers the opportunity to purchase or receive primary lead or lead alloys in exchange for their spent lead-acid batteries at specified economic terms. Due to the terms of these arrangements, Doe Run's operating profits from this service are largely unaffected by lead price fluctuations. In addition to revenues resulting from tolling services, Doe Run directly sells secondary lead and recycles other lead-bearing materials for which it receives processing fees. FABRICATED LEAD PRODUCTS Doe Run processes lead metal into custom products such as: lead oxide, the key ingredient in lead-acid batteries; lead anode plates used in copper refining; x-ray and radiation shields for the medical profession; roof flashings for the construction industry; and lead for ammunition. Doe Run also installs radiation shielding in hospitals and cancer treatment centers and installs and maintains lead-lined storage tanks and pollution control devices for the chemical, petroleum and smelting industries. Margins on Doe Run's sales of value-added products are relatively insensitive to lead price fluctuations, as Doe Run generally is able to reflect such fluctuations in the price of the end product. 70 ZINC CONCENTRATES Doe Run mines zinc as a by-product of its lead-mining operations. Zinc concentrates are sold on the open market or to zinc smelters. In fiscal 1997, Doe Run produced approximately 70,000 tons of zinc concentrates, with an average metal content of 59.6% zinc. COPPER CONCENTRATES Doe Run mines copper as a by-product of its lead operations. Copper concentrates are sold on the open market or to copper smelters. In fiscal 1997, Doe Run produced approximately 27,000 tons of copper concentrates, with an average metal content of 29.1% copper. OTHER PRODUCTS AND SERVICES Doe Run produces various other by-products resulting from the production of lead. Such products include sulfuric acid which is sold to fertilizer manufacturers, as well as primary and secondary furnace drosses, which are sold to custom smelters for further recovery of various minerals. The secondary facility also sells polypropylene and sodium sulfate and provides other services, including stripping of lead-sheathed cable and recycling of various hazardous materials. MARKETING AND SALES Doe Run's marketing and sales strategy is to maximize the net realized selling prices for its products. In furtherance of this strategy, Doe Run provides its customers small order quantities, specialized shapes, sizes and alloys, technical assistance and flexible deliveries. Doe Run generally sells lead on a delivered basis with freight charges included. Doe Run's central U.S. location allows it to have transportation costs significantly lower than its major competitors with operations outside of North America. Moreover, due to its location, Doe Run is able to provide its customers just-in-time delivery at a lower cost than most of its competitors. Doe Run is actively involved with several customers in developing new uses for lead. Such uses include lead foil for advanced lead-acid batteries, low radiation lead solder for printed circuit boards and superior lead alloys for optimizing battery performance. Zinc and copper concentrates generally are sold to North American smelters pursuant to multi-year (typically three year) contracts awarded under a bid process. Due to Doe Run's geographic location, transportation costs for its zinc and copper concentrates are low relative to its competitors' costs. Similar to lead, transportation costs are a significant factor in selling concentrates. Doe Run's sales of lead metal, concentrates and by-products are handled by Doe Run's staff of direct sales people assisted by customer service representatives. Technical assistance is provided by plant operating personnel. CUSTOMERS Doe Run had approximately 160 lead metal customers in fiscal 1997, of which the five largest accounted for approximately 41% of Doe Run's lead metal net sales. Approximately 70% of Doe Run's lead sales were pursuant to contractual agreements, typically one year or less. Such contracts generally set forth minimum volume and pricing terms. Exports represented approximately 7% of Doe Run's net sales in fiscal 1997. 71 Doe Run's customers include six of the seven largest lead-acid battery manufacturers in the world which accounted for approximately 40% of Doe Run's net sales in fiscal 1997, including JCI which purchased lead and tolling services representing approximately 12% of Doe Run's fiscal 1997 net sales. In addition, Big River, a producer of zinc metal and associated co-products, purchased zinc concentrates, which represented approximately 10% of Doe Run's net sales in fiscal 1997. No other single customer accounted for more than 10% of Doe Run's net sales in fiscal 1997. The loss of any of Doe Run's largest customers or curtailment of purchases by such customers could have a material adverse effect on the results of operations, financial condition and liquidity of Doe Run. As a result of the Acquisition, however, no single customer is expected to account for more than 10% of the Company's net sales in fiscal 1998. COMPETITION Doe Run is the largest fully-integrated lead producer in North America and the second largest primary lead producer in the western world. The leading producer of lead in the world is Quexco Incorporated ("Quexco"), with operations in Europe, as well as North America where Quexco operates secondary operations under the name of RSR Corporation ("RSR"). Metaleurop S.A. is a significant European producer of both primary and secondary lead. In North America, Doe Run's principal competitors in primary lead include Cominco Ltd., Noranda Inc. and Industrias Penoles S.A. In secondary recycling of lead, Doe Run competes with Exide, which is also a customer of Doe Run, GNB Inc., RSR and several other smaller industry participants. PRODUCTION PROCESS Doe Run produces refined lead metal from its primary processing facility, as well as through its secondary recycling operations. Summarized below is a description of the production process for primary and secondary lead production. PRIMARY The production of lead involves three major stages: mining, milling and smelting. MINING AND MILLING. Doe Run operates six production shafts and four processing mills, including one mill presently maintained on a stand-by basis. Doe Run's polymetallic ore bodies are mined using the "room and pillar" method. With this method, ore is removed by blasting in a manner that leaves pillars to support the rooms created by the removed ore. Mining involves drilling and blasting limestone rock 500 to 1,000 feet below the earth's surface. The ore is hauled by large, diesel-powered equipment before being hoisted above ground to the mill. During fiscal 1997, Doe Run's mining operations produced in excess of 5.0 million tons of ore, containing average grades of 5.17% lead, 1.02% zinc and 0.27% copper. The milling process includes further crushing and grinding, subsequent to which the ore is treated in a flotation process to separate and concentrate the minerals. The milling process recovers payable minerals from the ore. The remaining materials, or tailings, are sent to settling ponds near the mill sites, which are operated and maintained to ensure groundwater purity. The final products are lead, zinc and copper concentrates that are shipped off-site for smelting. The lead concentrates are shipped to the Herculaneum smelter, while zinc and copper concentrates are marketed to other firms. SMELTING. Located on the Mississippi River, south of St. Louis, the Herculaneum smelter is the largest lead smelter in North America and the second largest in the world. The smelter commenced operations in 1892 and has been in continuous operation since that time, processing lead concentrates from Doe Run's mining and milling operations. The smelter has a capacity of 250,000 tons per year and utilizes a pyrometallurgical process to produce 99.99% refined lead. 72 The annual capacity of the smelter was recently upgraded to approximately 250,000 tons following the introduction of certain process control improvements at the blast furnace and other plant modifications. Doe Run is in the process of further increasing the capacity to approximately 270,000 tons per year. Doe Run recently completed construction of a $7.2 million 550-foot tall emissions stack that has allowed production capacity to increase at its primary smelter and improved the facility's environmental performance. Consistent with Doe Run's commitment to product quality and customer service, in January 1998, Doe Run's Herculaneum facility obtained ISO 9002 certification, an internationally recognized quality system standard. SECONDARY Located in Boss, Missouri, Doe Run's recycling facility processes spent lead-acid batteries and other lead-bearing materials. The facility is a Resource Conservation Recovery Act approved site. The facility employs a sophisticated monitoring system to prevent leaks from penetrating the surrounding environment. In fiscal 1997, the facility reclaimed approximately 105,000 tons of refined lead. Approximately 60% of this total results from tolling contracts, while 53% of the total supply resulted from automobile batteries. Production capacity has been increased to approximately 110,000 tons currently from the original capacity of 60,000 tons with minimal capital investment. At Doe Run's recycling facility, whole batteries are dismantled in a hammer mill, and the components are recovered by a combination of screening and gravity separation in water columns. Grids and posts are collected in a bin, polypropylene is loaded into trucks and lead paste is separated for further treatment. Grids and posts are melted in a rotary furnace to produce antimonial lead alloys. The paste is processed in a reverberatory furnace to produce pure lead and a high antimony slag which is further processed in a blast furnace to recover additional lead, antimony and tin. The remaining slag is disposed of as a non-hazardous material at a licensed facility. Management believes this recycling facility generates two-thirds less waste than traditional battery recycling facilities. Consistent with Doe Run's commitment to product quality and customer service, in April 1997, Doe Run's recycling facility obtained ISO 9002 certification. MINING OPERATIONS GEOLOGY Doe Run's operations are centered around the ore-rich Viburnum Trend in Southeastern Missouri. Approximately 500 million years ago, the Precambrian core of the St. Francois Mountains formed a group of islands. The water around these islands was shallow, and algae formed a reef around them. Over time, the islands and the reef were covered by sea water and layers of sediment. These layers eventually hardened into rock. Mineral-bearing fluids flowed through the rock, depositing substantial amounts of lead, zinc and copper near and in the reef. Portions of this reef and surrounding areas contain valuable mineral deposits now known as the Viburnum Trend. Doe Run's Viburnum Trend ore body is predominantly in the Bonne Terre geologic formation, which is dolomitic limestone. The principal metallic constituents are lead, zinc and copper, with trace amounts of silver. The ore body being mined is an irregular mass of sulfide ores, principally lead, zinc and copper sulfides, approximately 1,000 feet in depth and with varying widths of up to 2,000 feet. PRODUCTION SHAFTS Doe Run's mining operations utilize six production shafts that form a north-south line along approximately 40 miles of its Viburnum Trend ore body. Three production shafts, Viburnum-28, Viburnum-29 and Viburnum-35, lie within a five-mile radius east, north and south, respectively, of Viburnum, 73 Missouri. The Buick, Brushy Creek and Fletcher production shafts are five miles, sixteen miles and twenty miles, respectively, south of Viburnum, Missouri. All of Doe Run's mining and milling facilities are accessible by state or county roads or Company-owned haul roads. Products are shipped by truck over public roads or by rail, with rail loading capabilities at two of Doe Run's mining facilities. Five of the production shafts, Viburnum-28, Viburnum-29, Viburnum-35, Brushy Creek and Fletcher, were developed by predecessors of Doe Run. The sixth production shaft, Buick, was developed and initially operated by a joint venture of Homestake Mining Company and American Metal Climax (the "Homestake Joint Venture") in the 1960s. In 1986, the Buick mining operations became part of Doe Run's Predecessor. Doe Run owns the property where the necessary surface structures for mining and milling are located. The mineral rights are held either by fee title or mineral leases with either private landowners or the federal government. There are numerous mineral exploration leases, most of which are for exploration of new mineral ore deposits. Four of the production leases are private leases, and nine are government leases. The mineral leases with private landowners have no expiration periods. The government leases are for a period of ten years and are renewable. The related mining operations are conducted pursuant to four development contracts, which also are for ten years subject to renewal. The Viburnum, Fletcher, Buick and Brushy Creek development contracts consist of four, two, one and two leases, respectively, which are due for renewal March 31, 2018, May 31, 2003, October 31, 2004 and May 31, 2003, respectively. Doe Run is required to make royalty payments under the leases. The production shafts are approximately 1,000 feet deep, with the exception of Viburnum-28 and Viburnum-29 which are 800 feet and 500 feet deep, respectively. All mining by Doe Run is performed underground on one level by the room and pillar method. Blasting typically is accomplished by using an ammonium nitrate fuel oil mix; however, dynamite is used under wet conditions. Front-end loaders are used to load the blasted ore onto trucks that haul the ore from the production face to the production shaft. Doe Run maintains fleets of trucks, drilling equipment and loading equipment, which generally are rubber-tired and diesel-powered, at each of its production shafts. The equipment is of various ages, and much of the older equipment has been upgraded or rebuilt. Doe Run employs a computerized maintenance scheduling and tracking system that directs and monitors preventive maintenance and repair activities of all equipment. In addition to maintaining its existing equipment, Doe Run has recently acquired or leased new equipment which enhances operating efficiencies, such as low-profile equipment capable of operating in ten-foot openings rather than the standard twelve-foot openings and drilling equipment for removal of pillars in excess of 40 feet in height. EXPLORATION Doe Run continues to explore actively within the Viburnum Trend and historically has replaced a significant portion of annual production with new reserves. A development project is on-going in the northern section of the Viburnum-28 mining area with a view to opening additional ore reserves. In addition, limited surface exploration drilling is being conducted in this area. Doe Run is engaged in limited surface diamond drilling beyond the extreme north and south ends of the Viburnum-29 mining area. At Viburnum-35, development activity is focused on developing the eastern blanket ore body access, and in the northern section of the mining area, following the main mineralization trend. Doe Run has initiated a 4,500-foot drift from the northern end of the Brushy Creek mining area to the southern extremity of the Buick mining area. Surface exploration drilling continues in areas south of the present Brushy Creek mining area. Exploration is being actively pursued south of the Fletcher mining area, where mineralization is present but not yet delineated sufficiently to constitute ore reserves. Doe Run also holds exploration tracts outside the Viburnum Trend, which are being actively explored. In fiscal 1997, Doe Run spent $6.2 million on exploration activities, including $2.6 million outside the Viburnum Trend. 74 FACILITIES The following table sets forth the location of and certain other information about Doe Run's facilities:
SIZE ------------------------- FACILITY LOCATION LAND FACILITY - -------------------------------------------------------------- -------------------------- ----------- ------------ (SQUARE (ACRES) FEET) MINING AND MILLING: Viburnum (three production shafts)............................ Viburnum, Missouri 679 139,000 Buick......................................................... Boss, Missouri 82 144,000 Brushy Creek.................................................. Bunker, Missouri 400 92,000 Fletcher...................................................... Bunker, Missouri 162 88,000 SMELTING: Herculaneum--Primary.......................................... Herculaneum, Missouri 235 365,000 Buick--Secondary.............................................. Boss, Missouri 193 200,000 FABRICATING: Seafab(a)..................................................... Casa Grande, Arizona (b) 75,000 Seattle, Washington (b) 43,000 Vancouver, Washington (b) 15,000 Lone Star..................................................... Houston, Texas (b) 33,000
- ------------------------ (a) FPI is currently relocating its remaining lead oxide manufacturing operations from the Seattle facility to Vancouver, Washington. Upon completion of the relocation, the Seattle facility will be closed. (b) This facility is leased. Doe Run operates four mills. The Viburnum mill is located on the eastern edge of Viburnum, Missouri, and has the largest capacity of any mill in the area with its 12,000 ton per day concentrator. Ores from Viburnum-28, Viburnum-29 and Viburnum-35 are processed at the Viburnum mill. The Buick mill is located at the site of the Buick production shaft, and its concentrator has a capacity of 7,200 tons per day. Ores from Buick and Brushy Creek are processed at the Buick mill. The Fletcher mill is located at the site of the Fletcher production shaft, and its concentrator has a capacity of 5,000 tons per day. The Fletcher mill processes ores from the Fletcher production shaft. The Brushy Creek mill is located at the site of the Brushy Creek production shaft, and its concentrator has a capacity of 5,000 tons per day. At the Viburnum mill and Buick mill, lead concentrates are placed in rail cars for transport to the Herculaneum smelter; however, the Fletcher mill does not have rail access, and accordingly, lead concentrates are first trucked to the Buick mill for transport by rail. Zinc and copper concentrates are shipped from the mills to smelter customers by rail or truck. The Herculaneum primary lead smelter is located approximately 35 miles south of St. Louis on the Mississippi River in Herculaneum, Missouri. The St. Joseph Lead Company, a predecessor of Doe Run, built the first smelting operation on the property in 1892. The last reconstruction of the smelter facility was in the mid-1960's. Doe Run owns the smelter property. The recycling facility, with its secondary smelter, located in Boss, Missouri, was constructed in 1991, on the site of a former primary lead smelter. The recycling facility utilizes some of the existing structures and equipment from the primary lead smelter. The primary smelter was originally owned and operated by the Homestake Joint Venture. This property was also acquired initially by Doe Run's Predecessor. In addition to ongoing capital investments, Doe Run has expended an average of approximately $59.5 million per year on maintenance during fiscal 1995 through 1997. As a result of these expenditures and 75 ongoing efforts, Doe Run believes that it operates and will continue to maintain modern and efficient facilities. ELECTRICAL POWER The electric power source for all the facilities, except Viburnum-35, is Union Electric Company, a public utility headquartered in St. Louis, Missouri. Viburnum-35 obtains its electric power from Black River Co-op. RESERVES As of March 31, 1998, Doe Run's Viburnum Trend ore reserves consisted of approximately 8.9 million proven tons and 55.2 million probable tons, containing approximately 3.5 million tons of recoverable lead or approximately fourteen years of production at current mining rates. The term "proven reserves" means ore reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. The term "probable reserves" means ore reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. The following table sets forth the mineral inventory and mineable reserves as of March 31, 1998 for Doe Run's Viburnum Trend ore body, which have been audited by Pincock, Allen & Holt, Lakewood, Colorado, an international mineral industry consulting firm. The term "mineral inventory" applies to the mineral zone that has been defined by extensive sampling to define grade and tonnage and can be classified as to various confidence categories, but excludes consideration of recoverability or how the mineralization will be extracted. The term "mineable reserves" refers to the portion of the mineralization that has been defined as extractable for mining purposes, including provision for mining dilution and losses that may occur during extraction, as containing ore of sufficient grade, thickness and tonnage to be economically mineable under normal circumstances, provided reserves are sufficient to justify development costs. RESERVE AUDIT--MINEABLE RESERVES AS OF MARCH 31, 1998
GRADE --------------------------------- TONS LEAD ZINC COPPER ------------- --------- --------- ----------- (IN THOUSANDS) Mineral Inventory........................................................ 121,960 4.76% 0.93% 0.23% Mineable Reserves: Proven................................................ 8,916 8.50 1.72 0.40 Probable................................................ 55,150 4.97 1.05 0.24 ------------- --------- --- --- Total................................................ 64,066 5.46 1.20 0.28 ------------- --------- --- --- ------------- --------- --- ---
76 MINING AND MILLING The following table sets forth production information for Doe Run's mining and milling operations for the three years ended October 31, 1997.
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1996 1997 --------- --------- --------- Wet tons (in thousands) of ore milled.................................................... 3,956 4,869 5,168 No. of operating days.................................................................... 252 253 252 Average tons (in thousands) per operating day............................................ 16 19 21 Average ore grade: Lead................................................................................... 5.7% 5.2% 5.2% Zinc................................................................................... 1.1% 1.1% 1.0% Copper................................................................................. 0.3% 0.3% 0.3% Lead concentrate: Tons (in thousands).................................................................... 267 303 314 Average Lead grade..................................................................... 76% 77% 79% Tons (in thousands) of lead metal contained in concentrate............................. 204 234 247 Zinc concentrate: Tons (in thousands).................................................................... 54 69 70 Average Zinc grade..................................................................... 59% 59% 60% Tons (in thousands) of zinc metal contained in concentrate............................. 32 40 42 Copper concentrate: Tons (in thousands).................................................................... 25 31 27 Average Copper grade................................................................... 29% 28% 29% Tons (in thousands) of copper metal contained in concentrate........................... 7 9 8
RAW MATERIALS Doe Run's operations utilize various raw materials, principally coke, electricity, natural gas, propane and spent batteries. Doe Run believes that it has adequate sources of these raw materials to meet its present production needs. ENVIRONMENTAL MATTERS Doe Run is subject to numerous federal, state and local environmental laws and regulations governing, among other things, air emissions, waste water discharge, solid and hazardous waste treatment, and storage, disposal and remediation of releases of hazardous materials. In common with much of the mining industry, Doe Run's facilities are located on sites that have been used for heavy industrial purposes for decades and may require remediation. Environmental laws and regulations may become more stringent in the future which could increase costs of compliance. Doe Run is a defendant in several lawsuits alleging certain damages from lead emission stemming from the operations at the Herculaneum smelter. The cases brought in the Circuit Court, 23rd Judicial Circuit at Hillsboro, Jefferson County, Missouri are: KARLA RICHARDSON, ET AL. V. THE DOE RUN RESOURCES CORP., ET AL., Case No. 195-5492-CC-J4, filed September 12, 1995; SARA DIXON, ET AL. V. THE DOE RUN RESOURCES CORP., Case No. 195-5112 CC-J1, filed August 25, 1995; RONALD HEATH, ET AL. V. THE DOE RUN RESOURCES CORP. ET AL., Case No. 195-6936-CC-J2, filed November 20, 1995; and ANDREA MASSA, ET AL. V. THE DOE RUN RESOURCES, ET AL., Case No. 195-7290-CC-J3, filed December 8, 1995. The DIXON and HEATH cases are class action lawsuits. In the DIXON case, the plaintiffs have been certified as two separate classes. The first class consists of property owners in a certain section of Herculaneum, alleging that property values have been damaged due to the operations of the smelter. The second class is children who lived in 77 Herculaneum during a period of time when they were six months to six years old, and the remedy sought is medical monitoring for the class. The HEATH case is seeking certification of a class of property owners allegedly damaged by operations from the smelter, but the potential size of the class is every home in Herculaneum, Missouri. The RICHARDSON and MASSA cases are personal injury actions by fourteen individuals collectively who allege damages from the effects of lead poisoning due to operations at the smelter. Punitive damages also are being sought in each of the RICHARDSON and MASSA cases. Doe Run is vigorously defending all of these claims. Preliminary investigation and research by Doe Run indicates property values in Herculaneum are consistent with those of surrounding communities and have not been affected by the smelter. Finally, based on rules for class certification, Doe Run believes class certification is not appropriate. However, because the cases are in the early stages of discovery, Doe Run is unable at this time to state with certainty the expected outcome of and the final costs of any of these cases. Therefore, there can be no assurance that these cases would not have a material adverse effect on the results of operations, financial condition and liquidity of Doe Run. Primary smelter slag produced by and stored at the Herculaneum smelter is currently exempt from hazardous waste regulation under the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"). However, the EPA recently published a proposed rule which, if adopted, would require this slag to be managed as a hazardous waste. Certain other waste materials, including baghouse dust, generated at the smelter and now recycled in the smelter may also become regulated as hazardous wastes. At this time, Doe Run cannot predict the final outcome of the EPA's proposed rule. However, if the slag or other wastes at the smelter are regulated as hazardous waste, Doe Run may be required to take corrective action under RCRA at the smelter, as well as to adopt stricter management practices for these wastes, which could have a material adverse effect on the results of operations, financial condition and liquidity of Doe Run. Disposal of the slag at the plant site as a hazardous waste could result in potential capital and operating costs of approximately $1.0 million per year. The area surrounding the Herculaneum smelter currently is out of compliance with the ambient air quality standard for lead promulgated under the federal Clean Air Act. Doe Run is working with regulators to develop a new three-year compliance plan to begin after fiscal 1998 to implement identified control measures. Under the Clean Air Act, there are no penalties for failure to meet the ambient air quality standard. Nevertheless, penalties could be imposed should Doe Run fail to meet the terms of the new three-year compliance plan. Doe Run expects to make capital expenditures for additional control measures totaling approximately $2.8 million for fiscal 1998 while the plan is developed and anticipates a minimum total amount of $3.0 million for the three-year plan. Doe Run has received notice that it is a potentially responsible party ("PRP") subject to liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), at the following sites: four sites in St. Francois County, Missouri, including the Big River Mine Tailings site, the Bonne Terre site, the Federal site and the National site; the Oronogo-Durenweg site in Jasper County, Missouri; the Cherokee County site in Cherokee County, Kansas; the Tar Creek site in Ottawa County, Oklahoma; the Block "P" site in Cascade County, Montana; and the Missouri Electric Works site in Cape Girardeau, Missouri. There are four additional sites in St. Francois County for which the EPA has indicated it will issue notice. These sites involve historical operations of predecessors of Doe Run. CERCLA provides for strict and, in certain circumstances, joint and several liability for response costs and natural resource damages. Doe Run has a reserve as of October 31, 1997 of $17.8 million for these sites, including the four additional sites in St. Francois County, which Doe Run believes is adequate based on its investigations to date. However, depending upon the types of remediation required and certain other factors, costs at these sites, individually or collectively, could have a material adverse effect on the results of operations, financial condition and liquidity of Doe Run. Doe Run signed a voluntary Administrative Order of Consent ("AOC") in 1994 with the EPA to remediate the Big River Mine Tailings Site. In February 1997, Doe Run signed an AOC to perform an Engineering Evaluation/Cost Analysis on the Bonne Terre Site. In addition to remediating the mine waste areas at these sites, Doe Run has signed an AOC with the EPA to conduct a Remedial Investigation/ 78 Feasibility Study ("RIFS") to assess potential off-site impacts of site operations on and the need for remediation regarding groundwater, residential soils, several creeks and a river. The RIFS is being conducted by a third party and is approximately one-half complete, with completion expected within one year. Doe Run believes the current reserves assigned to these sites are adequate. However, should remediation goals or areas change, requiring substantially increased measures, there can be no assurance that the reserves would be adequate. Doe Run has been advised by the EPA that it is considering taking certain response actions at a mine site in Madison County, Missouri known as the LaMotte Site. A predecessor of Doe Run was a former operator of the site. The EPA has not decided whether any action will be taken, but held a meeting with Doe Run and two other PRPs at the site on June 17, 1998 to discuss possible future response actions. This site is substantially smaller than the sites in St. Francois County where Doe Run has been named a PRP, and the potential issues are less complex. At this time, based on this preliminary meeting and an inspection of the site, management does not believe that any future action will result in a material adverse impact to the results of operations, financial condition or liquidity of Doe Run. The Block "P" site in Montana was a polymetallic mine with a waste facility located on U.S. Forest Service land. Studies of the tailings site, mine and potential impacts on surface water have been requested by the State of Montana. Doe Run has been sued for contribution for superfund remediation costs in RSR CORPORATION AND QUEMETCO V. AVANTI, ET AL., filed on October 11, 1995 in the United States District Court for the Southern District of Indiana. The site in question, known as the Avanti Site located in Indianapolis, Indiana, was a secondary smelter formerly owned by a subsidiary of Doe Run which was sold to RSR in 1972. RSR has entered into an AOC with the EPA to remediate the Avanti Site and claims that Doe Run should reimburse a portion of its costs. It is Doe Run's position that RSR assumed the liabilities of Doe Run's former subsidiary and, in any event, Doe Run has no liability for any acts of its former subsidiary. In June 1996, the EPA issued an order under Section 106 of CERCLA to Doe Run requesting it to make a good faith offer of participation to RSR. Although Doe Run believes it has no liability to RSR, and there are other PRPs named by the EPA and by RSR as defendants in the litigation, Doe Run made what it considers to be a good faith participation offer to RSR of $112,500 which was not accepted. The estimated cost of the selected remedy for the site is $7.0 to 10.0 million. Doe Run does not believe that resolution of this matter will have a material adverse effect on the results of operations, financial condition and liquidity of Doe Run. Doe Run's recycling facility is subject to corrective action requirements under RCRA, as a result of a storage permit for certain wastes issued in 1989. This has required and may involve future remediation of solid waste management units at the site. Although it is not possible to predict whether completed actions will be approved or new actions required, Doe Run has reserves as of October 31, 1997 of $1.9 million for future corrective actions and $2.6 million for closure costs for the permitted storage area. Under the Clean Air Act Amendments of 1990, Congress required the EPA to study certain industry sectors to determine Maximum Achievable Control Technology ("MACT") for each sector. A MACT rule has been adopted which could require substantial capital and operating expenses for the recycling facility. Doe Run challenged the rule by filing a petition for review with the United States Court of Appeals, D.C. Circuit, on August 21, 1995. A settlement with the EPA was reached and published in the Federal Register, which diminishes the need for additional compliance costs. The EPA is also reviewing MACT for primary smelters and in April 1998 proposed a rule to regulate air toxics from primary lead smelters. In the event a MACT rule for primary smelters is adopted by the EPA, the rule could increase compliance costs at the Herculaneum smelter by increasing the costs of administrative reporting requirements. The proposed MACT will also impose additional storage costs. Doe Run's operating facilities have waste water discharge permits issued under the federal Clean Water Act, as amended. It is expected that stricter discharge limits than previously in effect will be included in permits now subject to renewal. As a result, there will be additional treatment facilities required with an 79 anticipated total capital expenditure of $4.0 million over the next five years to meet applicable permit requirements. There will be no appreciable increase in operating costs. Doe Run's mining and milling operations include five mine waste disposal facilities that are subject to Missouri mine closure permit requirements. Doe Run has begun certain closure requirements ahead of closure and is also accruing for the cost of ultimate closure at a rate of approximately $.3 million per year and has a reserve as of October 31, 1997 of $4.8 million. Doe Run has a total reserve as of October 31, 1997 of $28.3 million for CERCLA response costs, corrective action and closure costs as discussed above, $17.8 million of which is for CERCLA response costs. Doe Run expended on all environmental matters, which includes amounts capitalized, amounts charged to operating expense and amounts charged to reserves, approximately $17.5 million in fiscal 1997, and estimates such expenditures will be $16.0 million and $14.5 million in fiscal 1998 and 1999, respectively. SAFETY Throughout its operations, Doe Run strongly emphasizes providing employees a safe working environment through extensive training of employees to ensure safe work practices and worker knowledge of proper equipment operation. Doe Run's mining and milling operations are regulated by MSHA and its smelting and fabricating operations by OSHA. Doe Run believes it has achieved safety results that are among the best in its industry classifications. Each year since 1973, one of Doe Run's mining units has been named either the safest or second safest underground metal mine in the United States by MSHA. Doe Run has achieved the top award ten times in the last 22 years. Doe Run's smelting operations have achieved a strong safety record as well, with typical loss rates averaging approximately three to four times better than industry averages in recent years. EMPLOYEES As of April 30, 1998, Doe Run had 343 active salaried employees and 985 active hourly employees. As of April 30, 1998, seven active hourly employees at Seafab were represented by the Sheet Metal Workers' Union, Local No. 66 and subject to a collective bargaining agreement providing for, among other things, wages, work conditions and benefits. Management believes that its labor relations are good. BENEFIT PLANS PENSION Doe Run has defined benefit retirement plans for all salaried employees, hourly employees in Viburnum and Boss and hourly employees in Herculaneum. An investment committee establishes a funding policy for each plan and determines the contributions to be made to each plan by Doe Run. An eligible salaried employee who reaches age 65 receives a right to a nonforfeitable normal retirement annuity equal to 1.5% of his final average salary multiplied by the number of years of his service; eligible hourly employees in Southeast Missouri and in Herculaneum receive a nonforfeitable pension equal to a monthly amount of $25 for each year of service. Salaried employees and hourly employees at both sites who work past the age of 70 1/2 will receive an in-service retirement annuity (based on the same formula) and an in-service monthly pension, respectively. The amount payable under each plan is reduced by the value of benefits each employee received or is entitled to receive under another retirement plan of Doe Run, under retirement plans of Doe Run's Predecessor and certain companies acquired by Doe Run's Predecessor or under any other plan to which Doe Run has contributed other than profit sharing or stock bonus plans. 80 SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN Doe Run has a supplemental retirement plan for employees who participate in Doe Run's pension plans but whose benefits are reduced by the Internal Revenue Code (the "Code"). Under this plan, Doe Run pays eligible employees a benefit equal to the difference between the retirement benefit the employee would have received under the pension plan if the Code were disregarded and the retirement benefit the employee actually is entitled to receive under the pension plan. PROFIT SHARING PROGRAM Eligible employees participate in a Profit Sharing Program under which Doe Run pays 15% of pre-tax income, as defined in the Profit Sharing Program, into a profit sharing pool at the conclusion of each fiscal year. If pre-tax income does not exceed $10.0 million, the profit sharing pool will be distributed to eligible employees in the form of a contribution to Doe Run's Savings Resource Plan (the "401(k) Plan"). If pre-tax income exceeds $10.0 million, the first $1.5 million of the pool will be distributed as a contribution to the 401(k) Plan, and the remaining amount will be distributed in two phases to eligible employees in the form of cash payments. The first phase is a partial distribution based on a preliminary pool calculated from Doe Run's unaudited fiscal year-end financial information, and the second phase is a distribution of any remainder based on a final pool calculated from Doe Run's final audited fiscal year-end financial information. Allocation of the cash payments shall be on the basis of each eligible employee's total fiscal year base pay as a percentage of all eligible employees' total fiscal year base pay. Every employee on the payroll of Doe Run is eligible to participate in any cash distribution; however, participation in a distribution to the 401(k) Plan shall be in accordance with the 401(k) Plan. GAINSHARING PLAN Doe Run's employees participate in a gainsharing plan under which Doe Run pays a bonus based on performance in key result areas. On a monthly and yearly basis, Doe Run determines an improvement factor based on performance in areas such as production (volumes, costs and efficiencies), profit margins, safety and environmental, as well as other key operating areas. Each individual participant's profit share is determined by multiplying this factor by a salary component. PENDING LITIGATION Doe Run is involved in various claims and lawsuits incidental to the ordinary course of its business that are not expected to have a material adverse effect on the results of operations and financial condition of Doe Run. For a description of pending litigation related to environmental matters, see "--Environmental Matters." DOE RUN PERU PRODUCTS Doe Run Peru's principal products include refined copper, silver, zinc, lead and gold. In addition, Doe Run Peru produces a variety of by-products, including bismuth, indium, tellurium, antimony, cadmium, 81 selenium, sulfuric acid, zinc-silver concentrate, zinc sulfate, copper sulfate, arsenic trioxide and others. The following table sets forth net sales for each of Doe Run Peru's principal products.
TWELVE MONTHS ENDED YEAR ENDED DECEMBER 31, OCTOBER 31, ---------------------------------- ---------------------- 1994 1995 1996 1996 1997 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Copper............................................... $ 129,007 $ 186,905 $ 148,426 $ 155,641 $ 148,898 Silver............................................... 97,311 100,853 110,967 114,544 98,006 Zinc................................................. 62,507 72,599 73,753 74,855 83,521 Lead................................................. 45,259 58,999 76,353 74,648 65,385 Gold Bullion......................................... 21,383 19,619 20,361 21,084 14,605 By-Products.......................................... 11,590 11,954 26,937 19,869 21,469 ---------- ---------- ---------- ---------- ---------- Total.......................................... $ 367,057 $ 450,929 $ 456,797 $ 460,641 $ 431,884 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
COPPER Doe Run Peru produces refined copper cathodes with a purity level of 99.975%. Copper sales accounted for $148.9 million of Doe Run Peru's net sales for the twelve months ended October 31, 1997. Peru represented the largest market for Doe Run Peru's copper shipments in 1997, which accounted for 30% of total shipments, followed by the United States and Hong Kong which represented 27% and 16% of total shipments, respectively. In 1997, approximately 38% of the copper cathode production was further processed at Doe Run Peru's adjacent fabricating facility for the production of copper wirebars and wirerods. The largest market for refined copper, accounting for over 50% of western world copper consumption, is wirerod, which is used almost exclusively in the production of insulated wire and cable. Other important markets for refined copper include copper sheet and strip and tube used in the construction and transportation industries. As part of Doe Run Peru's Capital Investment Program, investments are planned through fiscal 1999 which will improve the cathode quality from standard grade to LME Grade A. In addition, such program will increase the capacity of the copper refinery to match copper anode output from the smelter. Doe Run Peru currently produces standard copper. SILVER Refined silver produced by Doe Run Peru is good delivery 99.996% pure as registered by the LBMA and COMEX. Silver sales accounted for $98.0 million of net sales for the twelve months ended October 31, 1997. Doe Run Peru also produces small amounts of sterling silver directed to the domestic jewelry market. The United States, accounting for 38% of total shipments, represented the largest market for Doe Run Peru's silver, followed by Brazil and Great Britain at 23% and 16% of total shipments, respectively. The photographic film industry accounts for one-third of western world silver demand, and jewelry and silverware also account for one-third. Other important uses for silver include electronics and silver-minted coins. ZINC Doe Run Peru produces LME-registered refined zinc with a purity level of 99.996%. Zinc sales accounted for $83.5 million of Doe Run Peru's net sales for the twelve months ended October 31, 1997. During 1997, Peru represented the largest single market for Doe Run Peru's zinc output, accounting for 31% of total shipments, as a result of strong local demand from export-oriented industries with applications for steel coatings, specialized alloys and dry battery plates. The United States represented 25% of total shipments that were primarily exported to manufacturers of coatings, paints and protectants, casters of auto parts and toy manufacturers. 82 LEAD Doe Run Peru produces LME-registered 99.997% pure refined lead ingots and blocks. Lead sales accounted for $65.4 million of net sales for the twelve months ended October 31, 1997. Doe Run Peru also provides antimonial lead alloys to meet the specialty demands of certain customers. The three largest markets for Doe Run Peru's lead production in 1997 were Taiwan, accounting for 14% of total shipments, followed by Brazil and Korea which each represented 10% of total shipments. The largest market for refined lead remains lead-acid batteries used in automobiles, forklifts, golf carts, marine applications and stationary applications for backup power sources. Other markets for refined lead include lead compounds used in the manufacture of computer and television screens and rolled and extruded lead products for radiation shielding and roofing materials. With the additional lead production from the operations of Doe Run Peru, Doe Run is the second largest primary lead producer in the western world. Doe Run Peru and Doe Run intend to work together to take advantage of opportunities to optimize lead marketing efforts. GOLD BULLION Doe Run Peru produces 99.8% pure gold bullion bars exported primarily to Europe and the United States. Gold bullion sales accounted for $14.6 million of net sales for the twelve months ended October 31, 1997. During 1997, the United States represented 44% of total shipments, followed by Germany and Peru, accounting for 40% and 16% of total shipments, respectively. BY-PRODUCTS Principal by-products produced by Doe Run Peru include bismuth, indium, tellurium, antimony and cadmium. Sales of these by-products totaled $21.5 million for the twelve months ended October 31, 1997. Bismuth, the largest by-product revenue generator, is exported primarily to Europe. Bismuth has a wide variety of uses including pharmaceutical compounds, chemicals, low melting alloys and pigments. Pharmaceutical uses include the treatment of stomach ulcers and over-the-counter products. Indium is consumed primarily in the flat-panel display industry, as well as in aerospace products, architectural glass, solar energy and lighting applications. Indium is a difficult metal to extract because of its considerable chemical affinity to other elements. Japan is estimated to account for more than 50% of the world indium market for use in the thin-film industry. Tellurium is used to improve the machining quality of copper and stainless steel products and to color glass and ceramics. Other industrial uses include thermoelectric devices, rubber compounds and blasting caps. Antimony is used with lead in alloys for battery production in flame retardants, fabrics, plastics and ammunition. Cadmium is used primarily for battery production, as well as in pigments, coating and plating of iron, plastic and synthetic products and alloys. MARKETING AND SALES Doe Run Peru's marketing and sales strategy is to maximize the net realized selling prices for all its products. In addition, Doe Run Peru is shifting the focus of its marketing efforts to end users of its products from international trading companies. In furtherance of this strategy, Doe Run Peru plans to provide customers flexible quantities and deliveries, additional metal alloy choices and technical assistance. Doe Run Peru generally exports metal on a delivered basis with freight charges included. In many of the foreign markets, sales agents are utilized to ensure smooth delivery and to help further develop the local market. Doe Run Peru's location in the central Andes of Peru and its proximity to the Callao port position it favorably for shipment to major world markets and to the emerging Latin American market. 83 Metal sales within Peru are sold both on a delivered and "free on board" basis from facilities in Callao. Doe Run Peru plans to market additional metal into the Latin American market in order to take advantage of lower freight costs and strong metal premiums. Doe Run currently is actively involved in several industry associations promoting and developing lead consumption. Through Doe Run Peru, Doe Run plans to gain membership and or to continue membership in other metal industry associations. CAPITAL INVESTMENT PROGRAM Doe Run Peru will undertake over a ten-year period the Capital Investment Program of approximately $300.0 million to enhance various elements of Doe Run Peru's operations. The objective of the Capital Investment Program is to increase net sales and EBITDA by improving product quality, increasing production capacity and reducing unit costs. In addition, through the environmental expenditures described below, Doe Run Peru will endeavor to achieve compliance with environmental regulations in Peru. See "--Environmental Matters." Management believes that cash flow from operations in addition to availability under the New Doe Run Peru Revolving Credit Facility will be sufficient to fund the Capital Investment Program. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following summarizes the Capital Investment Program including expenditures planned for each metal circuit. COPPER CIRCUIT Doe Run Peru has identified the copper circuit as the most important of the strategic initiatives to improve its operations, requiring total expenditures, including sustaining capital requirements, of approximately $60.0 million through fiscal 2007. Current projects are designed to increase capacity and reduce energy costs through oxygen injection into the furnaces. These projects will be supplemented in the near term with investments to replace production of copper blister with higher quality fire-refined copper anodes prior to the electrolytic refining process. With the introduction of anode casting, Doe Run Peru anticipates that the refined copper produced will meet the LME-registered quality standards (commonly known as Grade A) as opposed to the standard grade presently produced. As of March 31, 1998, the price for Grade A copper was $.79 per pound, with the price for standard grade copper at a discount to the Grade A price. Doe Run Peru also believes that, as a result of these projects, refined copper production capacity will increase from approximately 73,000 tons to 88,000 tons per year by the year 2000, thereby more closely matching refinery capacity with smelter output. The production of Grade A copper will allow Doe Run Peru to sell to a wider range of customers. Moreover, since the prices realized for Grade A copper are greater than those realized for standard grade copper, Doe Run Peru will be able to realize greater net sales. LEAD CIRCUIT Utilizing Doe Run's extensive experience in lead operations, Doe Run Peru has identified several opportunities to introduce Doe Run operating procedures to increase production capacity and reduce costs. Specific projects include improving oxygen availability to the sinter plant and blast furnaces, enlarging one blast furnace and refurbishing the refinery cell blocks. The combination of these capital projects are expected to increase lead production capacity from approximately 110,000 tons to 127,000 tons per year by the year 2000. Doe Run Peru anticipates that the cost of the lead circuit improvements, including sustaining capital requirements, will be approximately $20.0 million through fiscal 2007. ZINC CIRCUIT Doe Run Peru anticipates investing approximately $18.0 million, including sustaining capital requirements, in the zinc circuit through fiscal 2007, primarily to improve metallurgical recoveries and to retrofit 84 an existing sulfuric acid plant. The installation of an additional purification stage prior to electrowinning will improve the removal of copper, cadmium, cobalt and other impurities, thereby increasing overall zinc recoveries, allowing greater feed flexibility and reducing concentrate purchases and unit operating costs. Presently, Doe Run Peru's zinc production capacity is approximately 77,000 tons which will remain relatively stable in the forseeable future. ENVIRONMENTAL IMPROVEMENTS As part of the Acquisition, Doe Run Peru entered certain agreements with the MEM. Under these agreements, Doe Run Peru is required to make the Investment Commitment that includes expenditures to comply with environmental regulations in Peru, including those governing the treatment, handling and disposal of solid wastes, liquid effluent discharges and gaseous emissions. Principal projects related to environmental matters include building sulfuric acid plants for the metal circuits, new converter and roaster technology for the copper circuit, replacement of the roaster equipment for the zinc circuit, water and sewage treatment facilities, and slag and slimes handling equipment and disposal facilities. Doe Run Peru estimates that expenditures related to environmental matters will be approximately $195.0 million through fiscal 2007. See "--Environmental Matters." OTHER Doe Run Peru will invest approximately $7.0 million over the ten-year period for various other projects, including phone and computer system upgrades, expenditures related to employee health and safety, and other miscellaneous capital expenditures. CUSTOMERS Doe Run Peru had approximately 421 customers in 1997, of which the five largest accounted for approximately 28% of its net sales. Doe Run Peru's customers include a wide variety of industrial and international trading companies with the two largest, Engelhard Corporation and Tecnofil S.A., accounting for approximately 9.8% and 5.1%, respectively, of Doe Run Peru's 1997 net sales. Approximately 78% of total shipments and approximately 79% of net sales were exported outside of Peru, with Latin American countries representing the largest destination in 1997 with approximately 47% of net sales, followed by North America, Asia and Europe with 26%, 18% and 9% of net sales, respectively. Approximately 80% in 1997 of Doe Run Peru's metal sales were pursuant to contractual agreements, typically one year or less. Such contracts generally set forth minimum volumes and pricing mechanisms. Due Run Peru conducts substantially all of its business with its customers in U.S. dollars. COMPETITION Doe Run Peru is among the largest metal processing companies in the world with the unique combination of base metal smelters, refineries and by-product circuits capable of processing complex concentrates into base and precious metals and various by-products to international quality standards. Only three other facilities in the western world, Union Miniere S.A.'s facility in Hoboken, Belgium, Boliden Limited's facility in Ronnskar, Sweden and The Goldfield Corporation's facility in Tsumeb, Namibia, have the capability to treat lead and copper concentrates containing high antimony, arsenic, bismuth and precious metal values in addition to a variety of residues. Unlike Doe Run Peru, none of the facilities listed above have a dedicated zinc production circuit. Given Doe Run Peru's access to complex concentrates in Peru and neighboring Latin American countries, Doe Run Peru believes it operates at a geographic competitive advantage to comparable facilities located farther from their sources of complex concentrates. Although there are other facilities throughout the world that process complex concentrates, those operations do not have Doe Run Peru's capability to process complex concentrates which contain high 85 levels of impurities, such as bismuth, arsenic and cadmium. Such facilities include Industrias Penoles S.A.'s facility in Torreon, Mexico and Dowa Mining Co. Ltd.'s facility in Kosaka, Japan. RAW MATERIALS Doe Run Peru's primary raw material is concentrate feedstock. In addition to concentrate feedstock, Doe Run Peru utilizes various raw materials, principally water, electricity, oxygen, coal and fluxes. CONCENTRATE FEEDSTOCK Doe Run Peru is located in the central Andes of Peru, which is among the most productive mining regions in the world. Peruvian concentrates typically contain high levels of precious metals in addition to impurities such as arsenic, antimony, bismuth and others, that increase the complexity of the metallurgical processes required to separate impurities from base and precious metals. Doe Run Peru's operations were designed and customized since its construction in 1922 to handle the characteristics of raw materials available in the region. COPPER. During 1997, approximately 84% of the copper concentrates processed at Doe Run Peru were supplied from the Peruvian domestic market, with Centromin's mines accounting for a substantial portion of the total feedstock. Contained copper production by Peruvian mines totaled approximately 529,000 tons in 1996 and increased to approximately 579,000 tons in 1997. The complexity of some concentrates from the domestic market result in favorable concentrate pricing terms for Doe Run Peru and increased revenues from the recovery and commercialization of by-products. In addition, due to its location close to the mines of Peru, the smelter is able to save substantially on concentrate freight charges. These savings typically are shared between Doe Run Peru and the concentrate suppliers. Doe Run Peru obtains the balance of its copper concentrate requirements from neighboring Latin American countries. Such concentrates share similar metallurgical characteristics as Peruvian concentrates. Imported concentrates reflect international market terms and are purchased to produce the appropriate concentrate blend for the smelter. ZINC. During 1997, all of the zinc concentrates processed at Doe Run Peru were supplied from the Peruvian domestic market, with Centromin's mines accounting for approximately 94% of the total feedstock. The disadvantage of consuming concentrates from certain of the Centromin mines is the high level of contained iron. Zinc ferrites form in the leaching phase in an amount proportional to the iron content in the feedstock. These ferrites capture approximately 10% to 13% of the zinc contained in the concentrate feedstock and effectively reduce the metallurgical recovery of the circuit. As a private enterprise, Doe Run Peru will not face any limitations with respect to sources of concentrate and, thus, will have an opportunity to obtain concentrates with reduced iron content. Zinc metal contained in concentrates produced by Peruvian mines was approximately 804,000 tons in 1996 and increased substantially to approximately 961,000 tons in 1997. Doe Run Peru requires approximately 70,000 tons of zinc metal contained in concentrates per year to maximize production capacity. With present mine production, Doe Run Peru believes that sufficient concentrates will be available to meet its requirements for the foreseeable future. LEAD. During 1997, approximately 99% of the lead concentrates processed at Doe Run Peru were supplied from the Peruvian domestic market, with Centromin's mines accounting for approximately half of the total feedstock. Contained lead metal production by Peruvian mines totaled approximately 273,000 tons in 1996 and increased to approximately 287,000 tons in 1997. Since Doe Run Peru has no local Peruvian competitor in lead smelting, all of the concentrates, the total of which far exceeds Doe Run Peru's requirements, are available to Doe Run Peru. A majority of the lead concentrates purchased by Doe Run Peru contain certain impurity levels that result in lower concentrate prices due to penalties imposed on such concentrates. In addition, such 86 concentrates increase revenues for Doe Run Peru due to the recovery and marketing of silver and by-products. WATER Water is utilized throughout Doe Run Peru's operations, particularly for: (i) slag granulation in copper and lead processes; (ii) cooling systems of the sulfuric acid plant, lead blast furnaces, compressors and rectifiers; (iii) steam generation; and (iv) hydrometallurgical and electrometallurgical processes. Water for the Doe Run Peru facility is obtained from three main sources: the Mantaro River; the Tishgo River; and the Cuchimachay Spring. Doe Run Peru believes these three sources, in addition to numerous adjacent springs and wells, provide adequate water supply for the facility. ELECTRICITY The Doe Run Peru facility receives electric power from Centromin's Electroandes hydroelectric division and consumes approximately 63 megawatts ongoing load, which represents approximately one-third of the division's capacity. Doe Run Peru recently signed a ten-year power supply contract with Centromin and Electroandes. Doe Run Peru believes that the contract provides sufficient power to Doe Run Peru over the life of the contract at satisfactory long-term rates. Such rates, however, are above what Doe Run Peru's Predecessor historically paid. OTHER Doe Run Peru installed an oxygen plant in 1994 that, with a capacity of 353 tons per day. The oxygen plant supplies oxygen for the oxy-fuel burners of the reverberatory furnace of the copper smelter and for the blast furnaces of the lead smelter. Coal is imported from Colombia to produce metallurgic coke for the lead circuit blast furnaces. Fluxes consumed in the smelting process are supplied from Doe Run Peru's limestone and silica deposits adjacent to the facility. Both coal and fluxes are transported to the smelter by rail. PRODUCTION PROCESS Doe Run Peru utilizes conventional pyrometallurgical processes for smelting or roasting concentrates followed by hydrometallurgical refining processes. Summarized below is a description of the production process for copper, silver and gold, zinc and lead. COPPER CIRCUIT The copper circuit consists of the smelter, responsible for processing copper concentrates into a 98.6% pure copper blister, and the refinery, responsible for upgrading copper blister into 99.975% pure refined copper metal. Current estimated annual capacity at the refinery is 73,000 tons. Production of refined copper reached approximately 71,000 tons for 1997. Doe Run Peru's overall metallurgical recovery of copper is approximately 96.5%. Copper concentrates are mixed with fluxes and inter-plant transfers in the preparation plant prior to entering the roasting section. The roasters produce a calcine from the copper concentrates that is transported to the oxygen-fuel reverberatory furnace. The reverberatory furnace produces two products: a heavy matte containing the recoverable metals and a slag waste-product that is granulated in water and transported to a slag disposal area. The hot matte is then ladled to the converter section where a two step process converts the matte into 98.6% copper blister that is directly cast into 584 pound blister anodes. The copper refinery is located three kilometers west of the smelter where blister anodes are received from the smelter by rail. The refinery utilizes an electrolytic process whereby the copper in the blister anode is transferred to a cathode starting sheet. As the copper anode dissolves, gold, silver, and other 87 impurities are deposited at the bottom of the cells as an insoluble slime that is collected at the end of the anode cycle. Copper cathodes, which are 99.975% refined copper metal, are collected from the tankhouse every seven days. ZINC CIRCUIT The zinc circuit employs conventional roasting, leaching and electrowinning technologies. During 1997, the circuit produced approximately 75,000 tons of refined zinc. Current estimated capacity of the zinc refinery is approximately 77,200 tons of refined zinc with an overall metallurgical recovery of 88%. The roasting plant produces a calcine that is processed continuously in a hydrometallurgical leaching and purification section that dissolves the zinc oxides and sulfates contained in the calcine. The zinc sulfate solution is separated from solid residues by thickening and filtering processes. After purification, the solution is pumped to the electrowinning section. The zinc refinery is adjacent to the roaster and utilizes an electrolytic process whereby zinc from the sulfate solution is transferred to a cathode starting sheet. Solid residues from the leaching process are processed in a flotation plant to produce a zinc-silver concentrate sold to international markets. Certain remaining unprocessed zinc ferrites are sent to a disposal pond. Zinc cathodes, which are 99.996% refined zinc metal, are collected from the tankhouse every sixteen hours. LEAD CIRCUIT The lead circuit consists of the smelter, responsible for processing lead concentrates into 96% pure lead bullion, and the refinery, responsible for upgrading lead bullion into 99.997% pure refined lead metal. Current estimated annual capacity of the lead refinery is approximately 110,000 tons of lead metal. Production of refined lead metal reached approximately 108,000 tons for 1997. Doe Run Peru's overall metallurgical recovery of lead is approximately 95%. Lead concentrates are mixed with inter-plant transfers and other lead bearing materials in the preparation plant prior to entering the sinter plant. The sinter plant utilizes an up-draft sinter machine that removes a majority of the sulfur from the feedstock. Following sintering, the processed material is blended with coke and fed to the blast furnace to produce two products: a heavy bullion containing the recoverable metals and a slag waste-product that is granulated in water and transported to a slag disposal area. The hot bullion is then transferred to the dross plant for further processing prior to casting into lead bullion anodes. The lead refinery is located three kilometers west of the smelter where bullion anodes are received from the smelter by rail. The refinery utilizes an electrolytic process whereby the lead in the blister anode is transferred to a cathode starting sheet. As the lead anode dissolves, gold, silver, and other impurities are deposited at the bottom of the cells as an insoluble slime that is collected at the end of the anode cycle. Lead cathodes, which are 99.995% refined lead metal, are collected from the tankhouse every four days. ANODE BY-PRODUCTS CIRCUIT AND SILVER REFINING The anode residue plant treats insoluble slimes remaining from the copper and lead refining processes. The plant processes these slimes to recover bismuth, selenium, tellurium and a metal ore that is further upgraded in the silver refinery. The estimated capacity of the silver refinery is approximately 32.2 million ounces per year of refined silver and approximately 76,000 ounces of gold bullion. During 1997, the silver refinery produced approximately 22.4 million ounces of silver and approximately 44,000 ounces of gold bullion. In fiscal 1999, the capacity of the silver refinery is expected to increase to approximately 37.0 million ounces per year. 88 FACILITIES Doe Run Peru's operations are located in the town of La Oroya, located approximately 110 miles from the Peruvian capital of Lima, approximately 75 miles from the Cerro de Pasco mine and approximately 78 miles from the city of Huancayo, at an altitude of approximately 2.3 miles above sea level. The complex is linked to these locations by highway and railroad service. The principal operations reside in two areas within La Oroya. The copper smelter, lead smelter and zinc refinery, in addition to the antimony plant, arsenic plant, coke plant, cadmium plant and maintenance shops are located on the southern bank of the Mantaro River directly behind the central offices (the "Smelter Location"). The copper refinery, lead refinery, copper fabricating plant and several storage yards are located three kilometers west of the smelter facilities at Huaymanta (the "Refinery Location"). The following table sets forth the total land area and facility size of Doe Run Peru's facilities:
SIZE ------------------------- FACILITY LAND FACILITY - ---------------------------------------------------------------------- ----------- ------------ (SQUARE (ACRES) FEET) Copper Smelter........................................................ 3.5 302,000 Lead Smelter.......................................................... 3.1 262,000 Copper and Lead Refinery.............................................. 6.9 311,000 Zinc Refinery......................................................... 4.3 258,000 Solid Disposal Area................................................... 110.3 -- Other Areas........................................................... 11.4 554,000
Operations at the Smelter Location began in 1922 under the Cerro de Pasco Copper Corporation, and the Smelter Location continues to utilize many of the original structures. Additions to the Smelter Location include a new lead sinter plant installed in 1983 and the oxygen plant completed in 1994. Operations at the Refinery Location also began in 1922, and many of the existing structures remain in use. Other major additions to the Refinery Area include the wirerod plant constructed in 1966 and additional refinery cell blocks added in the mid-1970s. SAFETY Doe Run Peru's safety performance has improved significantly since 1990, and with further assistance and direction provided by Doe Run, Doe Run Peru will continue to maintain a high regard for safety and hygiene. Recently, Peru's Ministerio de Trabajo y Promocion Social (the Industrial Safety Department) has been enforcing measures to minimize any work-related illnesses or accidents through continuous inspections to ensure compliance with numerous safety standards. EMPLOYEES As of April 30, 1998, Doe Run Peru employed 861 active salaried employees and 2,054 active hourly employees. In addition, Doe Run Peru employed 984 people on a contract basis for production work-orders, maintenance and other tasks. There are two unions for hourly employees and two unions for salaried employees. The principal union representing 90.4% of the hourly employees is the Sindicato de Trabajadores Metalurgicos La Oroya (La Oroya Metallurgic Workers Union). The Sindicato de Trabajadores Ferroviarios La Oroya (La Oroya Railway Workers Union) represents 3.8% of the hourly workers, and the remainder of the hourly workers (5.8%) are not affiliated with either union. On July 26, 1998, Doe Run Peru entered into five-year labor agreements, effective through July 25, 2003. The salaried employees are represented by the Sindicato de Empleados Yauli-La Oroya (Yauli-La Oroya Employees Union), representing 64.9% of the salaried employees and by the Sindicato de Empleados Ferroviarios La Oroya (La Oroya Railway Employees Union), representing 9.0% of salaried 89 employees. The remainder of salaried employees, 26.1%, are not affiliated with either union. The current salaried employees' labor agreement continues until December 31, 2002. Management believes that Doe Run Peru's labor relations have been good as evidenced by three consecutive years of labor harmony without strikes and likewise three consecutive years of solution without conflict of the labor agreements with workers and employees. BENEFIT PLANS The benefit plan for Doe Run Peru is centered around a severance payment, a social benefit directed by the Compensacion por Tiempo de Servicios, a Peruvian labor legislative decree. This benefit includes a money reserve established by the employer and deposited in a banking entity for the benefit of the worker when the employment relationship ends. Deposits are made twice a year and equal one month's salary. Other benefits include a social security system operated by the Peruvian government which provides benefits for both health and pensions. In addition to social security, Doe Run Peru maintains a private system of private pension, the cost of which is paid by the employee through paycheck deductions. ENVIRONMENTAL MATTERS LEGAL FRAMEWORK Modern environmental legislation has been introduced only in the last decade in Peru. For mining and metallurgical activities, the MEM is the principal regulatory authority. The MEM has issued "maximum permissible limits" for liquid effluent, air emissions and ambient air quality. In addition, the Consejo Nacional del Ambiente (National Environmental Council) coordinates government regulations and policies. The Direccion General de Salud Ambiental (Directorate General of Environmental Health) (the "DIGESA"), a division of the Ministerio de Salud (Ministry of Health), issues waste water discharge permits based on standards governing receiving water quality. Peruvian law requires all new mining or metallurgical operations, and existing operations that are undergoing an expansion of over 50% of installed capacity, to submit to the MEM an Estudio de Impacto Ambiental (Environmental Impact Study). As to mining and metallurgical operations in existence prior to 1994, concession holders (i.e. owner/ operators) were required to submit to the MEM an Evaluacion Ambiental Preliminar (Preliminary Environmental Assessment) (the "EVAP") that identified environmental impacts and twelve months of baseline monitoring. Based on the results of the EVAP, the operator was to submit to the MEM a PAMA that consisted of an environmental impact analysis, monitoring plan, and data, mitigation measures and closure plan. The PAMA also sets forth the actions and corresponding annual investments the concession holder agrees to undertake in order to achieve compliance with the maximum applicable limits prior to expiration of the PAMA (ten years for smelters, such as Doe Run Peru's operations, and five years for any other type of mining or metallurgical operation). The required amount of annual investment must not be less than one percent of annual sales. Once approved, the PAMA functions as the equivalent of an operating permit with which the operator must comply. After expiration of the PAMA, the operator must comply with all applicable standards and requirements. Mining, metallurgical and processing operators must present annual sworn statements to the MEM that describe their operations and resultant emissions. In addition, Peruvian environmental law allows operators to enter into a Contrato de Estabilidad Administrativa Ambiental (Contract for Administrative Environmental Stabilization) ("Environmental Stabilization Agreement") in order to provide some potential limit to the applicability of new laws during the life of the PAMA. PAMA AND ENVIRONMENTAL STABILIZATION AGREEMENT The initial PAMA for Doe Run Peru's Predecessor was submitted by Centromin and approved by the MEM on January 13, 1996. The PAMA was modified in connection with the Acquisition to reflect a 90 reallocation of environmental responsibilities between Centromin and Doe Run Peru, and corresponding revisions were made to the investment schedule. The MEM approved separate PAMAs for Centromin and Doe Run Peru and an Environmental Stabilization Agreement for Doe Run Peru. Centromin has committed under its PAMA to implement the following projects over the next nine years, estimated to cost approximately $24 million: (i) remediation of areas impacted by emissions during its period of operations; (ii) closure of the lead and copper slag deposits (at Huanchan); (iii) improved management of the Huanchan deposit (E.G. storm water diversion and slope stability); and (iv) closure of the arsenic trioxide deposits (at Malpaso and Vado). Doe Run Peru has committed under its PAMA to implement the following projects over the next nine years, estimated in the PAMA to cost approximately $107.5 million: (i) new sulfuric acid plants; (ii) elimination of fugitive gases from the coke plant; (iii) use of oxygenated gases in the anodic residue plant; (iv) water treatment plant for the copper refinery; (v) a recirculation system for cooling waters at the smelter; (vi) management and disposal of acidic solutions at the silver refinery; (vii) industrial waste water treatment plant for the smelter and refinery; (viii) containment dam for the lead muds near the zileret plant; (ix) granulation process water at the lead smelter; (x) anode washing system at the zinc refinery; (xi) management and disposal of lead and copper slag wastes; and (xii) domestic waste water treatment and domestic waste disposal. The actual current estimate for the environmental projects and related process changes for Doe Run Peru is $195.0 million. Doe Run Peru's operations historically and currently exceed some of the applicable MEM maximum permissible limits pertaining to air emissions, ambient air quality and waste water effluent quality. The PAMA projects, which are more fully discussed below, have been designed to achieve compliance with such requirements prior to the expiration of the PAMA on January 13, 2007. No assurance can be given that implementation of the PAMA projects is feasible or that their implementation will achieve compliance with the applicable legal requirements by the end of the PAMA period. Doe Run Peru has advised the MEM that it intends to seek changes in certain PAMA projects that it believes will more effectively achieve compliance. However, there can be no assurance that the MEM will approve proposed changes to the PAMA or that implementation of the changes will not increase the cost of compliance. Further, there can be no assurance that the Peruvian government will not in the future require compliance with additional environmental obligations that could adversely affect Doe Run Peru's business, financial condition or results of operations. Under the Subscription Agreement, Centromin agreed to indemnify Metaloroya against environmental liability arising out of its prior operations, and performance of the indemnity has been guaranteed by the Peruvian government through the enactment of the Supreme Decree No. 042-97-PCM. However, there can be no assurance that Centromin will satisfy its environmental obligations and investment requirements, including those in its PAMA, or that the guarantee will be honored. Any failure by Centromin to satisfy its environmental obligations could adversely affect Doe Run Peru's business, financial condition or results of operations. ENVIRONMENTAL CONSIDERATIONS GASEOUS EMISSIONS. Doe Run Peru is required to control gaseous emission to meet ambient air quality standards and the applicable emissions rate by January 2007. In 1997, sulfur dioxide emissions from the smelter complex amounted to approximately 990 tons per day. The MEM has established a maximum sulfur dioxide rate for Doe Run Peru of 17% of incoming sulfur based on current production levels. Dust emissions currently total approximately 9.8 tons per day, consisting of approximately 2.5 tons of lead, 2.0 tons of arsenic, 0.3 tons of zinc and smaller quantities of other metals. Although the main stack is the largest source of gaseous emissions, significant quantities of the same effluents are issued from the numerous smaller stacks, as well as from many non-stack sources. LIQUID EFFLUENTS. Doe Run Peru is required to control liquid effluents to meet the MEM's discharge limits and DIGESA's water quality standards. Forty individual discharge sources were identified by the 91 monitoring program of the EVAP as releases from Doe Run Peru to the Yauli and Mantaro Rivers. Liquid effluents contain metals in solution and solids in suspension. Five liquid effluent discharges account for 90% of the total discharge volume from the smelter and refinery facilities. The highest volumetric discharge of the total includes a combination of effluents from the copper-lead slag granulation process and cooling water from the powerhouse. SOLID RESIDUES. The principal solid residues generated by Doe Run Peru's facility are shown below:
RESIDUE ESTIMATED VOLUME - ---------------------------------------------------------------------------- ----------------- (TONS PER MONTH) Copper Slag................................................................. 22,000 Lead Slag................................................................... 14,000 Zinc Ferrites............................................................... 2,400 Arsenic Trioxide............................................................ 280
Granulated copper and lead slag is transported across the Mantaro River by aerial tram and stockpiled at Huanchan. Zinc leaching residue, consisting mainly of zinc ferrites, is pumped into ponds in the same area. Arsenic trioxide is transported by rail to the Vado site, where it is stored under water spray for dust suppression.
DISTANCE FROM DEPOSIT DOE RUN PERU ESTIMATED SIZE - --------------------------------------------------------------- ----------------- -------------- (MILES) (TONS) Huanchan copper and lead slag.................................. 2.5 11,000,000 Zinc Ferrites.................................................. 1.2 1,400,000 Vado arsenic trioxide slag..................................... 5.6 180,000 Malpaso arsenic trioxide slag (historical)..................... 8.7 Unknown
OVERVIEW OF THE ENVIRONMENTAL PROJECTS In accordance with the PAMA, Doe Run Peru has included in its capital expenditure plans specific capital projects to accomplish the goals of the PAMA. Excluding the process-related projects which assist in meeting the environmental requirements, Doe Run Peru's major environmental projects include slag handling, industrial wastewater treatment, sulfur dioxide capture and recovery as sulfuric acid, and sewage and garbage management. The total costs of these projects and associated process changes and other environmental control projects are expected to approach $195.0 million over the next nine years starting in 1998. SLAG HANDLING AND DISPOSAL. A new mechanical slag handling system will be installed for the 1,100 tons of copper and lead slag per day to either dewater granulated slag and deliver it to the ultimate disposal site or to deliver the hot slag to its ultimate disposal site. The objective of the project is to replace the undersized tramway slag system, which currently loses 30% to 40% of the slag into the Mantaro River, with a system capable of safely delivering all slag to its final disposition site and to minimize any discharge of heavy metals into the river. A number of mechanical systems will be evaluated both for continuing granulation and for delivering the material hot. A Trommel dewatering system was outlined in the PAMA. Installation of the dewatering system, when selected, is expected to occur in fiscal 1999. The capital cost for the project is estimated to be $6.0 million. If a new slag site is developed, approximately $3.0 to $5.0 million is expected to be expended in preparing the site. 92 ZINC FERRITE DISPOSAL Doe Run Peru has the option to continue to use the existing disposal site for three years and then either take ownership of it or develop a new site and pay Centromin $7.2 million for closure costs. It is probable that Doe Run Peru will retain ownership of the disposal site and develop a new disposal site on property currently owned for that purpose. The cost of developing this site is expected to be approximately $3.0 to 5.0 million. INDUSTRIAL WASTEWATER TREATMENT. Recycling projects will be implemented to recirculate and reuse wastewater after cooling or intermediate treatment. The water recycling project for slag handling will reduce the 20,000 gallons per minute rate to approximately 3,000 gallons per minute for discharge. An industrial sewer network will be constructed to drain effluent from approximately 35 outfalls to several pumping stations, which, after solids removal, will be treated and discharged to the river. The purpose of this project is to eliminate the untreated discharge of metal bearing wastes into the Mantaro River. This system is different from and more costly than the project set forth in the PAMA. The system will be designed to meet the MEM's discharge limits and DIGESA's water quality standards. However, there can be no assurance that the MEM will approve this project, or that DIGESA will not require additional actions at increased cost. The recycling and pre-treatment steps are expected to be installed in fiscal 1999. The collection systems and sedimentation tanks are expected to be installed in fiscal 2000, and the first stage treatment plant is expected to be installed in fiscal 2001. If a second stage treatment is required, it will be deferred for three to four years. The estimated cost of the project is $25.0 million which reflects local labor rates and the deferral of the second stage treatment, which may not prove to be necessary. Addition of the second stage could cost approximately $2.0 million. SULFUR DIOXIDE CAPTURE AND LEAD EMISSION REDUCTION. The PAMA provides for process gas from the copper, zinc and lead process circuits to be treated in two sulfuric acids plants for the conversion of sulfur dioxide to sulfur trioxide and the recovery as sulfuric acid, a by-product that Doe Run Peru expects to sell. The objective of this project is to increase the capture of sulfur dioxide from approximately 11% to a minimum of 83%, which is the MEM standard. The second objective is to reduce the sulfur dioxide and metal emissions in the ambient air surrounding the plant to within MEM standards. The acid plants will be installed in fiscal 2005 and 2006. The estimated costs of each of the two plants is approximately $39.0 million. The PAMA also provides for replacement of the existing lead circuit with a new technology to assist in insuring at least 83% capture. However, Doe Run Peru does not believe that this process has been adequately demonstrated and likely will seek a change to the PAMA to avoid this process change. Other options are available if needed to meet the sulfur dioxide emission limit, which are estimated to cost in the range of $50.0 to $80.0 million. Given the complex terrain and valley configuration of the Doe Run Peru facility, there can be no assurance that the measures contemplated in the PAMA will achieve compliance with the ambient air quality standard for sulfur dioxide or for lead, particularly during inversion conditions. Other actions, such as altering the present main stack configuration and increased efforts to reduce fugitive emissions, may be necessary at significant increased costs to achieve compliance commencing during the later years of or after the nine-year PAMA compliance period. SEWAGE/GARBAGE MANAGEMENT. Two conventional sewage treatment systems and collection systems will be installed to service the 3,000 employees of Doe Run Peru living in company housing in La Oroya. A garbage collection system and disposal landfill also will be developed. This project is designed to comply with the PAMA and will improve living conditions in La Oroya. The project is intended to eliminate the discharge of raw sewage and garbage by Doe Run Peru to the Yauli and Mantaro Rivers. Planning and 93 design work will begin in fiscal 1998, and construction will follow in the next two years at an estimated cost of $3.0 million. PENDING LITIGATION All existing litigation of Doe Run Peru at the time of the Acquisition was retained by Centromin. Doe Run Peru is involved in various claims and lawsuits incidental to the ordinary course of its business that are not expected to have a material adverse effect on the business, financial condition and results of operations of Doe Run Peru. POTENTIAL ACQUISITION OF ASARCO'S MISSOURI LEAD DIVISION On July 28, 1998, Doe Run and ASARCO entered into the Asset Purchase Agreement pursuant to which Doe Run will purchase certain assets relating to the ASARCO MLD. The assets to be acquired include a primary lead smelter located in Glover, Missouri, the lead mining operations at the Westfork and Sweetwater production shafts located on the Viburnum Trend and associated equipment, licenses, permits and leases. The Westfork and Sweetwater production shafts are located adjacent to Doe Run's mining operations. The purchase price for these assets is approximately $54.5 million payable at closing, plus contingent deferred payments, if any. Such deferred payments are contingent upon prevailing LME lead prices during the five-year period subsequent to the Potential ASARCO MLD Acquisition. Specifically, Doe Run's obligations under the deferred purchase price arrangement are determined annually and are only due if the annual LME spot lead price exceeds $.28 per pound, with such payments not to exceed $12.5 million in the aggregate. PRODUCTS The ASARCO MLD's principal product is primary lead, and the ASARCO MLD shipped approximately 127,000 tons of refined lead in 1997, which accounted for approximately 92% of its sales in that period. In addition, the ASARCO MLD sells zinc contentrates produced at its mills. MINING AND MILLING OPERATIONS GEOLOGY AND RESERVES Similar to Doe Run, the ASARCO MLD's operations are centered around the ore-rich Viburnum Trend in Southeastern Missouri. See "--Doe Run--Mining Operations--Geology." As of December 31, 1997, the ASARCO MLD's ore reserves consisted of approximately 16.8 million proven and probable tons, containing approximately 0.8 million tons of recoverable lead or approximately seven years of production at current mining rates. These ore reserve estimates have been provided by ASARCO'S technical personnel and have not been audited by a consulting firm. There can be no assurance that these ore reserve estimates would be the same if Doe Run were to apply its measurement methodology. PRODUCTION SHAFTS The ASARCO MLD operates two production shafts and two processing mills. The Westfork production shaft and its mill are located in the central portion of the Viburnum Trend and is bound to the north by Doe Run's Brushy Creek production shaft and to the south by Doe Run's Fletcher production shaft. The Sweetwater production shaft and its mill are located in the southern portion of the Viburnum Trend. During 1997, the mining operations of the ASARCO MLD produced in excess of 2.4 million tons of ore, containing average grades of 4.67% lead and 0.56% zinc. The geology, mining methods, equipment, production process and product metal contents are substantially similar to Doe Run's mining and milling operations. See "--Doe Run--Production Process" and "--Mining Operations." The ASARCO MLD's mills produce lead and zinc concentrates. The lead concentrates are shipped to the ASARCO MLD's Glover primary smelter for processing into refined lead, and the zinc concentrates are sold to third party zinc smelters. 94 SMELTING OPERATIONS Located in Glover, Missouri, approximately twenty miles southeast of the Sweetwater production shaft, the Glover primary smelter commenced operations in 1968 and has been in continuous operations since that time. This facility processes lead concentrates for the ASARCO MLD's adjacent mining operations, as well as lead concentrates purchased from third parties. The Glover smelter has a capacity of 135,000 tons per year and utilizes a pyrometallurgical process similar to that utilized at Doe Run's Herculaneum smelter to produce 99.99% refined lead. The ASARCO MLD recently invested in excess of $13 million to improve the environmental performance of this facility, including ventilation improvements at the sinter plant and blast furnace areas. EMPLOYEES As of April 30, 1998, of the 487 active employees of the ASARCO MLD, 136 were members of Local 7450 of the United Steelworkers of America (the "USWA"). Effective as of the closing of the Potential ASARCO MLD Acquisition, substantially all of the ASARCO MLD employees will be terminated from employment with the ASARCO MLD and will be offered employment under Doe Run's terms and conditions upon successful completion of Doe Run's application process. Doe Run has agreed to recognize the USWA to the extent required by law. Subsequent to recognition, if required, Doe Run will begin the process of negotiating a collective bargaining agreement with the USWA. Although Doe Run anticipates that, if required, it would be able to reach agreement with the USWA, there can be no assurance that such agreement will be reached. ENVIRONMENTAL MATTERS Pursuant to the Asset Purchase Agreement, Doe Run will not assume, and will be indemnified for, any environmental liability or obligation arising out of the conduct, ownership, use or operation of the ASARCO MLD assets to be acquired, except with respect to certain matters specified below. Doe Run will assume all continuing obligations at the Glover smelter in connection with a Consent Decree with the State of Missouri with respect to achieving compliance with the ambient air quality standard for lead. This Consent Decree required the installation of certain environmental controls and the imposition of certain operating conditions. The ASARCO MLD has fulfilled its obligations under the Consent Decree and currently is in compliance with the ambient air quality standard, and thus, Doe Run's obligation would be to continue compliance with the operating conditions. Doe Run will also assume all obligations with respect to the closure or cessation of operations at the Sweetwater and Westfork mines and the Glover smelter. Missouri closure permits for the Glover smelter and its slag pile and the Sweetwater and Westfork mine facilities and their tailings areas set forth the actions required to be performed when such facilities cease operations. DESCRIPTION OF THE ASSET PURCHASE AGREEMENT Doe Run entered into the Asset Purchase Agreement on July 28, 1998. The Asset Purchase Agreement requires Doe Run to purchase, on a going concern basis, the ASARCO MLD at a purchase price of approximately $54.5 million (including an agreed valuation of inventory) and to transfer certain assets to ASARCO. The purchase price is subject to adjustment following the closing date to reflect the actual inventory at the closing date. Doe Run plans to close the transactions contemplated by the Asset Purchase Agreement on or about September 1, 1998. ASSETS AND LIABILITIES ASSUMED AND DISPOSED Upon closing the Potential ASARCO MLD Acquisition, Doe Run will assume certain assets, properties and rights of the ASARCO MLD, including the Sweetwater and Westfork mines and the Glover smelter and machinery, equipment, contracts and permits related thereto. Doe Run will not acquire certain 95 excluded assets, such as accounts receivable, as specified in the Asset Purchase Agreement. Doe Run will also expressly assume liabilities of the ASARCO MLD arising out of the conduct of the ASARCO MLD assets acquired on or after the closing date. INDEMNIFICATION OF DOE RUN BY ASARCO ASARCO will indemnify Doe Run from and against any and all losses and expenses incurred in connection with or arising from (i) any breach by ASARCO of any of its covenants or warranties contained in the Asset Purchase Agreement; (ii) the inaccuracy of any of ASARCO's representations or warranties contained in the Asset Purchase Agreement; and (iii) any liability specifically retained by ASARCO. Further, Doe Run and ASARCO have agreed upon a mechanism for allocating certain environmental liabilities which may arise in the future. The indemnification obligations of ASARCO (except as such obligations relate to certain specified provisions of the Asset Purchase Agreement) are subject to the following limitations: (a) ASARCO will indemnify Doe Run only to the extent the aggregate amount of loss suffered by Doe Run exceeds $100,000 and (b) the indemnification liability of ASARCO to Doe Run shall not exceed the adjusted purchase price. Except as such obligations relate to certain specified provisions of the Asset Purchase Agreement, the indemnification obligations of ASARCO terminate 24 months after the closing date. REPRESENTATIONS, WARRANTIES AND COVENANTS The Asset Purchase Agreement contains customary representations and warranties from ASARCO concerning, among other things, the accuracy of all financial information provided to Doe Run in anticipation of the Potential ASARCO MLD Acquisition, the availability of the transferred assets for use by Doe Run, the legality of the use of the transferred assets, the status of governmental permits, the transferred real property, the assigned leases, the transferred personal property, the transferred intellectual property, the condition of the transferred assets, condemnation, receivables and inventory, employment issues, the status of contracts, environmental matters, the absence of claims or actions pertaining to the ASARCO MLD, insurance, customers and supplies, and the absence of undisclosed liabilities. In addition to the foregoing representations and warranties, the Asset Purchase Agreement contains customary covenants by ASARCO concerning, among other things, access to the purchased assets, notification, securing of consents and approvals of regulatory bodies, securing of consents to transfers of contracts from third parties, actions prior to the closing date, and certain employment matters. Doe Run also makes customary representations, warranties and covenants under the Asset Purchase Agreement. 96 MANAGEMENT DIRECTORS AND OFFICERS The following table sets forth certain information regarding the directors and executive officers of the Company:
NAME AGE POSITION - --------------------------------------- --- ------------------------------------------------------------------ Ira Leon Rennert....................... 64 Chairman and Director of Doe Run, Doe Run Cayman and FPI. Jeffrey L. Zelms....................... 54 President and Chief Executive Officer of Doe Run and President of Doe Run Cayman Marvin K. Kaiser....................... 56 Vice President and Chief Financial Officer of Doe Run and FPI, Vice President of Doe Run Cayman and Finance Manager of Doe Run Mining and Doe Run Peru Richard L. Amistadi.................... 53 Vice President--Sales and Marketing of Doe Run Gary E. Boyer.......................... 57 Vice President--Mining of Doe Run Kenneth R. Buckley..................... 59 Vice President--Primary and Secondary Smelting of Doe Run and General Manager of Doe Run Mining and Doe Run Peru David A. Chaput........................ 40 Treasurer of Doe Run and President of FPI Juan Carlos Huyhua, Ph.D. ............. 46 Operations Manager of Doe Run Peru Anthony W. Worcester................... 56 Technical Manager of Doe Run Mining and Doe Run Peru
IRA LEON RENNERT has been Chairman, Chief Executive Officer and principal shareholder of Doe Run's and the Guarantors' parent company, Renco (including predecessors), since Renco's first acquisition in 1975, Chairman and Director of Doe Run since April 1994, Chairman and Director of Doe Run Cayman since October 1997 and Chairman and Director of FPI since August 1996. Renco holds controlling interests in a number of manufacturing and distribution concerns operating in businesses not competing with Doe Run including, WCI Steel, Inc., Renco Metals, Inc., AM General Corporation and Lodestar Energy, Inc. JEFFREY L. ZELMS has served as President and Chief Executive Officer of Doe Run's Predecessor and Doe Run since August 1984 and President of Doe Run Cayman since October 1997. Mr. Zelms has over 30 years of experience in the mining industry. Mr. Zelms serves on the boards of directors of BW/IP International, Inc. and Homestake Mining Company. MARVIN K. KAISER has served as Vice President and Chief Financial Officer of Doe Run's Predecessor and Doe Run since January 1994 and of FPI since April 1998, Vice President of Doe Run Cayman since October 1997 and Finance Manager of Doe Run Mining and Doe Run Peru since October 1997. From June 1989 to December 1993, Mr. Kaiser was the Chief Financial Officer of AMAX Gold, Inc., a gold producing company. Mr. Kaiser is a Certified Public Accountant. RICHARD L. AMISTADI has served as Vice President--Sales and Marketing of Doe Run's Predecessor and Doe Run since November 1986. Mr. Amistadi has over twenty years of experience in sales, marketing and product development of lead metal, lead alloys, zinc metal, lead, zinc and copper concentrates and associated by-products. GARY E. BOYER has been Vice President-Mining at Doe Run since January 1993. He served as General Manager of mining and smelting operations of Doe Run's Predecessor and Doe Run from January 1988 to 97 April 1997. From January 1990 to January 1993, he served as Vice President-Smelting of Doe Run's Predecessor. KENNETH R. BUCKLEY has served as Vice President--Primary and Secondary Smelting of Doe Run since September 1996 and General Manager of Doe Run Mining and Doe Run Peru since October 1997. From January 1996 until September 1996, Mr. Buckley was Vice President--Smelting of Doe Run. Mr. Buckley served as General Manager--Resource Recycling Division of Doe Run's Predecessor and Doe Run from September 1988 until January 1996. Mr. Buckley has over 34 years of experience in managing metal milling and smelting operations in five countries. DAVID A. CHAPUT has served as Treasurer of Doe Run's Predecessor and Doe Run since February 1993 and as President of FPI since September 1996. Mr. Chaput has been employed by Doe Run's Predecessor and Doe Run since 1987 in various financial management positions. JUAN CARLOS HUYHUA, PH.D., has been Operations Manager of Doe Run Peru since October 1997. From January 1995 to June 1997, Dr. Huyhua was Chief Operating Officer of Centromin. Dr. Huyhua has served in various capacities for Centromin since 1978, including as Assistant General Manager--Metallurgical Operations, General Superintendent--Smelting and Refining Department and Manager--Metallurgical Operations. Dr. Huyhua received his doctorate in Extractive Metallurgy from the New Mexico Institute of Mining and Technology in 1989. ANTHONY W. WORCESTER has served as Technical Manager of Doe Run Mining and Doe Run Peru since October 1997. From January 1991 to October 1997, Mr. Worcester was Technical Service Manager at Doe Run's lead smelter for Doe Run and its predecessor. Mr. Worcester has held various other positions with Doe Run's Predecessor since 1960. EXECUTIVE COMPENSATION The following table sets forth certain information concerning compensation of the named executive officers by Doe Run for services rendered to it in all capacities: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------- ANNUAL COMPENSATION(A) PAYOUTS ------------- FISCAL ---------------------- LTIP ALL OTHER NAME AND POSITION YEAR SALARY BONUS PAYOUTS(B) COMPENSATION(C) - ------------------------------------------------ ----------- ---------- ---------- ------------- --------------- Ira Leon Rennert(d)............................. 1997 -- -- -- $ 1,200,000 Chairman of the Board Jeffrey L. Zelms................................ 1997 $ 240,000 $ 100,000 $ 262,068 34,885 President and Chief Executive Officer Marvin K. Kaiser................................ 1997 156,000 74,000 52,414 22,164 Chief Financial Officer Richard L. Amistadi............................. 1997 163,248 60,000 78,620 23,197 Vice President--Sales and Marketing Gary E. Boyer................................... 1997 135,216 60,000 52,414 5,492 Vice President--Mining Kenneth R. Buckley.............................. 1997 142,132 60,000 26,207 21,657 Vice President--Primary and Secondary Smelting
- ------------------------ (a) Value of perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of total salary and bonus per named executive officer. (b) The amounts shown as "LTIP Payouts" in the table for each named executive officer represent contractual payments under such officer's net worth appreciation agreements. See "--Net Worth Appreciation Agreements." (c) The amounts shown as "All Other Compensation" in the table for each named executive officer, except Mr. Rennert, represent payments to Messrs. Zelms, Kaiser, Amistadi, Boyer and Buckley under the Profit Sharing Program of $2,688, $1,747, $1,828, $2,028 and $1,592, respectively, and under the gainsharing plan of $31,416, $20,420, $21,369, $3,464 and $20,065, respectively, and $781 of life 98 insurance premiums for Mr. Zelms. See "Business--Doe Run--Benefit Plans--Profit Sharing Program" and "--Gainsharing Plan." (d) Mr. Rennert receives no compensation directly from Doe Run. He is Chairman of the Board and the principal stockholder of Renco which receives a management fee from Doe Run pursuant to the Management Consultant Agreement (as defined). The amount shown as all other compensation to Mr. Rennert are the management fees paid by Doe Run to Renco for fiscal 1997. See "Certain Transactions--Transactions with Renco and its Affiliates." 99 NET WORTH APPRECIATION AGREEMENTS The named executive officers (with the exception of Mr. Rennert) and six other employees of Doe Run are each parties to net worth appreciation agreements with Doe Run, pursuant to which, upon termination of each person's employment with Doe Run, he is entitled to receive a fixed percentage of the increase in the net worth of Doe Run, as defined, from a base date until the end of the fiscal quarter preceding the date of his termination. Such amount is payable without interest in 40 equal quarterly installments, commencing three months after the termination of each person's employment, and at three month intervals thereafter. It is anticipated that certain key employees of Doe Run Peru will enter into net worth appreciation agreements with Doe Run Peru comparable to Doe Run's net worth appreciation agreements. The following table summarizes the net worth appreciation agreements now held by the named executive officers and the amounts earned thereunder.
ACCUMULATED AS OF NET WORTH OCTOBER 31, PERCENTAGE(A) BASE DATE 1997(B) ----------------- ----------- ----------------- Jeffrey L. Zelms................................. 5.0 % 4/7/94 $ 333,700 Marvin K. Kaiser................................. 1.0 4/7/94 66,740 Richard L. Amistadi.............................. 1.5 4/7/94 100,110 Gary E. Boyer.................................... 1.0 4/7/94 66,740 Kenneth R. Buckley............................... 0.5 4/7/94 33,370
- ------------------------ (a) Vested for each participant as to 80% as of March 31, 1998 and vesting for an additional 20% on March 31, 1999, provided that the respective participant remains in the employ of Doe Run until such date. (b) Represents the gross aggregate amount that each participant is entitled to receive as of October 31, 1997, subject to the vesting terms of the applicable agreement. The net worth appreciation agreements also provide that, in the event of payment of a dividend or a sale of Doe Run, the active participants will be entitled to receive a percentage of the dividend or the net proceeds of the sale equal to their maximum percentages under the agreements. Upon consummation of the Transactions, approximately $264,000 was paid to Messrs. Zelms, Kaiser, Amistadi, Buckley, Boyer and other employees of Doe Run, pursuant to the net worth appreciation agreements. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Doe Run, Doe Run Cayman, Doe Run Mining and Doe Run Peru have no compensation committee. The compensation for the executive officers is fixed by negotiations between such executive officers and Mr. Rennert on behalf of Renco. EMPLOYMENT AGREEMENTS The named executive officers are parties to employment agreements with Doe Run. Set forth below is a brief description of each such agreement. JEFFREY L. ZELMS entered into an Employment Agreement with Doe Run effective as of April 7, 1994, with an initial term continuing until October 31, 1999 and automatically renewable thereafter for additional one-year terms. Pursuant to the terms of his agreement, Mr. Zelms's compensation is composed of (a) a base annual salary, (b) a year-end bonus of not less than $50,000 nor more than $100,000 as may be 100 determined by Doe Run in its sole discretion and (c) such additional amounts, if any, as the Board of Directors may determine from time to time in its discretion. MARVIN K. KAISER entered into an Employment Agreement with Doe Run effective as of April 7, 1994, with an initial term continuing until October 31, 1999 and automatically renewable thereafter for additional one-year terms. Pursuant to the terms of his agreement, Mr. Kaiser's compensation is composed of (a) a base annual salary, (b) a year-end bonus of not less than $30,000 nor more than $60,000 as may be determined by Doe Run in its sole discretion and (c) such additional amounts, if any, as the Board of Directors may determine from time to time in its discretion. RICHARD L. AMISTADI entered into an Employment Agreement with Doe Run effective as of April 7, 1994, with an initial term continuing until October 31, 1999 and automatically renewable thereafter for additional one-year terms. Pursuant to the terms of his agreement, Mr. Amistadi's compensation is composed of (a) a base annual salary, (b) a year-end bonus of not less than $30,000 nor more than $60,000 as may be determined by Doe Run in its sole discretion and (c) such additional amounts, if any, as the Board of Directors may determine from time to time in its discretion. GARY E. BOYER entered into an Employment Agreement with Doe Run effective as of April 7, 1994, with an initial term continuing until October 31, 1999 and automatically renewable thereafter for additional one-year terms. Pursuant to the terms of his agreement, Mr. Boyer's compensation is composed of (a) a base annual salary, (b) a year-end bonus of not less than $30,000 nor more than $60,000 as may be determined by Doe Run in its sole discretion and (c) such additional amounts, if any, as the Board of Directors may determine from time to time in its discretion. KENNETH R. BUCKLEY entered into an Employment Agreement with Doe Run effective as of January 1, 1996 (replacing a prior agreement), with an initial term continuing until December 31, 2000, and automatically renewable thereafter for additional one-year terms. Pursuant to the terms of his agreement, Mr. Buckley's compensation is composed of (a) a base annual salary, (b) a year-end bonus of not less than $30,000 nor more than $60,000 as may be determined by Doe Run in its sole discretion and (c) such additional amounts, if any, as the Board of Directors may determine from time to time in its discretion. Each of the above described employment agreements require that, during the term of their employment, each of the above executive officers not, directly or indirectly, engage in any aspect of the business of lead mining, milling, recycling or sale within the continental United States as an officer, director, partner, proprietor, investor, associate, employee or consultant except with Doe Run. In addition, each of the above executive officers have agreed to maintain the confidentiality of information obtained during their employment with Doe Run. 101 SECURITY OWNERSHIP The following table sets forth certain information as of the date hereof with respect to beneficial ownership of Doe Run's common stock by each beneficial owner of 5% or more of the common stock, each director and each named executive officer of Doe Run during the last fiscal year, and by all directors and executive officers of Doe Run as a group. Except as otherwise noted, the persons named in the table below have sole voting and investment power with respect to all shares or interests, as applicable, shown as beneficially owned by them.
NUMBER OF NAME SHARES PERCENT - --------------------------------------------------------------------------------------------- ----------- ----------- The Renco Group, Inc.(a)(b).................................................................. 1,000 100.0% DR Acquisition Corp.(a)...................................................................... 1,000 100.0 Ira Leon Rennert(a)(c)....................................................................... 1,000 100.0 Jeffrey L. Zelms............................................................................. -- -- Marvin K. Kaiser............................................................................. -- -- Richard L. Amistadi.......................................................................... -- -- Gary E. Boyer................................................................................ -- -- Kenneth R. Buckley........................................................................... -- -- All directors and executive officers of Doe Run as a group (7 persons)....................... 1,000 100.0
- ------------------------ (a) The address of this beneficial owner is c/o The Renco Group, Inc., 30 Rockefeller Plaza, Suite 4225, New York, New York 10112. (b) Renco is deemed to beneficially own the shares owned by DRA due to Renco's ownership of all of the outstanding capital stock of DRA. (c) Mr. Rennert is deemed to beneficially own the interests and shares owned by Renco due to the ownership by himself and trusts established by him (but of which he is not a trustee) for himself and members of his family of a total of 97.9% of the outstanding common stock of Renco. By virtue of Renco's indirect ownership of 100.0% of the outstanding common stock of Doe Run, and Mr. Rennert's ownership of a majority of the stock of Renco, Mr. Rennert is in position to control actions that require the consent of a majority of the holders of equity interests in Doe Run and its subsidiaries. The 2,500 shares of preferred stock of Doe Run, all of which were held by Renco, were redeemed as part of the Transactions. 102 CERTAIN TRANSACTIONS TRANSACTIONS WITH RENCO AND ITS AFFILIATES Under a management consultant agreement, dated as of April 7, 1994, as amended (the "Management Consultant Agreement"), between Renco and Doe Run, Doe Run pays an annual fee of $2.4 million to Renco. The Management Consultant Agreement provides that Doe Run shall not make any payment thereunder which would violate any of its agreements with respect to any of its outstanding indebtedness. The Management Consultant Agreement extends to October 31, 2000 and thereafter shall continue for additional terms of three years each unless sooner terminated by either party by giving six months prior written notice. In the year ended October 31, 1997, Doe Run paid management fees to Renco in the amount of $1.2 million. The Company believes that the cost of obtaining the type and quality of services rendered by Renco under the Management Consultant Agreement was, and continues to be, no less favorable than that at which the Company could obtain such services from unaffiliated entities. To obtain the advantages of volume, Renco purchases certain insurance coverages for its subsidiaries, including Doe Run and Doe Run Peru, and the cost of such insurance, without markup, is reimbursed by the covered subsidiaries. Currently, the major areas of insurance coverage obtained under the Renco programs for Doe Run are property, business interruption and fidelity and for Doe Run Peru are foreign general liability and fidelity, and the premiums for property, business interruption, fidelity and foreign general liability (as applicable) are allocated by Renco to its covered subsidiaries, substantially as indicated in the underlying policies. Renco also purchases and administers certain insurance policies exclusively for Doe Run, including fiduciary, general and product liability, workers' compensation, political risk, automobile liability, and casualty umbrella, and for Doe Run Peru, including property, business interruption, general and product liability, workers' compensation, automobile liability and casualty umbrella. The cost of such insurance, without markup, is reimbursed by Doe Run and Doe Run Peru (as applicable) as incurred. The total insurance cost under the Renco insurance programs incurred in fiscal 1997 by Doe Run was approximately $2.5 million and by Doe Run Peru was DE MINIMIS. Doe Run and Doe Run Peru believe that their insurance costs were less than they would have incurred if they had obtained their respective insurance directly. Pursuant to a tax sharing agreement between Doe Run and Renco, Doe Run pays to Renco an amount equal to the amount Doe Run would have been required to pay for taxes on a stand-alone basis to the Internal Revenue Service and the applicable state taxing authority, as the case may be, except that Doe Run will not have the benefit of any of its tax loss carryforwards unless such tax losses were a result of timing differences between Doe Run's accounting for tax and financial reporting purposes. This agreement also provides that transactions between Doe Run and Renco and its other subsidiaries are accounted for on a cash basis and not on an accrual basis. Beginning in fiscal 1998, Doe Run sold, and may from time to time in the future sell, zinc and other alloys to WCI Steel, Inc., an indirect subsidiary of Renco. Doe Run believes that such sales were on an arm's length basis at a price no less favorable than that at which Doe Run could have sold to unaffiliated entities. Upon consummation of the Old Notes Offering, Doe Run paid a transaction fee of $2.3 million to Renco. INTERCOMPANY TRANSACTIONS Doe Run Peru pays a sales agency commission to Doe Run Mining pursuant to a sales agency contract, dated as of March 9, 1998, by and between Doe Run Peru and Doe Run Mining. The initial term is for a period of two years, automatically renewable for additional one-year terms. Under this agreement, Doe Run Mining acts as the sales agent for Doe Run Peru with respect to all sales of Doe Run Peru's products within Peru and receives a commission of 3% of such sales. 103 Doe Run Peru pays a sales agency commission to Doe Run pursuant to an international sales agency and hedging services contract, dated as of March 9, 1998, by and between Doe Run Peru and Doe Run. The initial term is for a period of two years, automatically renewable for additional one-year terms. Under this agreement, Doe Run acts as the sales agent for Doe Run Peru with respect to all sales of Doe Run Peru's products outside of Peru and receives a commission of 3% of such sales. Doe Run Peru pays a fee to Doe Run Mining pursuant to a technical, managerial and professional services agreement, dated as of March 9, 1998, by and between Doe Run Peru and Doe Run Mining. The initial term is for a period of two years, automatically renewable for additional one-year terms. Under this agreement, Doe Run Mining provides technical, managerial and professional services to Doe Run Peru with respect to its day-to-day operations and the Capital Investment Program. As its technical, managerial and professional services fee, Doe Run Mining receives 2% of Doe Run Peru's cash operating expenses (excluding the sales agency commissions to Doe Run and Doe Run Mining) and 10% of Doe Run Peru's capital expenditures. Doe Run Mining pays a fee to Doe Run pursuant to a United States services agreement, dated as of March 9, 1998, by and between Doe Run Mining and Doe Run. The initial term is for a period of two years, automatically renewable for additional one-year terms. Under this agreement, Doe Run provides professional services with respect to U.S. related matters and receives an annual fee of between $4.0 and $5.0 million. Doe Run Mining pays a fee to Doe Run pursuant to a technical, managerial and professional services agreement, dated as of March 9, 1998, by and between Doe Run Mining and Doe Run. The initial term is for a period of two years, automatically renewable for additional one-year terms. Under this agreement, Doe Run provides technical, managerial and professional assistance with respect to all aspects to Doe Run Peru's operations for an annual fee of $500,000. Doe Run Mining pays a fee to Doe Run pursuant to a Peruvian professional services agreement, dated as of March 9, 1998, by and between Doe Run Mining and Doe Run. The initial term is for a period of two years, automatically renewable for additional one-year terms. Under this agreement, Doe Run provides all technical, managerial and professional services within and partially outside of Peru that Doe Run Mining will provide to Doe Run Peru in their agreement, and Doe Run receives an annual fee of $350,000. Doe Run Mining pays a fee to Doe Run pursuant to a technology assistance agreement, dated as of March 9, 1998, by and between Doe Run Mining and Doe Run. The initial term is for a period of two years, automatically renewable for additional one-year terms. Under this agreement, Doe Run provides technology assistance for an annual fee of $250,000. Doe Run and Doe Run Peru have negotiated a fee of approximately $5.5 million payable to Doe Run for management services provided by Doe Run for the period October 23, 1997 through March 8, 1998. 104 DESCRIPTION OF NEW REVOLVING CREDIT FACILITIES The following descriptions of the New Doe Run Revolving Credit Facility and the New Doe Run Peru Revolving Credit Facility do not purport to be complete and are subject to, and qualified in their entirety by reference to, all of the provisions of the respective credit agreements relating to the New Doe Run Revolving Credit Facility and the New Doe Run Peru Revolving Credit Facility, which are filed as exhibits to the Registration Statement. Capitalized terms used herein and not otherwise defined have the meaning ascribed to such terms in the Revolving Credit Facilities. NEW DOE RUN REVOLVING CREDIT FACILITY GENERAL The $100.0 million New Doe Run Revolving Credit Facility is provided pursuant to a Loan and Security Agreement, dated March 12, 1998, by and among Doe Run, FPI and Congress Financial Corporation ("Congress"). As of June 30, 1998, $4.8 million (exclusive of outstanding letters of credit) was outstanding under the New Doe Run Revolving Credit Facility. Under the New Doe Run Revolving Credit Facility, Congress will, in its discretion, lend on a revolving basis to Doe Run and/or FPI up to the sum of (a) 85% of the Net Amount of Eligible Accounts plus (b) 60% of the Value of Eligible Inventory (but not more than a loan value of $50.0 million) and (c) 25% of the Value of Eligible Stores Inventory of Doe Run (but not more than a loan value of $2.5 million). Collections from accounts are applied to reduce the loan balance, which may be reborrowed up to the aforesaid limits. Congress may extend up to $10.0 million of letter of credit accommodations within the limits set forth above. INTEREST Interest on the loan balance is payable monthly at the prime rate plus 0.75% per annum. The interest rate on June 30, 1998 was 9.25%. In the event of a default under the New Doe Run Revolving Credit Facility, the interest rate will be 2.75% per annum in excess of such prime rate. SECURITY As security for the indebtedness under the New Doe Run Revolving Credit Facility, Doe Run and FPI have granted to Congress a first security interest in (a) all accounts, (b) certain general intangibles, (c) inventory, (d) all present and future books and records relating to the foregoing and (e) all products and proceeds of the foregoing. TERM The New Doe Run Revolving Credit Facility has a three-year term and beginning on March 2001, can be renewed from year to year thereafter, PROVIDED that the agreement may be terminated by any party as of March 2001 or any subsequent anniversary date on 60 days advance written notice. CERTAIN COVENANTS In addition to customary covenants, the New Doe Run Revolving Credit Facility requires that Doe Run and FPI be subject to certain covenants, including, but not limited to, a restriction on the incurrence of additional indebtedness, a restriction on the creation of additional liens, compliance with certain financial covenants, certain restrictions on dividends, loans and investments, restrictions on mergers and sales of assets and certain restrictions on capital expenditures. If Doe Run or FPI were to fail to comply with the covenants contained in the New Doe Run Revolving Credit Facility and such noncompliance were not cured within the applicable cure period, if any, such noncompliance would constitute an event of default that could, among other things, result in the termination of the New Doe Run Revolving Credit Facility and/or the acceleration of all amounts due thereunder. See "--Events of Default." 105 EVENTS OF DEFAULT The New Doe Run Revolving Credit Facility contains certain events of default, including, without limitation, the following: (i) the failure of Doe Run or FPI to pay any of its obligations under the New Doe Run Revolving Credit Facility within three days after the due date; (ii) certain defaults by Doe Run or FPI under various other indebtedness, in each case after any applicable grace period; (iii) any default by Doe Run or FPI in the performance or observance of the conditions and covenants of the New Doe Run Revolving Credit Facility or related agreements, beyond any applicable cure period; (iv) any representation or warranty made by Doe Run or FPI to Congress under the New Doe Run Revolving Credit Facility proved to be false in any material respect; (v) certain judgments against Doe Run or FPI; (vi) certain events of bankruptcy or insolvency of Doe Run or FPI; or (vii) the occurrence of (a) any sale of all or substantially all of the assets of Renco, Doe Run or FPI, (b) approval by shareholders of any liquidation or dissolution of Renco, Doe Run or FPI, (c) Renco or DRA ceasing to own 100% of the capital stock of Doe Run, (d) Renco ceasing to own 100% of the capital stock of DRA, (e) Doe Run ceasing to own 100% of the capital stock of FPI or (f) Ira Leon Rennert and his affiliates ceasing to own at least 90% of Renco. NEW DOE RUN PERU REVOLVING CREDIT FACILITY GENERAL Under the New Doe Run Peru Revolving Credit Facility, the revolving credit lender will, in its discretion, lend and relend to Doe Run Peru up to not more than $40,000,000. The loans shall not exceed the sum of (a) 85% of eligible sales accounts plus (b) 70% of the eligible inventory accounts of purchased concentrates plus (c) 30% of the eligible inventory accounts of raw materials and products in process plus (d) 80% of the eligible inventory accounts of final products. Doe Run Peru's collections from accounts are applied to reduce the loan balance, which may be reborrowed up to the aforesaid limits. The revolving credit lender may extend loans or letters of credit. The amount of individual loans must be $1,000,000 or more. INTEREST Interest on Doe Run Peru's loan balance is payable at LIBOR (1-month, 3-month or 6-month, depending on the length of the loan) plus 1.5% per annum for the first year of the term of the facility. The interest rate on June 30, 1998 was 7.25%. In the event of a nonpayment of any part of the principal or interest owed under the New Doe Run Peru Revolving Credit Facility, Doe Run Peru would pay additional interest of 3% per annum. After the first year of the term of the loan and the end of each subsequent term, the revolving credit lender, in its sole discretion, can review the interest rate with 30 days notice to Doe Run Peru. SECURITY As security for the indebtedness of Doe Run Peru to the revolving credit lender, Doe Run Peru has granted a security interest in certain sales collection accounts and in certain concentrates, raw materials, products in process and end products. Pursuant to a concentration collection agreement, Doe Run Peru has agreed to maintain, irrevocably and unconditionally, two accounts, one in New York, New York and one in Lima, Peru containing the proceeds of present and future sales operations, as well as the collections generated from them. Customers of Doe Run Peru are to directly deposit their payments into these collection accounts. Pursuant to an ore collateral contract, Doe Run Peru has granted a first priority interest to the revolving credit lender in Doe Run Peru's concentrates, raw materials, products in process and end products, in whatever state. 106 TERM The New Doe Run Peru Revolving Credit Facility has a maximum term of four years. The revolving credit lender may, in its sole discretion, at the end of the first year or any subsequent year, extend the maximum term of the facility. Doe Run Peru is to pay the revolving credit lender an annual agency fee and an annual commitment fee under the New Doe Run Peru Revolving Credit Facility. CERTAIN COVENANTS In addition, the Doe Run Peru Revolving Credit Facility requires that Doe Run Peru be subject to certain covenants, including, without limitation, compliance with financial reporting requirements, abstaining from selling, leasing, transferring or assigning the use of fixed assets without written approval from the revolving credit lender, abstaining from selling or transferring all or substantially all of any part of Doe Run Peru's assets without the written approval from the revolving credit lender, abstaining from assuming, creating or incurring additional indebtedness without the written approval of the revolving credit lender, restrictions on liens unless they are required by the concentration account agreement or the ore collateral contract or by a governmental body or authority, and abstaining from paying dividends if Doe Run Peru is in default under the Doe Run Peru Revolving Credit Facility. If Doe Run Peru were to fail to comply with the covenants in the New Doe Run Peru Revolving Credit Facility and such noncompliance were not cured within the applicable cure period, if any, such noncompliance would constitute an event of default that could, among other things, result in the termination of the New Doe Run Peru Revolving Credit Facility and/or the acceleration of all amounts due thereunder. See "--Events of Default." EVENTS OF DEFAULT The New Doe Run Peru Revolving Credit Facility contains certain events of default, including, without limitation, the following: (i) the failure of Doe Run Peru to pay any of its obligations to the lender when due; (ii) the falsity of any representation or warranty; (iii) any default by Doe Run in the performance or observance of its obligations under New Doe Run Peru Revolving Credit Facility; (iv) certain events of bankruptcy or insolvency of Doe Run; (v) the invalidity of the concentration account agreement or the ore collateral contract; (vi) the failure of Doe Run to own directly or indirectly 66.66% of the shares of Doe Run Peru; (vii) the expropriation by the Peruvian government of any rights of the revolving credit lender in Doe Run Peru or of the ownership or control of Doe Run Peru; and (viii) the occurrence of acts of war, revolution, insurrection or terrorism in Peru that has a material adverse effect on Doe Run Peru's capacity to comply with its obligations under the New Doe Run Peru Revolving Credit Facility. 107 DESCRIPTION OF THE NOTES The Old Notes are and the Exchange Notes will be issued under the Indenture among Doe Run, the Guarantors and State Street Bank and Trust Company, as trustee (the "Trustee"). The following summary of the material provisions of the Indenture does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Indenture, including the definitions of certain terms contained therein and those terms made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of the Indenture. A copy of the Indenture is filed as an exhibit to the Registration Statement. The definitions of certain capitalized terms used in the following summary are set forth below under "--Certain Definitions." GENERAL The Notes are general unsecured obligations of Doe Run limited to $355.0 million in aggregate principal amount, of which $200.0 million are Fixed Rate Notes and $55.0 million are Floating Rate Notes. Additional amounts of Notes in an aggregate principal amount of up to $100.0 million may be issued under the Indenture in one or more series from time to time, subject to the limitations set forth under "--Certain Covenants--Limitation on Indebtedness." The Fixed Rate Notes will mature on March 15, 2005. The Floating Rate Notes will mature on March 15, 2003. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes will be exchangeable and transferable, at the office or agency of Doe Run in New York City maintained for such purposes (which initially is the Trustee or its agent); PROVIDED that payment of interest may be made at the option of Doe Run by check mailed to the registered holders of the Notes ("Holders") at their registered addresses. The Notes will be issued only in fully registered form without coupons, in denominations of $1,000 and any integral multiple thereof. No service charge will be made for any registration of transfer, exchange or redemption of Notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection therewith. INTEREST Interest on the Notes will be payable semi-annually in cash on each March 15 and September 15 (each an "Interest Payment Date") commencing on September 15, 1998, for the period commencing on and including the immediately preceding Interest Payment Date and ending on and including the day next preceding the Interest Payment Date (an "Interest Period"), with the exception that the first Interest Period shall commence on and include March 12, 1998 and end on and include September 14, 1998. Interest is payable to the persons who are registered Holders at the close of business on the March 1 and September 1 immediately preceding the applicable Interest Payment Date. FIXED RATE NOTES Interest on the Fixed Rate Notes accrues at the rate of 11 1/4% per annum. Interest on the Fixed Rate Notes will be computed on the basis of a 360 day year composed of twelve 30 day months. FLOATING RATE NOTES The Floating Rate Notes accrues interest at a rate per annum, reset semi-annually, equal to LIBOR plus 6.29%, as determined by the calculation agent (the "Calculation Agent"), which is the Trustee. "LIBOR," with respect to an Interest Period, shall be the rate (expressed as a percentage per annum) for deposits in United States dollars for a six-month period beginning on the second London Banking Day (as defined) after the Determination Date (as defined) that appears on Telerate Page 3750 (as defined) as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750 does not include such a rate or is unavailable on a Determination Date, LIBOR for the Interest Period shall be the arithmetic mean of 108 the rates (expressed as a percentage per annum) for deposits in a Representative Amount (as defined) in U.S. dollars for a six-month period beginning on the second London Banking Day after the Determination Date that appears on Reuters Screen LIBO Page (as defined) as of 11:00 a.m., London time, on the Determination Date. If Reuters Screen LIBO Page does not include two or more rates or is unavailable on a Determination Date, the Calculation Agent will request the principal London office of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide such bank's offered quotation (expressed as a percentage per annum), as of approximately 11:00 a.m., London time, on such Determination Date, to prime banks in the London interbank market for deposits in a Representative Amount in U.S dollars for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such offered quotations are so provided, LIBOR for the Interest Period will be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Calculation Agent will request each of three major banks in New York City, as selected by the Calculation Agent, to provide such bank's rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New York City time, on such Determination Date, for loans in a Representative Amount in U.S. dollars to leading European banks for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such rates are so provided, LIBOR for the Interest Period will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then LIBOR for the Interest Period will be LIBOR in effect with respect to the immediately preceding Interest Period. "Determination Date," with respect to an Interest Period, will be the second London Banking Day preceding the first day of the Interest Period. "London Banking Day" is any day in which dealings in U.S. dollars are transacted or, with respect to any future date, are expected to be transacted in the London interbank market. "Representative Amount" means a principal amount of not less than U.S. $1,000,000 for a single transaction in the relevant market at the relevant time. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service). "Reuters Screen LIBO Page" means the display designated as page "LIBO" on The Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service). The amount of interest for each day that the Floating Rate Notes are outstanding (the "Daily Interest Amount") will be calculated by dividing the interest rate (expressed as a percentage per annum) in effect for such day by 360 and multiplying the result by the principal amount of the Floating Rate Notes. The amount of interest to be paid on the Floating Rate Notes for each Interest Period will be calculated by adding the Daily Interest Amounts for each day in the Interest Period. All percentages resulting from any of the above calculations will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upwards (E.G., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent being rounded upwards). The interest rate on the Floating Rate Notes will in no event be higher than the maximum rate permitted by New York law as the same may be modified by U.S. law of general application. Under current New York law, the maximum rate of interest is 25% per annum on a simple interest basis. This limit may not apply to Floating Rate Notes in which $2,500,000 or more has been invested. The Calculation Agent will, upon the request of the Holder of any Floating Rate Note, provide the interest rate then in effect with respect to the Floating Rate Notes. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on Doe Run and the Holders of the Floating Rate Notes. 109 OPTIONAL REDEMPTION The Fixed Rate Notes will be subject to redemption, in whole or in part, at the option of Doe Run, at any time on or after March 15, 2002, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued interest to the redemption date, if redeemed during the twelve month period beginning on March 15 of the years indicated below:
YEAR PERCENTAGE - ---------------------------------------------------------------------------------- ----------- 2002.............................................................................. 105.625% 2003.............................................................................. 102.813% 2004 and thereafter............................................................... 100.000%
The Floating Rate Notes are subject to redemption, in whole at any time or in part from time to time, at the option of Doe Run, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued interest to the redemption date, if redeemed during the twelve month period beginning on March 15 of the years indicated below:
YEAR PERCENTAGE - ---------------------------------------------------------------------------------- ----------- 1998.............................................................................. 104.000% 1999.............................................................................. 103.000% 2000.............................................................................. 102.000% 2001.............................................................................. 101.000% 2002 and thereafter............................................................... 100.000%
OPTIONAL REDEMPTION OF FIXED RATE NOTES UPON EQUITY OFFERINGS In addition, at any time prior to March 15, 2001, Doe Run may redeem up to 35% of the sum of (x) the aggregate principal amount of the Fixed Rate Notes issued in the Old Notes Offering plus (y) any additional Fixed Rate Notes issued after the Issue Date pursuant to the Indenture, with the proceeds of one or more Equity Offerings at a redemption price (expressed as a percentage of principal amount) of 111.25% plus accrued interest to the redemption date; PROVIDED that at least 65% of the sum of (x) the aggregate principal amount of Fixed Rate Notes issued in the Old Notes Offering plus (y) any additional Fixed Rate Notes issued after the Issue Date pursuant to the Indenture remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Equity Offering, Doe Run shall make such redemption not more than 120 days after the consummation of any such Equity Offering. "Equity Offering" means an offering of Qualified Capital Stock of Doe Run (other than to any Subsidiary of Doe Run). SINKING FUND There will be no mandatory sinking fund payments for the Notes. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange or quotation system, if any, on which such Notes are listed or, if such Notes are not then listed on a national securities exchange or quotation system, on a proportionate basis, by lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that (i) no Notes of a principal amount of $1,000 or less shall be redeemed in part and (ii) a redemption of Fixed Rate Notes with the net cash proceeds of an Equity Offering shall be made on a proportionate basis unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered 110 address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption. GUARANTEES Doe Run's obligations under the Notes are guaranteed in the manner described below by the following Subsidiaries of Doe Run, FPI, Doe Run Cayman, Doe Run Mining and Doe Run Peru, and, in the future, may be guaranteed by certain of Doe Run's Restricted Subsidiaries. See "--Certain Covenants--Future Guarantees." The only existing Subsidiary of Doe Run that is not a Guarantor is DR Exploration. The laws of South Africa, DR Exploration's jurisdiction of organization, may not permit DR Exploration to be a Guarantor. Each Guarantor fully and unconditionally guarantees, on a senior basis (except as described below under "--Ranking" with respect to the Guarantee of Doe Run Peru), jointly and severally, to each Holder and the Trustee, the full and prompt performance of Doe Run's obligations under the Indenture and the Notes, including the payment of principal of and interest on the Notes. The obligations of each Guarantor are limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law, in the case of domestic Guarantors, or any applicable foreign law, in the case of foreign Guarantors. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a proportionate amount, based on the net assets of each Guarantor determined in accordance with GAAP. Each Guarantor may consolidate with or merge into or sell its assets to Doe Run or to another Guarantor that is a Wholly-Owned Restricted Subsidiary without limitation, or with other persons upon the terms and conditions set forth in the Indenture. See "--Certain Covenants--Merger, Consolidation and Sale of Assets." In the event that either all of the Capital Stock of a Guarantor is sold by Doe Run or one of the Restricted Subsidiaries (whether by merger, stock purchase or otherwise) or all or substantially all of the assets of a Guarantor are sold by such Guarantor and such sale complies with the provisions set forth in "--Certain Covenants--Limitation on Sale of Assets" and "--Change of Control" and any other applicable provisions in the Indenture, the Guarantor's Guarantee will be released. RANKING Except as described below with respect to the Guarantee of Doe Run Peru, the indebtedness of Doe Run and the Guarantors evidenced by the Notes and the Guarantees rank senior in right of payment to all future unsecured senior subordinated and subordinated indebtedness of Doe Run and the Guarantors, respectively, and equally in right of payment with all other existing and future unsubordinated indebtedness of Doe Run and the Guarantors. However, holders of secured indebtedness of Doe Run and the Guarantors will have claims that effectively rank prior to those of the Holders with respect to the assets securing such indebtedness. As of June 30, 1998, the Company had approximately $396.8 million of indebtedness outstanding (including the Back-to-Back Loan of $125.0 million but exclusive of aggregate unused commitments of $129.7 million under the New Revolving Credit Facilities), and none of the Company's indebtedness was subordinated to the Old Notes. Notwithstanding the foregoing, the indebtedness of Doe Run Peru evidenced by its Guarantee will be contractually subordinated to the indebtedness under the Peruvian Revolving Credit Facility. In addition, except as described in the preceding sentence, the indebtedness of Doe Run Mining and Doe Run Peru 111 evidenced by their Guarantee rank senior in right of payment to all future unsecured indebtedness of Doe Run Mining and Doe Run Peru, respectively, subject to statutorily preferred exceptions and statutorily mandated priorities based on the date of issuance with respect to payment of obligations under applicable Peruvian law. CERTAIN COVENANTS The Indenture contains, among others, the covenants discussed below. If Doe Run or the Guarantors were to fail to comply with the covenants contained in the Indenture and such noncompliance were not cured within the applicable cure period, if any, such noncompliance would constitute an Event of Default that could, among other things, result in the acceleration of all amounts due under the Notes. See "-- Events of Default." LIMITATION ON INDEBTEDNESS (a) Doe Run will not, and will not cause or permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for the payment of (collectively "incur") any Indebtedness (including Acquired Indebtedness) other than Permitted Indebtedness; PROVIDED that Doe Run and the Guarantors may incur Indebtedness (including Acquired Indebtedness) if: (A) no Default or Event of Default shall have occurred and be continuing at the time of the proposed incurrence thereof or shall occur as a result of such proposed incurrence, and (B) after giving effect to such proposed incurrence, the Consolidated Fixed Charge Coverage Ratio of Doe Run is at least equal to 2.25 to 1.0. Notwithstanding the foregoing, a Restricted Subsidiary that is not a Guarantor may incur Acquired Indebtedness to the extent such Indebtedness could have been incurred by Doe Run and the Guarantors pursuant to the proviso in the immediately preceding sentence. (b) Doe Run and the Guarantors shall not, directly or indirectly, in any event incur any Indebtedness which by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of Doe Run or such Guarantor unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinated to the Notes or the Guarantee of such Guarantor, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated to such other Indebtedness of Doe Run or such Guarantor. LIMITATION ON RESTRICTED PAYMENTS Doe Run will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, after the Issue Date (a) declare or pay any dividend or make any distribution on Doe Run's Capital Stock or make any payment to holders of such Capital Stock (other than dividends or distributions payable in Qualified Capital Stock of Doe Run), (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of Doe Run or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) purchase, redeem, prepay, defease or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, Indebtedness of Doe Run or any of the Guarantors that is expressly subordinate in right of payment to the Notes or the Guarantee of such Guarantor, as the case may be, or (d) make any Investment (excluding any Permitted Investment) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing or (ii) Restricted Payments made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, shall be the Fair Market Value of such property proposed to be transferred by Doe Run or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment) shall exceed the sum of: 112 (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of Doe Run earned subsequent to the Issue Date and prior to the date the Restricted Payment occurs (treating such period as a single accounting period); (x) 100% of the aggregate net proceeds, including the Fair Market Value of property other than cash, received by Doe Run from any person (other than a Subsidiary of Doe Run) from the issuance and sale subsequent to the Issue Date of Qualified Capital Stock of Doe Run (excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock or as interest on any Indebtedness, (B) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from Doe Run or any Subsidiary of Doe Run, until and to the extent such borrowing is repaid and (C) any net proceeds from any Equity Offering which are used to redeem Fixed Rate Notes pursuant to, and in accordance with, the provisions described under the caption "--Optional Redemption--Optional Redemption upon of Fixed Rate Notes Equity Offerings" above); (y) 100% of the aggregate net proceeds, including the Fair Market Value of property other than cash, received by Doe Run from any person (other than a Subsidiary of Doe Run) from the issuance and sale of Disqualified Capital Stock and/or Indebtedness, in each case that has been converted into or exchanged for Qualified Capital Stock of Doe Run after the Issue Date; and (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments, (2) the net cash proceeds received by Doe Run or any Restricted Subsidiary from the disposition of all or any portion of such Investments (other than to a Subsidiary of Doe Run) and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the Fair Market Value of such Subsidiary; PROVIDED, HOWEVER, that the sum of clauses (1),(2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. The foregoing provisions shall not prohibit: (1) the payment of any dividend within 60 days after the date of its declaration if the dividend would have been permitted on the date of declaration; (2) the acquisition of Capital Stock of Doe Run or Indebtedness of Doe Run or any Guarantor either (i) solely in exchange for shares of Qualified Capital Stock of Doe Run or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of Doe Run) of shares of Qualified Capital Stock of Doe Run; (3) the acquisition of Indebtedness of Doe Run or any Guarantor that is expressly subordinate in right of payment to the Notes or such Guarantor's Guarantee, as the case may be, either (i) solely in exchange for Indebtedness of Doe Run or such Guarantor which is expressly subordinate in right of payment to the Notes or such Guarantor's Guarantee, as the case may be, at least to the extent that the Indebtedness being acquired is subordinated to the Notes or such Guarantor's Guarantee, as the case may be, and has no scheduled principal prepayment dates prior to the scheduled final maturity date of the Indebtedness being exchanged or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of Doe Run) of Indebtedness of Doe Run or such Guarantor which is expressly subordinate in right of payment to the Notes or such Guarantor's Guarantee, as the case may be, at least to the extent that the Indebtedness being acquired is subordinated to the Notes or such Guarantor's Guarantee, as the case may be, and has no scheduled principal prepayment dates prior to the scheduled final maturity date of the Indebtedness being refinanced; (4) the making of payments by Doe Run or any of the Restricted Subsidiaries to DRA or Renco (A) no earlier than ten days prior to the date on which Renco is required to make its payments to the Internal Revenue Service or the applicable state taxing authority, as the case may be, pursuant to a tax sharing agreement (which tax sharing agreement provides that the payments thereunder shall not 113 exceed the amount Doe Run and its subsidiaries would have been required to pay for taxes on a stand-alone basis, except that Doe Run and its Subsidiaries will not have the benefit of any of its tax loss carryforwards unless such tax losses were a result of timing differences between Doe Run's and its Subsidiaries' accounting for tax and financial reporting purposes, and which tax sharing agreement also provides that transactions between Doe Run, DRA and Renco and Renco's other Subsidiaries are accounted for on a cash basis and not on an accrual basis) and (B) to reimburse DRA or Renco for out of pocket insurance payments made by DRA or Renco on behalf of Doe Run and its Subsidiaries; (5) the payment by Doe Run or any of the Restricted Subsidiaries of a management fee to Renco in an amount not to exceed $200,000 in any month; (6) the repurchase from Renco on the Issue Date of Doe Run's outstanding 2,500 shares of preferred stock, par value $1,000 per share, including the payment of accrued and unpaid dividends thereon, in an aggregate amount of approximately $2.8 million; and (7) the payment on the Issue Date of a transaction fee to Renco in an amount of approximately $2.2 million; PROVIDED that in the case of clauses (2), (3) and (5), no Default or Event of Default shall have occurred and be continuing at the time of such payment or as a result thereof. In determining the aggregate amount of Restricted Payments permissible under clause (ii) of the first paragraph of this section, amounts expended, incurred or outstanding pursuant to clauses (1) and (2) (but not pursuant to clauses (3), (4), (5), (6) or (7)) of the second paragraph of this section shall be included as Restricted Payments; PROVIDED that any proceeds received from the issuance of Qualified Capital Stock pursuant to clause (2) of the second paragraph of this section shall be included in calculating the amount referred to in clause (x) or clause (y), as the case may be, of the first paragraph of this section. LIMITATION ON SALE OF ASSETS Doe Run will not, and will not permit any of the Restricted Subsidiaries to, consummate any Asset Sale unless (i) such Asset Sale is for at least Fair Market Value, (ii) at least 80% of the consideration therefrom received by Doe Run or such Restricted Subsidiary is in the form of cash or Cash Equivalents and (iii) Doe Run or such Restricted Subsidiary shall apply the Net Cash Proceeds of such Asset Sale within 270 days of receipt thereof, as follows: (a) first, to repay (and, in the case of any revolving credit facility, effect a permanent reduction in the commitment thereunder) any Indebtedness secured by the assets involved in such Asset Sale or otherwise required to be repaid with the proceeds thereof; and (b) second, with respect to any Net Cash Proceeds remaining after application pursuant to the preceding paragraph (a) (the "Available Amount"), Doe Run shall make an offer to purchase (the "Asset Sale Offer") from all Holders of Notes, up to a maximum principal amount (expressed as a multiple of $1,000) of Notes equal to the Available Amount at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER, that Doe Run will not be required to apply pursuant to this paragraph (b) Net Cash Proceeds received from any Asset Sale if, and only to the extent that, such Net Cash Proceeds are applied to a Related Business Investment within 270 days of such Asset Sale; PROVIDED, FURTHER, that if at any time any non-cash consideration received by Doe Run or any Restricted Subsidiary, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such conversion or disposition shall be deemed to constitute an Asset Sale under the Indenture and the Net Cash Proceeds thereof shall be applied in accordance with this "Limitation on Sale of Assets" covenant; and PROVIDED, FURTHER, that Doe Run may defer the Asset Sale Offer until there is an aggregate unutilized Available Amount equal to or in excess of $5 million resulting from one or more Asset Sales (at which time, the entire unutilized Available Amount, and not just the amount in excess of $5 million, shall be applied as required pursuant to this paragraph). To the extent the Asset Sale Offer is not fully subscribed to by Holders of the Notes, Doe Run and the Restricted Subsidiaries may retain such unutilized portion of the Available Amount and use it for any purpose not prohibited by the Indenture. 114 In the event of the transfer of substantially all (but not all) of the property and assets of Doe Run and the Restricted Subsidiaries as an entirety to a person in a transaction permitted under "--Merger, Consolidation, Etc." below, the successor corporation shall be deemed to have sold the properties and assets of Doe Run and the Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the Fair Market Value of such properties and assets of Doe Run or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Notice of an Asset Sale Offer will be mailed to the record Holders as shown on the register of Holders not less than 30 days nor more than 60 days before the payment date for the Asset Sale Offer, with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Asset Sale Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 principal amount at maturity in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Available Amount, Notes of tendering Holders will be repurchased on a proportionate basis (based on amounts tendered). An Asset Sale Offer shall remain open for a period of 20 business days or such longer period as may be required by law. If an offer is made to repurchase the Notes pursuant to an Asset Sale Offer, Doe Run will comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. CHANGE OF CONTROL Upon the occurrence of a Change of Control, Doe Run shall be obligated to make an offer to purchase (a "Change of Control Offer"), and shall, subject to the provisions described below, purchase, on a business day (the "Change of Control Purchase Date") not more than 60 nor less than 45 days following the occurrence of the Change of Control, all of the then outstanding Notes at a purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount of the Notes plus accrued and unpaid interest thereon to the date of purchase. Doe Run shall, subject to the provisions described below, be required to purchase all Notes validly tendered into the Change of Control Offer and not withdrawn. The Change of Control Offer is required to remain open for at least 20 business days and until the close of business on the Change of Control Purchase Date. See the definition of "Change of Control" under the caption "--Certain Definitions" for a description of the events that would constitute a Change of Control. In order to effect such Change of Control Offer, Doe Run shall, not later than the 30th day after the Change of Control, mail to each Holder of Notes notice of the Change of Control Offer, which notice shall govern the terms of the Change of Control Offer and shall state, among other things, the procedures that Holders of Notes must follow to accept the Change of Control Offer. If a Change of Control Offer is made, there can be no assurance that Doe Run will have available funds sufficient to pay the Change of Control Purchase Price for all of the Notes that might be delivered by Holders of Notes seeking to accept the Change of Control Offer. Doe Run shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by Doe Run and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. In addition to the provisions of the Indenture relating to a Change of Control described in this section, the Revolving Credit Facilities ($10.3 million outstanding as of June 30, 1998) contain provisions that would trigger an event of default in the event of a change of control. See "Description of New Revolving Credit Facilities--New Doe Run Revolving Credit Facility--Events of Default" and "--New Doe Run Peru Revolving Credit Facility--Events of Default." Doe Run and the Guarantors could enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that could affect their respective capital structure or the value of the Notes, but that would not constitute a Change of Control or a change of control under the Revolving Credit Facilities. Doe Run's and the Guarantors' ability to repurchase Notes following a Change of Control, or to repay indebtedness outstanding under the 115 Revolving Credit Facilities following a change of control, may be limited by Doe Run's and the Guarantors' then existing financial resources. In the event that a Change of Control occurs and Doe Run is required to purchase the Notes as described above, Doe Run will comply with all tender offer rules under state and Federal securities laws, including, but not limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer. LIMITATION ON LIENS Doe Run will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Liens upon any properties or assets of Doe Run (including, without limitation, any Capital Stock of a Restricted Subsidiary) or any of the Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or on any income or profits therefrom, or assign or otherwise convey any right to receive income or profits thereon other than (i) Liens existing on the Issue Date to the extent and in the manner such Liens are in effect on the Issue Date, (ii) Liens on the non-fixed assets of Doe Run and the Restricted Subsidiaries securing Indebtedness under the Revolving Credit Facilities and (iii) Permitted Liens. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES Doe Run will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to: (a) pay dividends or make any other distributions on its Capital Stock, or any other interest or participation in, or measured by, its profits, owned by Doe Run or by any Restricted Subsidiary, or pay any Indebtedness owed to Doe Run or any Restricted Subsidiary; (b) make loans or advances to Doe Run or any Restricted Subsidiary; or (c) transfer any of its properties or assets to Doe Run or to any Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of: (i) applicable law; (ii) the Indenture; (iii) customary non-assignment provisions of any lease governing a leasehold interest of Doe Run or any Restricted Subsidiary; (iv) any instrument governing Indebtedness of a person acquired by Doe Run or any Restricted Subsidiary at the time of such acquisition, which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person or its Subsidiaries so acquired; (v) any written agreement existing on the Issue Date or amendments or modifications thereto, PROVIDED that no such agreement shall be modified or amended in such a manner as to make the encumbrance or restriction more restrictive than as in effect on the Issue Date; (vi) Indebtedness existing and as in effect on the Issue Date, including, without limitation, the U.S. Revolving Credit Facility or any refinancing, refunding, replacement or extensions thereof, PROVIDED that any such encumbrance or restriction contained in any refinancing, refunding, replacement or extension of the U.S. Revolving Credit Facility shall be no more restrictive than such encumbrance or restriction contained in the U.S. Revolving Credit Facility as in effect on the Issue Date; (vii) Indebtedness under the Peruvian Revolving Credit Facility or any refinancings, refundings, replacements or extensions thereof, PROVIDED that such restrictions do not prohibit payments pursuant to the intercompany agreements between Doe Run and the Restricted Subsidiaries as in effect on the Issue Date or pursuant to any replacements thereof or pursuant to any comparable agreements thereto, in each case providing for the same or similar payments; and (viii) Indebtedness incurred in accordance with the Indenture, PROVIDED that such encumbrance or restriction shall be no more restrictive than any encumbrance or restriction contained in the Revolving Credit Facilities. LIMITATION ON SALE/LEASEBACK TRANSACTIONS Doe Run will not, and will not permit any of the Restricted Subsidiaries to, enter into any Sale/ leaseback. Notwithstanding the foregoing, Doe Run and the Restricted Subsidiaries may enter into a Sale/ leaseback if (i) after giving pro forma effect to any such Sale/leaseback, Doe Run and the Restricted Subsidiaries shall be in compliance with the "Limitation on Indebtedness" covenant described above, (ii) the sale price in such Sale/leaseback is at least equal to the Fair Market Value of such property and 116 (iii) Doe Run or such Restricted Subsidiary shall apply the Net Cash Proceeds of the sale as provided under "Limitation on Sale of Assets" above, to the extent required by such covenant. LIMITATION ON TRANSACTIONS WITH AFFILIATES (a) Doe Run will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with or for the benefit of an Affiliate of Doe Run or any Restricted Subsidiary (other than transactions between Doe Run and a Wholly-Owned Restricted Subsidiary or between Wholly-Owned Restricted Subsidiaries) (an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under (b) below and (y) Affiliate Transactions (including lease transactions) on terms that are no less favorable to Doe Run or the relevant Restricted Subsidiary in the aggregate than those that might reasonably have been obtained in a comparable transaction by Doe Run or such Restricted Subsidiary on an arm's-length basis (as determined in good faith by the Board of Directors of Doe Run, as evidenced by a Board Resolution) from a person that is not an Affiliate; PROVIDED that except as otherwise provided under (b) below, neither Doe Run nor any of the Restricted Subsidiaries shall enter into an Affiliate Transaction or series of related Affiliate Transactions involving or having a value of more than $5.0 million unless Doe Run or such Restricted Subsidiary, as the case may be, has received an opinion from an Independent Financial Advisor, with a copy thereof to the Trustee, to the effect that the financial terms of such Affiliate Transaction are fair and reasonable to Doe Run or such Restricted Subsidiary, as the case may be, and such terms are no less favorable to Doe Run or such Restricted Subsidiary, as the case may be, than those that could be obtained in a comparable transaction on an arm's-length basis with a person that is not an Affiliate. (b) The foregoing provisions shall not apply to (i) any Restricted Payment that is made in compliance with the covenant entitled "Limitation on Restricted Payments," (ii) payments by Doe Run or any of the Restricted Subsidiaries to Renco or DRA of the amounts set forth in clauses (4), (5), (6) and (7) of the second paragraph of the covenant entitled "Limitation on Restricted Payments" and (iii) reasonable and customary regular fees to directors of Doe Run and the Restricted Subsidiaries who are not employees of Doe Run and the Restricted Subsidiaries. LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES Doe Run will not permit any Restricted Subsidiary to issue any Preferred Stock (except to Doe Run or a Wholly-Owned Restricted Subsidiary), nor will Doe Run permit any person (other than Doe Run or a Wholly-Owned Restricted Subsidiary) to hold any Preferred Stock of a Restricted Subsidiary. QUALIFYING INVESTMENT REQUIREMENTS At least semi-annually commencing April 30, 1998 until $120 million has been expended by Doe Run Peru in the manner required by Section 4.5 of the Subscription Agreement, (i) Doe Run Peru shall make Investments in Doe Run Mining, which Investments, including any interest payable thereon, shall be represented by promissory notes (the "Qualifying Investments Promissory Notes"), in an amount equal to Doe Run Peru's expected Qualifying Investments for the following six months and (ii) Doe Run Mining shall use the proceeds of each such Qualifying Investment to prepay in part the promissory note issued by Doe Run Mining to Metaloroya on October 23, 1997, the date of consummation of the Acquisition; PROVIDED, FURTHER, that pending utilization of such proceeds for Qualifying Investments, Doe Run Peru may repay outstanding loans under the Peruvian Revolving Credit Facility. FUTURE GUARANTEES If Doe Run or any of the Restricted Subsidiaries transfers or causes to be transferred, in one transaction or a series of related transactions, any property to any Restricted Subsidiary that is not a Guarantor, or if Doe Run or any of the Restricted Subsidiaries shall organize, acquire or otherwise invest in another Restricted Subsidiary, in each case having total assets with a book value in excess of $1 million, then such transferee or acquired or other Restricted Subsidiary shall (i) execute and deliver to the Trustee 117 a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall unconditionally guarantee all of Doe Run's obligations under the Notes and the Indenture on the terms set forth in the Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture. Notwithstanding the foregoing, the following Restricted Subsidiaries shall not be required to become Guarantors under the Indenture: (i) DR Exploration; (ii) any Restricted Subsidiary formed or acquired in connection with Related Business Investments made by Doe Run or any of the Restricted Subsidiaries pursuant to clause (iii) of the definition of "Permitted Investment"; and (iii) any Restricted Subsidiary which is not permitted by law to become a Guarantor under the Indenture. CONDUCT OF BUSINESS Doe Run and the Restricted Subsidiaries will not engage in any businesses which are not the same, similar or reasonably related to the businesses in which Doe Run and the Restricted Subsidiaries are engaged on the Issue Date. REPORTS So long as any Note is outstanding, Doe Run will file with the Commission and, within 15 days after it files them with the Commission, file with the Trustee and mail or cause the Trustee to mail to the Holders at their addresses as set forth in the register of the Notes copies of the annual reports on Form 10-K and of the information, documents and other reports which Doe Run is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or which Doe Run would be required to file with the Commission if Doe Run then had a class of securities registered under the Exchange Act. Such financial information shall include annual reports containing consolidated financial statements and notes thereto, together with an opinion thereon expressed by an independent public accounting firm, management's discussion and analysis of financial condition and results of operations as well as quarterly reports containing unaudited condensed consolidated financial statements for the first three quarters of every fiscal year. MERGER, CONSOLIDATION, ETC. Doe Run will not, in a single transaction or series of related transactions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person or adopt a Plan of Liquidation unless: (i) either (1) Doe Run shall be the surviving or continuing corporation or (2) the person (if other than Doe Run) formed by such consolidation or the person into which Doe Run is merged or the person which acquires by sale, assignment, transfer, lease, conveyance or otherwise all or substantially all of the assets of Doe Run or in the case of a Plan of Liquidation, the person to which assets of Doe Run have been transferred (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on, all of the Notes, and the performance of every covenant of the Indenture, the Notes and the Registration Rights Agreement on the part of Doe Run to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), Doe Run (in the case of clause (1) of the foregoing clause (i)) or such person (in the case of clause (2) thereof) (a) shall have a Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments relating to such transaction) equal to or greater than the Consolidated Net Worth of Doe Run immediately prior to such transaction and (b) shall be able to incur (assuming a market rate of interest with respect thereto) at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) as if it were Doe Run under 118 paragraph (a) of "--Certain Covenants--Limitation on Indebtedness" above; (iii) immediately before and after giving effect to such transaction and the assumption contemplated by clause (y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; (iv) Doe Run or such person shall have delivered to the Trustee (A) an Officers' Certificate and an Opinion of Counsel (which counsel shall not be in-house counsel of Doe Run) each stating that such consolidation, merger, conveyance, transfer or lease or Plan of Liquidation and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this provision of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied and (B) a certificate from Doe Run's independent certified public accountants stating that Doe Run has made the calculations required by clause (ii) above in accordance with the terms of the Indenture; and (v) neither Doe Run nor any Restricted Subsidiary nor such person, as the case may be, would thereupon become obligated with respect to any Indebtedness (including Acquired Indebtedness), nor any of its property or assets subject to any Lien, unless Doe Run or such Restricted Subsidiary or such person, as the case may be, could incur such Indebtedness (including Acquired Indebtedness) or create such Lien under the Indenture (giving effect to such person being bound by all the terms of the Indenture). Notwithstanding the foregoing, (i) the merger of Doe Run with an Affiliate incorporated solely for the purpose of incorporating Doe Run in another jurisdiction shall be permitted and (ii) the merger of Doe Run and any Restricted Subsidiary shall be permitted. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of Doe Run, shall be deemed to be the transfer of all or substantially all of the properties and assets of Doe Run. Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction complying with the provisions of "--Limitation on Sale of Assets") will not, and Doe Run will not cause or permit any Guarantor to, consolidate with or merge with or into or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to any person (other than a merger of Doe Run with any Guarantor or a merger of Guarantors) unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation organized and validly existing under the laws of the United States or any state thereof or the District of Columbia or an entity organized and validly existing under the laws of the foreign jurisdiction in which such Guarantor is organized; (ii) such entity assumes by supplemental indenture all of the obligations of such Guarantor under such Guarantee; and (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. Upon any such consolidation, merger, conveyance, lease or transfer in accordance with the foregoing, the successor person formed by such consolidation or into which Doe Run or any other Guarantor, as the case may be, is merged or to which such conveyance, lease or transfer is made will succeed to, and be substituted for, and may exercise every right and power of, Doe Run or such Guarantor, as the case may be, under the Indenture with the same effect as if such successor had been named as Doe Run or such Guarantor, as the case may be, therein, and thereafter (except in the case of a sale, assignment, transfer, lease, conveyance or other disposition) the predecessor corporation will be relieved of all further obligations and covenants under the Indenture and the Notes, in the case of Doe Run, or its Guarantee, in the case of any Guarantor. EVENTS OF DEFAULT The following are Events of Default under the Indenture: (a) Doe Run defaults in the payment of interest on the Notes when the same becomes due and payable and the Default continues for a period of 30 days; 119 (b) Doe Run defaults in the payment of the stated principal amount of the Notes when the same becomes due and payable at maturity, upon acceleration or redemption pursuant to an offer to purchase required under the Indenture or otherwise; (c) Doe Run or any of the Guarantors fails to comply in all material respects with any of their other agreements contained in the Notes or the Indenture (including, without limitation, under the provisions of "--Certain Covenants--Change of Control," "--Certain Covenants--Limitation on Sale of Assets" and "--Merger, Consolidation, Etc."), and the Default continues for the period and after the notice specified below; (d) there shall be any default or defaults in the payment of principal or interest under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which Doe Run or any Restricted Subsidiary then has outstanding Indebtedness in excess of $7.5 million, individually or in the aggregate; (e) there shall be any default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which Doe Run or any Restricted Subsidiary then has outstanding Indebtedness in excess of $7.5 million, individually or in the aggregate, and such default or defaults have resulted in the acceleration of the maturity of such Indebtedness; (f) Doe Run or any of the Restricted Subsidiaries fails to perform (after giving effect to any applicable grace periods) any term, covenant, condition or provision of one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which Doe Run or any of the Restricted Subsidiaries then has outstanding Indebtedness in excess of $7.5 million, individually or in the aggregate, and such failure to perform results in the commencement of judicial proceedings to foreclose upon any assets of Doe Run or any of the Restricted Subsidiaries securing such Indebtedness or the holders of such Indebtedness shall have exercised any right under applicable law or applicable security documents to take ownership of any such assets in lieu of foreclosure; (g) one or more judgments, orders or decrees for the payment of money which either individually or in the aggregate at any one time exceed $7.5 million shall be rendered against Doe Run or any of the Restricted Subsidiaries by a court of competent jurisdiction and shall remain undischarged and unbonded for a period (during which execution shall not be effectively stayed) of 60 consecutive days after such judgment becomes final and nonappealable; (h) Doe Run or any Significant Subsidiary (1) admits in writing its inability to pay its debts generally as they become due, (2) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (3) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (4) consents to the appointment of a Custodian of it or for substantially all of its property, (5) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (6) makes a general assignment for the benefit of its creditors or (7) takes any corporate action to authorize or effect any of the foregoing; (i) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of Doe Run or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law which shall (1) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of Doe Run or any Significant Subsidiary, (2) appoint a Custodian of Doe Run or any Significant Subsidiary or for substantially all of its property or (3) order the winding-up or liquidation of its affairs, and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (j) any of the Guarantees of any Significant Subsidiary ceases to be in full force and effect or any of such Guarantees is declared to be null and void and unenforceable or any of such Guarantees is found to be invalid or, any such Guarantor denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture). 120 A Default under clause (c) above (other than in the case of any Default under the provisions of "--Certain Covenants--Limitation on Sale of Assets," "--Certain Covenants--Change of Control" or "--Merger, Consolidation, Etc.," which Defaults shall be Events of Default without the notice and without the passage of time specified in this paragraph) is not an Event of Default until the Trustee notifies Doe Run, or the Holders of at least 25% in principal amount of the outstanding Notes notify Doe Run and the Trustee, of the Default and Doe Run does not cure the Default within 30 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Such notice shall be given by the Trustee if so requested by the Holders of at least 25% in principal amount of the Notes then outstanding. If an Event of Default (other than an Event of Default specified in clause (h) or (i) above) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the then outstanding Notes may declare the unpaid principal of, premium, if any, and accrued and unpaid interest on, all the Notes then outstanding to be due and payable, by a notice in writing to Doe Run (and to the Trustee, if given by Holders) and upon such declaration such principal amount, premium, if any, and accrued and unpaid interest will become immediately due and payable, notwithstanding anything contained in the Indenture or the Notes to the contrary. If an Event of Default specified in clause (h) or (i) above occurs, all unpaid principal of, and premium, if any, and accrued and unpaid interest on, the Notes then outstanding will IPSO FACTO become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes or that resulted from the failure to comply with the provisions of "--Certain Covenants--Change of Control" or "--Merger, Consolidation, Etc.") if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may rescind an acceleration and its consequences if all existing Events of Default (other than the nonpayment of principal of and premium, if any, and interest on the Notes which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in aggregate principal amount of the Notes then outstanding may, on behalf of the Holders of all the Notes, waive any past Default or Event of Default under the Indenture and its consequences, except a Default in the payment of principal of or premium, if any, or interest on the Notes or in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of all Holders. Under the Indenture, Doe Run is required to provide an Officers' Certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. In addition, for each fiscal year, Doe Run's independent certified public accountants are required to certify to the Trustee that they have reviewed the terms of the Indenture and the Notes as they relate to accounting matters and whether, during the course of their audit examination, any Default or Event of Default has come to their attention, and specifying the nature and period of existence of any such Default or Event of Default. 121 AMENDMENT, SUPPLEMENT AND WAIVER From time to time, Doe Run, the Guarantors and the Trustee may, without the consent of the Holders, amend, waive or supplement the Indenture or the Notes for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, maintaining the qualification of the Indenture under the TIA or making any change that does not adversely affect the rights of any Holder. In addition, the Indenture contains provisions permitting Doe Run, the Guarantors and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the then outstanding Notes, to enter into any supplemental indenture for the purpose of adding, changing or eliminating any of the provisions of the Indenture or of modifying in any manner the rights of the Holders under the Indenture; PROVIDED that no such supplemental indenture may without the consent of the Holder of each outstanding Note affected thereby: (i) reduce the amount of Notes whose Holders must consent to an amendment or waiver; (ii) reduce the rate of, or extend the time for payment of, interest, including defaulted interest, on any Note; (iii) reduce the principal of or premium on or change the fixed maturity of any Note; (iv) make the principal of, or interest on, any Note payable in money other than as provided for in the Indenture and the Notes; (v) make any change in provisions relating to waivers of defaults, the ability of Holders to enforce their right under the Indenture or in the matters discussed in these clauses (i) through (x); (vi) waive a default in the payment of principal of or interest on, or redemption or repurchase payment with respect to, any Notes, including, without limitation, a failure to make payment when required upon a Change of Control or after an Asset Sale Offer; (vii) adversely affect the ranking of the Notes or the Guarantees in any material respect; (viii) change the Maturity Date or alter the redemption provisions in a manner adverse to Holders; (ix) after Doe Run's obligation to purchase the Notes arises thereunder, amend, modify or change the obligation of Doe Run to make and consummate a Change of Control Offer in the event of a Change of Control or an Asset Sale Offer in the event of an Asset Sale or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offers; or (x) release the Guarantee of any Significant Subsidiary. DISCHARGE; DEFEASANCE The Indenture provides that Doe Run and the Guarantors may terminate their obligations under the Notes, the Guarantees and the Indenture if: (i) all Notes previously authenticated and delivered have been delivered to the Trustee for cancellation or Doe Run and the Guarantors have paid all sums payable by them thereunder, or (ii) Doe Run has irrevocably deposited or caused to be deposited with the Trustee or the Paying Agent and conveyed all right, title and interest for the benefit of the Holders of such Notes, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, money or U.S. government obligations maturing as to principal and interest in such amounts and at such times as are sufficient without consideration of any reinvestment of such interest to pay principal of, premium, if any, and interest on such outstanding Notes to maturity; PROVIDED that, among other things, Doe Run shall have delivered to the Trustee (i) either (a) in the case of a legal defeasance, a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of such Notes will not recognize income, gain or loss for Federal income tax purposes as a result of Doe Run's exercise of its option under the defeasance provision of the Indenture and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised or (b) an Opinion of Counsel to the same effect as the ruling described in clause (a) above and, in the case of a legal defeasance, accompanied by a ruling to that effect published by the Internal Revenue Service, unless there has been a change in the applicable Federal income tax since the date of the Indenture such that a ruling from the Internal Revenue Service is no longer required, and (ii) an Opinion of Counsel to the effect that, assuming no intervening bankruptcy of Doe Run between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of Doe Run, after the passage of 90 days following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. Certain obligations of Doe Run and the 122 Guarantors under the Indenture or the Notes, including the payment of interest and principal, shall remain in full force and effect until such Notes have been paid in full. Notwithstanding the foregoing, the ruling of the Internal Revenue Service and the Opinion of Counsel required by clause (i) above with respect to a legal defeasance need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable on the maturity date within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of Doe Run. GOVERNING LAW The Indenture provides that it, the Notes and the Guarantees will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. THE TRUSTEE State Street Bank and Trust Company is serving as Trustee under the Indenture. The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of Doe Run or the Guarantors, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; PROVIDED that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. CERTAIN DEFINITIONS "Acquired Indebtedness" means Indebtedness of a person or any of its Subsidiaries existing at the time such person becomes a Subsidiary (Restricted Subsidiary, in the case of Doe Run) or assumed in connection with the acquisition of assets from such person, including, without limitation, Indebtedness incurred by such person in connection with, or in anticipation or contemplation of, such person becoming a Subsidiary (Restricted Subsidiary, in the case of Doe Run) or such acquisition. "Acquisition" means the acquisition on October 23, 1997 by Doe Run Peru of Metaloroya pursuant to the Subscription Agreement. "Affiliate" of any specified person means any other person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative of the foregoing. For purposes of "--Certain Covenants--Limitation on Transactions with Affiliates," the term "Affiliate" shall include any person who, as a result of any transaction described therein, would become an Affiliate. "Asset Acquisition" means (i) an Investment by Doe Run or any Restricted Subsidiary in any other person pursuant to which such person shall become a Restricted Subsidiary or a Subsidiary of a Restricted Subsidiary or shall be merged with Doe Run or any Restricted Subsidiary or (ii) the acquisition by Doe 123 Run or any Restricted Subsidiary of the assets of any person which constitute all or substantially all of the assets of such person or any division or line of business of such person. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease, assignment or other transfer for value by Doe Run or any of the Restricted Subsidiaries (including, without limitation, any Sale/leaseback) to any person, in one transaction or a series of related transactions, of (i) any Capital Stock of any Restricted Subsidiary; (ii) all or substantially all of the properties and assets of any division or line of business of Doe Run or any Restricted Subsidiary; or (iii) any other properties or assets of Doe Run or any Restricted Subsidiary other than in the ordinary course of business. For the purposes of this definition, the term "Asset Sale" shall not include (i) any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is consummated in accordance with the provisions of "-- Merger, Consolidation, Etc." above and (ii) the sale of inventory in the ordinary course of business. "Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Capital Expenditures" shall mean payments for any assets, or improvements, replacements, substitutions or additions thereto, that have a useful life of more than one year and which, in accordance with GAAP consistently applied, are required to be capitalized (as opposed to expensed in the period in which the payment occurred). "Capital Lease," as applied to any person, means any lease of (or any agreement conveying the right to use) any property (whether real, personal or mixed) by such person as lessee which, in conformity with GAAP, is required to be accounted for as a capital lease on the balance sheet of such person. "Capital Stock" means, with respect to any person, any and all shares, interests, participation or other equivalents (however designated) of such person's capital stock, whether outstanding at the Issue Date or issued after the Issue Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock (but excluding any debt security that is exchangeable for or convertible into such capital stock). "Capitalized Lease Obligation" means, as to any person, the obligations of such person under a Capital Lease and, for purposes of the Indenture, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within two years from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within two years from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Services, a division of The McGraw Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than two years from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within two years from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $500,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. Notwithstanding the foregoing, for purposes of clause (i) of the definition of "Permitted Investment," 20% of the Cash Equivalents may include securities having a rating of at least BBB by S&P and Baa by Moody's. 124 "Centromin" shall mean Empresa Minera del Centro del Peru S.A. "Change of Control" means the occurrence of one or more of the following events: (i) any direct or indirect sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Doe Run, DRA or Renco to any person or group of related persons for purposes of Section 13(d) of the Exchange Act (a "Group") (other than a Permitted Holder or a Group controlled by a Permitted Holder), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture); (ii) the approval by the holders of Capital Stock of Doe Run, DRA or Renco, as the case may be, of any plan or proposal for the liquidation or dissolution of Doe Run, DRA or Renco, as the case may be (whether or not otherwise in compliance with the provisions of the Indenture); (iii) the acquisition in one or more transactions of "beneficial ownership" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time) by any person, entity or Group (other than a Permitted Holder or a Group controlled by any Permitted Holder) of any Capital Stock of Doe Run, DRA or Renco such that, as a result of such acquisition, such person, entity or Group either (A) beneficially owns (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, more than 50% of Doe Run's, DRA's or Renco's then outstanding voting securities entitled to vote on a regular basis in an election for a majority of the Board of Directors of Doe Run, DRA or Renco or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of Doe Run's, DRA's or Renco's Board of Directors; or (iv) the shareholders of Renco as of the Issue Date and the Permitted Holders shall cease to own at least 50% of the equity of Renco owned by such shareholders on the Issue Date. Notwithstanding anything to the contrary contained in this definition or in the Indenture, a merger of DRA with and into Doe Run or Renco shall not constitute a "Change of Control" under the Indenture. "Commission" means the Securities and Exchange Commission. "Consolidated EBITDA" means, with respect to any person, for any period, the sum (without duplication) of (i) Consolidated Net Income, (ii) to the extent Consolidated Net Income has been reduced thereby, all income taxes of such person and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run) paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or non-recurring gains or losses), Consolidated Interest Expense (net of any interest income), amortization expense (including amortization of deferred financing costs) and depletion and depreciation expense and (iii) other non-cash items (other than non-cash interest) reducing Consolidated Net Income (including, without limitation, any non-cash charges in respect of post-employment benefits for health care, life insurance and long- term disability benefits required in accordance with GAAP) less other non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for such person and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run) in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any person, the ratio of Consolidated EBITDA of such person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such person for the Four Quarter Period. For purposes of this definition, if the Transaction Date occurs prior to the date on which four full fiscal quarters have elapsed subsequent to the Issue Date and financial statements with respect thereto are available, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated, in the case of Doe Run, after giving effect on a pro forma basis to the issuance of the Notes and the application of the net proceeds therefrom including the redemption of Doe Run's outstanding preferred stock on the Issue Date as if the Notes were issued on the first day of the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence of any Indebtedness (and the application of the net 125 proceeds therefrom) of such person or any of its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run) giving rise to the need to make such calculation and any incurrence of other Indebtedness at any time on or after the first day of the Four Quarter Period and on or prior to the Transaction Date (the "Reference Period"), as if such incurrence occurred on the first day of the Reference Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such person or one of its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run) (including any person who becomes a Subsidiary (Restricted Subsidiary, in the case of Doe Run) as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness or Acquired Indebtedness) occurred on the first day of the Reference Period. If such person or any of its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run) directly or indirectly guarantees Indebtedness of a third person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such person or any Subsidiary (Restricted Subsidiary, in the case of Doe Run) of such person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date, and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Rate Protection Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any person for any period, the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (i) Consolidated Interest Expense of such person (net of any interest income) less non-cash amortization of deferred financing costs and (ii) the product of (x) the amount of all dividends declared, paid or accrued on Preferred Stock of such person during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated Federal, state, local and foreign tax rate (expressed as a decimal number between 1 and 0) of such person during such period (as reflected in the audited consolidated financial statements of such person for the most recently completed fiscal year). "Consolidated Interest Expense" means, with respect to any person for any period, without duplication, the sum of (i) the interest expense of such person and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run) for such period as determined on a consolidated basis in accordance with GAAP consistently applied, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation and (d) all accrued interest, and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such person and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run) during such period as determined on a consolidated basis in accordance with GAAP consistently applied. "Consolidated Net Income" means, with respect to any person for any period, the net income (or loss) of such person and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run), on a consolidated basis for such period determined in accordance with GAAP; PROVIDED that (i) the net income of any person in which such person or any Subsidiary (Restricted Subsidiary, in the case of Doe Run) of such person has an ownership interest with a third party (other than a person that meets the definition of a Wholly-Owned Subsidiary (Wholly-Owned Restricted Subsidiary, in the case of Doe Run)) shall be included only to the extent of the amount that has actually been received by such person or its Wholly-Owned Subsidiaries (Wholly-Owned Restricted Subsidiaries, in the case of Doe Run) in the form of dividends or other distributions during such period (subject to, in the case of any dividend or distribution received by a 126 Wholly-Owned Subsidiary (Wholly-Owned Restricted Subsidiary, in the case of Doe Run) of such person, the restrictions set forth in clause (ii) below) and (ii) the net income of any Subsidiary (Restricted Subsidiary, in the case of Doe Run) of such person that is subject to any restriction or limitation on the payment of dividends or the making of other distributions shall be excluded to the extent of such restriction or limitation; PROVIDED, FURTHER that there shall be excluded (a) the net income (or loss) of any person (acquired in a pooling of interests transaction) accrued prior to the date it becomes a Subsidiary (Restricted Subsidiary, in the case of Doe Run) of such person or is merged into or consolidated with such person or any Subsidiary (Restricted Subsidiary, in the case of Doe Run) of such person, (b) any gain (or loss) (and related tax effects) resulting from an Asset Sale by such person or any of its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run), (c) any extraordinary, unusual or nonrecurring gains or losses (and related tax effects) in accordance with GAAP and (d) any compensation-related expenses arising as a result of the application of the net proceeds from the issuance of the Notes. For purposes of the "Limitation on Restricted Payments" covenant, the amortization of deferred financing costs relating to the issuance of the Notes shall be excluded from this definition of "Consolidated Net Income." "Consolidated Net Worth" means, with respect to any person at any date, the sum of (i) the consolidated shareholder's equity of such person less the amount of such shareholder's equity attributable to Disqualified Capital Stock of such person and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run), as determined on a consolidated basis in accordance with GAAP consistently applied and (ii) the amount of any Preferred Stock of such person not included in the shareholder's equity of such person in accordance with GAAP, which Preferred Stock does not constitute Disqualified Capital Stock. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Capital Stock" means any class of Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date. "Doe Run" means The Doe Run Resources Corporation, a New York corporation. "Doe Run Cayman" means Doe Run Cayman Ltd., a Cayman Islands company. "Doe Run Mining" means Doe Run Mining S.R. Ltda., a Peruvian company. "Doe Run Peru" means Doe Run Peru S.R. Ltda., a Peruvian company. "DRA" means DR Acquisition Corp., a Missouri corporation. "DR Exploration" means Doe Run Exploration SA (Proprietary) Limited, a South African corporation. "Event of Default" has the meaning set forth under "--Events of Default" herein. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, with respect to any asset, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value of any asset of Doe Run or the Restricted Subsidiaries shall be determined by the Board of Directors of Doe Run acting in good faith and shall be evidenced by a Board Resolution thereof delivered to the Trustee; PROVIDED that with respect to any Asset Sale which involves in excess of $5 million, the Fair Market Value of any such asset or assets shall be determined by an Independent Financial Advisor. "FPI" means Fabricated Products Inc., a Delaware corporation. 127 "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. "Guarantor" means each of FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru and any Restricted Subsidiary that in the future executes a supplemental indenture pursuant to the covenant entitled "Future Guarantees" or otherwise in which any such Restricted Subsidiary agrees to be bound by the terms of the Indenture; PROVIDED that any person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture. "Hedging Agreement" shall mean any agreement with respect to (i) the hedging of price risk associated with the purchase or sale of lead, copper, zinc, gold and silver under which Doe Run or any Restricted Subsidiary is a party or beneficiary and (ii) the hedging of currency risks in connection with funding payroll expenses, so long as any such agreement has been entered into in the ordinary course of business consistent with past price risk or currency management practices of Doe Run and the Restricted Subsidiaries and not for purposes of speculation. "Indebtedness" means with respect to any person, without duplication, (i) all obligations of such person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations (but not obligations under Operating Leases) of such person, (iv) all obligations of such person issued or assumed as the deferred purchase price of property or services, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable, accrued expenses and deferred taxes arising in the ordinary course of business), (v) all obligations of such person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction entered into in the ordinary course of business, (vi) all obligations of any other person of the type referred to in clauses (i) through (v) which are secured by any Lien on any property or asset of such first person and the amount of such obligation shall be the lesser of the value of such property or asset or the amount of the obligation so secured, (vii) all guarantees of Indebtedness by such person, (viii) Disqualified Capital Stock valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends, (ix) all obligations under interest rate agreements or hedging agreements of such person and (x) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (i) through (ix) above. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Disqualified Capital Stock, such Fair Market Value to be determined in good faith by the Board of Directors of the person issuing such Disqualified Capital Stock. Notwithstanding anything to the contrary contained herein or in the Indenture, any obligation of Doe Run or any Restricted Subsidiary in the form of an earn-out arrangement undertaken in connection with any acquisition of property or assets by Doe Run or such Restricted Subsidiary, which obligation shall be based upon increases in metal prices above price levels existing on the date of such acquisition, shall not constitute Indebtedness under the Indenture. "Independent Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable and good faith judgment of the Board of Directors of Doe Run, qualified to perform the task for which such firm has been engaged and disinterested and independent with respect to Doe Run and its Affiliates. 128 "Interest Rate Protection Obligations" means the obligations of any person pursuant to any arrangement with any other person, whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any person, any direct or indirect advance, loan, guarantee or other extension of credit or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others or otherwise), or any purchase or acquisition by such person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other person. Investments shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. For the purposes of the "Limitation on Restricted Payments" covenant, the amount of any Investment (other than an Investment covered by clause (z) of the first paragraph thereof) shall be the original cost of such Investment plus the cost of all additional Investments by Doe Run or any of the Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment. "Issue Date" means the date on which the Notes offered hereby are originally issued under the Indenture. "Lien" means (x) any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell and any filing of or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute and (y) any agreement to enter into any of the foregoing. "Maturity Date" means (i) with respect to the Floating Rate Notes, March 15, 2003 and (ii) with respect to the Fixed Rate Notes, March 15, 2005. "Metaloroya" means Empresa Metalurgica La Oroya S.A., a Peruvian company, prior to the merger of such entity with and into Doe Run Peru. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to Doe Run or any Restricted Subsidiary) net of (i) brokerage commissions and other fees and expenses (including fees and expenses of legal counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a direct result of such Asset Sale and (iii) appropriate amounts to be provided by Doe Run or any Restricted Subsidiary, as the case may be, as a reserve required in accordance with GAAP consistently applied against any liabilities associated with such Asset Sale and retained by Doe Run or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Trustee. "Operating Lease" means, as applied to any person, any lease (including, without limitation, leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that person is the lessor. "Permitted Holders" means Ira Leon Rennert and his Affiliates, estate, heirs and legatees, and the legal representatives of any of the foregoing, including, without limitation, the trustee of any trust of which one or more of the foregoing are the sole beneficiaries. 129 "Permitted Indebtedness" means (i) any Indebtedness of Doe Run and the Restricted Subsidiaries under (A) the U.S. Revolving Credit Facility in an aggregate amount not to exceed $100.0 million in aggregate principal amount at any time outstanding and (B) the Peruvian Revolving Credit Facility in an aggregate principal amount not to exceed $60.0 million in aggregate principal amount at any time outstanding, in each case plus any interest, fees and expenses from time to time owed thereunder, (ii) the Notes issued in the Old Notes Offering in an aggregate principal amount not to exceed $255.0 million and the related Guarantees, (iii) any other Indebtedness of Doe Run and the Restricted Subsidiaries outstanding on the Issue Date, (iv) purchase money Indebtedness and any Indebtedness incurred for Capitalized Lease Obligations (A) of Doe Run and the Restricted Subsidiaries (other than Doe Run Cayman and its Subsidiaries) not to exceed $5.0 million in the aggregate at any time outstanding and (B) of Doe Run Cayman and its Subsidiaries not to exceed $20.0 million in the aggregate at any time outstanding, (v) Interest Rate Protection Obligations to the extent the notional principal amount of such Interest Rate Protection Obligations does not exceed the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate, and Hedging Agreements, in each case entered into in the ordinary course of business, (vi) additional Indebtedness of Doe Run and the Restricted Subsidiaries not to exceed $25.0 million in the aggregate at any time outstanding, (vii) Indebtedness owed by Doe Run or any of the Wholly-Owned Restricted Subsidiaries to Doe Run or any Wholly-Owned Restricted Subsidiary; PROVIDED that this clause (vii) shall also include Indebtedness indirectly between or among Doe Run and/or one or more of the Wholly-Owned Restricted Subsidiaries through one or more financial intermediaries, (viii) any renewals, extensions, substitutions, refundings, refinancings or replacements of any Indebtedness described in the preceding clauses (i), (ii) and (iii) above and this clause (viii), so long as such renewal, extension, substitution, refunding, refinancing or replacement does not result in an increase in the aggregate principal amount of the outstanding Indebtedness represented thereby (except if such Indebtedness refinances Indebtedness under the Revolving Credit Facilities or any other agreement providing for subsequent borrowings, does not result in an increase in the commitment available under the Revolving Credit Facilities or such other agreement), and (ix) any guarantees of the foregoing. "Permitted Investment" means (i) cash and Cash Equivalents, (ii) any Investment by Doe Run or any of the Restricted Subsidiaries in Doe Run or any Wholly-Owned Restricted Subsidiary; PROVIDED that this clause (ii) shall also include indirect Investments by Doe Run and the Wholly-Owned Restricted Subsidiaries in Doe Run or one or more of the Wholly-Owned Restricted Subsidiaries through one or more financial intermediaries, (iii) Related Business Investments by Doe Run or any of the Restricted Subsidiaries in joint ventures, partnerships or persons (including Unrestricted Subsidiaries) that are not Wholly-Owned Restricted Subsidiaries in an amount not to exceed $25.0 million in the aggregate at any one time outstanding, (iv) Investments by Doe Run or any Restricted Subsidiary in another person, if as a result of such Investment (a) such other person becomes a Wholly-Owned Restricted Subsidiary or (b) such other person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to, Doe Run or a Wholly-Owned Restricted Subsidiary, (v) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers, in each case arising in the ordinary course of business, (vi) the non-cash proceeds of any Asset Sale, (vii) Investments under or pursuant to Interest Rate Protection Obligations or Hedging Agreements, in each case in the ordinary course of business, (viii) loans and advances to employees of Doe Run and the Restricted Subsidiaries made in the ordinary course of business and (ix) Investments represented by the Qualifying Investments Promissory Notes. "Permitted Liens" means (i) pledges or deposits by such person under worker's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such person is a party, or deposits to secure public statutory obligations of such person or deposits to secure surety or appeal bonds to which such person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, (ii) Liens imposed by law, such as landlords', carriers', warehousemen's and mechanics' Liens or bankers' Liens incurred in the ordinary course of business for sums which are not yet due or are 130 being contested in good faith and for which adequate provision has been made, (iii) Liens for taxes not yet subject to penalties for non-payment or which are being contested in good faith and by appropriate proceedings, if adequate reserve, as may be required by GAAP, shall have been made therefor, (iv) Liens in favor of issuers of surety bonds or appeal bonds issued pursuant to the request of and for the account of such person in the ordinary course of its business, (v) Liens to support trade letters of credit issued in the ordinary course of business, (vi) survey exceptions, encumbrances, easements or reservations of, or rights of others for, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions on the use of real property, (vii) Liens securing Indebtedness permitted under clause (iv) of the definition of Permitted Indebtedness; PROVIDED that the Fair Market Value of the asset at the time of the incurrence of the Indebtedness subject to the Lien shall not exceed the principal amount of the Indebtedness secured, (viii) Liens with respect to Acquired Indebtedness permitted to be incurred in accordance with the provisions of "--Certain Covenants--Limitation on Indebtedness" above; PROVIDED that such Liens secured such Acquired Indebtedness at the time of the incurrence of such Acquired Indebtedness by Doe Run or any of the Restricted Subsidiaries and were not incurred in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by Doe Run or any of the Restricted Subsidiaries; PROVIDED, FURTHER, that such Liens do not extend to or cover any property or assets of Doe Run or any of the Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of Doe Run or any of the Restricted Subsidiaries and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by Doe Run or any of the Restricted Subsidiaries, (ix) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default, (x) Liens on assets or property (including any real property upon which such assets or property are or will be located) securing Indebtedness incurred to purchase or construct such assets or property, which Indebtedness is permitted to be incurred under the Indenture, (xi) Liens securing Indebtedness which is incurred to refinance or replace Indebtedness which has been secured by a Lien permitted under the Indenture and is permitted to be refinanced or replaced under the Indenture, PROVIDED that such Liens do not extend to or cover any property or assets of Doe Run or any of the Restricted Subsidiaries not securing the Indebtedness so refinanced or replaced, and (xii) Liens securing reimbursement obligations under letters of credit but only in or upon the goods the purchase of which was financed by such letters of credit. "person" means any individual, corporation, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof or any similar entities. "Peruvian Revolving Credit Facility" means one or more working capital facilities or other working capital financings or programs entered into by Doe Run Peru and its Subsidiaries from time to time as the same may be amended, restated, supplemented or otherwise modified from time to time, and includes any agreement renewing, refinancing or replacement of all or any portion of the Indebtedness under such agreement. "Plan of Liquidation" means, with respect to any person, a plan that provides for, contemplates or the effectuation of which is preceded or accompanied by (whether or not substantially contemporaneously, in phases or otherwise) (i) the sale, lease, conveyance or other disposition of all or substantially all of the assets of such person otherwise than as an entirety or substantially as an entirety and (ii) the distribution of all or substantially all of the proceeds of such sale, lease, conveyance or other disposition and all or substantially all of the remaining assets of such person to holders of Capital Stock of such person. "Preferred Stock" means, with respect to any person, any and all shares, interests, participation or other equivalents (however designated) of such person's preferred or preference stock, whether outstanding on the Issue Date or issued thereafter, and including, without limitation, all classes and series of preferred or preference stock of such person. 131 "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of the Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Exchange Act. "Qualified Capital Stock" means, with respect to any person, any Capital Stock of such person that is not Disqualified Capital Stock or convertible into or exchangeable or exercisable for Disqualified Capital Stock. "Qualifying Auditors" shall mean the firm of independent auditors of acknowledged international prestige elected annually by Centromin in accordance with Section 4.2 of the Subscription Agreement. "Qualifying Investment" shall mean investments that meet the qualifications of Section 4.5 of the Subscription Agreement, as determined in good faith by the Qualifying Auditors. "Qualifying Investments Promissory Notes" shall have the meaning given to such term under the caption "Certain Covenants--Qualifying Investment Requirements." "Related Business Investment" means any Investment, Capital Expenditure or other expenditure by Doe Run or any Restricted Subsidiary which is related to the business of Doe Run and the Restricted Subsidiaries as it is conducted on the Issue Date or any business which is the same, similar or reasonably related to such business. "Renco" means The Renco Group, Inc., a New York corporation, which is the ultimate parent of Doe Run, or any successor thereto. "Restricted Subsidiary" means any Subsidiary of Doe Run which at the time of determination is not an Unrestricted Subsidiary. The Board of Directors of Doe Run may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if, immediately after giving effect to such designation, Doe Run and the Guarantors could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on Indebtedness" covenant, on a pro forma basis taking into account such designation. "Revolving Credit Facilities" means the U.S. Revolving Credit Facility and the Peruvian Revolving Credit Facility. "Sale/leaseback" means any lease, whether an Operating Lease or a Capital Lease, whereby Doe Run or any of the Restricted Subsidiaries, directly or indirectly, becomes or remains liable as lessee or as guarantor or other surety, of any property (whether real or personal or mixed) whether now owned or hereafter acquired, (i) that Doe Run or the Restricted Subsidiaries, as the case may be, has sold or transferred or is to sell or transfer to any other person (other than Doe Run or any Restricted Subsidiary), or (ii) that Doe Run or any of the Restricted Subsidiaries, as the case may be, intends to use for substantially the same purpose as any other property that has been or is to be sold or transferred by Doe Run or any such Restricted Subsidiary to any person (other than Doe Run or any Restricted Subsidiary) in connection with such lease. "Significant Subsidiary" means any Restricted Subsidiary that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act. "Subsidiary" of any person means (i) any corporation of which the outstanding capital stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such person or (ii) any other person of which at least a majority of the voting interest under ordinary circumstances is at the time owned, directly or indirectly, by such person. For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "Unrestricted Subsidiary" means (i) any Subsidiary of Doe Run which at the time of determination is an Unrestricted Subsidiary (as designated by the Board of Directors of Doe Run, as provided below) and 132 (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of Doe Run may designate any Subsidiary of Doe Run (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary, unless such Subsidiary owns any Capital Stock of, or owns, or holds any Lien on, any property of, any Restricted Subsidiary of Doe Run which is not a Subsidiary of the Subsidiary to be so designated; PROVIDED that (a) Doe Run certifies that such designation complies with the "Limitation on Restricted Payments" covenant and (b) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of Doe Run or any of the Restricted Subsidiaries. The Board of Directors of Doe Run may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if, immediately after giving effect to such designation, Doe Run and the Guarantors could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on Indebtedness" covenant, on a pro forma basis taking into account such designation. "U.S. Revolving Credit Facility" means the Loan and Security Agreement dated as of the Issue Date, among Doe Run, FPI, and Congress Financial Corporation, as Lender, as the same may be amended, restated, supplemented or otherwise modified from time to time, and includes any agreement renewing, refinancing or replacement of all or any portion of the Indebtedness under such agreement. "Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary which is a Wholly-Owned Subsidiary of Doe Run. "Wholly-Owned Subsidiary" means any Subsidiary of such person to the extent all of the Capital Stock or other ownership interests in such Subsidiary (other than (x) directors' qualifying shares, (y) with respect to Doe Run Peru, any shares purchased by employees of Doe Run Peru or Centromin in connection with the Acquisition, which retained amount shall not exceed 1% of the total interests in Doe Run Peru, and (z) an immaterial interest owned by other persons solely to comply with applicable law) is owned directly or indirectly by such person or a Wholly-Owned Subsidiary of such person. 133 CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS The following summary is based on the tax laws of the United States in effect on the date of this Prospectus, as well as judicial and administrative interpretations thereof (in final or proposed form) available on or before such date. The foregoing laws and interpretations thereof are subject to change, which could apply retroactively. The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will not be a taxable event for federal income tax purposes. A holder's holding period for Exchange Notes will include the holding period for Old Notes. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES. PLAN OF DISTRIBUTION A broker-dealer that is the holder of Old Notes that were acquired for the account of such broker-dealer as a result of market-making or other trading activities (other than Old Notes acquired directly from Doe Run or any affiliate of Doe Run) may exchange such Old Notes for Exchange Notes pursuant to the Exchange Offer; provided, that each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. Doe Run has agreed that for a period of 180 days after consummation of the Exchange Offer, it will make this Prospectus, which Doe Run will update, amend or supplement from time to time as required by applicable law or regulations, available to any broker-dealer for use in connection with any such resale. In addition, until , 1998, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. Doe Run will not receive any proceeds from any sale of Exchange Notes by broker-dealers or any other holder of Exchange Notes. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after consummation of the Exchange Offer, Doe Run will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. Doe Run has agreed to pay all expenses incident to the Exchange Offer and to Doe Run's performance of, or compliance with, the Registration Rights Agreement (other than commissions or concessions of any brokers or dealers) and will indemnify the holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 134 LEGAL MATTERS Certain legal matters related to the Exchange Notes being offered hereby are being passed upon for Doe Run and the Guarantors by Cadwalader, Wickersham & Taft, New York, New York. EXPERTS The audited consolidated financial statements of the Company as of October 31, 1996 and 1997 and for each of the years in the three year period ended October 31, 1997 have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP and Medina, Zaldivar y Asociados S. Civ. R.L., a member firm of Andersen Worldwide SC, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firms as experts in accounting and auditing. The audited consolidated financial statements of Doe Run Peru's Predecessor as of December 31, 1994, 1995 and 1996 and October 23, 1997 and for each of the three year periods ended December 31, 1996 and the period January 1, 1997 to October 23, 1997, and of Doe Run Peru as of October 31, 1997, and included herein have been audited by Medina, Zaldivar y Asociados S. Civ. R.L., a member firm of Andersen Worldwide SC, independent certified public accountants, as stated in their reports with respect thereto and upon the authority of said firm as experts in accounting and auditing. The financial statements of the Missouri Lead Division as of December 31, 1996 and 1997 and for each of the years in the three year period ended December 31, 1997 which have been included herein and in the Registration Statement have been audited by PricewaterhouseCoopers LLP. With respect to the unaudited interim financial information of the Missouri Lead Division for the periods ended March 31, 1998 and 1997, included in this Registration Statement, the independent accountants have reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report included herein, states that they did not audit and do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. The independent accountants are not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the "Act") for their report on the unaudited interim financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by the accountants within the meaning of Sections 7 and 11 of the Act. 135 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE --------- THE DOE RUN RESOURCES CORPORATION Independent Auditors' Report............................................................................... F-2 Report of Independent Public Accountants................................................................... F-3 Consolidated Balance Sheets as of October 31, 1996 and 1997 and unaudited as of April 30, 1998............. F-4 Consolidated Statements of Operations and Shareholders' Equity for the years ended October 31, 1995, 1996, 1997 and unaudited for the six months ended April 30, 1997 and 1998...................................... F-5 Consolidated Statements of Cash Flows for the years ended October 31, 1995, 1996, 1997 and unaudited for the six months ended April 30, 1997 and 1998............................................................. F-6 Notes to Consolidated Financial Statements................................................................. F-7 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A., LA OROYA DIVISION Report of Independent Public Accountants................................................................... F-36 Statements of Assets and Liabilities as of December 31, 1995 and 1996 and October 23, 1997................. F-37 Statements of Revenues and Expenses for the years ended December 31, 1994, 1995, 1996 and the period January 1 to October 23, 1997............................................................................ F-38 Statements of Changes in Net Assets for the years ended December 31, 1994, 1995, 1996 and the period January 1 to October 23, 1997............................................................................ F-39 Statements of Cash Flows for the years ended December 31, 1994, 1995, 1996 and the period January 1 to October 23, 1997......................................................................................... F-40 Notes to Financial Statements.............................................................................. F-41 ASARCO INCORPORATED--MISSOURI LEAD DIVISION Report of Independent Accountants.......................................................................... F-54 Statements of Operations for the years ended December 31, 1995, 1996 and 1997.............................. F-55 Balance Sheets as of December 31, 1996 and 1997............................................................ F-56 Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997............................... F-57 Statement of Changes in Divisional Equity for years ended December 31, 1995, 1996 and 1997................. F-58 Notes to Financial Statements.............................................................................. F-59 Report of Independent Accountants.......................................................................... F-65 Condensed Statements of Operations for the three months ended March 31, 1997 and 1998...................... F-66 Condensed Balance Sheets as of March 31, 1997 and 1998..................................................... F-67 Condensed Statements of Cash Flows for the three months ended March 31, 1996 and 1997...................... F-68 Notes to Condensed Financial Statements.................................................................... F-69
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors The Doe Run Resources Corporation and Subsidiaries: We have audited the accompanying consolidated balance sheets of The Doe Run Resources Corporation and subsidiaries as of October 31, 1996 and 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended October 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of Doe Run Cayman Ltd., a wholly-owned subsidiary, which statements reflect total assets constituting 45% and total revenues constituting 1% in 1997, of the related consolidated totals. Those consolidated statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Doe Run Cayman Ltd. and its subsidiaries, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Doe Run Resources Corporation and subsidiaries as of October 31, 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended October 31, 1997, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP December 19, 1997, except for note 15 as to which the date is March 12, 1998 F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholder of Doe Run Cayman Ltd.: We have audited the accompanying consolidated balance sheet of Doe Run Cayman Ltd. (a company incorporated in Cayman Islands) as of October 31, 1997 and the related consolidated statements of operations, changes in shareholder's equity and cash flows for the period from October 23, 1997 (inception date) to October 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Doe Run Cayman Ltd. as of October 31, 1997, and its consolidated results of operations and cash flows for the period from October 23, 1997 (inception date) to October 31, 1997, in conformity with accounting principles generally accepted in the United States of America. MEDINA, ZALDIVAR Y ASOCIADOS a member firm of Andersen Worldwide SC Countersigned by: Marco Antonio Zaldivar C.P.C. Register 12477 Lima, Peru December 5, 1997 F-3 THE DOE RUN RESOURCES CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AS OF OCTOBER 31, ---------------------- 1996 1997 ---------- ---------- AS OF APRIL 30, 1998 ----------- (UNAUDITED) ASSETS Current assets: Cash....................................................................... -- $ 8,943 $ 12,142 Trade accounts receivable, net of allowance for doubtful accounts of $947, $729 and $741 at October 31, 1996 and 1997 and April 30, 1998, respectively............................................................. $ 54,493 52,470 66,927 Inventories................................................................ 30,019 88,648 100,867 Prepaid expenses and other current assets.................................. 2,919 5,263 29,543 Net deferred tax assets.................................................... 3,792 69 -- ---------- ---------- ----------- Total current assets..................................................... 91,223 155,393 209,479 Property, plant and equipment, net........................................... 104,162 206,348 205,867 Special term deposit......................................................... -- -- 125,000 Net deferred tax assets...................................................... -- 7,481 9,145 Other noncurrent assets, net................................................. 8,529 15,218 17,387 ---------- ---------- ----------- Total assets............................................................. $ 203,914 $ 384,440 $ 566,878 ---------- ---------- ----------- ---------- ---------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt....................................... $ 16,590 $ 12,345 $ 5,895 Accounts payable........................................................... 16,324 41,086 50,725 Accrued liabilities........................................................ 24,320 28,893 42,783 Net deferred tax liabilities............................................... -- 7,481 9,467 ---------- ---------- ----------- Total current liabilities................................................ 57,234 89,805 108,870 Long-term debt, less current maturities...................................... 66,201 222,395 384,681 Net deferred tax liabilities................................................. 3,792 -- -- Postretirement benefits...................................................... 12,817 12,455 12,608 Reclamation and environmental costs.......................................... 26,773 31,685 31,085 Other noncurrent liabilities................................................. 16,267 13,926 13,758 ---------- ---------- ----------- Total liabilities........................................................ 183,084 370,266 551,002 Shareholders' equity: Preferred stock, $1,000 par value, 2,500 shares issued, authorized and outstanding; liquidation and redemption value of $2,668 and $2,618 on October 31, 1996 and 1997, respectively.................................. 2,500 2,500 -- Common stock, $.10 par value, 1,000 shares authorized, issued, and outstanding.............................................................. -- -- -- Additional paid in capital................................................. 5,000 5,000 5,000 Retained earnings.......................................................... 13,330 6,674 10,876 ---------- ---------- ----------- Total shareholders' equity............................................... 20,830 14,174 15,876 ---------- ---------- ----------- Total liabilities and shareholders' equity............................... $ 203,914 $ 384,440 $ 566,878 ---------- ---------- ----------- ---------- ---------- -----------
See accompanying notes to consolidated financial statements. F-4 THE DOE RUN RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, ---------------------------------- ---------------------- 1995 1996 1997 1997 1998 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) Net sales............................................ $ 225,143 $ 274,930 $ 280,467 $ 135,905 $ 343,405 Costs and expenses: Cost of sales...................................... 180,398 215,489 234,351 108,478 283,105 Depletion, depreciation and amortization........... 12,486 13,654 14,718 7,323 11,461 Selling, general and administrative expenses, including related party management fees of $1,200 per year......................................... 8,405 10,079 10,959 5,804 17,700 Exploration expense................................ 1,926 2,912 2,705 1,365 1,599 ---------- ---------- ---------- ---------- ---------- Total costs and expenses......................... 203,215 242,134 262,733 122,970 313,865 ---------- ---------- ---------- ---------- ---------- Income from operations........................... 21,928 32,796 17,734 12,935 29,540 Other income (expense): Interest expense................................... (14,361) (14,348) (13,740) (7,568) (14,505) Interest income.................................... 140 113 21 2 2,359 Other, net......................................... (132) 355 (37) 6 (635) ---------- ---------- ---------- ---------- ---------- (14,353) (13,880) (13,756) (7,560) (12,781) ---------- ---------- ---------- ---------- ---------- Income before income tax expense and extraordinary item............................. 7,575 18,916 3,978 5,375 16,759 Income tax expense................................... 3,252 6,451 4,331 1,826 5,761 ---------- ---------- ---------- ---------- ---------- Net income (loss) before extraordinary item...... 4,323 12,465 (353) 3,549 10,998 Extraordinary item related to early retirement of debt, net of income tax benefit.................... -- -- (1,062) (314) (6,607) ---------- ---------- ---------- ---------- ---------- Net income (loss)................................ $ 4,323 $ 12,465 $ (1,415) $ 3,235 $ 4,391 ---------- ---------- Shareholders' equity, beginning of year............ 5,995 10,318 20,830 14,174 Less dividends declared and paid: Preferred stock--$140, $100 and $76 per share, respectively................................... -- (350) (250) (189) Redemption of preferred stock.................... (2,500) Common stock--$1,603 and $4,991 per share, respectively................................... -- (1,603) (4,991) -- ---------- ---------- ---------- ---------- Shareholders' equity, end of year.................. $ 10,318 $ 20,830 $ 14,174 $ 15,876 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. F-5 THE DOE RUN RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, --------------------------------- ---------------------- 1995 1996 1997 1997 1998 --------- --------- ----------- --------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)............................................... $ 4,323 $ 12,465 $ (1,415) $ 3,235 $ 4,391 Extraordinary item related to retirement of debt................ -- -- 1,327 392 6,750 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization...................... 12,486 13,654 14,718 7,323 11,461 Amortization of deferred financing fees....................... 1,140 898 257 132 844 Imputed interest.............................................. 7,132 6,617 5,635 3,025 15 Increase (decrease) resulting from changes in assets and liabilities, net of effects of business acquisitions: Trade accounts receivable................................... (5,641) (10,291) 2,023 3,276 (14,457) Inventories................................................. 665 3,209 (3,062) (8,602) (12,219) Prepaid expenses and other current assets................... (994) (339) (1,201) 287 (24,280) Accounts payable............................................ 2,028 771 6,636 (1,275) 9,639 Accrued liabilities......................................... 3,955 1,492 (1,939) (3,524) 14,857 Other noncurrent assets and liabilities, net................ (5,028) (526) (4,959) (1,739) 1,256 --------- --------- ----------- --------- ----------- Net cash provided by (used in) operating activities....... 20,066 27,950 18,020 2,530 (1,743) Cash flows from investing activities: Special term deposit............................................ -- -- -- -- (125,000) Purchases of property, plant and equipment...................... (5,377) (10,534) (13,476) (4,145) (10,908) Payments for acquisitions....................................... -- (1,742) (128,242) -- -- --------- --------- ----------- --------- ----------- Net cash used in investing activities..................... (5,377) (12,276) (141,718) (4,145) (135,908) Cash flows from financing activities: Proceeds from (payments on) revolving loan, net................. (5,139) 1,044 (6,399) 18,511 1,681 Proceeds from short-term borrowings............................. -- -- -- -- 5,000 Proceeds from long-term debt.................................... -- -- 365,945 10,945 380,000 Payments on long-term debt...................................... (9,550) (14,765) (212,453) (24,436) (230,845) Payment of deferred financing costs............................. -- -- (8,573) (164) (12,297) Extraordinary item related to retirement of debt................ -- -- (638) -- -- Payment of dividends............................................ -- (1,953) (5,241) (3,241) (189) Redemption of preferred stock................................... -- -- -- -- (2,500) --------- --------- ----------- --------- ----------- Net cash provided by (used in) financing activities....... (14,689) (15,674) 132,641 1,615 140,850 --------- --------- ----------- --------- ----------- Net increase in cash...................................... -- -- 8,943 -- 3,199 Cash at beginning of period....................................... -- -- -- -- 8,943 --------- --------- ----------- --------- ----------- Cash at end of period............................................. $ -- $ -- $ 8,943 $ -- $ 12,142 --------- --------- ----------- --------- ----------- --------- --------- ----------- --------- ----------- Supplemental disclosure of cash flow information-- Cash paid during the period for: Interest, net of capitalized interest......................... $ 6,850 $ 6,575 $ 9,196 $ 6,038 $ 8,685 --------- --------- ----------- --------- ----------- --------- --------- ----------- --------- ----------- Income taxes.................................................. $ -- $ 6,787 $ 3,480 $ 1,617 $ 7,028 --------- --------- ----------- --------- ----------- --------- --------- ----------- --------- -----------
See accompanying notes to consolidated financial statements. F-6 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION These consolidated financial statements include the accounts of The Doe Run Resources Corporation and its wholly owned subsidiaries (the "Company"). All material intercompany balances and transactions have been eliminated. NATURE OF BUSINESS The principal domestic business of the Company is the exploration, development, mining and processing of base metals, primarily lead, and recycling of lead-acid batteries and other lead-bearing materials. The Company's fabrication businesses fabricate lead products used in radiation and X-ray shielding, pollution control devices, and medical equipment, produce lead oxide for use in automotive batteries, and fabricate and repair lead-lined process equipment. In Peru, the Company is engaged in the smelting and refining of polymetallic concentrates, mainly copper, lead and zinc, which are sold as refined metals primarily to customers located outside of Peru. FOREIGN CURRENCY TRANSLATION The functional currency of the Company's foreign subsidiaries is the U.S. Dollar. Accordingly, translation gains and losses are included in determining net income. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. CASH All of the Company's domestic accounts are zero balance accounts. Checks cleared on domestic bank accounts are funded by advances drawn on revolving loans. Cash received from domestic operations is transferred to the Company's primary lender daily and applied to outstanding revolving loans, if any. INVENTORIES Finished metals and concentrates, metals and concentrates in process, and raw materials are stated at the lower of cost or market. The last-in, first-out ("LIFO") method of determining cost is used for the majority of the Company's U.S. inventories. Inventory costs of the Company's foreign subsidiaries are determined using the first-in, first-out ("FIFO") method. Inventory costs include labor, material and other production costs. Supplies and repair parts are principally stated at average cost, net of reserves for obsolescence. F-7 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Major additions and improvements to property, plant and equipment are capitalized, at cost, when they significantly increase the productive capacity or the life of the asset. Routine or unanticipated repair and maintenance expenditures, which do not extend the useful life or increase the productive capacity of the asset, are charged to operations as incurred. Major expenditures required to maintain the originally anticipated productive capacity and life of the asset (such as furnace rebuilds), for which both the amount and timing can be reasonably estimated, are accrued and charged to operations over the period through the next anticipated maintenance date. Mineral interests are amortized using the units of production method. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows: 3 to 20 Buildings and improvements.................................... years 2 to 15 Machinery and equipment....................................... years
Facilities at which operations have temporarily ceased may be placed on a standby care and maintenance basis. The Company continues to depreciate the related assets during the standby period, however, the expected useful lives are adjusted. During the standby period all care and maintenance expenditures incurred are expensed. IMPAIRMENT OF LONG-LIVED ASSETS In fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement requires that long-lived assets, certain identifiable intangibles and goodwill related to those assets be reviewed for impairment when events or circumstances indicate that the carrying amount of the assets may not be recoverable. The impairment loss on such assets, as well as long-lived assets and certain identifiable intangibles to be disposed of, is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. No impairment losses have been recognized. DEFERRED FINANCING COSTS Deferred financing costs represent fees paid in conjunction with the acquisition of long-term debt and are amortized using the interest method over the term of the respective debt. EXPLORATION AND DEVELOPMENT COSTS All exploration costs are charged to operations as incurred. Development costs incurred to maintain production at operating mines are charged to operations as incurred. Development expenditures for mining properties that are considered to be commercially feasible, but are not yet producing, and major development expenditures at operating mines that are expected to benefit future production are capitalized and amortized using the units of production method over the estimated proven ore reserves to be benefited. F-8 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECLAMATION COSTS The Company's mines and related processing facilities are subject to governance by various agencies that have established minimum standards for reclamation. Company estimates of mine closure costs are accrued and charged to expense using the units of production method during the estimated life of the operations. A reserve for reclamation costs has been established for the restoration of certain abandoned mining and processing sites based on current estimates of the cost to comply with existing standards. Routine environmental expenditures are expensed as incurred or capitalized and depreciated depending on their future economic benefit. COMMITMENTS AND CONTINGENCIES The Company accrues for loss contingencies, including costs associated with environmental remediation obligations, when such costs are probable and reasonably estimable. Accruals are reviewed and adjusted as circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. REVENUE RECOGNITION Sales are recorded as products are shipped to customers. Concentrate and certain smelter product sales are recorded based on estimated weights, metal contents and prices using applicable customer agreements and hedge contracts. All such sales are adjusted when final weights, metal contents and prices are determined. RISK MANAGEMENT The Company's use of derivative financial instruments is limited to managing well-defined commodity price risks related to inventories and future production. Derivative financial instruments are not used for trading purposes. The Company may, from time to time, enter into forward physical sales agreements with customers or futures contracts, which fix prices for a portion of its anticipated future production, generally for periods not exceeding twelve months. The Company may also periodically buy futures contracts to offset the effect of certain fixed-price forward physical sales commitments. In addition, the Company may employ the use of commodity options to obtain the aforementioned transactions. Since these transactions meet the requirements for hedge accounting, gains and losses realized on such transactions, as well as any cost or revenue associated therewith, are recognized in net sales when the related production is sold. If an instrument does not meet the requirements for hedge accounting, gains and losses are recognized immediately. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of the Company's long-term debt were estimated using discounted cash flow analyses, based on the estimates of incremental borrowing rates for similar types of borrowing arrangements. At October 31, 1996 and 1997, the fair values of the Company's financial instruments, except for the hedge positions described in Note 13, were not materially different from their carrying amounts. F-9 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RESEARCH AND DEVELOPMENT Research and development costs are expensed when incurred and are included in selling, general and administrative expenses on the consolidated statements of operations. Research and development costs are not significant. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. UNAUDITED INTERIM FINANCIAL STATEMENTS In the opinion of management, the interim consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position and results of operations for the periods presented herein. Interim periods are not necessarily indicative of results to be expected for the year (2) BUSINESS ACQUISITION Doe Run Cayman Ltd. ("Doe Run Cayman"), a Cayman Islands corporation and a wholly owned subsidiary of the Company, was incorporated on September 10, 1997. Doe Run Cayman had no business activity until October 23, 1997, when Doe Run Cayman, through its subsidiary Doe Run Peru S.R. Ltda. ("Doe Run Peru"), acquired substantially all of the outstanding shares of Empresa Metalurgica La Oroya S.A. ("Metaloroya"). Metaloroya is a Peruvian corporation, which was formed for purposes of consummating the sale of certain assets and liabilities of La Oroya, a division of Empresa Minera del Centro del Peru S.A. ("Centromin"), an entity owned by the Peruvian government. Doe Run Cayman's operating subsidiaries in Peru will herein be referred to as "Doe Run Peru." The acquisition was made through a Contract of Stock Transfer, Capital Increase and Stock Subscription (the "Contract"). Peruvian law required a capital contribution to Metaloroya of $126,500 in exchange for 51% of the shares and a payment of $120,515 for the transfer of the remaining 49%. Subsequent to the acquisition, utilizing the proceeds from the capital contribution, Doe Run Peru repaid $125,000 on the $225,000 term loan used to finance the transaction. F-10 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (2) BUSINESS ACQUISITION (CONTINUED) The acquisition has been accounted for as a purchase and the effective purchase price of $123,015, including transaction costs of approximately $2,500, was allocated to the fair value of the assets acquired and liabilities assumed as follows: Inventories....................................................... $ 55,567 Other current assets.............................................. 1,382 Property, plant and equipment..................................... 97,761 Accounts payable and other accrued liabilities.................... (24,495) Environmental contingency......................................... (7,200) --------- $ 123,015 --------- ---------
The excess of the fair value of the net assets acquired over the purchase price, approximately $157,000, reduced the value of the fixed assets acquired. The results of the operations of Doe Run Peru have been included with those of the Company since the date of acquisition. The following unaudited pro forma results of operations for the years ended October 31, 1996 and 1997 assume that the acquisition of Doe Run Peru occurred as of the beginning of the respective periods. The pro forma information does not purport to be indicative of the results of operations that would have occurred had the acquisition occurred at the beginning of the periods presented or of the future results of operations.
YEAR ENDED OCTOBER 31, ---------------------- 1996 1997 ---------- ---------- (UNAUDITED) Net sales............................................................. $ 731,727 $ 709,780 Net income before extraordinary item.................................. 22,649 15,195 Net income............................................................ 22,649 14,133
(3) RELATED PARTY TRANSACTIONS The Company has entered into a management consulting agreement with The Renco Group, Inc. ("Renco"). Renco holds all of the preferred stock of the Company, and Renco's subsidiary, DR Acquisition Corp. holds all of the Company's common stock. Under the agreement, Renco will provide the Company with management services for a fee of $1,200 annually. The agreement expires October 31, 2000. Fees expensed under this agreement were $1,200 for each of the years ended October 31, 1995, 1996 and 1997. To obtain the advantages of volume, Renco purchases certain categories of property and casualty insurance for a number of its subsidiaries, including the Company, and the actual cost of such insurance, without markup, is reimbursed by the covered subsidiaries. For the years ended October 31, 1995, 1996 and 1997 the Company reimbursed Renco for costs of approximately $1,754, $1,821 and $2,473 respectively, under the Renco insurance program. F-11 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (4) INVENTORIES Inventories consist of the following:
OCTOBER 31, -------------------- 1996 1997 --------- --------- APRIL 30, 1998 ---------- (UNAUDITED) Finished metals and concentrates............................ $ 6,408 $ 11,460 $ 19,005 Metals and concentrates in process.......................... 9,520 51,129 54,346 Materials, supplies and repair parts........................ 14,091 26,059 27,516 --------- --------- ---------- $ 30,019 $ 88,648 $ 100,867 --------- --------- ---------- --------- --------- ----------
Materials, supplies and repair parts are stated net of reserves for obsolescence of $4,866, $4,977 and $4,782 at October 31, 1996 and 1997 and April 30, 1998, respectively. The FIFO cost of inventories valued under the LIFO cost method were $19,508 and $20,311 at October 31, 1996 and 1997, respectively. If the FIFO cost method had been used to determine cost, inventories would have been $5,996 higher at October 31, 1997 and at April 30, 1998. As a result of reducing certain inventory quantities valued on the LIFO basis, lower inventory costs prevailing in previous years were charged to cost of sales in 1995, 1996 and 1997. In 1996, the Company adopted a policy of calculating the effect of LIFO liquidations on net income based on the current cost method. The effect was an increase in net income of $111, $542, and $899 for the years ended October 31, 1995, 1996 and 1997, respectively. (5) PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consists of the following:
OCTOBER 31, ---------------------- 1996 1997 ---------- ---------- Land.................................................................. $ 3,347 $ 9,371 Buildings and improvements............................................ 27,054 45,286 Machinery and equipment............................................... 77,056 172,582 Mineral interests..................................................... 20,920 22,005 Construction in progress.............................................. 7,486 3,252 ---------- ---------- 135,863 252,496 Less accumulated depreciation and depletion 31,701 46,148 ---------- ---------- $ 104,162 $ 206,348 ---------- ---------- ---------- ----------
Rental expense applicable to minimum rentals under operating leases was $1,460, $3,101 and $5,543 for the years ended October 31, 1995, 1996, and 1997, respectively. Contingent rental payments, based primarily on equipment usage, were $309, $554, and $674 for the same periods. F-12 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (5) PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED) The Company's operating leases relate primarily to operating equipment, office facilities and office equipment. The minimum rental commitments under noncancellable leases, with terms in excess of one year, are as follows:
FISCAL YEAR ENDING OCTOBER 31, - ----------------------------------------------------------------------------------- 1998............................................................................... $ 6,197 1999............................................................................... 4,486 2000............................................................................... 3,662 2001............................................................................... 2,924 2002............................................................................... 1,393 --------- $ 18,662 --------- ---------
F-13 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (6) ACCRUED LIABILITIES Accrued liabilities consist of the following:
OCTOBER 31, -------------------- 1996 1997 --------- --------- Reclamation and environmental........................................... $ 4,393 $ 3,842 Property taxes.......................................................... 3,441 3,299 Compensated absences.................................................... 2,734 3,076 Salaries, wages, fringes................................................ 6,157 7,943 Other................................................................... 7,595 10,733 --------- --------- $ 24,320 $ 28,893 --------- --------- --------- ---------
Reclamation and environmental costs represents the estimate of reclamation and environmental spending for the following fiscal year. These costs relate primarily to the historical operations of the Company. See Note 14. F-14 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (7) LONG-TERM DEBT Long-term debt consists of the following:
AS OF OCTOBER 31, --------------------- 1996 1997 --------- ---------- $130,000 term loan--due quarterly in increasing amounts, with a balloon payment of $60,000 due October 31, 2003; effective rate of 8.64% at October 31, 1997........................ $ -- $ 130,000 $225,000 term loan--due quarterly in increasing amounts, with a balloon payment of $42,000 due October 23, 2002; effective rate of 9.14% at October 31, 1997........................ -- 100,000 Revolving loan dated October 23, 1997--expiring October 23, 2002, interest payable quarterly at the Eurodollar rate, plus 2.5% (8.12% at October 31, 1997).................. -- 3,000 Pollution control financing--maturing December 15,1998, annual principal payments due on December 15, interest at 5.75%, payable semi-annually.................................... 2,540 1,740 Revolving loan dated April 7, 1994--interest payable monthly at the prime rate (8.75% at October 31, 1996) plus 1.75%, plus 0.5% on the unused portion of the loan................ 9,399 -- Term loan--payable in monthly installments of $256 plus interest at the prime rate plus 1.75%.................................................................................... 4,823 -- Senior note--maturing September 1, 1998, principal payments of $125 due quarterly, interest payable monthly at a rate of 12%. Contingent interest is due quarterly, based on an indexed market rate, 16.72% at October 31, 1996.......................................... 9,297 -- Promissory note--maturing February 28, 2002, principal payable as percentage of gross margin over a specific base amount, plus interest due annually, bearing interest at 4% through February 28, 1996 increasing 1% each year through February 28, 2001, face amount of $50,000 discounted to effective interest rate of 15.5%................................ 36,772 -- Contract obligation--payable in annual principal payments of $5,100 and a balloon payment of $15,100 due April 1, 1999 non-interest bearing, face amount of $35,500 discounted to an effective interest rate of 14.5%...................................................... 19,960 -- --------- ---------- $ 82,791 $ 234,740 Less current maturities.................................................................... 16,590 12,345 --------- ---------- Long-term debt, less current maturities.................................................... $ 66,201 $ 222,395 --------- ---------- --------- ----------
On October 23, 1997 the Company and Doe Run Peru borrowed $130,000 and $225,000, respectively, under credit agreements with a group of financial institutions. The proceeds were used to retire all of the Company's outstanding debt, except for the Pollution Control Bonds, and to finance the acquisition and capital contribution discussed in Note 2. The applicable interest rate on the loans is the greater of the Eurodollar rate (adjusted for the maximum reserve percentages as established by the Federal Reserve Board) or the ten-year U.S. Treasury bond rate, plus an applicable margin: 2.5%, to increase 0.25% per quarter on the $130,000 loan and 3%, to increase .25% annually, on the $225,000 loan. The credit agreements also provided for borrowing under two credit facilities. The first facility allows the Company to borrow up to $100,000 and expires October 23, 2002. The availability of funds under the F-15 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (7) LONG-TERM DEBT (CONTINUED) facility is limited to a percentage of eligible accounts receivable and inventories. Actual availability was $40,417 at October 31, 1997. The facility bears interest at a base rate plus an applicable margin. The base rate is equal to the greater of 1) the adjusted certificate of deposit rate plus .5%, 2) the financial institutions' prime lending rate, or 3) the Federal funds rate plus .5%; or the adjusted Eurodollar rate as specified by the Company. The applicable margin is 2.5%, or .75% in the case of Eurodollar rate loans. The Company is also obligated to pay an unused line fee equal to .375% on the amount by which the maximum credit of $100,000 exceeds outstanding loans and letters of credit. All cash received from the Company's domestic operations is wired daily to the financial institutions to pay down the outstanding loan balance, if any. Revolving loans and standby letters of credit outstanding under this facility were $0 and $6,100, respectively, at October 31, 1997. The second facility allows Doe Run Peru to borrow up to $50,000 and expires October 23, 2002. The interest rate is due to increase .25% annually. An unused line fee of .5% per annum on the average unused portion of the line is payable quarterly, in arrears. Availability of funds under the facility is limited to a percentage of eligible accounts receivable and inventories. Actual availability was $29,332 at October 31, 1997. Revolving loans and standby letters of credit outstanding under this facility were $3,000 and $3,300, respectively, at October 31, 1997. Pollution control financing represents the outstanding balances of revenue bonds issued to provide funding for pollution control facilities at the Company's domestic primary lead smelter. The debt is guaranteed by the former owner of the Company. Effective January 31, 1997, the Company amended the terms of the revolving and term loans dated April 7, 1994. The amendment reduced the interest rate payable, increased the amount of the term loan, and extended the term of the revolving and term loans, which were due to mature April 7, 1997 and April 7, 1998, respectively. Pursuant to the amendment, the Company borrowed an additional $10,945 on the term loan, for a new principal balance of $15,000, due in monthly installments, maturing January 2002. The proceeds were used to retire the senior note balance of $9,172 on January 31, 1997 and pay contingent interest of $1,426. These loans were retired with the proceeds of the $130,000 term loan as discussed above. Virtually all of the Company's assets are pledged to secure long-term debt. In conjunction with early extinguishments of long-term debt in 1997, the Company recognized extraordinary charges of $1,062, net of income tax benefit of $265. The aggregate estimated amounts of long-term debt maturing after October 31, 1997 are as follows: 1998.............................................................. $ 12,345 1999.............................................................. 21,395 2000.............................................................. 35,500 2001.............................................................. 33,500 2002.............................................................. 72,000 Thereafter........................................................ 60,000 --------- $ 234,740 --------- ---------
F-16 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (7) LONG-TERM DEBT (CONTINUED) In addition to scheduled principal payments on the term loans, additional payments may be required based on cash flow for the previous fiscal year, beginning with the year ended October 31, 1998. The Company's various debt agreements contain certain requirements with respect to net worth, leverage ratios, and coverage of fixed charges, which begin in fiscal 1998. These agreements also place limitations on dividend payments and other outside borrowings and restrict annual capital expenditures. The Company was in compliance with all debt covenants at October 31, 1997, and accordingly, the related debt is classified as long-term. As of January 31, 1998, the Company had received waivers from its lenders with respect to the net worth and leverage ratio requirements under the $130,000 term loan and revolving loan under the $100,000 credit facility. The waivers are effective for the quarter ended January 31, 1998 with respect to the leverage ratio requirements and for the two quarters ending April 30, 1998 with respect to the net worth requirements. The Company refinanced all of the loans outstanding under the credit agreements during the quarter ending April 30, 1998. (8) INCOME TAXES The Company files a consolidated federal income tax return with Renco. Pursuant to a tax sharing agreement with Renco, the Company provides for federal income taxes as if the Company filed separate income tax returns except that, generally, no carryforward of net operating losses is permitted, unless such losses are generated by net tax temporary differences. Under the terms of the agreement, the Company is required to remit annually to Renco the amount of federal income taxes provided. Renco files the Company's state income tax returns, and the Company remits the resulting tax to Renco. Doe Run Peru and its subsidiaries pay taxes directly to their respective jurisdictions in which income and other similar taxes arise. Doe Run Cayman is subject to the regulations of the Cayman Islands, which currently have no corporate income or capital gains tax. Doe Run Cayman's subsidiaries located in Peru are subject to Peruvian taxation. The statutory income tax rate in Peru is 30%. Doe Run Peru is subject to a ten-year tax stabilization agreement with the Peruvian government, which provides for Peruvian taxation based on tax statutes and regulations prevailing on October 21, 1997. Metaloroya is subject to a tax stabilization agreement with the Peruvian government, which provides for Peruvian taxation based on tax statutes and regulations prevailing on April 25, 1994. This agreement was modified, and an election was made to adopt the tax statutes and regulations as of November 6, 1997, beginning with the Peruvian tax year ending on December 31, 1997, through December 31, 2006. F-17 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (8) INCOME TAXES (CONTINUED) Income tax expense is comprised of the following:
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1996 1997 --------- --------- --------- Current: Federal........................................................ $ 3,175 $ 6,383 $ 3,882 State.......................................................... 77 68 99 Foreign........................................................ -- -- 419 --------- --------- --------- 3,252 6,451 4,400 Deferred: Foreign........................................................ -- -- (69) --------- --------- --------- $ 3,252 $ 6,451 $ 4,331 --------- --------- --------- --------- --------- ---------
Income tax expense differed from the amount computed by applying the statutory federal corporate income tax rate of 35% to income before income tax expense as a result of the following:
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1996 1997 --------- --------- --------- Income tax expense at statutory rate.......................... $ 2,651 $ 6,620 $ 1,392 Increase (reduction) in income tax expense resulting from: Percentage depletion in excess of basis..................... (2,344) (4,583) (2,532) Change in the balance of the valuation allowance for deferred tax assets....................................... 2,808 4,095 4,487 Nondeductible expenses...................................... 66 385 477 State income taxes, net of federal benefit.................. 64 56 64 Foreign income taxes at effective rates in excess of the statutory rate............................................ -- -- 324 Other, net.................................................. 7 (122) 119 --------- --------- --------- $ 3,252 $ 6,451 $ 4,331 --------- --------- --------- --------- --------- ---------
F-18 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (8) INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
AS OF OCTOBER 31, ---------------------- 1996 1997 ---------- ---------- Deferred tax assets: Inventories and other current assets................................ $ 364 $ 514 Accrued liabilities................................................. 3,268 3,099 Postretirement benefits............................................. 4,920 4,781 Reclamation and environmental costs................................. 10,278 9,399 Other noncurrent assets and liabilities............................. 11,924 14,346 ---------- ---------- 30,754 32,139 Less valuation allowance............................................ (8,841) (13,328) ---------- ---------- Total deferred tax assets......................................... 21,913 18,811 ---------- ---------- Deferred tax liabilities: Inventories and other current assets................................ (78) -- Property, plant and equipment....................................... (10,883) (11,557) Mineral Properties.................................................. (5,136) (4,856) Pension asset....................................................... (2,630) (2,329) Long-term debt...................................................... (3,186) -- ---------- ---------- Total deferred tax liabilities.................................... (21,913) (18,742) ---------- ---------- Net deferred tax assets......................................... $ -- $ 69 ---------- ---------- ---------- ----------
The deferred tax liabilities related to inventories, other current assets and property, plant and equipment are principally due to differences in book and tax allocations of the excess of the fair value of the sum of assets acquired, less liabilities assumed over the purchase price paid. Accruals for financial reporting purposes, which have no tax basis, gave rise to a significant portion of the other temporary differences. The Company recognized a deferred tax asset of $8,451 and $10,188 for an alternative minimum tax carryforward at October 31, 1996 and 1997, respectively, which is included above in other noncurrent assets and liabilities. The alternative minimum tax carryforward is available to reduce future Federal regular income taxes, if any, over an indefinite period. Management has provided a valuation allowance against certain domestic deferred tax assets, to the extent that it is unlikely, that the benefits of those assets will be realized. F-19 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (9) EMPLOYEE BENEFITS DOMESTIC PLANS DEFINED BENEFIT PLANS The Company sponsors a non-contributory defined benefit plan. Benefits provided to salaried employees under the defined benefit plan are based on final average compensation and years of service. Benefits provided to hourly employees are based on a flat rate and years of service. Net periodic pension expense (income) is comprised of the following:
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1996 1997 --------- --------- --------- Service cost.................................................. $ 865 $ 1,342 $ 1,439 Interest cost on projected benefit obligation................. 3,025 3,506 3,660 Actual return on assets....................................... (5,016) (4,168) (7,306) Net amortization and deferral of unrecognized net losses...... 1,007 176 3,333 --------- --------- --------- Net periodic pension expense (income)......................... $ (119) $ 856 $ 1,126 --------- --------- --------- --------- --------- ---------
The following assumptions were used in the determination of net periodic pension expense (income):
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1996 1997 --------- --------- --------- Discount rates................................................. 9.00% 7.50% 7.75% Rate of increase in compensation levels........................ 3.00 3.00 3.00 Expected long-term rate of return on assets.................... 9.00 9.00 9.00
The following table sets forth the funded status of the Company's defined benefit plan:
AS OF OCTOBER 31, ---------------------- 1996 1997 ---------- ---------- Actuarial present value of benefit obligations: Vested benefit obligation........................................... $ (38,385) $ (43,417) Non-vested obligation............................................... (2,261) (2,758) ---------- ---------- Accumulated benefit obligation.................................... $ (40,646) $ (46,175) ---------- ---------- ---------- ---------- Projected benefit obligation.......................................... $ (46,758) (51,748) Less plan assets at fair value, primarily investments in common stock and corporate bonds................................................. 47,401 51,359 ---------- ---------- Plan assets in excess of projected benefit obligation................. 643 (389) Unrecognized net loss................................................. 6,207 6,457 ---------- ---------- Pension asset, including in other noncurrent assets, net.......... $ 6,850 $ 6,068 ---------- ---------- ---------- ----------
The weighted average discount rate used in determining the projected benefit obligation was 7.75% and 7.5% as of October 31, 1996 and 1997, respectively. The unrecognized net loss is amortized over the average remaining service period of employees expected to receive benefits under the plan. F-20 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (9) EMPLOYEE BENEFITS (CONTINUED) The Company also adopted a supplemental defined benefit plan, The Supplemental Employee Retirement Plan (SERP), effective November 1, 1996. The SERP provides benefits to those participants of the defined benefit plan whose benefits under the plan are limited by Sections 401(a)(17) or 415 of the Internal Revenue Code. Benefits under the SERP represent the amount by which the benefits under the defined benefit plan, if such benefits were not limited, exceed those benefits the participants are entitled to receive. The SERP is unfunded. The Company recorded pension expense of $259 for the year ended October 31, 1997, an intangible pension asset of $624, and a pension liability of $883 at October 31, 1997 with respect to the SERP plan. POSTRETIREMENT BENEFIT PLANS The Company sponsors three postretirement medical plans. The plans generally cover medical expenses subject to deductibles, copayments and limits on specified coverage. For persons retired on or before January 1, 1992, the retiree's contribution to the cost of these plans varies primarily based upon the date of retirement and the respective plan. Effective January 1, 1992, the Company's contribution to the cost of coverage of employees retiring after that date has decreased gradually, until, beginning in 1997, retirees pay 100% of the cost of coverage. The Company maintains stop-loss insurance for claims exceeding $200 per person in any calendar year. The postretirement benefit plans are unfunded. The following illustrates the Company's postretirement benefit obligation:
AS OF OCTOBER 31, -------------------- 1996 1997 --------- --------- Accumulated postretirement benefit obligation: Retirees.............................................................. $ 11,418 $ 10,169 Fully eligible active participants.................................... 171 135 Other actives......................................................... 257 248 --------- --------- 11,846 10,552 Unrecognized net gain................................................... 1,901 2,818 --------- --------- Postretirement benefit obligation..................................... $ 13,747 $ 13,370 --------- --------- --------- ---------
Net periodic postretirement benefit cost includes the following components:
YEAR ENDED OCTOBER 31, ------------------------------- 1995 1996 1997 --------- --------- --------- Service cost........................................................ $ 33 $ 23 $ 34 Interest cost....................................................... 1,076 886 789 Amortization of gains............................................... -- (23) (104) --------- --------- --------- Net periodic postretirement benefit cost.......................... $ 1,109 $ 886 $ 719 --------- --------- --------- --------- --------- ---------
The weighted average annual assumed rate of increase in the per capita cost of covered benefits (I.E., health care cost trend rate) for the medical plans is 8% for fiscal 1998, and is assumed to decrease gradually to 5% by the year 2001, and remain at that level thereafter. A one-percentage point increase in F-21 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (9) EMPLOYEE BENEFITS (CONTINUED) each year would increase the accumulated postretirement benefit obligation and the net periodic postretirement benefit cost by $612 and $48, respectively. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.75% and 7.50% at October 31, 1996 and 1997, respectively. DEFINED CONTRIBUTION AND PROFIT SHARING PLANS The Company sponsors a 401(k) plan that covers substantially all salaried and hourly employees. Participants can contribute up to 15% of compensation on a before-tax basis. The Company matches 25% of the first 6% of a participant's before-tax contribution. The Company's expense representing its matching contribution was $307, $360 and $499 for the years ended October 31, 1995, 1996 and 1997, respectively. Plan assets consist primarily of investments in common stock and debt securities. On February 28, 1995, the Company adopted a profit sharing program, which covers substantially all salaried and hourly employees. The program provides for a distribution to employees equal to 15% of income before income tax expense. At management's discretion, a portion of the distribution may be made in the form of a contribution to the 401(k) plan. The remainder is paid in cash to employees. The Company's expense for the years ended October 31, 1995, 1996 and 1997 was $1,388, $3,492 and $493, respectively. FOREIGN PLANS Doe Run Peru is required to make semi-annual deposits into a bank account for severance indemnity benefits for Doe Run Peru employees under Peruvian government regulations. The balance in the account represents the full benefit due to such employees upon termination. The Company accrues for the additional amount that would be contributed to the account since the last deposit date as if all such employees were to terminate as of the balance sheet date. In accordance with government regulations in Peru, employees are entitled to receive 8% of the Doe Run Peru's taxable income, 50% of which is distributed to employees based on number of days worked, and the remaining distributed in proportion to their salaries. (10) PREFERRED STOCK (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The Company had 2,500 shares of preferred stock with a $1,000 par value authorized, issued and outstanding at October 31, 1996 and 1997. The shares are owned by Renco. The shares are redeemable solely at the option of the Company at $1,000 per share plus any unpaid dividends. Cumulative annual dividends of $80 per share are payable quarterly on the first day of January, April, July and October and must be paid before dividends on common stock can be paid. The Company declared and paid dividends of $100 per share on each of its 2,500 shares on December 30, 1996. Dividends in arrears at October 31, 1996 and 1997 were $168 and $118, respectively. At October 31, 1996 and 1997, no dividends were accrued as none had been declared. F-22 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (11) BUSINESS AND CREDIT CONCENTRATIONS Lead prices fluctuate and are affected by numerous factors beyond the Company's control, including expectations for inflation, speculative activities, the relative exchange rate of the U.S. dollar, global and regional demand and production, political and economic conditions and production costs in major producing regions. The aggregate effect of these factors makes it impossible for the Company to predict lead prices. Fluctuations in the lead price could have a material adverse effect on the results of operations, financial condition, and liquidity of the Company. For the years ended October 31, 1995, 1996 and 1997 approximately 59%, 67% and 63%, respectively, of the Company's revenues were from U.S. battery manufacturers (primarily automotive) or their suppliers. At October 31, 1996 and 1997, the accounts receivable balances related to these U.S. battery manufacturers were $39,246 and $35,162, respectively. For the years ended October 31, 1995, 1996 and 1997 the Company relied on one battery customer, Johnson Controls, Inc., for approximately 13%, 14% and 12% of its revenue, respectively. Related accounts receivable balances were $9,394 and $6,501 at October 31, 1996 and 1997, respectively. An additional 10% of revenues were attributed to East Penn Manufacturing Co., Inc., a battery manufacturer, for the year ended October 31, 1996, and Big River Zinc Corporation for the year ended October 31, 1997. No other customer accounted for greater than 10% of revenues for the year ended October 31, 1995. (12) SEGMENT INFORMATION The Company operates in one industry segment for financial reporting purposes. Doe Run Peru's net sales and income from operations were $2,571 and $359, respectively, for the period from October 23 to October 31, 1997. There were no intraenterprise sales between geographic segments during this period. Doe Run Peru's identifiable assets were $171,000 at October 31, 1997. (13) COMMITMENTS AND CONTINGENCIES INVESTMENT COMMITMENT According to the Contract described in Note 2, Doe Run Peru is obligated to invest $120,000 through October 23, 2002 to expand and modernize its operations, including certain expenditures to comply with environmental regulations in Peru, as discussed in Note 14. In the event Doe Run Peru has not fulfilled its obligations under the Contract, it will be obligated to pay in 2002 a penalty to Centromin Peru S.A. equal to 30% of any shortfall. Management plans to fund its commitments through future operating cash flows. TOLLING The Company has entered into a tolling arrangement with a major battery manufacturer whereby the manufacturer will deliver spent lead-acid batteries and other lead-bearing material to the Company's recycling facility and, for a processing fee, the Company will return finished lead metal. The agreement, which expires in September 1999, covers approximately 14% of the Company's anticipated domestic lead metal production. F-23 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (13) COMMITMENTS AND CONTINGENCIES (CONTINUED) SALES The Company has commitments to sell approximately 70% of its anticipated domestic lead production under agreements, with terms of generally less than one year. Sales prices are generally based on the London Metal Exchange prices at the time of shipment, plus a premium. HEDGING The fair market value of the Company's hedging positions at October 31, 1996 and 1997, is the difference between quoted prices at the respective period-end and the contract settlement value. The fair market value represents the estimated net cash the Company would receive (pay) if the contracts were canceled on the respective dates. As management has designated these contracts as hedges, the related gains and losses will be recognized in net sales when the related production is sold. The Company's open hedging positions at April 30, 1998 (unaudited) were (numbers not in thousands): FUTURE SALES (PURCHASE) CONTRACTS
METAL QUANTITY PRICE RANGE FAIR MARKET VALUE PERIOD - ------------------------- -------------------- ----------------------------- ----------------- --------------------- Lead..................... (22,900) tons $ 0.2384/lb. to $0.2971/lb. $ (71,328) May 98 to May 99 Copper................... 1,378 tons $ 0.7675/lb. to $0.8097/lb. $ (138,779) May 98 to Sept. 98 Zinc..................... 276 tons $ 0.6001/lb. $ 59,128 May 98 Silver................... 637,624 oz. $ 6.18 /oz. to $6.30 /oz. $ 11,034 May 98
The Company's open hedging positions at October 31, 1997 were (numbers not in thousands): FUTURES SALES CONTRACTS
METAL QUANTITY PRICE RANGE FAIR MARKET VALUE PERIOD - ------------------------- -------------- --------------------------- ----------------- --------------------- Lead..................... 5,594 tons $ 0.2716/lb. to $0.3243/lb. $ 253,391 Nov. 97 to Dec. 98 Copper................... 1,213 tons $ 0.9525/lb. to $1.0097/lb. $ 142,174 Nov. 97 to Feb. 98 Zinc..................... 2,535 tons $ 0.6001/lb. to $0.6652/lb. $ 210,744 Nov. 97 to May 98
The above commitments represent less than 20% of the Company's estimated sales for the year ending October 31, 1998. The Company's open hedging positions at October 31, 1996 were (numbers not in thousands): FUTURES SALES (PURCHASE) CONTRACTS
METAL QUANTITY PRICE RANGE FAIR MARKET VALUE PERIOD - ------------------------- --------------- --------------------------- ----------------- --------------------- Lead..................... (19,869) tons $ 0.3384/lb. to $0.3765/lb. $ 54,692 Nov. 96 to Oct. 97 Copper................... 2,811 tons $ 0.8573/lb. to $1.1290/lb. $ 687,136 Nov. 96 to Mar. 97 Zinc..................... 6,063 tons $ 0.4990/lb. to $0.5026/lb. $ 259,087 Nov. 96 to Jan. 97
SOLD CALL OPTION CONTRACTS
METAL QUANTITY PRICE RANGE FAIR MARKET VALUE PERIOD - ------------------------------------------- ----------- ------------ --------------------- --------------------- Lead....................................... 2,576 tons $ 0.3600/lb. -- Nov. 96 to Dec. 96
The Company is exposed to risk from market price fluctuations to the extent it cannot meet anticipated sales. The Company does not obtain collateral or other security to support hedge instruments subject to credit risk, but assesses the reliability and reputation of its counterparties before contracts are established. F-24 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (13) COMMITMENTS AND CONTINGENCIES (CONTINUED) LETTERS OF CREDIT At October 31, 1996 and 1997, the Company's lender had issued irrevocable standby letters of credit totaling $5,342 and $6,100, respectively, in connection with the Company's insurance and bonding activities. At October 31, 1997, the Company's lender had issued a $3,300 standby letter of credit as a guarantee for a potential purchase price adjustment related to the acquisition of Metaloroya, as required by the Contract. EMPLOYMENT AGREEMENTS The Company has employment agreements with a number of its senior executives through October 31, 1999. ADDITIONAL PAYMENTS RELATED TO ACQUISITIONS The terms of an agreement with the previous owners of The Doe Run Company (predecessor to the Company) provided that, beginning with the fiscal period ending October 31, 1994, additional payments may be required based on a percentage of gross margin for those periods in excess of a specified base amount. Payments made under the agreement were $237 and $5,778 in the fiscal years ended October 31, 1996 and 1997, respectively. In conjunction with the retirement of the obligations due to the previous owners, the amount paid exceeded recorded obligations by $5,108. This amount was recorded as additional purchase price paid for the assets of the Company acquired from the previous owners. The Company was released from further obligation under the agreement. Pursuant to an Asset Purchase Agreement (the "Purchase Agreement") additional consideration may be due to the former owners of Seafab if certain earnings levels are met for the five-year period beginning November 1, 1996. Payments made in fiscal 1997 totaled $181. (14) ENVIRONMENTAL AND LITIGATION MATTERS ENVIRONMENTAL DOMESTIC OPERATIONS Doe Run is subject to numerous federal, state and local environmental laws and regulations governing, among other things, air emissions, waste water discharge, solid and hazardous waste treatment, and storage, disposal and remediation of releases of hazardous materials. In common with much of the mining industry, Doe Run's facilities are located on sites that have been used for heavy industrial purposes for decades and may require remediation. Doe Run has made and intends to continue making the necessary expenditures for environmental remediation and compliance with environmental laws and regulations. Environmental laws and regulations may become more stringent in the future which could increase costs of compliance. The Company has recorded a liability of $35,527 as of October 31, 1997, which represents management's best estimate of known obligations relating to environmental and reclamation matters, which are discussed below. Primary smelter slag produced by and stored at the primary smelter in Herculaneum, Missouri is currently exempt from hazardous waste regulation under the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"). The Company has accrued approximately $1,200 related to the Herculaneum F-25 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED) smelter's operations, primarily for closure obligations. However, the EPA recently published a proposed rule, which, if adopted, would require this slag to be managed as a hazardous waste. Certain other waste materials, including baghouse dust, generated at the smelter and now recycled in the smelter may also become regulated as hazardous wastes. At this time, the Company cannot predict the final outcome of the EPA's proposed rule. However, the EPA has indicated, notwithstanding the full RCRA requirements, the rule will not be imposed, in particular, that the slag will not be regulated. If the slag or other wastes at the smelter were to be regulated as hazardous waste, the Company may be required to take corrective action under RCRA at the smelter, as well as to adopt stricter management practices for these wastes. The Company is working with regulators at the Herculaneum smelter to develop a new three-year compliance plan to meet the ambient air quality standard for lead promulgated under the federal Clean Air Act. The plan will take effect after fiscal 1998 to implement control measures identified in the plan. The Company expects to make capital expenditures for additional control measures totaling approximately $2,800 for fiscal 1998 while the plan is developed and anticipates future cash requirements of $3,000 for the three-year plan. Doe Run has received notice that it is a potentially responsible party ("PRP") subject to liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), at four sites in St. Francois County, Missouri: the Big River Mine Tailings Site, the Bonne Terre Site, the Federal site, and the National site; the Oronogo-Durenweg site in Jasper County, Missouri; the Cherokee County site in Cherokee County, Kansas; the Tar Creek site in Ottawa County, Oklahoma; the Block "P" site in Cascade County, Montana; and the Missouri Electric Works site in Cape Girardeau, Missouri. In addition, there are four sites in St. Francois County for which the EPA has indicated it will issue notice. These sites involve historical operations of predecessors of the Company. CERCLA provides for strict and, in certain circumstances, joint and several liability for response costs and natural resource damages. Doe Run signed a voluntary Administrative Order of Consent ("AOC") in 1994 with the EPA to remediate the Big River Mine Tailings Site. In February 1997, Doe Run signed an AOC to perform an Engineering Evaluation/Cost Analysis on the Bonne Terre Site. In addition to remediating the mine waste areas at these sites, the Company has signed an AOC with the EPA to conduct a Remedial Investigation/ Feasibility Study ("RIFS") to assess potential off-site impacts of site operations on and the need for remediation regarding groundwater, residential soils, several creeks and a river. The RIFS is being conducted by a third party and is approximately one-third complete, with completion expected within one year. The Block "P" site in Montana was a polymetallic mine with a waste facility located on U.S. Forest Service land. Studies of the tailings site, mine and the potential impacts on surface water have been requested by the State of Montana. The Company has a reserve as of October 31, 1997 of approximately $17,800 for these sites, including the four additional sites in St. Francois County. The Company has been advised by the EPA that it is considering taking certain response actions at a mine site in Madison County, Missouri known as the LaMotte Site. A predecessor of the Company was a former operator of the site. The EPA has not decided whether any action will be taken, but held a meeting with the Company and two other PRPs at the site on June 17, 1998 to discuss possible future response actions. This site is substantially smaller than the sites in St. Francois County where the Company has been named a PRP, and the potential issues are less complex. At this time, based on this preliminary meeting and an inspection of the site, management does not believe that any future action will result in a material adverse impact to the results of operations, financial condition and liquidity of the Company. F-26 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED) Doe Run's recycling facility is subject to corrective action requirements under RCRA, as a result of a storage permit for certain wastes issued in 1989. This has required and may involve future remediation of solid waste management units at the site. Although it is not possible to predict whether completed actions will be approved or new actions required, the Company has reserves as of October 31, 1997 of approximately $1,900 for future corrective actions and $2,600 for closure costs for the permitted storage area. The Company's domestic operating facilities have wastewater discharge permits issued under the federal Clean Water Act, as amended. It is expected that stricter discharge limits than previously in effect will be included in permits now subject to renewal. As a result, there will be additional treatment facilities required, with anticipated total capital expenditures of $4,000 over the next five years to meet applicable permit requirements. There will be no appreciable increase in operating costs. The Company's mining and milling operations include five mine waste disposal facilities that are subject to Missouri mine closure permit requirements. The total expected cost of closure is $11,000. The Company has begun certain closure requirements ahead of closure and is also accruing for the cost of ultimate closure at a rate of approximately $300 per year. The Company's mine closure reserves were approximately $4,800 as of October 31, 1997. FOREIGN OPERATIONS Doe Run Peru has negotiated a capital spending plan with the Peruvian government to invest $107,575 during the next nine years to meet its obligations under the Programa de Adecuacion y Manejo Ambiental (Environmental Adjustment and Management Program) (the "PAMA") as follows:
ESTIMATED YEAR COSTS - ---------------------------------------------------------------------------------- ---------- 1998.............................................................................. $ 2,700 1999.............................................................................. 3,612 2000.............................................................................. 4,963 2001.............................................................................. 3,300 2002.............................................................................. 3,000 2003.............................................................................. 3,800 2004.............................................................................. 2,775 2005.............................................................................. 38,700 2006.............................................................................. 44,725 ---------- $ 107,575 ---------- ----------
According to the Contract, the Company has the option to continue the use of Doe Run Peru's existing zinc ferrite disposal site for three years, after which it can take ownership of the site or create a new site. If the Company chooses to take ownership of the site, it will be responsible for its closure costs. The Company has accrued for management's estimate of the closure costs, or $7,200. If the Company abandons the ferrite site, it must pay this amount to Centromin Peru S.A. CONSOLIDATED The Company believes its reserves for domestic and foreign environmental and reclamation matters are adequate, based on the information available. Depending upon the type and extent of remediation activities required, costs in excess of established reserves are reasonably possible. Therefore, there can be F-27 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED) no assurance that additional costs, both individually and in the aggregate, would not have a material adverse effect on the results of operations, financial condition and liquidity of the Company. LITIGATION The Company is a defendant in several lawsuits alleging certain damages stemming from the operations at the Herculaneum smelter. Two of these cases are class action lawsuits. In one case, the plaintiffs seek to have certified two separate classes. The first class would consist of property owners in a certain section of Herculaneum, alleging that property values have been damaged due to the operations of the smelter. The second class alleged is comprised of children who lived in Herculaneum during a period of time when they were six months to six years old, and the remedy sought is medical monitoring for the class. The second class action similarly is seeking certification of a class of property owners allegedly damaged by operations from the smelter, but the purported size of the class is every home in Herculaneum, Missouri. The other two cases are personal injury actions by fourteen individuals who allege damages from the effects of lead poisoning due to operations at the smelter. Punitive damages also are being sought in each case. The Company is vigorously defending all of these claims. Preliminary investigation and research by the Company indicates property values in Herculaneum are consistent with those of surrounding communities and have not been affected by the smelter. Finally, based on rules for class certification, the Company believes class certification is not appropriate. However, because the cases are in the early stages of discovery, the Company is unable at this time to state with certainty the expected outcome of and the final costs of any of these cases. Therefore, there can be no assurance that these cases would not have a material adverse effect, both individually and in the aggregate, on the results of operations, financial condition and liquidity of the Company. (15) SUBSEQUENT EVENTS On March 12, 1998, the Company completed the sale of $200,000 11.25% Senior Notes due 2005 (the "Fixed Rate Notes") and $55,000 Floating Interest Rate Senior Notes due 2003 (collectively, the "Notes"). The Notes are guaranteed by certain subsidiaries of the Company (see Note 16). The Company used $125,000 of the proceeds from the Notes to make a deposit (the "Special Term Deposit") in a bank, which in turn loaned such amount (the "Back-to-Back Loan") to Doe Run Mining. The Special Term Deposit and the Back-to-Back Loan have payment terms that match the timing and amount of the payments on $125,000 of the Fixed Rate Notes, except that additional interest of 0.50% for the first six months and 0.25% thereafter through September 11, 2004 is payable on the Back-to-Back Loan. The Back-to-Back Loan is collateralized by the Special Term Deposit. Doe Run Mining used the proceeds of the Back-to-Back Loan to repay the $100,000 balance on the $225,000 term loan, plus accrued interest thereon of $1,004, repay the $23,000 subordinated note to the Company and pay fees of $313. The remaining $130,000 of the proceeds of the Notes, plus the $23,000 repayment of the subordinated note by Doe Run Mining, were used by the Company to: (i) repay principal and interest on the $130,000 term loan of $128,125 and $1,127, respectively, (ii) repay the revolving loan balance of $14,444, (iii) pay Renco $5,000 to redeem the $2,500 preferred stock, plus accrued dividends thereon of $189, and a transaction fee of $2,311 and (iv) pay related fees and expenses of $6,553. As a result of these transactions, the Company recognized an extraordinary loss of approximately $6,607, net of income tax benefit of $143. F-28 THE DOE RUN RESOURCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (16) GUARANTOR SUBSIDIARIES The Guarantor Subsidiaries (Fabricated Products, Inc. ("FPI") and Doe Run Cayman and its subsidiaries, Doe Run Mining S.R. Ltda. ("Doe Run Mining") and Doe Run Peru) have jointly and severally, fully and unconditionally guaranteed the Notes. Each of the Guarantor Subsidiaries is a wholly owned direct or indirect subsidiary of the Company, except Doe Run Peru which is over 99.97% owned indirectly by the Company, with a de minimis number of shares owned by employees of Centromin pursuant to Peruvian law. Financial information regarding the Guarantor Subsidiaries as of October 31, 1997 and April 30, 1998, the year ended October 31, 1997 and the six months ended April 30, 1998 is presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. FPI was incorporated in August 1996, and its operations were not material to the results of operations of the Company for the year ended October 31, 1996. Separate financial statements and other disclosures concerning each Guarantor Subsidiary and disclosures concerning non-Guarantor Subsidiaries have not been presented because management has determined that such information is not material to investors. F-29 (16) GUARANTOR SUBSIDIARIES (CONTINUED) CONSOLIDATING BALANCE SHEETS OCTOBER 31, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THE COMPANY EXCLUDING GUARANTOR DOE RUN CAYMAN SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY ------------- --------- ---------------- ------------ ------------- ASSETS Current assets: Cash.................................. $ 1,579 $ -- $ 7,364 $ -- $ 8,943 Trade accounts receivable, net of allowance for doubtful accounts..... 46,016 6,416 390 (352) 52,470 Inventories........................... 27,597 2,104 59,032 (85) 88,648 Prepaid expenses and other current assets.............................. 2,272 239 2,752 -- 5,263 Due from subsidiaries................. 29,878 -- -- (29,878) -- Net deferred tax assets............... -- -- 69 -- 69 ------------- --------- ---------------- ------------ ------------- Total current assets................ 107,342 8,759 69,607 (30,315) 155,393 Property, plant and equipment, net...... 104,822 3,787 97,739 -- 206,348 Net deferred tax assets................. 7,481 -- -- -- 7,481 Other noncurrent assets, net............ 11,260 335 3,623 -- 15,218 Investment in subsidiaries.............. 4,000 -- -- (4,000) -- ------------- --------- ---------------- ------------ ------------- Total assets........................ $ 234,905 $ 12,881 $ 170,969 $ (34,315) $ 384,440 ------------- --------- ---------------- ------------ ------------- ------------- --------- ---------------- ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt................................ $ 8,345 $ -- $ 4,000 $ -- $ 12,345 Accounts payable...................... 15,583 2,704 23,151 (352) 41,086 Accrued liabilities................... 18,510 383 10,000 -- 28,893 Net deferred tax liabilities.......... 7,481 -- -- -- 7,481 Due to parent......................... -- -- 24,743 (24,743) -- ------------- --------- ---------------- ------------ ------------- Total current liabilities........... 49,919 3,087 61,894 (25,095) 89,805 Long-term debt, less current maturities............................ 123,395 -- 99,000 -- 222,395 Postretirement benefits................. 12,455 -- -- -- 12,455 Reclamation and environmental costs..... 24,485 -- 7,200 -- 31,685 Due to parent........................... -- 5,135 -- (5,135) -- Other noncurrent liabilities............ 10,392 2,388 1,146 -- 13,926 ------------- --------- ---------------- ------------ ------------- Total liabilities................... 220,646 10,610 169,240 (30,230) 370,266 Shareholders' equity: Preferred stock, $1,000 par value, 2,500 shares issued, authorized and outstanding; liquidation and redemption value of $2,618 on October 31, 1997.................... 2,500 -- -- -- 2,500 Common stock, $.10 par value, 1,000 shares authorized, issued, and outstanding......................... -- -- -- -- -- Common stock, $1 par value, 1,000 shares authorized, issued and outstanding......................... -- 1 -- (1) -- Common stock, $1 par value, 2,005,000 shares authorized, issued and outstanding......................... -- -- 2,005 (2,005) -- Additional paid in capital............ 5,000 935 -- (935) 5,000 Retained earnings..................... 6,759 1,335 (276) (1,144) 6,674 ------------- --------- ---------------- ------------ ------------- Total shareholders' equity.......... 14,259 2,271 1,729 (4,085) 14,174 ------------- --------- ---------------- ------------ ------------- Total liabilities and shareholders' equity.............................. $ 234,905 $ 12,881 $ 170,969 $ (34,315) $ 384,440 ------------- --------- ---------------- ------------ ------------- ------------- --------- ---------------- ------------ -------------
F-30 (16) GUARANTOR SUBSIDIARIES (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 1997 (DOLLARS IN THOUSANDS)
THE COMPANY EXCLUDING GUARANTOR DOE RUN CAYMAN SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY ------------- ----------- ---------------- ------------ ------------- Net sales.............................. $ 257,243 $ 23,338 $ 2,571 $ (2,685) $ 280,467 Costs and expenses: Cost of sales........................ 214,742 20,194 2,027 (2,612) 234,351 Depletion, depreciation and amortization....................... 14,091 476 151 -- 14,718 Selling, general and administrative expenses, including related party management fees of $1,200 per year............................... 10,005 920 34 -- 10,959 Exploration expense.................. 2,705 -- -- -- 2,705 ------------- ----------- ------- ------------ ------------- Total costs and expenses......... 241,543 21,590 2,212 (2,612) 262,733 ------------- ----------- ------- ------------ ------------- Income from operations........... 15,700 1,748 359 (73) 17,734 Other income (expense): Interest expense..................... (13,038) (445) (257) -- (13,740) Interest income...................... 21 -- -- -- 21 Other, net........................... 127 (136) (28) -- (37) Equity in earnings of subsidiaries... 887 -- -- (887) -- ------------- ----------- ------- ------------ ------------- (12,003) (581) (285) (887) (13,756) ------------- ----------- ------- ------------ ------------- Income before income taxes....... 3,697 1,167 74 (960) 3,978 Income tax expense..................... 3,977 4 350 -- 4,331 ------------- ----------- ------- ------------ ------------- Income before extraordinary item........................... (280) 1,163 (276) (960) (353) (1,062) -- -- -- (1,062) ------------- ----------- ------- ------------ ------------- Net income (loss)................ $ (1,342) $ 1,163 $ (276) $ (960) $ (1,415) ------------- ----------- ------- ------------ ------------- ------------- ----------- ------- ------------ -------------
F-31 (16) GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR ENDED OCTOBER 31, 1997 (DOLLARS IN THOUSANDS)
THE COMPANY EXCLUDING GUARANTOR DOE RUN CAYMAN SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY ------------- --------- ---------------- ------------- ------------- Net cash provided by operating activities.............................. $ 12,040 $ 1,585 $ 4,395 $ -- $ 18,020 Cash flows from investing activities: Purchases of property, plant and equipment............................. (12,414) (933) (129) -- (13,476) Payment for acquisitions................ (5,227) -- (123,015) -- (128,242) Investment in subsidiary................ (2,005) -- -- 2,005 -- ------------- --------- -------- ------ ------------- Net cash used in investing activities.......................... (19,646) (933) (123,144) 2,005 (141,718) Cash flows from financing activities: Proceeds from (payments on) revolving loan, net............................. (9,399) -- 3,000 -- (6,399) Proceeds from long-term debt............ 140,945 -- 225,000 -- 365,945 Payments on long-term debt.............. (87,453) -- (125,000) -- (212,453) Payment of deferred financing costs..... (4,938) -- (3,635) -- (8,573) Loans from parent....................... (24,091) (652) 24,743 -- -- Extraordinary item related to retirement of debt............................... (638) -- -- -- (638) Cash received from issuance of stock.... -- -- 2,005 (2,005) -- Payment of dividends.................... (5,241) -- -- -- (5,241) ------------- --------- -------- ------ ------------- Net cash provided by (used in) financing activities................ 9,185 (652) 126,113 (2,005) 132,641 ------------- --------- -------- ------ ------------- Net increase in cash.................. 1,579 -- 7,364 -- 8,943 Cash at beginning of period............... -- -- -- -- -- ------------- --------- -------- ------ ------------- Cash at end of period..................... $ 1,579 $ -- $ 7,364 $ -- $ 8,943 ------------- --------- -------- ------ ------------- ------------- --------- -------- ------ -------------
F-32 (16) GUARANTOR SUBSIDIARIES (CONTINUED) CONSOLIDATING BALANCE SHEETS AS OF APRIL 30, 1998 (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THE COMPANY EXCLUDING GUARANTOR DOE RUN CAYMAN SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY --------------- --------- ----------------- ------------ ------------- ASSETS Current assets: Cash...................................... $ -- $ -- $ 12,142 $ -- $ 12,142 Trade accounts receivable, net of allowances for doubtful accounts........ 38,599 4,594 23,767 (33) 66,927 Inventories............................... 34,509 2,167 64,308 (117) 100,867 Prepaid expenses and other current assets.................................. 7,097 188 27,387 (5,129) 29,543 Due from subsidiary....................... 19,989 -- -- (19,989) -- --------------- --------- -------- ------------ ------------- Total current assets.................... 100,194 6,949 127,604 (25,268) 209,479 Property, plant and equipment, net.......... 103,283 6,663 95,921 -- 205,867 Special term deposit........................ 125,000 -- -- -- 125,000 Net deferred tax assets..................... 9,761 -- (616) -- 9,145 Other noncurrent assets, net................ 16,637 440 310 -- 17,387 Investment in subsidiaries.................. 14,007 -- -- (14,007) -- --------------- --------- -------- ------------ ------------- Total assets............................ $ 368,882 $ 14,052 $ 223,219 $ (39,275) $ 566,878 --------------- --------- -------- ------------ ------------- --------------- --------- -------- ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt............ $ 895 $ -- $ 5,000 -- $ 5,895 Accounts payable.......................... 10,276 1,809 38,673 (33) 50,725 Accrued liabilities....................... 27,167 270 20,475 (5,129) 42,783 Net deferred tax liabilities................ 7,833 -- 1,634 -- 9,467 Due to parent............................. -- 8,582 11,407 (19,989) -- --------------- --------- -------- ------------ ------------- Total current liabilities............... 46,171 10,661 77,189 (25,151) 108,870 Long-term debt, less current maturities..... 259,681 -- 125,000 -- 384,681 Postretirement benefits..................... 12,608 -- -- -- 12,608 Reclamation and environmental costs......... 23,885 -- 7,200 -- 31,085 Other noncurrent liabilities................ 10,544 1,965 1,249 -- 13,758 --------------- --------- -------- ------------ ------------- Total liabilities....................... 352,889 12,626 210,638 (25,151) 551,002 Shareholders' equity: Common stock, $.10 par value, 1,000 shares authorized, issued, and outstanding..... -- 0 -- -- -- Common stock, $1 par value, 1,000 shares authorized, issued and outstanding...... -- 1 -- (1) -- Common stock, $1 par value, 2,005,000 shares authorized, issued and outstanding............................. -- -- 2,005 (2,005) -- Additional paid in capital................ 5,000 935 -- (935) 5,000 Retained earnings......................... 10,993 490 10,576 (11,183) 10,876 --------------- --------- -------- ------------ ------------- Total shareholders' equity.............. 15,993 1,426 12,581 (14,124) 15,876 --------------- --------- -------- ------------ ------------- Total liabilities and shareholders' equity................................ $ 368,882 $ 14,052 $ 223,219 $ (39,275) $ 566,878 --------------- --------- -------- ------------ ------------- --------------- --------- -------- ------------ -------------
F-33 (16) GUARANTOR SUBSIDIARIES (CONTINUED) CONSOLIDATING STATEMENTS OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED) (DOLLARS IN THOUSANDS)
THE COMPANY EXCLUDING GUARANTOR DOE RUN CAYMAN SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY -------------- --------- ---------------- ------------ ------------- Net sales............................... $ 119,006 $ 7,827 $ 227,359 $ (10,787) $ 343,405 Costs and expenses: Cost of sales....................... 97,090 7,322 181,631 (2,938) 283,105 Depletion, depreciation and amortization...................... 7,786 279 3,396 -- 11,461 Selling, general and administrative expenses.......................... 7,935 712 16,870 (7,817) 17,700 Exploration expenses................ 1,599 -- -- -- 1,599 -------------- --------- -------- ------------ ------------- Total costs and expenses.......... 114,410 8,313 201,897 (10,755) 313,865 -------------- --------- -------- ------------ ------------- Income from operations............ 4,596 (486) 25,462 (32) 29,540 Other income (expense): Interest expense.................... (8,838) (311) (5,667) 311 (14,505) Interest income..................... 2,214 -- 456 (311) 2,359 Other, net.......................... (241) (32) (362) -- (635) Equity in earnings of subsidiaries...................... 10,007 -- -- (10,007) -- -------------- --------- -------- ------------ ------------- 3,142 (343) (5,573) (10,007) (12,781) -------------- --------- -------- ------------ ------------- Income (loss) before income taxes and extraordinary item.......... 7,738 (829) 19,889 (10,039) 16,759 Income tax expense (benefit)............ (923) 16 6,668 -- 5,761 -------------- --------- -------- ------------ ------------- Income (loss) before extraordinary item.............................. 8,661 (845) 13,221 (10,039) 10,998 Extraordinary item.................. (4,238) -- (2,369) -- (6,607) -------------- --------- -------- ------------ ------------- Net income (loss)................. $ 4,423 $ (845) $ 10,852 $ (10,039) $ 4,391 -------------- --------- -------- ------------ ------------- -------------- --------- -------- ------------ -------------
F-34 (16) GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED) (DOLLARS IN THOUSANDS)
THE COMPANY EXCLUDING GUARANTOR DOE RUN CAYMAN SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY -------------- --------- ---------------- ------------ ------------- Net cash provided by (used in) operating activities.................. $ 15,626 $ (324) $ (7,038) $ (10,007) $ (1,743) Cash flows from investing activities: Special term deposit............... (125,000) -- -- -- (125,000) Purchases of property, plant and equipment........................ (6,248) (3,124) (1,536) -- (10,908) Investment in subsidiary........... (10,007) -- -- 10,007 -- -------------- --------- -------- ------------ ------------- Net cash used in investing activities....................... (141,255) (3,124) (1,536) 10,007 (135,908) Cash flows from financing activities: Proceeds from (payments on) revolving loan, net.............. 4,681 -- (3,000) -- 1,681 Proceeds from short-term borrowings....................... -- -- 5,000 -- 5,000 Proceeds from long-term debt....... 255,000 -- 125,000 -- 380,000 Payments on long-term debt......... (130,845) -- (100,000) -- (230,845) Payment of deferred financing costs............................ (11,985) -- (312) -- (12,297) Loan from parent................... 9,888 3,448 (13,336) -- -- Payment of dividends............... (189) -- -- -- (189) Redemption of preferred stock...... (2,500) -- -- -- (2,500) -------------- --------- -------- ------------ ------------- Net cash provided by financing activities....................... 124,050 3,448 13,352 -- 140,850 -------------- --------- -------- ------------ ------------- Net increase (decrease) in cash.... (1,579) -- 4,778 -- 3,199 Cash at beginning of period............ 1,579 -- 7,364 -- 8,943 -------------- --------- -------- ------------ ------------- Cash at end of period.................. $ -- $ -- $ 12,142 $ -- $ 12,142 -------------- --------- -------- ------------ ------------- -------------- --------- -------- ------------ -------------
F-35 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors Empresa Minera del Centro del Peru S.A.--Centromin Peru S.A.: We have audited the accompanying statements of assets and liabilities of La Oroya Metallurgical Complex (La Oroya), a division of the Peruvian state-owned corporation Empresa Minera del Centro del Peru S.A.--Centromin Peru S.A. (Centromin), as of December 31, 1995 and 1996 and October 23, 1997 and the related statements of revenues and expenses, changes in net assets and cash flows for each of the years in the three-year period ended December 31, 1996 and the period from January 1 to October 23, 1997. These financial statements are the responsibility of Centromin's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As explained in Note 2, the above financial statements which have been prepared from Centromin's accounting records, remeasured into U.S. dollars and prepared following generally accepted accounting principles in the United States of America, are intended to reflect separately the assets, liabilities, revenues and expenses of La Oroya, as if La Oroya had operated as a separate entity and applying certain allocations by Centromin on the basis described in Note 4 and therefore, they may not necessarily reflect the financial position and results of operations of La Oroya as if it were effectively a separate legal entity for the periods indicated above. In our opinion, the financial statements referred to above, present fairly, for the purpose described in the preceding paragraph, the assets and liabilities of La Oroya as of December 31, 1995 and 1996 and October 23, 1997, and its revenues and expenses and cash flows for each of the years in the three-year period ended December 31, 1996 and the period from January 1 to October 23, 1997, in conformity with accounting principles generally accepted in the United States of America. MEDINA, ZALDIVAR Y ASOCIADOS, a member firm of Andersen Worldwide SC Countersigned by: Marco Antonio Zaldivar C.P.C. Register 12477 Lima, Peru December 5, 1997 F-36 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION STATEMENTS OF ASSETS AND LIABILITIES (IN THOUSANDS OF U.S. DOLLARS)
AS OF DECEMBER 31, AS OF ---------------------- OCTOBER 23, 1995 1996 1997 ---------- ---------- ----------- ASSETS CURRENT ASSETS: Cash and deposits in banks................................................. $ 62 $ 582 $ 79 Trade accounts receivable.................................................. 15,335 30,277 10,423 Inventory: Refined metals and concentrates for sale................................. 12,333 8,930 14,115 Metal and concentrates in process........................................ 74,175 43,555 43,007 Materials, supplies and spare parts...................................... 28,488 8,303 11,226 ---------- ---------- ----------- 114,996 60,788 68,348 ---------- ---------- ----------- Prepaid expenses........................................................... 2,524 1,591 1,922 ---------- ---------- ----------- Total current assets................................................... 132,917 93,238 80,772 ---------- ---------- ----------- DEFERRED TAX AND WORKERS' PROFIT SHARING..................................... -- 4,262 2,853 PROPERTY, PLANT AND EQUIPMENT, net........................................... 55,557 50,814 46,145 ---------- ---------- ----------- Total assets................................................................. $ 188,474 $ 148,314 $ 129,770 ---------- ---------- ----------- ---------- ---------- ----------- LIABILITIES AND NET ASSETS CURRENT LIABILITIES: Bank loans................................................................. $ 19,626 $ 15,068 -- Accounts payable........................................................... 17,810 9,026 $ 16,732 Remuneration and taxes payable............................................. 5,275 4,709 4,535 Advances from customers.................................................... 7,925 10,750 -- Accrued liabilities........................................................ 3,266 4,477 2,369 Severance indemnities...................................................... 21,228 2,186 1,185 Deposits of personnel's severance indemnities.............................. 3,579 1,973 -- Current portion of environmental liabilities............................... -- 730 2,530 ---------- ---------- ----------- Total current liabilities.............................................. 78,709 48,919 27,351 ---------- ---------- ----------- DEFERRED TAX AND WORKERS' PROFIT SHARING..................................... 2,098 -- -- ENVIRONMENTAL LIABILITIES, net of current portion............................ -- 20,820 19,020 ---------- ---------- ----------- Total liabilities...................................................... 80,807 69,739 46,371 ---------- ---------- ----------- NET ASSETS................................................................... 107,667 78,575 83,399 ---------- ---------- ----------- Total liabilities and net assets............................................. $ 188,474 $ 148,314 $ 129,770 ---------- ---------- ----------- ---------- ---------- -----------
The accompanying notes are an integral part of these financial statements. F-37 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION STATEMENTS OF REVENUES AND EXPENSES (IN THOUSANDS OF U.S. DOLLARS)
FOR THE PERIOD FOR THE YEARS ENDED DECEMBER 31, JANUARY 1 TO ---------------------------------- OCTOBER 23, 1994 1995 1996 1997 ---------- ---------- ---------- ------------ NET SALES...................................................... $ 367,057 $ 450,929 $ 456,797 $ 352,805 OPERATING COSTS AND EXPENSES: Costs of sales............................................... 339,302 397,524 397,158 305,959 Depreciation and amortization................................ 4,448 4,729 5,353 4,730 Administrative and general................................... 4,569 4,479 5,660 5,223 Selling and marketing........................................ 5,715 5,972 6,669 4,808 Workers' profit sharing...................................... 813 2,995 1,197 2,284 Personnel reduction costs.................................... -- 2,504 3,894 1,490 ---------- ---------- ---------- ------------ 354,847 418,203 419,931 324,494 ---------- ---------- ---------- ------------ Operating income......................................... 12,210 32,726 36,866 28,311 ---------- ---------- ---------- ------------ OTHER INCOME (EXPENSES): Interest and bank charges.................................... (6,784) (2,100) (3,332) (832) Exchange gains, net.......................................... 3,840 2,050 1,884 269 Other, net (see Note 15)..................................... (4,242) (3,848) (25,401) (1,486) ---------- ---------- ---------- ------------ (7,186) (3,898) (26,849) (2,049) ---------- ---------- ---------- ------------ Income before provision for income tax................... 5,024 28,828 10,017 26,262 PROVISION FOR INCOME TAX....................................... 2,803 10,332 4,128 7,879 ---------- ---------- ---------- ------------ Net income............................................... $ 2,221 $ 18,496 $ 5,889 $ 18,383 ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------
The accompanying notes are an integral part of these financial statements. F-38 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS OF U.S. DOLLARS)
NET ASSETS ---------- BALANCE AS OF JANUARY 1, 1994......................................................................... $ 123,901 Net income.......................................................................................... 2,221 Transfers to Centromin.............................................................................. (61,632) ---------- BALANCE AS OF DECEMBER 31, 1994....................................................................... 64,490 Net income.......................................................................................... 18,496 Transfers from Centromin............................................................................ 24,681 ---------- BALANCE AS OF DECEMBER 31, 1995....................................................................... 107,667 Net income.......................................................................................... 5,889 Transfers to Centromin.............................................................................. (34,981) ---------- BALANCE AS OF DECEMBER 31, 1996....................................................................... 78,575 Net income.......................................................................................... 18,383 Transfers to Centromin.............................................................................. (13,559) ---------- BALANCE AS OF OCTOBER 23, 1997........................................................................ $ 83,399 ---------- ----------
The accompanying notes are an integral part of these financial statements. F-39 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS)
FOR THE PERIOD FOR THE YEARS ENDED DECEMBER 31, JANUARY 1 TO ---------------------------------- OCTOBER 23, 1994 1995 1996 1997 ---------- ---------- ---------- ------------ OPERATING ACTIVITIES: Net income................................................. $ 2,221 $ 18,496 $ 5,889 $ 18,383 Add (less): Depreciation and amortization.......................... 4,448 4,729 5,353 4,730 Deferred provision (benefit) of income tax and workers' profit sharing....................................... 692 1,406 (6,360) 1,409 Increase in environmental liabilities.................. -- -- 21,550 -- Other.................................................. 337 (1,281) (610) (61) Net changes in assets and liabilities: Decrease (increase) in trade accounts receivables...... 11,325 1,679 (14,942) 19,854 Decrease (increase) in inventory....................... 26,686 (35,035) 54,208 (7,560) Decrease (increase) in prepaid expenses................ 423 926 933 (331) Increase (decrease) in accounts payable................ 16,972 (8,786) (8,784) 7,706 Increase (decrease) in remuneration and taxes payable.............................................. 386 1,210 (566) (174) Advances from (payments to) customers, net............. 2,302 (3,749) 2,825 (10,750) Increase (decrease) in accrued liabilities............. 2 1,004 1,211 (2,108) Decrease in severance indemnities...................... (51) (5,324) (19,042) (1,001) Increase (decrease) in deposits of personnel's severance indemnities................................ 143 3,579 (1,606) (1,973) ---------- ---------- ---------- ------------ Net cash provided by (used in) operating activities...... 65,886 (21,146) 40,059 28,124 ---------- ---------- ---------- ------------ FINANCING ACTIVITIES: Repayments of bank loans, net.............................. (4,262) (3,534) (4,558) (15,068) Transfers (to) from Centromin.............................. (61,632) 24,681 (34,981) (13,559) ---------- ---------- ---------- ------------ Net cash provided by (used in) financing activities........ (65,894) 21,147 (39,539) (28,627) ---------- ---------- ---------- ------------ NET INCREASE (DECREASE) IN CASH AND DEPOSITS IN BANKS........ (8) 1 520 (503) CASH AND DEPOSITS IN BANKS AT BEGINNING OF THE PERIOD........ 69 61 62 582 ---------- ---------- ---------- ------------ CASH AND DEPOSITS IN BANKS AT THE END OF THE PERIOD.......... $ 61 $ 62 $ 582 $ 79 ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------ CASH FLOWS ADDITIONAL INFORMATION Interest paid.............................................. $ 6,163 $ 2,096 $ 3,017 $ 1,776 Income tax paid (see Note 3)............................... $ -- $ -- $ -- $ -- ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------
The accompanying notes are an integral part of these financial statements. F-40 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (1) BUSINESS AND DISPOSITION The metallurgical complex of La Oroya (hereinafter "La Oroya") a division of Empresa Minera del Centro del Peru S.A.--Centromin Peru S.A. (hereinafter "Centromin") is engaged in the smelting and refining of polymetalic concentrates and marketing and sale of refined metals. La Oroya primarily smelts and refines the concentrates of polymetalic ores from the mining units of Centromin, which include copper, lead and zinc. The operations of La Orya are conducted through the Centromin organization systems, which include administrative, legal, operating tasks, and all other necessary functions that support its operations. Centromin is engaged in mining activities as specified by the General Mining Law (Supreme Decree 014-92-EM), as well as in industrial activities necessary to sustain mining operations. On October 23, 1997, Centromin Peru S.A. contributed certain assets and liabilities of La Oroya to a newly formed company, Metaloroya S.A. ("Metaloroya"), in exchange for shares in Metaloroya. Concurrent with the transfer, Centromin sold all of the shares received to Doe Run Peru S.R. Ltda. ("Doe Run Peru"), a wholly owned subsidiary of Doe Run Mining S.R. Ltda., an indirect wholly owned subsidiary of The Doe Run Resources Corporation. (2) BASIS OF PRESENTATION The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements of La Oroya division have been prepared in accordance with the accounting principles generally accepted in the United States of America ("U.S. GAAP"), which differ in certain significant respects from generally accepted accounting principles in Peru. In addition, these financial statements were prepared based on Centromin's accounting records related to the metallurgical complex of La Oroya as if La Oroya had operated as a separate entity and applying certain allocation methodologies, as specified in Note 4. Unless otherwise indicated, all amounts in the financial statements and in these notes are presented in thousands of U.S. dollars (US$). (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVENTORY Inventory is stated at the lower of cost or net realized value. The cost of refined metals and concentrates for sale, as well as metal and concentrates for sale, as well as metal and concentrates in process is determined under the first-in, first-out method ("FIFO"). The cost of materials, supplies and spare parts is determined using the average cost method. F-41 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is calculated on a straight-line basis at the rates indicated in Note 8. Maintenance and minor repairs are charged to expenses as incurred. Material improvements and renewals are capitalized. In accordance with the Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), La Oroya's management has determined that there is no impairment of its long-lived assets. SEVERANCE INDEMNITIES Severance indemnities are determined according to governmental regulations and are provided for on an accrual basis for the amount, which would be paid if all personnel were to retire at the date of each statement of assets and liabilities. Under Legislative Decree 650, an accrued liability was established to recognize the liability for personnel severance indemnities earned by employees prior to December 31, 1990. These severance indemnities, which are adjusted for subsequent wage increases, are required to be funded over a maximum term of ten years, beginning in June 1991. The funding of this obligation eliminates any adjustment for subsequent wages increases. In 1996, La Oroya fully funded this obligation. Liabilities relating to personnel severance indemnities earned by employees after 1991 are accrued and semi-annually deposited into workers' individual bank accounts. REVENUE RECOGNITION Sales are recorded when title passes to the customer, which occurs at the time of shipment. With respect to concentrates, sales are recorded based on estimated weights, assays and prices. All such concentrate sales are adjusted when final weights, assays and prices are known. Adjustments to the provisional billings are made in the period during which additional information becomes available. INTEREST CAPITALIZATION Interest expense allocable to the construction of the oxygen plant of US $4,297 was capitalized until the start-up of its operations in 1994. Capitalized interest is expensed over the depreciable life of the asset to which it relates. INCOME TAX AND WORKERS' PROFIT SHARING La Oroya is included in Centromin's income tax return. According, La Oroya has provided income tax and remitted to Centromin any tax payable, calculated as if it were filing separate tax returns. Under Statement of Financial Accounting Standard No. 109, "Accounting for Income taxes" ("SFAS 109"), which designates the liability method as the required accounting method for taxes under U.S. GAAP, La Oroya recognizes the tax effect of certain temporary differences between the financial reporting basis of assets and liabilities and the related tax basis. F-42 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Likewise, La Oroya recognizes the effect of temporary differences between book and tax basis of assets and liabilities related to workers' profit sharing on a basis similar to that used for income taxes. (4) ALLOCATION METHODOLOGIES As described in Note 2, La Oroya's transactions are recorded in Centromin's accounting systems. The operations of La Oroya conducted through Centromin have been presented using assumptions and allocations which management believes are reasonable. They include the following: (a) Centromin's assets and liabilities not specifically identifiable to La Oroya have not been allocated in the accompanying financial statements. These are cash and bank accounts, credit on value-added tax and liabilities to certain suppliers of administrative services. (b) Sales have been allocated based on the preliminary and final billings of the exported refined metals and concentrates identified with La Oroya. (c) Costs of production have been allocated based on the following: - Concentrates acquired from Centromin's mining units were transferred at market value as if La Oroya were an independent party. - The depreciation charge was based on the fixed assets specifically identifiable to La Oroya. - Other allocated costs, included power, were based on the ratio of La Oroya's usage to total usage by Centromin (mainly time incurred and consumption of goods and services). (d) Expenses relating to corporate accounting, finance and administrative services provided by Centromin have been allocated based on the ratio of La Oroya's usage to total usage by Centromin. (e) Selling and marketing expenses have been allocated based on usage estimated by management. (f) Interest and bank charges are those which are directly related to La Oroya's bank loans and overdrafts obtained during the year. (g) Workers' profit sharing and income tax were provided based on the actual results as if La Oroya had been operating as a separate entity. (5) REMEASUREMENT INTO U.S. DOLLAR La Oroya maintains its accounting records in Peruvian Nuevos Soles. Those financial statements have been remeasured into U.S. dollars, which is its functional currency, for all periods presented, in accordance with SFAS 52 using the following methodology: (a) Non-monetary accounts have been remeasured at historical exchange rates. F-43 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (5) REMEASUREMENT INTO U.S. DOLLAR (CONTINUED) (b) Monetary accounts in Peruvian currency have been remeasured at the following free market exchange rates for buying (assets) and selling (liabilities) in effect at the end of the respective period, which are in Peruvian Nuevos soles per U.S. dollar:
AS OF DECEMBER 31, AS OF ------------------------------- OCTOBER 23, 1994 1995 1996 1997 --------- --------- --------- ------------- Assets................................................... 2.16 2.299 2.596 2.667 Liabilities.............................................. 2.19 2.322 2.603 2.669
(c) Income and expenses, other than depreciation, that have been remeasured at the historical exchange rates that applied to the related assets, have been remeasured at average monthly basis at average exchange rates. Cost of sales was determined from its components once remeasured. The net effect of foreign exchange difference for each period is reflected in the accompanying statement of revenues and expenses. (6) FOREIGN CURRENCY TRANSACTIONS AND EXCHANGE RISK EXPOSURE Under current law, foreign currency transactions are made through the financial banking system at free market exchange rates. The assets and liabilities denominated in Peruvian Nuevos Soles are as follows (in thousands):
AS OF DECEMBER 31, AS OF -------------------- OCTOBER 23, 1995 1996 1997 --------- --------- ----------- Assets-- Cash and deposits in banks................................ -- 184 169 Accounts receivable....................................... 4,055 1,602 3,698 --------- --------- ----------- 4,055 1,786 3,867 --------- --------- ----------- Liabilities-- Trade accounts payable.................................... 7,549 6,919 6 Remuneration and taxes payable............................ 12,249 12,257 15,298 Accrued liabilities....................................... 5,721 9,504 2,200 --------- --------- ----------- 25,519 28,680 17,504 --------- --------- ----------- Net position............................................ (21,464) (26,894) (13,637) --------- --------- ----------- --------- --------- -----------
The net effects of exchange differences were US$3,840, US$2,050 and US$1,884 for the 1994, 1995 and 1996 years, respectively and US$269 for the period from January 1 to October 23, 1997. F-44 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (7) MATERIALS, SUPPLIES AND SPARE PARTS This account is comprised of the following:
AS OF DECEMBER 31, AS OF -------------------- OCTOBER 23, 1995 1996 1997 --------- --------- ----------- Materials, supplies and spare parts......................... $ 25,714 $ 8,335 $ 11,748 Supplies in transit......................................... 2,935 490 -- --------- --------- ----------- 28,649 8,825 11,748 --------- --------- ----------- Less--allowance for obsolescence............................ (161) (522) (522) $ 28,488 $ 8,303 $ 11,226 --------- --------- ----------- --------- --------- -----------
In management's opinion, the balance of the allowance for obsolescence adequately covers the related risk as of each statement of assets and liabilities date. (8) PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION This account is comprised of the following:
AS OF DECEMBER 31, AS OF ANNUAL RATE OF ----------------------- OCTOBER 23, DESCRIPTION DEPRECIATION 1995 1996 1997 - --------------------------------------------------------- ---------------- ---------- ----------- ----------- Land..................................................... -- $ 97 $ 97 $ 97 Buildings and other premises............................. 3% to 10% 21,335 21,335 21,335 Machinery and equipment.................................. 6.67% to 30% 112,072 112,072 112,072 Furniture and fixtures................................... 10% to 15% 1,388 1,388 1,388 Other equipment.......................................... 10% to 20% 13,153 13,153 13,153 Construction in progress................................. -- 3,005 3,005 3,005 ---------- ----------- ----------- 151,050 151,050 151,050 Accumulated depreciation................................. (95,493) (100,236) (104,905) ---------- ----------- ----------- $ 55,557 $ 50,814 $ 46,145 ---------- ----------- ----------- ---------- ----------- -----------
Fully depreciated assets amounted to US$80,684, US$80,857, and US$80,907 as of December 31, 1995, 1996 and October 23, 1997. There were no significant additions to property, plant and equipment during the period presented above. The accounting records of Centromin do not identify the minor additions to fixed assets (other than construction in progress) by specific year and, therefore, it is not possible to determine fixed asset additions specifically related to La Oroya in each year. Accordingly, in the preparation of the accompanying financial statements, the fixed assets in service at October 23, 1997 have been assumed to be in service as of each balance sheet date and for each period presented. F-45 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (9) BANK LOANS Bank loans are short-term obligations, which were obtained from local and foreign financial institutions for working capital purposes. As of December 31, 1995 and 1996 and as of October 23, 1997, 70 percent, 100 percent and 100 percent, respectively, of bank loans were denominated in U.S. dollars. The fair value of these loans approximate their carrying value. The loans bear interest at international market rates. The weighted average interest rate on bank loans at December 31, 1995 and 1996 and October 23, 1997 was 8.1 percent, 6.5 percent and 6.7 percent, respectively. (10) REMUNERATIONS AND TAXES PAYABLE This account is comprised of the following:
AS OF DECEMBER 31, AS OF ------------------------ OCTOBER 23, 1995 1996 1997 ----------- ----------- ----------- Remunerations: Bonus..................................................... -- -- $ 1,023 Vacations................................................. $ 1,691 $ 1,465 1,248 Vacation bonus............................................ 1,747 1,229 1,109 Payroll and other......................................... 552 544 102 ----------- ----------- ----------- 3,990 3,238 3,482 ----------- ----------- ----------- Taxes and contributions: Social security........................................... 694 669 275 National housing fund..................................... 339 263 150 Private pension system.................................... -- 202 161 Income tax withholdings................................... 92 211 240 Others.................................................... 160 126 227 ----------- ----------- ----------- 1,285 1,471 1,053 ----------- ----------- ----------- Total................................................... $ 5,275 $ 4,709 $ 4,535 ----------- ----------- ----------- ----------- ----------- -----------
(11) ADVANCES FROM CUSTOMERS Advances from customers located abroad are denominated in U.S. dollars. Advances bore interest at the rate of 8.5% per annum and are offset against receivables resulting from subsequent sales. The fair value of these advances approximate their carrying value at each date. F-46 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (12) ACCRUED LIABILITIES This account is comprised of the following:
AS OF DECEMBER 31, AS OF ------------------------ OCTOBER 23, 1995 1996 1997 ----------- ----------- ----------- Contingencies (see Note 17)................................. $ 1,808 $ 1,808 $ 1,706 Interest and bank charges payable........................... $ 525 $ 855 -- Withholdings to contractors................................. 454 284 122 Personnel reduction accrual................................. -- 953 -- Other....................................................... 479 577 541 ----------- ----------- ----------- $ 3,266 $ 4,477 $ 2,369 ----------- ----------- ----------- ----------- ----------- -----------
(13) SEVERANCE INDEMNITIES According to current government regulations, the liability for personnel severance indemnities earned by employees prior to December 31, 1990, as adjusted for subsequent wage increases until such time as the liability is funded, must be accrued and funded over a maximum term of 10 years, beginning in June 1991. The funding of this obligation eliminates any retroactive adjustments from subsequent wage increases. In 1996, La Oroya fully funded this obligation. Obligations relating to personnel severance indemnities accrued subsequent to 1990 are paid semi-annually through deposits in workers' individual bank accounts. The analysis of the account is as follows:
AS OF DECEMBER 31, AS OF -------------------- OCTOBER 23, 1995 1996 1997 --------- --------- ----------- Balance at the beginning of period......................... $ 22,540 $ 21,228 $ 2,186 Provision................................................ $ 6,040 $ 5,926 2,154 Payments and advances.................................... (5,750) (23,365) (2,960) Exchange difference...................................... (1,602) (1,603) (195) --------- --------- ----------- Balance at the end of period............................... $ 21,228 $ 2,186 $ 1,185
In addition, as of December 31, 1995 and 1996, certain employees had elected to deposit their indemnity payments amounting to US$3,579 and US$1973 respectively, with Centromin. In 1997, all such indemnity liabilities were transferred to banks as directed by each employee. (14) TAXATION AND WORKERS' PROFIT SHARING Centromin is subject to the Peruvian tax regulations, which require that income tax be determined based on financial statements adjusted to reflect the changes in the wholesale price level, following the methodology prescribed by Legislative Decree 797. The statutory income tax rate in Peru is 30% of the taxable income. In 1992, the Peruvian law established an alternative minimum tax of 2 percent, which is calculated based on the total assets. Beginning in 1994, exporting corporations may deduct from the F-47 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (14) TAXATION AND WORKERS' PROFIT SHARING (CONTINUED) minimum income tax base the accounts receivable and inventories related to export activities and the value of fixed assets acquired during the current year, for two consecutive years. In May 1997, the minimum income tax was abrogated and an extraordinary tax was imposed equal to 0.5% of the net assets declared in the 1996 income tax return. This tax constitutes a credit against the monthly income tax prepayments made from July through December 1997 and the regularization payment for the 1997 year. La Oroya is included in Centromin's tax return. As such it has provided income tax, and remitted any tax due to Centromin, based upon the statutory tax rate in effect for each period, applied as if La Oroya filed a separate income tax return. In May 1994, Centromin signed a Tax Stabilization Agreement with the Peruvian government for a ten-year period beginning in 1997. The following conditions would be guaranteed to Centromin: - Utilization of the tax rules prevailing on April 25, 1994. - Custom duties will be calculated at rates ranging from 15% to 25%. - Free commercialization of its products. - No restriction in the use of proceeds from export sales. - Free conversion of foreign currency generated by local sales. - No discrimination in foreign currency transactions. In accordance with current workers' profit sharing government regulations, La Oroya's workers have the right to receive 8 percent of La Oroya's taxable income, of which 50 percent is distributed among all employees based on the number of days worked by each employee and the remaining amount is distributed in proportion to their salaries. Such profit sharing is limited to 18 times the annual salary for each worker. Any excess is to be reserved and expended for training of workers. The provision for income tax and workers' profit sharing is comprised of the following for each of the years in the period ended December 31, 1996 and for the period from January 1 to October 23, 1997:
1994 1995 1996 1997 ---------- --------- --------- --------- Current provision............................... $ 2,924 $ 11,921 $ 11,685 $ 8,754 Deferred provision (benefit).................... 692 1,406 (6,360) 1,409 ---------- --------- --------- --------- Total........................................... $ 3,616 $ 13,327 $ 5,325 $ 10,163 ---------- --------- --------- --------- ---------- --------- --------- --------- Breakdown-- Income tax...................................... $ 2,803 $ 10,332 $ 4,128 $ 7,879 Workers' profit sharing......................... 813 2,995 1,197 2,284 ---------- --------- --------- --------- $ 3,616 $ 13,327 $ 5,325 $ 10,163 ---------- --------- --------- --------- ---------- --------- --------- ---------
F-48 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (14) TAXATION AND WORKERS' PROFIT SHARING (CONTINUED) The following are the components of deferred tax and workers' profit sharing assets (liability) at December 31, 1995 and 1996 and October 23, 1997:
1995 1996 1997 --------- --------- --------- Environmental costs not deducted in tax return................ $ -- $ 7,672 $ 7,672 Tax depreciation in excess of book depreciation............... (2,656) (4,104) (5,283) Contingencies not deducted in tax return...................... 644 644 644 Other......................................................... (86) 50 (180) --------- --------- --------- $ (2,098) $ 4,262 $ 2,853 --------- --------- --------- --------- --------- ---------
The reconciliation of the income tax provision computed at the statutory Peruvian income tax rate to the provision for income tax recorded on a U.S. GAAP basis in the statements of revenues and expenses is as follows:
1994 1995 1996 1997 --------- --------- --------- --------- Income before income tax........................... $ 5,024 $ 28,828 $ 10,017 $ 26,262 Statutory tax rate................................. 30% 30% 30% 30% --------- --------- --------- --------- Income tax provision at statutory tax rate......... 1,507 8,648 3,005 7,879 Effects of items increasing (decreasing) the effective tax rate: Permanent items Write off of unrecoverable taxes............... -- 883 -- -- Tax penalties and assessments.................. 1,266 -- 335 -- Adjustment of inventory affecting years prior to 1994........................................... -- 1,270 -- -- Adjustment of inventory affecting 1995 and 1996........................................... -- (616) 616 -- Other............................................ 30 147 172 -- --------- --------- --------- --------- Actual provision for income tax.................... $ 2,803 $ 10,332 $ 4,128 $ 7,879 --------- --------- --------- --------- --------- --------- --------- ---------
F-49 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (15) OTHER INCOME AND (EXPENSES) This caption includes the following:
FOR THE PERIOD FOR THE YEARS ENDED DECEMBER 31, JANUARY 1 TO -------------------------------- OCTOBER 23, 1994 1995 1996 1997 --------- --------- ---------- ------------ Income: Storage and other services....................................... $ 136 $ 470 $ 1,038 $ 1,226 Other............................................................ 417 434 -- 706 --------- --------- ---------- ------------ 553 904 1,038 1,932 --------- --------- ---------- ------------ Expenses: Privatization costs.............................................. -- -- (3,570) (3,200) Environmental program.............................................. -- -- (21,550) -- Write off of unrecoverable taxes................................. -- (2,944) -- -- Contingencies.................................................... -- (1,808) -- -- Tax penalties and assessments.................................... (4,219) -- (1,116) -- Other............................................................ (576) -- (203) (218) --------- --------- ---------- ------------ (4,795) (4,752) (26,439) (3,418) --------- --------- ---------- ------------ Other, net................................................. $ (4,242) $ (3,848) $ (25,401) $ (1,486) --------- --------- ---------- ------------ --------- --------- ---------- ------------
The privatization costs include costs related to moving La Oroya's personnel away from the metallurgical complex of Centromin. These costs consist mainly of demolition and construction of apartments, colleges and parks at the new location. (16) PERSONNEL REDUCTION COSTS La Oroya recognized a charge in 1995 of US$2,504 related to the first part of its personnel reduction program. This amount was fully paid in 1995. In January 1996, the Board of Directors approved a second personnel reduction program which applied to an additional 600 workers. The estimated cost of US$3,894 was recorded in expenses in 1996. An additional provision of US$1,490 was recorded in the period from January 1 to October 23, 1997, in connection with the second personnel reduction program. (17) COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL MATTERS In 1995, in compliance with Supreme Decree 016-93-EM, amended by Supreme Decree 059-93-EM, (Regulation for the Environmental Protection in the Mining and Metallurgical Activities), Centromin filed a preliminary evaluation of its mining units and of the smelter and refineries in La Oroya, which were approved by the Ministry of Energy and Mining (the competent authority). F-50 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (17) COMMITMENTS AND CONTINGENCIES (CONTINUED) At the date of that report, in compliance with the provisions of such decrees and according to the preliminary evaluation above mentioned, Centromin prepared a Programa de Adecuacion y Manejo Ambiental (Environmental Adjustment and Management Program) (the "PAMA") for La Oroya metallurgical complex. The program comprises the development of engineering projects to remediate any existing environmental problems and to comply with current environmental regulations. This program, which was approved by the competent authority in January 1997, establishes total future disbursements of US$21.5 million to remediate the damages to the environment and to establish methods of compliance with current environmental regulations. The Company recognized a charge to operations in 1996 for the estimated cost of such remedial actions (see Note 15). The remediation program and the investment in environmental control equipment required to comply with current regulations is to be implemented over a ten year period beginning in 1997. Management expects that the cost of future investments, principally for pollution control equipment, will be capitalized in future periods and depreciated over the periods to be benefited. In accordance with a revised program approved by the Ministry of Energy and Mining, the disbursements are estimated by management to be as follows:
FUTURE EXPENDITURE REMEDIATION FOR CONTROL COSTS EQUIPMENT TOTAL ----------- ----------- ---------- 1997....................................................................... $ 730 -- $ 730 1998....................................................................... 1,800 $ 2,700 4,500 1999....................................................................... 1,950 3,612 5,562 2000....................................................................... 4,000 4,963 8,963 2001....................................................................... 3,750 3,300 7,050 2002....................................................................... 2,050 3,800 5,850 2003....................................................................... 2,100 3,000 5,100 2004....................................................................... 2,100 2,775 4,875 2005....................................................................... 3,070 38,700 41,770 2006....................................................................... -- 44,725 44,725 ----------- ----------- ---------- Total.................................................................. $ 21,550 $ 107,575 $ 129,125 ----------- ----------- ---------- ----------- ----------- ----------
In addition, PAMA estimated the cost to eventually close the metallurgical complex of La Oroya at US$24 million. No provision has been recorded for this amount, since there are no plans to close the complex. The timing and amounts listed in the above table are estimates and actual amounts and timing of payments could vary from the estimates. Furthermore, in accordance with the Article 9 of the rules of the General Law on Mining, annual expenditures for environmental remediation and control cannot be less than 1 percent of total sales. F-51 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (17) COMMITMENTS AND CONTINGENCIES (CONTINUED) POTENTIAL TAX ASSESSMENTS Centromin's income tax returns of 1993 through 1996, as well as the net worth tax returns of 1992 and 1993, are pending review by the National Superintendency of Tax Administration. No significant liabilities arose as a result of the 1992 income tax return review. If tax assessments were made, any tax, interest or surcharges would be charged to expense in the years in which the assessment is known. In the opinion of Centromin's management there are no matters that should result in significant additional tax assessments. INVESTMENT PROGRAM As discussed in Note 14, in May 1994 Centromin signed a Tax Stabilization Agreement with the Peruvian Government for a ten-year period beginning the year in which Centromin meets the Investment Program for La Oroya metallurgical complex, which was then estimated at US$11.1 million. The investment program was completed in December, 1996. In March 1997, the Mining Bureau approved the completion of the Investment Program. Actual expenditures amounted to approximately US$11.5 million. CONTINGENCIES At October 23, 1997, La Oroya metallurgical complex has legal suits aggregating US$15.7 million related to labor matters. The financial statements include a reserve of US$1.7 million (see note 12) estimated to cover the cost of defending and settling such matters. In management and legal advisors' opinion, the ultimate outcome of these suits will not result in a material adverse effect on La Oroya's financial position and results of operations. In addition, there is a contingency amounting to approximately US$12 million, related to demands filed by 19 local mining companies, which are claiming the refund of value-added-tax withheld by La Oroya from 1975 to 1980. In opinion of La Oroya's management and its legal advisors, the ultimate outcome of these demands will be favorable to La Oroya. SALES COMMITMENTS AND CONCENTRATION La Oroya derives its revenue from the sale of its refined metals and concentrates to several customers. La Oroya's three largest customers accounted for: 11%, 6% and 6%, respectively, of net sales in the period from January 1 to October 23, 1997. The percentages in 1994 were 13%, 11% and 10%; in 1995 were 15%, 14% and 12% and in 1996 were 11%, 7% and 6%. These customers have sales contracts, which guarantee their supply at prices derived from international market quotations. (18) RELATED PARTY TRANSACTIONS Expenses allocated from Centromin to the operations of La Oroya related primarily to accounting and administrative support services. These expenses amounted to US$5,223 in the period from January 1 to October 23, 1997, US$5,660 in 1996, US$4,479 in 1995 and US$4,569 in 1994. F-52 EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A. LA OROYA DIVISION NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AS OF OCTOBER 23, 1997 AND DECEMBER 31, 1996, 1995 AND 1994 (18) RELATED PARTY TRANSACTIONS (CONTINUED) Purchases of concentrates of polymetalic ores from the mining units of Centromin were:
PERCENTAGE OF VALUE OF THE TOTAL VALUE PERIOD PURCHASES OF PURCHASE - ------------------------------------------------------------------ ---------- ------------------- 1994.............................................................. $ 146,673 60% 1995.............................................................. 182,218 58 1996.............................................................. 178,018 67 For the period from January 1 to October 31, 1997................. 135,644 59
(19) GEOGRAPHIC DATA The following is an analysis of net sales by geographic region:
FOR THE PERIOD FOR THE YEARS ENDED DECEMBER 31, JANUARY 1 TO ---------------------------------- OCTOBER 23, 1994 1995 1996 1997 ---------- ---------- ---------- ------------ USA............................................................ $ 131,644 $ 105,837 $ 184,546 $ 94,050 Latin America.................................................. 177,627 201,631 162,620 165,866 Asia........................................................... 28,672 112,401 84,964 65,975 Europe......................................................... 29,114 31,060 24,667 26,914 ---------- ---------- ---------- ------------ $ 367,057 $ 450,929 $ 456,797 $ 352,805 ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------
(20) SUBSEQUENT EVENT In the Extraordinary Shareholders' Meetings of Doe Run Peru and Metaloroya held on November 3, 1997, the merger of Metaloroya into Doe Run Peru was approved, the surviving company being Doe Run Peru. The merger will be on December 30, 1997. F-53 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of ASARCO Incorporated In our opinion, the accompanying balance sheets and the related statements of income and statements of divisional equity and of cash flows present fairly, in all material respects, the financial position of the Missouri Lead Division at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York July 28, 1998 F-54 MISSOURI LEAD DIVISION STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1997 1996 1995 --------- ---------- --------- Revenues........................................................................ $ 85,308 $ 104,247 $ 97,455 Cost of sales................................................................... 68,429 69,501 60,546 General and administrative...................................................... 4,605 4,160 4,235 Depreciation and depletion...................................................... 8,209 6,543 7,723 Research........................................................................ 349 327 370 --------- ---------- --------- Operating expenses.............................................................. 81,592 80,531 72,874 --------- ---------- --------- Earnings before income taxes.................................................... 3,716 23,716 24,581 Income tax expense (benefit).................................................... (168) 5,018 5,758 --------- ---------- --------- Net earnings.................................................................... $ 3,884 $ 18,698 $ 18,823 --------- ---------- --------- --------- ---------- ---------
The accompanying notes are an integral part of these financial statements. F-55 MISSOURI LEAD DIVISION BALANCE SHEETS AS OF DECEMBER 31, (IN THOUSANDS)
1997 1996 --------- --------- Cash........................................................................................ $ 232 $ 92 Receivables, net of allowance for doubtful accounts of $150 for 1997 and 1996............... 9,414 16,967 Metal inventories........................................................................... 5,635 8,010 Supply inventories.......................................................................... 5,564 6,266 Other current assets........................................................................ 86 188 --------- --------- Current assets............................................................................ 20,931 31,523 Mineral land................................................................................ 30,542 30,209 Buildings................................................................................... 37,069 34,937 Machinery and equipment..................................................................... 86,689 83,384 --------- --------- Total cost................................................................................ 154,300 148,530 Accumulated depreciation and depletion...................................................... (89,380) (81,553) --------- --------- Property, net............................................................................. 64,920 66,977 --------- --------- Total assets.............................................................................. $ 85,851 $ 98,500 --------- --------- --------- --------- Accounts payable and accrued expenses....................................................... $ 5,976 $ 7,337 Salaries and wages accrued.................................................................. 1,096 916 Reserve for workers compensation............................................................ 1,432 1,506 Other current liabilities................................................................... 704 821 --------- --------- Current liabilities....................................................................... 9,208 10,580 Reclamation reserves........................................................................ 534 -- Other non-current liabilities............................................................... 7 -- Deferred tax liability...................................................................... 8,227 9,241 --------- --------- Total liabilities......................................................................... 17,976 19,821 Commitments and contingencies Divisional equity........................................................................... 67,875 78,679 --------- --------- Total liabilities and equity.............................................................. $ 85,851 $ 98,500 --------- --------- --------- ---------
The accompanying notes are an integral part to these financial statements. F-56 MISSOURI LEAD DIVISION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1997 1996 1995 ---------- --------- ---------- OPERATING ACTIVITIES Net Earnings................................................................... $ 3,884 $ 18,698 $ 18,823 Adjustments to reconcile net earnings to to net cash provided from operating activities: Deferred income taxes........................................................ (1,014) 1,336 1,595 Depreciation and depletion................................................... 8,209 6,543 7,723 Cash provided from operating assets and liabilities: Accounts receivable........................................................ 7,553 (7,214) 4,699 Accounts payable and accrued expenses...................................... (1,298) (3,285) 6,134 Inventories................................................................ 3,077 1,072 (3,189) Other assets and liabilities............................................... 570 35 240 ---------- --------- ---------- Net cash provided from operating activities.................................... 20,981 17,185 36,025 INVESTING ACTIVITIES Capital expenditures........................................................... (6,153) (15,858) (7,431) ---------- --------- ---------- Net cash used for investing activities......................................... (6,153) (15,858) (7,431) FINANCING ACTIVITIES Net distributions to Asarco.................................................... (14,688) (1,252) (28,615) ---------- --------- ---------- Net cash used for financing activities......................................... (14,688) (1,252) (28,615) Increase (decrease) in cash.................................................... 140 75 (21) Cash at beginning of year...................................................... 92 17 38 ---------- --------- ---------- Cash at end of year............................................................ $ 232 $ 92 $ 17 ---------- --------- ---------- ---------- --------- ----------
The accompanying notes are an integral part of these financial statements. F-57 MISSOURI LEAD DIVISION STATEMENTS OF CHANGES IN DIVISIONAL EQUITY FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1997 1996 1995 ---------- --------- ---------- Balance at beginning of year................................................... $ 78,679 $ 61,233 $ 71,025 Net earnings................................................................... 3,884 18,698 18,823 Net distribution to Asarco..................................................... (14,688) (1,252) (28,615) ---------- --------- ---------- Balance at end of year......................................................... $ 67,875 $ 78,679 $ 61,233 ---------- --------- ---------- ---------- --------- ----------
The accompanying notes are an integral part of these financial statements. F-58 MISSOURI LEAD DIVISION NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (1) BASIS OF PRESENTATION The Missouri Lead Division ("the Company") is an unincorporated division of Asarco Incorporated ("Asarco"). The financial statements reflect the financial position, results of operations, changes in divisional equity and cash flows of the Company as if it were a separate entity for all periods presented. The financial statements include allocations of certain Asarco corporate headquarters expenses (including cash management, legal, accounting, tax, employee benefits, insurance services, data services and other Asarco corporate overhead). Management believes these allocations are reasonable. However, the costs of these services and benefits charged to the Company are not necessarily indicative of the costs that would have been incurred if the Company had performed or provided these functions as a separate entity. The financial information included herein may not necessarily reflect the results of operations, financial position, changes in divisional equity and cash flows of the Company in the future or what they would have been had it been a separate stand-alone entity during the periods presented. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in the determination of allowances for doubtful accounts, depreciation and depletion, expense accruals, taxes and contingencies, among others. Cash and cash equivalents: Cash equivalents include highly liquid investments with a maturity of less than three months at the time of investment. Inventories: Metal inventories are valued at the lower of first-in, first-out (FIFO) cost or market. Supply inventories are valued at the lower of average cost or net realizable value. Long-lived assets: Long-lived assets are valued at cost. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates the carrying value of assets based on undiscounted future cash flows and also considers expected metal prices based on historical metal prices and price trends. Depreciation, amortization and betterments: Plant assets are depreciated over their estimated useful lives, generally by the units-of-production method. Depreciation and depletion of mine assets are computed generally by the units-of- production method using proven and probable ore reserves. Other non- plant assets are depreciated using the straight-line method. Renewals and the cost of major development programs at existing mines are capitalized as mineral land. Maintenance, repairs, normal development costs at existing mines, and gains or losses on assets retired or sold are reflected in earnings as incurred. Revenue Recognition: Revenue is recognized in the month product is shipped to customers. Substantially all of the Company's lead production is sold to customers pursuant to annual contracts which provide for pricing at the average price for lead, on the London Metal Exchange (LME), during the month of shipment plus a fixed premium. The Company's zinc production is sold in the form of concentrates under contracts of one to three years which provide for pricing at the average price for zinc, on the LME, during the month of shipment. F-59 MISSOURI LEAD DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Instruments: The Company may use derivative instruments to manage its exposure to market risk from changes in commodity prices or the value of its assets and liabilities. Derivative instruments which are designated as hedges must be deemed effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Gains and losses on such instruments are reported as a component of the underlying transaction. Pre-tax earnings include a gain of $216 in 1996, and a loss of $250 in 1995, related to lead hedging contracts. At December 31, 1997, the Company's financial instruments also include cash, receivables and accounts payable. At December 31, 1997 the fair value of cash, receivables and accounts payable approximates carrying values because of the short-term nature of these instruments. Exploration: Tangible and intangible costs incurred in the search for mineral properties are charged to expense when incurred. Taxes on Income: The Company's results of operations have been included in the federal and certain state income tax returns of Asarco. The provisions for income taxes in the financial statements has been calculated on a separate - --company basis; income taxes paid on behalf of the Company are included in divisional equity. Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. Reclamation Reserve: As the Company's mines approach the end of their ore reserves and the costs of reclamation are estimable, the Company establishes a reclamation reserve for restoration of mineral land to usable conditions. The reserve is accrued for monthly, over the remaining life of the mine, based on production. Impact of New Accounting Standards: In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." This statement, which is effective for fiscal years beginning after December 15, 1997, requires the Company to make certain disclosures but will have no impact on the Company's financial statements. In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information." This statement, which is effective for fiscal years beginning after December 15, 1997, is not expected to have any impact on the Company's financial statements. In March 1998, the FASB issued SFAS No. 132 "Employers Disclosure about Pensions and other Postretirement Benefits". This statement, which is effective for fiscal years beginning after December 15, 1997, revises employers' disclosures about pensions and other postretirement benefit plans but does not change the measurement or recognition of those plans. In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". This statement, which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, establishes accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts and hedging activities. Management has not fully assessed what effect, if any, this statement will have on the financial statements. Nature of Business and Concentration of Credit Risk: The Company's principal business is the mining and processing of lead. The Company's primary product is refined lead, the majority of which is consumed in storage batteries for automobiles and other equipment, principally in the United States. A change in refined lead consumption could have a material impact on the Company. The Company's four largest F-60 MISSOURI LEAD DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) customers accounted for 19.3%, 19.1%, 13.2% and 10.4% of revenues in 1997 and 13.5%, 8.5%, 23.8% and 0% of accounts receivable at December 31, 1997. (3) TAXES ON INCOME The components of the income tax expense (benefit) was:
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 - -------------------------------------------------------------------------------------- --------- --------- --------- U.S. Federal: Current............................................................................. $ 768 $ 3,056 $ 3,520 Deferred............................................................................ (910) 1,199 1,431 --------- --------- --------- (142) 4,255 4,951 --------- --------- --------- State: Current............................................................................. 78 626 643 Deferred............................................................................ (104) 137 164 --------- --------- --------- (26) 763 807 --------- --------- --------- Total income tax expense (benefit).................................................... $ (168) $ 5,018 $ 5,758 --------- --------- --------- --------- --------- ---------
Total taxes paid by Asarco and charged to the Company were: 1997--$846; 1996--$3,682; 1995-- $4,163. Following is a reconciliation of the U.S statutory income tax rate to the Company's effective tax rate:
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------------------------------- --------- --------- --------- U.S. statutory income tax rate....................................................... 35.0% 35.0% 35.0% Percentage depletion................................................................. (39.1) (16.2) (15.9) Fines and penalties.................................................................. -- 0.3 2.2 State taxes, net of federal effect................................................... (0.5) 2.1 2.1 --------- --------- --------- Effective income tax rate............................................................ (4.6)% 21.2% 23.4% --------- --------- --------- --------- --------- ---------
Deferred income taxes arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The deferred tax liability relates to the depreciation and depletion of property, plant and equipment. (4) INTERCOMPANY TRANSACTIONS Asarco uses a centralized cash management system to finance its operations. Cash deposits from the Company's business are transferred to Asarco on a daily basis and Asarco funds the Company's disbursement bank accounts as required. No interest has been charged on these transactions. Asarco provided certain centralized services (see Note 1 to the financial statements) to the Company. Expenses related to these services were allocated to the Company based on utilization of specific services or, where an estimate could not be determined, based on the Company's operating expenses in proportion to Asarco's total operating expenses. Management believes these allocation methods are reasonable. F-61 MISSOURI LEAD DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (4) INTERCOMPANY TRANSACTIONS (CONTINUED) However, the costs of these services and benefits charged to the Company are not necessarily indicative of the costs that would have been incurred if the Company had performed or provided these services and benefits as a separate entity. These allocations were $6,048, $8,449 and $8,826 in 1997, 1996 and 1995, respectively and are included in the Statement of Operations. Amounts due to Asarco for these expenses are included in divisional equity. The following table summarizes the expenses allocated to the Company by Asarco.
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 - ------------------------------------------------------------------------------------- --------- --------- --------- General & administrative............................................................. $ 4,114 $ 3,663 $ 3,819 Pension expense...................................................................... 411 454 316 Postretirement benefit expense....................................................... 360 360 266 Current income taxes................................................................. 846 3,682 4,163 Savings plan contributions........................................................... 317 290 262
The Company has a contract with an environmental services subsidiary of Asarco for the treatment and disposal of an intermediate product. The net treatment cost paid by the Company is dependent upon the quantities and value of salable metal contained in the material. The Company paid $1,800, $2,100 and $100 in 1997, 1996 and 1995, respectively, to the subsidiary under the contract. In addition, the Company sells refined lead to a specialty metals subsidiary of Asarco. Total revenues received for these sales were $1,033, $904 and $767 in 1997, 1996 and 1995, respectively. Contracts between the Company and related parties are at market terms. (5) COMMITMENTS Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of December 31, 1997 for each of the next five years and in the aggregate are:
YEAR AMOUNT - ---------------------------------------------------------- ----------------- 1998...................................................... $ 91 1999...................................................... 91 2000...................................................... 91 2001...................................................... 28 2002...................................................... 8 Thereafter................................................ 25 $ 334
Total rental expense was $305 in 1997, $211 in 1996 and $254 in 1995. At December 31, 1997 the Company was committed to the completion of construction on equipment projects with a value of $448. The Company is subject to a lease agreement with an owner of land which contains a portion of the Company's Sweetwater mine. Under the terms of the lease, the lessors are entitled to certain royalties. A monthly royalty is paid based on a net profit per ton of ore subject to certain limitation, as defined. In addition, an annual royalty is paid based upon the number of acres leased, as defined. The lease expires in F-62 MISSOURI LEAD DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (5) COMMITMENTS (CONTINUED) June 2012 and is renewable at the option of the Company for an additional fifty years. The total royalties paid by the Company were $27, $86 and $95 in 1997, 1996 and 1995, respectively. (6) BENEFIT PLANS The Company participates in the Asarco non-contributory, defined benefit pension plan which covers substantially all domestic employees. Benefits for salaried employees are based on salary and years of service. Benefits for hourly employees are based on negotiated benefits and years of service. The Company accounts for the plan as a multi-employer plan. Accordingly, the Company has recorded pension costs as allocated by Asarco totaling $411, $454 and $316 in 1997, 1996 and 1995, respectively. The assumptions of the multi-employer plan are described below. The weighted average expected long-term rate of return on pension plan assets was 10% for 1997 and 1996 and 8% for 1995. At December 31, 1997 and 1996, the projected benefit obligations were determined using a weighted average discount rate of 7% and weighted average rates of increase in future compensation levels of 4%. Plan assets are invested principally in commingled stock funds, mutual funds and securities issued by the United States. In addition to providing pension benefits, Asarco provides health care coverage under the Asarco Health Plan to substantially all U.S. retirees not eligible for Medicare. A cost sharing Medicare supplemental plan is available for retired salaried employees and life insurance coverage is provided to substantially all retirees. Employees are eligible for these benefits if they reach normal retirement age while working for the Company. The Company accounts for the plan as a multi-employer plan. Accordingly, the Company has recorded post-retirement benefits costs as allocated by Asarco totaling $360 in 1997 and 1996 and $226 in 1995. The accumulated post-retirement benefit obligation at December 31, 1997 and 1996 was determined using discount rates of 7%. The assumed rate of future increases in per capita cost of covered health care benefits is 6% for 1997, decreasing to 5% by 1999 and remaining at that level thereafter. EMPLOYEE SAVINGS PLAN: The Company participates in the employee savings plans for salaried and hourly employees maintained by Asarco. These plans permit employees to make contributions by salary reduction pursuant to section 401(k) of the Internal Revenue Code. Asarco matches contributions up to 3% of compensation. In connection with the required match, Asarco's contributions, totalling $317 in 1997, $290 in 1996 and $262 in 1995, were allocated to the Company and charged to expense. (7) CONTINGENCIES AND LITIGATION The operations of the Company are subject to stringent federal, state and local laws and regulations, including those relating to improving or maintaining environmental quality and those relating to plant and mine safety and health conditions. Although the Company believes that it is currently in substantial compliance with material laws and regulations, it is possible that substantial additional expenditures in the future may be required to comply with such legislation and regulations. In light of the frequent changes in such laws and regulations and the uncertainty inherent in this area, the Company is unable to estimate accurately the total amount of future expenditures. F-63 MISSOURI LEAD DIVISION NOTES TO FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) (7) CONTINGENCIES AND LITIGATION (CONTINUED) The Company is involved in pending litigation in the ordinary course of its business. It is the opinion of management that the outcome of the legal proceedings and environmental contingencies mentioned will not materially adversely affect the financial position of the Company. However, it is possible that litigation and environmental contingencies could have a material effect on quarterly or annual operating results, when they are resolved in future periods. This opinion is based on considerations including experience related to previous court judgments and settlements and remediation costs and terms. (8) SUBSEQUENT EVENT On July 28, 1998, Asarco entered into an asset purchase and sale agreement pursuant to which Asarco will sell certain assets of the Company to The Doe Run Resources Corporation, a subsidiary of The Renco Group, Inc. The assets to be sold include the lead smelter and refinery and two mines and associated equipment. F-64 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of ASARCO Incorporated We have reviewed the accompanying interim condensed balance sheet of the Missouri Lead Division as of March 31, 1998 and the related interim condensed statements of operations and cash flows for the three month period ended March 31, 1998 and 1997. These interim condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. New York, New York July 28, 1998 F-65 MISSOURI LEAD DIVISION CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, (IN THOUSANDS)
1998 1997 --------- --------- Revenues.................................................................................... $ 17,165 $ 20,296 --------- --------- Cost of sales............................................................................... 14,944 15,717 General and administrative.................................................................. 1,074 1,148 Depreciation and depletion.................................................................. 2,097 1,938 Research.................................................................................... 69 87 --------- --------- Operating expenses.......................................................................... 18,184 18,890 --------- --------- Earnings (loss) before income taxes......................................................... (1,019) 1,406 Income tax benefit.......................................................................... (437) (106) --------- --------- Net earnings (loss)......................................................................... $ (582) $ 1,512 --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-66 MISSOURI LEAD DIVISION CONDENSED BALANCE SHEETS (UNAUDITED) AS OF MARCH 31, (IN THOUSANDS)
1998 1997 ----------- ----------- Cash.................................................................................... $ 86 $ 33 Receivables, net of allowance for doubtful accounts of $150 for 1998 and 1997............................................................. 8,407 7,640 Metal inventories....................................................................... 5,053 9,429 Supply inventories...................................................................... 5,669 5,948 Other current assets.................................................................... 149 167 ----------- ----------- Current assets.................................................................... 19,364 23,217 ----------- ----------- Mineral land............................................................................ 30,542 30,505 Buildings............................................................................... 37,283 35,112 Machinery and equipment................................................................. 87,387 83,846 ----------- ----------- Total cost........................................................................ 155,212 149,463 Accumulated depreciation and depletion.................................................. (91,477) (83,491) ----------- ----------- Property, net..................................................................... 63,735 65,972 ----------- ----------- Total assets...................................................................... $ 83,099 $ 89,189 ----------- ----------- ----------- ----------- Accounts payable and accrued expenses................................................... $ 4,328 $ 7,808 Salaries and wages accrued.............................................................. 1,084 771 Reserve for workers compensation........................................................ 1,432 1,479 Other current liabilities............................................................... 1,419 1,442 ----------- ----------- Current liabilities............................................................... 8,263 11,500 Reclamation reserve..................................................................... 675 134 Other non-current liabilities........................................................... 12 75 Deferred income taxes................................................................... 8,086 8,987 ----------- ----------- Total liabilities................................................................. 17,036 20,696 Divisional equity................................................................. 66,063 68,493 ----------- ----------- Total liabilities and divisional equity........................................... $ 83,099 $ 89,189 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. F-67 MISSOURI LEAD DIVISION CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, (IN THOUSANDS)
1997 1996 --------- ---------- OPERATING ACTIVITIES Net earnings (loss)......................................................................... $ (582) $ 1,512 Adjustments to reconcile net earnings (loss) to net cash provided from operating activities: Deferred income taxes..................................................................... (141) (254) Depreciation.............................................................................. 2,097 1,938 Cash provided from operating assets and liabilities: Accounts receivables.................................................................. 1,007 9,327 Accounts payable and accrued expenses................................................. (945) (947) Inventories........................................................................... 477 (1,101) Other assets and liabilities.......................................................... 83 203 --------- ---------- Net cash provided from operating activities................................................. 1,996 12,572 INVESTING ACTIVITIES Capital expenditures........................................................................ (912) (933) --------- ---------- Net cash used for investing activities...................................................... (912) (933) FINANCING ACTIVITIES Net distributions to Asarco................................................................. (1,230) (11,698) --------- ---------- Net cash used for financing activities...................................................... (1,230) (11,698) Decrease in cash............................................................................ (146) (59) Cash at beginning of the period............................................................. 232 92 --------- ---------- Cash at end of the period................................................................... $ 86 $ 33 --------- ---------- --------- ----------
The accompanying notes are an integral part of these financial statements. F-68 MISSOURI LEAD DIVISION NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) A. The Missouri Lead Division ("the Company") is an unincorporated division of Asarco Incorporated ("Asarco"). The financial statements reflect the financial position, results of operations, and cash flows of the Company as if it were a separate entity for all periods presented. The financial statements include allocations of certain Asarco corporate headquarters expenses (including cash management, legal, accounting, tax, employee benefits, insurance services, data services and other Asarco corporate overhead). Management believes these allocations are reasonable. However, the costs of these services and benefits charged to the Company are not necessarily indicative of the costs that would have been incurred if the Company had performed or provided these functions as a separate entity. The financial information included herein may not necessarily reflect the results of operations, financial position, changes in shareholder equity and cash flows of the Company in the future or what they would have been had it been a separate stand-alone entity during the periods presented. B. In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Company's financial position as of March 31, 1998 and 1997 and the results of operations and cash flows for the three months ended March 31, 1998 and 1997. This financial data has been subjected to a review by PricewaterhouseCoopers L.L.P., the Company's independent accountants. The results of operations for the three month period are not necessarily indicative of the results to be expected for the full year. C. FINANCIAL INSTRUMENTS: The Company may use derivative instruments to manage its exposure to market risk from changes in commodity prices or the value of its assets and liabilities. Derivative instruments which are designated as hedges must be deemed effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Gains and losses on such instruments are reported as a component of the underlying transaction. There were no hedging gains or losses for the three months ended March 31, 1998 or 1997. At March 31, 1998, the Company's financial instruments also include cash, receivables and accounts payable. At March 31, 1998 the fair value of cash, receivables and accounts payable approximates carrying values because of the short-term nature of these instruments. D. INCOME TAXES: The income tax benefit in 1997 is primarily a result of the percentage depletion benefit arising from the Company's mine earnings. E. CONTINGENCIES AND LITIGATION: The operations of the Company are subject to stringent federal, state and local laws and regulations, including those relating to improving or maintaining environmental quality and those relating to plant and mine safety and health conditions. Although the Company believes that it is currently in substantial compliance with material laws and regulations, it is possible that substantial additional expenditures in the future may be required to comply with such legislation and regulations. In light of the frequent changes in F-69 MISSOURI LEAD DIVISION NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) E. CONTINGENCIES AND LITIGATION: (CONTINUED) such laws and regulations and the uncertainty inherent in this area, the Company is unable to estimate accurately the total amount of future expenditures. The Company is involved in pending litigation in the ordinary course of its business. It is the opinion of management that the outcome of the legal proceedings and environmental contingencies mentioned, will not materially adversely affect the financial position of the Company. However, it is possible that litigation and environmental contingencies could have a material effect on quarterly or annual operating results, when they are resolved in future periods. This opinion is based on considerations including experience related to previous court judgments and settlements and remediation costs and terms. F. SUBSEQUENT EVENTS: On July 28, 1998, Asarco entered into an asset purchase and sale agreement pursuant to which Asarco will sell certain assets of the Company to The Doe Run Resources Corporation, a subsidiary of The Renco Group, Inc. The assets to be sold include the lead smelter and refinery and two mines and associated equipment. F-70 GLOSSARY OF CERTAIN METALLURGY TERMS "Anode copper" means copper blister that, in a furnace, has been blown with air and natural gas to upgrade its purity to approximately 99.0% copper, which is then cast into keystone shaped slabs that are shipped to an electrolytic refinery. "Bullion" means unrefined raw metals containing impurities. "By-products" means the products recovered during the refining process, such as silver, germanium and indium, which may produce gains for the smelter. "Cathode" means the electrolytically refined form of copper removed from the refining cells in the refining process that are sold "as is" or melted and cast into cakes, billets, wirebar or rods. "Concentrates" means ores that have been crushed, ground and treated in a flotation process that separates and concentrates the minerals creating the raw material for smelting. "Converter" means a principal phase of the smelting process that involves the blowing of oxygen-enriched air through molten metal, causing oxidation and the removal of sulfur and other impurities. "Copper blister" means the material resulting from passing copper concentrates through a converter that is approximately 98.5% copper and takes its name from "blisters" that form on the surface. "Electrolytic refining" means the process of placing copper anodes alternately with refined copper sheets in a tank through which a copper sulfate solution and sulfuric acid are circulated and a low voltage current is introduced that causes the copper metal to transfer from the anodes to the pure copper sheets, producing 99.9% copper cathodes. "Electrowinning" means the process of removing metal from solution by the action of electric currents. "Flotation" means the process by which minerals attach themselves to the bubbles in an oily froth and rise to the top where they are skimmed off. "Flux" means inert oxides of iron, calcium, silica added to the charge to be smelted or pyrometallurgically converted to assist with the creation of a molten slag to assist separation of the metal from the low melting molten oxides. "Galvanizing" means the anti-corrosion process for steel components that consists of dipping components in a molten zinc bath after chemically stripping off impurities. "Leaching" means the process of extracting a metal from ores via hydrometallurgical techniques by dissolving the metal into a solution for subsequent treatment or recovery. "Lead/zinc bullion" means unrefined raw metals containing impurities. "Ore" means a mineral or aggregate of minerals from which metal can be economically mined or extracted. "Refining" means the chemical or metallurgical steps required to purify a metal or compound into a commercially usable product. "Reverberatory furnace" means a furnace with a shallow hearth and a roof which deflects the flame and radiates heat toward the hearth or the surface of the charge. "Residues" means impurities remaining after the metallurgical treatment of concentrates. "Secondary materials" means products obtained from residues resulting from the primary smelting process or other industrial activities containing metals which can be recycled. G-1 "Sintering" means the agglomeration and desulfurization of concentrates into a lumpy product suitable for smelting in a blast furnace. "Slag" means complex silicates formed mainly by silica, iron oxide and lime that are residues collected from the blast furnace. "Smelting" means a pyrometallurgical process of separating metal by fusion from, those impurities with which it may be chemically combined or physically mixed. "Treatment charges" means the amount of money charged per ton of concentrate by the smelter (buyer) to the miner (seller) to cover the cost (plus profit) for processing the concentrate. "Zinc electrolytic process" means the hydrometallurgical process consisting of the electrolysis of a purified zinc sulfate solution (which is obtained by dissolving zinc oxidized concentrates in sulfuric acid) and obtaining a zinc deposit on aluminum cathodes. "Zinc oxide" means the oxide of zinc normally produced as a fine white power used mainly as a catalyst for the vulcanization of rubber and also used in paint pigments and as compounds in the pharmaceutical industry. G-2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, 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 BY DOE RUN OR THE GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. 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 DOE RUN OR THE GUARANTORS 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 ----- Available Information.......................... 3 Special Note Regarding Forward-Looking Statements................................... 3 Enforceability of Civil Liabilities............ 3 Presentation of Certain Financial Information.. 4 Exchange Rates................................. 4 Prospectus Summary............................. 6 Risk Factors................................... 21 Use of Proceeds................................ 29 Capitalization................................. 30 Unaudited Pro Forma Consolidated Financial Data......................................... 31 Selected Historical Consolidated Financial Data......................................... 38 The Exchange Offer............................. 42 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 49 Industry....................................... 60 Business....................................... 64 Management..................................... 97 Security Ownership............................. 102 Certain Transactions........................... 103 Description of New Revolving Credit Facilities................................... 105 Description of the Notes....................... 108 Certain U.S. Federal Income Tax Considerations............................... 134 Plan of Distribution........................... 134 Legal Matters.................................. 135 Experts........................................ 135 Index to Consolidated Financial Statements..... F-1 Glossary of Certain Metallurgy Terms........... G-1
-------------------------- UNTIL , 1998 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. [LOGO] OFFER TO EXCHANGE ITS 11 1/4% SENIOR NOTES DUE 2005, SERIES B AND FLOATING INTEREST RATE SENIOR NOTES DUE 2003, SERIES B, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING 11 1/4% SENIOR NOTES DUE 2005, SERIES A AND FLOATING INTEREST RATE SENIOR NOTES DUE 2003, SERIES A, RESPECTIVELY --------------------- PROSPECTUS --------------------- , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Sections 722 and 723 of the Business Corporation Law of New York (the "NYBCL") empower The Doe Run Resources Corporation, a New York corporation ("Doe Run"), to indemnify, subject to the limitations and standards set forth therein, any person made or threatened to be made a party to an action or proceeding brought or threatened by reason of the fact that such person is or was a director or officer of Doe Run, Section 726 of the NYBCL provides that Doe Run may purchase insurance on behalf of any such director or officer. Article V of Doe Run's By-Laws provides, in effect, for the indemnification by Doe Run of each director, officer, employee or agent of Doe Run to the full extent permitted by the NYBCL. The By-Laws of Doe Run provide, in effect, that Doe Run shall indemnify any person made, or threatened to be made, a party to an action or proceeding, whether civil or criminal, including an action by or in the right of Doe Run to procure a judgment in its favor and an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or any other enterprise which any director or officer of Doe Run served in any capacity at the request of Doe Run, by reason of the fact that he, his testator or intestate is or was a director or officer of Doe Run, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred as a result of such action or proceeding or any appeal therein. Subsection (a) of Section 145 of the General Corporation Law of Delaware (the "DGCL") empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or complete action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Subsection (b) of Section 145 of the DGCL empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification may be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 of the DGCL further provides that to the extent a director, officer, employee or agent of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses II-1 (including attorneys' fees) actually and reasonably incurred by him in connection therewith; that indemnification or advancement of expenses provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and empowers the corporation to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. The Certificate of Incorporation of Fabricated Products, Inc., a Delaware corporation ("FPI"), provides that a director of FPI shall not be personally liable to FPI or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to FPI or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derives an improper personal benefit. The Bylaws of FPI provide, in effect, that FPI shall indemnify every person who was or is a party, or is or was threatened to be made a party, to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or she is or was a director, officer, employee, or agent of FPI, or is or was serving at the request of FPI as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceedings, to the fullest extent permitted by applicable law. Such indemnifications may, in the discretion of the board of directors, include advances of the person's expenses in advance of final disposition of such action, suit, or proceeding, subject to the provisions of any applicable statute. FPI is empowered to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of FPI, or is or was serving at the request of FPI as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against any liability incurred by such person in such capacity, or arising out of such person's capacity. The Companies Law (1995 Revision) of the Cayman Islands does not set out any specific restrictions on the ability of a company to indemnify officers or directors. However, the application of basic principles and certain Commonwealth case law, which is likely to be persuasive in the Cayman Islands, would indicate that indemnification is generally permissible except in the event that there had been fraud or willful default on the part of the officer or director or reckless disregard of his duties and obligations to the company. Article 123 of the Articles of Association of Doe Run Cayman Ltd., a Cayman Islands company ("Doe Run Cayman"), provides, in effect, that Doe Run Cayman shall indemnify the directors and officers of Doe Run Cayman and any trustees acting in relation to any of the affairs of Doe Run Cayman and their heirs, executors, administrators and personal representatives respectively from and against all actions, proceedings, costs, charges, losses, damages and expenses which they or any of them shall or may incur or sustain by reason of any act done or omitted in or about the execution of their duty in their respective offices or trusts, except such (if any) as they shall incur or sustain by or through their own wilful neglect or default respectively. Peruvian law does not provide for the indemnification of officers of companies organized as Sociedades de Responsibilidad Limitada, which do not have directors. The Constituciones de Sociedad Comercial de Responsibilidad Limitada for Doe Run Mining S.R. Ltda. and Doe Run Peru S.R. Ltda. do not contain any provisions regarding the indemnification of officers. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits. II-2
EXHIBIT NO. DESCRIPTION - ----------- ---------------------------------------------------------------------------------------------------- 2.1 -- Asset Purchase and Sale Agreement, dated as of July 28, 1998, between ASARCO Incorporated and The Doe Run Resources Corporation for the Missouri Lead Division and the Sugar Creek Project. 3.1 -- Certificate of Incorporation of The Doe Run Resources Corporation.* 3.2 -- Amended and Restated By-laws of The Doe Run Resources Corporation.* 3.3 -- Certificate of Incorporation of Fabricated Products, Inc.* 3.4 -- Bylaws of Fabricated Products, Inc.* 3.5 -- Certificate of Incorporation of Doe Run Cayman Ltd.* 3.6 -- Memorandum and Articles of Association of Doe Run Cayman Ltd.* 3.7 -- Constitucion de Sociedad Comercial de Responsibilidad Limitada de Doe Run Mining S.R. Ltda. (with English translation)* 3.8 -- Constitucion de Sociedad Comercial de Responsibilidad Limitada de Doe Run Peru S.R. Ltda. (with English translation)* 4.1 -- Indenture, dated as of March 12, 1998, by and among the Registrants and State Street Bank and Trust Company, as trustee, relating to the 11 1/4% Senior Notes due 2005, Series A, Floating Interest Rate Senior Notes due 2003, Series A, 11 1/4% Senior Notes due 2005, Series B and Floating Interest Rate Senior Notes due 2003, Series B and the Guarantees thereof (containing, as exhibits, specimens of the Notes and the Guarantees).* 4.2 -- Purchase Agreement, dated March 6, 1998, among the Registrants, BT Alex. Brown Incorporated, Donaldson, Lufkin and Jenrette Securities Corporation and UBS Securities LLC, relating to the 11 1/4% Senior Notes due 2005 and Floating Interest Rate Senior Notes due 2003.* 4.3 -- Registration Rights Agreement, dated as of March 12, 1998, by and among the Registrants, BT Alex. Brown Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and UBS Securities LLC, relating to the 11 1/4% Senior Notes due 2005 and Floating Interest Rate Senior Notes due 2003.* 4.4 -- Form Letter of Transmittal.* 5.1 -- Opinion of Cadwalader, Wickersham & Taft. 8.1 -- Opinion of Cadwalader, Wickersham & Taft (included in Exhibit 5.1). 10.1.1 -- Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and Jeffrey L. Zelms.* 10.1.2 -- Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and Marvin K. Kaiser.* 10.1.3 -- Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and Richard L. Amistadi.* 10.1.4 -- Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and Gary E. Boyer.* 10.1.5 -- Employment Agreement, dated as of January 1, 1996, between The Doe Run Resources Corporation and Kenneth R. Buckley.* 10.2.1 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run Resources Corporation and Jeffrey L. Zelms.* 10.2.2 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run Resources Corporation and Marvin K. Kaiser.* 10.2.3 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run Resources Corporation and Richard L. Amistadi.* 10.2.4 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run Resources Corporation and Gary E. Boyer.* 10.2.5 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run Resources Corporation and Kenneth R. Buckley.* 10.3 -- The Doe Run Resources Corporation Supplemental Employee Retirement Plan.* 10.4 -- The Doe Run Company Executive Tax Services Plan.* 10.5 -- Loan and Security Agreement, dated March 12, 1998, by and among The Doe Run Resources Corporation, Fabricated Products, Inc. and Congress Financial Corporation.*
II-3
EXHIBIT NO. DESCRIPTION - ----------- ---------------------------------------------------------------------------------------------------- 10.6 -- Contrato de Transferencia de Acciones, Aumento del Capital Social y Suscripcion de Acciones de La Empresa Metalurgica La Oroya S.A. (Contract of Stock Transfer, Capital Increase and Stock Subscription) (with English translation).* 10.7 -- Programa de Adecuacion y Manejo Ambiental (Environmental Remedy and Management Program) (with English translation).* 10.8.1 -- Convenio de Estabilidad Juridica Entre el Estado y La Empresa Metalurgica La Oroya S.A. (Legal Stability Agreement between the State and Empresa Metalurgica La Oroya S.A.) (with English translation).* 10.8.2 -- Convenio de Estabilidad Juridica con Doe Run Mining S.R. Ltda. (Legal Stability Agreement with Doe Run Mining S.R. Ltda.--Commission for Foreign Investments and Technologies) (with English translation).* 10.8.3 -- Convenio de Estabilidad Juridica con Doe Run Mining S.R. Ltda. (Legal Stability Agreement with Doe Run Mining S.R. Ltda.--Ministry of Energy and Mines) (with English translation).* 10.8.4 -- Convenio de Estabilidad Juridica con Doe Run Peru S.R. Ltda. (Legal Stability Agreement with Doe Run Peru S.R. Ltda.--Minister of Energy and Mines) (with English translation).* 10.8.5 -- Convenio de Estabilidad Juridica con Doe Run Peru S.R. Ltda. (Legal Stability Agreement with Doe Run Peru S.R. Ltda.--Vice Minister of Mines) (with English translation).* 10.8.6 -- Convenio de Estabilidad Juridica con Doe Run Cayman Ltd. (Legal Stability Agreement with Doe Run Cayman Ltd.--Commission for Foreign Investments and Technologies) (with English translation).* 10.8.7 -- Remite Contrato de Estabilidad Administrativa Ambiental (Environmental Stability Agreement) (with English translation).* 10.9 -- Contrato de Linea de Credito en Moneda Extranjero, (Contract for a Line of Credit in Foreign Currency) dated June 11, 1998, between Banco de Credito del Peru and Doe Run Peru S.R. Ltda. (with English translation). 10.10 -- Contrato de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas Cobranza (Collection Account Agreement) dated June 11, 1998, between Banco de Credito del Peru and Doe Run Peru Ltda. (with English translation.) 10.11 -- Contrato de Prenda de Minerales (Ore Collateral Agreement) dated June 11, 1998, between Banco de Credito del Peru and Doe Run Peru Ltda. (with English translation.) 12 -- Statement regarding computation of ratios. 15.1 -- Letter from PricewaterhouseCoopers LLP regarding unaudited interim financial information. 21 -- List of Subsidiaries of Registrant.* 23.1 -- Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1). 23.2 -- Consent of KPMG Peat Marwick LLP. 23.3 -- Consent of Medina, Zaldivar y Asociados S. Civ. R.L., a member firm of Andersen Worldwide SC. 23.4 -- Consent of Pincock, Allen & Holt. 23.5 -- Consent of PricewaterhouseCoopers LLP. 24 -- Power of Attorney (included on the signature page).* 25 -- Statement of Eligibility and Qualification on Form T-1 of State Street Bank and Trust Company.*
- ------------------------ * Previously filed. II-4 (b) Financial Statement Schedules. All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. ITEM 22. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling any Registrant pursuant to the foregoing provisions, each Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a Registrant of expenses incurred or paid by a director, officer or controlling person of a Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, each Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned Registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, each of the registrants has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on July 31, 1998. THE DOE RUN RESOURCES CORPORATION BY: /S/ JEFFREY L. ZELMS ------------------------------------------ JEFFREY L. ZELMS President and Chief Executive Officer FABRICATED PRODUCTS, INC. BY: /S/ DAVID A. CHAPUT ------------------------------------------ DAVID A. CHAPUT President DOE RUN CAYMAN LTD. BY: /S/ JEFFREY L. ZELMS ------------------------------------------ JEFFREY L. ZELMS President DOE RUN MINING S.R. LTDA. BY: /S/ KENNETH R. BUCKLEY ------------------------------------------ KENNETH R. BUCKLEY General Manager DOE RUN PERU S.R. LTDA. BY: /S/ KENNETH R. BUCKLEY ------------------------------------------ KENNETH R. BUCKLEY General Manager
II-6 Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on July 31, 1998
SIGNATURE TITLE - ------------------------------ -------------------------- THE DOE RUN RESOURCES CORPORATION /s/ IRA LEON RENNERT - ------------------------------ Chairman of the Board and IRA LEON RENNERT Director President and Chief /s/ JEFFREY L. ZELMS Executive Officer - ------------------------------ (Principal Executive JEFFREY L. ZELMS Officer) Vice President and Chief /s/ MARVIN K. KAISER Financial Officer - ------------------------------ (Principal Financial and MARVIN K. KAISER Accounting Officer) FABRICATED PRODUCTS, INC. /s/ IRA LEON RENNERT - ------------------------------ Chairman of the Board and IRA LEON RENNERT Director /s/ DAVID A. CHAPUT - ------------------------------ President (Principal DAVID A. CHAPUT Executive Officer) Vice President and Chief /s/ MARVIN K. KAISER Financial Officer - ------------------------------ (Principal Financial and MARVIN K. KAISER Accounting Officer) DOE RUN CAYMAN LTD. /s/ IRA LEON RENNERT - ------------------------------ Chairman of the Board and IRA LEON RENNERT Director /s/ JEFFREY L. ZELMS - ------------------------------ President (Principal JEFFREY L. ZELMS Executive Officer) /s/ MARVIN K. KAISER Vice President (Principal - ------------------------------ Financial and Accounting MARVIN K. KAISER Officer)
II-7
SIGNATURE TITLE - ------------------------------ -------------------------- DOE RUN MINING S.R. LTDA. /s/ KENNETH R. BUCKLEY - ------------------------------ General Manager (Principal KENNETH R. BUCKLEY Executive Officer) /s/ MARVIN K. KAISER Finance Manager (Principal - ------------------------------ Financial and Accounting MARVIN K. KAISER Officer) DOE RUN PERU S.R. LTDA. /s/ KENNETH R. BUCKLEY - ------------------------------ General Manager (Principal KENNETH R. BUCKLEY Executive Officer) /s/ MARVIN K. KAISER Finance Manager (Principal - ------------------------------ Financial and Accounting MARVIN K. KAISER Officer)
II-8 EX-2.1 2 EXHIBIT 2.1 Exhibit 2.1 A list briefly identifying the contents of all omitted schedules can be found on pages (vi) and (vii) of this Exhibit 2.1. A copy of any omitted schedule will be furnished by the Registrant to the Securities and Exchange Commission upon request. ASSET PURCHASE AND SALE AGREEMENT BETWEEN ASARCO INCORPORATED AND THE DOE RUN RESOURCES CORPORATION FOR THE MISSOURI LEAD DIVISION AND THE SUGAR CREEK PROJECT JULY 28, 1998 TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 DEFINITIONS......................................................1 ARTICLE 2 BUSINESS ASSETS..................................................9 2.01 Real Property....................................................9 2.02 Machinery and Equipment.........................................10 2.03 Permits.........................................................10 2.04 Contracts.......................................................10 2.05 Business Records................................................10 2.06 Inventory.......................................................11 2.07 Intellectual Property...........................................11 2.08 Goodwill........................................................11 2.09 Miscellaneous Assets............................................11 ARTICLE 3 EXCLUDED ASSETS.................................................11 3.01 Promissory Notes................................................11 3.02 Cash and Investments............................................11 3.03 Prepaid Taxes, Expenses and Advances............................11 3.04 Tax Withholdings................................................11 3.05 Seller's Name and Trademarks....................................11 3.06 Insurance Policies..............................................11 3.07 Business Records................................................12 3.08 Corporate Computer Assets.......................................12 3.09 Other Assets....................................................12 ARTICLE 4 PURCHASE PRICE AND MISCELLANEOUS EXPENSES.......................12 4.01 Assumption of Liabilities.......................................12 4.02 Excluded Liabilities............................................12 4.03 Purchase Price..................................................13 4.04 Payment Terms...................................................14 4.05 Allocation......................................................14 4.06 Sales, Use, Transfer and Similar Taxes and Charges..............15 4.07 Property Taxes..................................................15 4.08 Miscellaneous Charges...........................................15 4.09 Conveyance of Sugar Creek Project...............................16 4.10 Royalty Agreement...............................................17 4.11 Release from Lone Star Earn Out.................................17
(i) ARTICLE 5 SELLER'S WARRANTIES.............................................17 5.01 Organization, Good Standing.....................................17 5.02 No Conflict with Other Instruments or Agreements................17 5.03 Authorization; Binding Effect...................................17 5.04 Litigation and Investigations...................................17 5.05 Environmental Matters...........................................18 5.06 Title to Real Property..........................................18 5.07 Leases..........................................................18 5.08 Title to Tangible Property......................................19 5.09 Contracts and Other Agreements..................................19 5.10 Compliance with Law; Governmental Consents......................19 5.11 Permits.........................................................19 5.12 Brokers or Finders..............................................20 5.13 Taxes...........................................................20 5.14 Labor Matters...................................................20 5.15 Disclosure......................................................20 5.16 Year 2000 Compliance............................................20 5.17 Financial Statements............................................21 5.18 Intellectual Property Rights....................................21 5.19 Affiliate Transactions..........................................21 5.20 Mineral Reserves................................................21 5.21 Operation in Ordinary Course....................................21 5.22 No Other Representations or Warranties..........................22 5.23 No Warranty of Probable Success or Condition of Assets..........22 ARTICLE 6 BUYER'S WARRANTIES..............................................22 6.01 Organization, Good Standing.....................................22 6.02 No Conflict with Other Instruments or Agreements................22 6.03 Authorization, Binding Effect...................................22 6.04 Brokers or Finders..............................................23 6.05 Litigation and Investigations...................................23 6.06 Environmental Matters...........................................23 6.07 Title to Real Property..........................................23 6.08 Leases..........................................................24 6.09 Title to Tangible Property......................................24 6.10 Contracts and Other Agreements..................................24 6.11 Compliance with Law; Governmental Consents......................24 6.12 Permits.........................................................25 6.13 Taxes...........................................................25 6.14 Employee Matters................................................25 6.15 Disclosure......................................................25 6.16 No Other Representations or Warranties..........................25 6.17 No Warranty of Probable Success or Condition of Assets..........25
(ii) ARTICLE 7 BUYER'S INDEMNITY................................................26 7.01 Assumed Liabilities..............................................26 7.02 Buyer's Ownership, Use or Operation of the Business Assets.......26 7.03 Breach of Warranty...............................................26 ARTICLE 8 SELLER'S INDEMNITY...............................................26 8.01 Excluded Liabilities.............................................26 8.02 Seller's Ownership, Use or Operation of the Sugar Creek Assets...26 8.03 Breach of Warranty...............................................26 ARTICLE 9 INTERIM PERIOD...................................................26 9.01 Due Diligence, Confidentiality...................................26 9.02 Operate Business Assets in Ordinary Course.......................27 9.03 No Material Change or Material Commitments to Business Assets....27 9.04 Due Diligence, Confidentiality...................................27 9.05 Operate Sugar Creek Assets in Ordinary Course....................28 9.06 No Material Change or Material Commitments to Sugar Creek Assets.28 9.07 Work Diligently Towards Closing..................................28 9.08 Prompt Notification of Breach....................................28 9.09 Transitional Services Agreement..................................28 ARTICLE 10 EMPLOYEE MATTERS................................................29 10.01 Offer of Employment.............................................29 10.02 Accrued Wages, Salaries.........................................30 10.03 Welfare Liabilities.............................................30 10.04 Employee Benefit Plans - General................................30 10.05 Pension and Savings Plans.......................................31 10.06 Vacation........................................................31 10.07 Wage Reporting..................................................31 10.08 Recognition of Union............................................31 ARTICLE 11 GOVERNMENTAL CONSENTS...........................................32 11.01 Governmental Consents...........................................32 11.02 Efforts.........................................................32 ARTICLE 12 CLOSING.........................................................32 12.01 Place and Date of Closing.......................................32 12.02 Buyer Deliverables at Closing...................................32 12.03 Seller Deliverables at Closing..................................34 12.04 Conditions to Buyer's Obligations...............................36 12.05 Conditions to Seller's Obligation...............................36
(iii) ARTICLE 13 POST CLOSING....................................................37 13.01 Delivery of Business Records ..................................37 13.02 Buyer Cooperation with Seller's Collection of Receivables and Disposal of Product .....................................37 13.03 Access to Records .............................................38 13.04 Cooperation in Litigation .....................................38 13.05 Removal of Seller's Name from Property ........................38 13.06 Tax Matters ...................................................38 13.07 Consents to Assignment ........................................39 13.09 Manager's Residence ...........................................40 13.10 Closure of Slag Pile ..........................................40 ARTICLE 14 BULK SALES ACT .................................................41 ARTICLE 15 RIGHT OF TERMINATION; DISPUTE SETTLEMENT .......................41 15.01 Termination ...................................................41 15.02 Alternative Dispute Resolution ................................41 ARTICLE 16 SURVIVAL, REMEDIES AND PROCEDURE FOR INDEMNIFICATION ...........43 16.01 Period for Taking Action ......................................43 16.02 Notice ........................................................43 16.03 Claims ........................................................43 16.04 Limit .........................................................43 16.05 Not a Release of Other Obligations ............................44 16.06 Procedure .....................................................44 16.07 Environmental Procedure; Access and Use of Real Property ......44 16.08 Claim Limitations .............................................46 ARTICLE 17 ENVIRONMENTAL INDEMNITY ........................................46 17.01 Seller's Environmental Indemnity ..............................46 17.02 Buyer's Environmental Indemnity ...............................47 17.03 Allocation of Certain Environmental Liabilities ...............47 ARTICLE 18 MISCELLANEOUS ..................................................49 18.01 Press Release .................................................49 18.02 Fees ..........................................................50 18.03 Amendments ....................................................50 18.04 Successors ....................................................50 18.05 Integration ...................................................50 18.06 Non-waiver of Remedy ..........................................50 18.07 Notices .......................................................50 18.08 Governing Law .................................................51 18.09 Jurisdiction ..................................................51
(iv) 18.10 Disclosure Schedules and Exhibits .............................52 18.11 Headings ......................................................52 18.12 Counterparts ..................................................52 18.13 Further Assurances ............................................52
(v) EXHIBITS: Exhibit I Form of Warranty Deed - Plant Exhibit II Undertaking of Assumption Exhibit III Bill of Sale Exhibit IV Royalty Agreement Exhibit V Globe Contract Exhibit VI Equipment Sublease Exhibit VII Form of Transitional Services Agreement Exhibit VIII Form of Warranty Deed - Sugar Creek Exhibit IX Environmental Methodology
DISCLOSURE SCHEDULES: Disclosure Schedule 2.01(a) Land Disclosure Schedule 2.01(c) Leased Premises Disclosure Schedule 2.01(e) Manager's Residence Disclosure Schedule 2.02(b) Leased Equipment Disclosure Schedule 3.08 ASARCO Corporate Computer Systems and Software Disclosure Schedule 3.09 Non-Transferable Contracts and Agreements Disclosure Schedule 4.03(b) Accounting Principles for Inventory Valuation Disclosure Schedule 5.04 Litigation and Investigations Disclosure Schedule 5.05 Environmental Claims, Suits and Proceedings Disclosure Schedule 5.06 Exceptions to Title to Real Property Disclosure Schedule 5.07 Leases Disclosure Schedule 5.08 Exceptions to Title to Machinery and Equipment Disclosure Schedule 5.09 Contracts and Other Agreements Disclosure Schedule 5.10 Compliance with Law Disclosure Schedule 5.11 Permits Disclosure Schedule 5.14(a) Agreements Related to Transferred Employees Disclosure Schedule 5.14(d) Employee Benefit Plans Disclosure Schedule 5.18 Intellectual Property Disclosure Schedule 5.19 Affiliate Transactions Disclosure Schedule 12.02(f) Additional Agreements Required by Seller and Buyer Disclosure Schedule 12.04(f) Required Consents
(vi) BUYER DISCLOSURE SCHEDULES: Buyer Disclosure Schedule 4.09(a) Sugar Creek Land Buyer Disclosure Schedule 4.09(b) Sugar Creek Machinery and Equipment Buyer Disclosure Schedule 4.09(c) Sugar Creek Permits Buyer Disclosure Schedule 4.09(d) Sugar Creek Contracts Buyer Disclosure Schedule 6.03 Consents Buyer Disclosure Schedule 6.05 Litigation and Investigations Buyer Disclosure Schedule 6.06 Environmental Claims, Suits and Proceedings Buyer Disclosure Schedule 6.07 Exceptions to Title to Real Property Buyer Disclosure Schedule 6.08 Leases Buyer Disclosure Schedule 6.11 Compliance with Law
(vii) ASSET PURCHASE AND SALE AGREEMENT MISSOURI LEAD DIVISION SUGAR CREEK PROJECT THIS AGREEMENT, entered into and effective as of the 28th day of July, 1998, by and between ASARCO INCORPORATED, a New Jersey corporation, with its principal place of business at 180 Maiden Lane, New York, New York 10038 ("Seller"), and THE DOE RUN RESOURCES CORPORATION, a New York corporation with its principal business office at Suite 300, 1801 Park 270, St. Louis, Missouri 63146 ("Buyer"). W I T N E S S E T H, That: WHEREAS, Seller owns and operates a business in southeastern Missouri for the mining, milling, smelting and refining of lead and certain associated metals and Buyer desires, pursuant to the terms and conditions of this Agreement, to purchase certain assets and acquire certain rights of Seller relating to such business and assume certain liabilities, and Seller desires to sell such assets, and transfer such rights and liabilities to Buyer; WHEREAS, as part of the consideration for its purchase, Buyer desires to transfer to Seller, and Seller desires to acquire a mineral exploration project owned by Buyer known as the Sugar Creek Project, located in Jackson and Smith Counties, Tennessee; NOW, THEREFORE, subject to the terms, conditions, covenants and provisions of this Agreement, Seller and Buyer mutually covenant and agree as follows: ARTICLE 1 DEFINITIONS As used in this Agreement, the following terms have the following meanings: "Affiliate" means any person, partnership, joint venture, corporation or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, a Party. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust or otherwise. "Agreement" means this Asset Purchase and Sale Agreement together with all its Disclosure Schedules and Exhibits. "Assumed Liabilities" has the meaning ascribed to such term in Section 4.01 of this Agreement. "Bill of Sale" means the form of assignment attached as Exhibit III to this Agreement. "Business" means the exploration, development, extracting, producing, handling, mining, milling, beneficiation, smelting, refining and sale of lead and associated metals as conducted by Seller at the Mines, the Smelter and Seller's offices in Farmington, Missouri. "Business Assets" has the meaning ascribed to such term in Article 2 of this Agreement. "Business Day" means any day on which banks in the state of New York are open for the conduct of normal business. "Business Records" has the meaning ascribed to such term in Section 2.05 of this Agreement. "Buyer Environmental Liabilities" has the meaning ascribed to such term in Section 17.02 of this Agreement. "Buyer Indemnified Parties" means Buyer, its Affiliates and each of the officers and directors of Buyer and its Affiliates. "Buyer's knowledge" means the actual knowledge of Buyer's executive officers and managers associated with the Sugar Creek Project. "Closing" has the meaning ascribed to such term in Section 12.01 of this Agreement. "Closing Date" means the date on which the Closing occurs. "Closing Inventory Report" has the meaning ascribed to such term in Section 4.03(b)(1) of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended, and corresponding provisions of any subsequent federal revenue act. "Contracts" has the meaning ascribed to such term in Section 2.04 of this Agreement. "Eligible Employees" has the meaning ascribed to such term in Section 10.01(c) of this Agreement. "Employee Benefit Plans" shall have the meaning specified in Section 3(3) of ERISA. "Environmental Claim" means any claim, action, cause of action, investigation or written notice by any person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural -2- resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from, in part or in whole, (a) the presence in, or release or threat of release into the environment, of any Materials of Environmental Concern or (b) any violation, or alleged violation, of Environmental Laws. "Environmental Laws" means any applicable Federal, state and local environmental, health or safety laws, rules, regulations, ordinances, and rules of common law, relating to the use, refinement, handling, treatment, removal, storage, production, manufacture, transportation, disposal, emission, discharge, release or threatened release of Materials of Environmental Concern, or otherwise relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, wetlands, natural resources, land surface or subsurface strata) or to the reclamation of land used for mining, as the same may be amended or modified, including, without limitation, the statutes listed below: Federal Solid Waste Act as amended by the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq.; Federal Comprehensive Environmental Response, Compensation, and Liability act of 1980, 42 U.S.C. Section 9601, et seq.; Federal Clean Air Act, 42 U.S.C. Section 7401, et seq.; Federal Water Pollution Control Act, Federal Clean Water Act of 1977, 33 U.S.C. Section 1251, et seq.; Federal Insecticide, Fungicide, and Rodenticide Act, Federal Pesticide Act of 1978, 7 U.S.C. Section 136, et seq.; Federal Hazardous Materials Transportation Act, 48 U.S.C. Section 1801, et seq.; the Emergency Planning and Community Right to Know Act (42 U.S.C. Sections 11001 et seq.); the Occupational Safety and Health Act (26 U.S.C. Sections 651 et seq.); the Pollution Prevention Act of 1990 (42 U.S.C Sections 13101 et seq.); the Atomic Energy Act of 1954, 68 Stat. 919; the Energy Reorganization Act of 1974; the Mine Safety and Health Act of 1977; the Uranium Mill Tailings Radiation Control Act (42 U.S.C Sections 7901 et seq.); the Federal Land Policy and Management Act (42 U.S.C. Sections 1701 et seq.); the State of Missouri Land Reclamation Act (Mo. Ann. Stat. XXIX Section 444.760 et seq.); the Emergency Planning and Community Right to Know Act (42 U.S.C. Sections 11001 et seq.); the Occupational Safety and Health Act (26 U.S.C. Sections 651 et seq.); the Pollution Prevention Act of 1990 (42 U.S.C Sections 13101 et seq.); the Atomic Energy Act of 1954, 68 Stat. 919; the Energy Reorganization Act of 1974; the Mine Safety and Health Act of 1977; the Uranium Mill Tailings Radiation Control Act (42 U.S.C Sections 7901 et seq.); the Federal Land Policy and Management Act (42 U.S.C. Sections 1701 et seq.); the State of Missouri Metallic Minerals Waste Management Act (Mo. Ann. Stat. Sections 444.350 et seq.); Federal Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.; Federal Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq.; and analogous state and local regulations. "Environmental Methodology" means the principles and methodology attached as Exhibit IX to this Agreement. "Environmental Permit" means any federal, state or local permits, licenses, approvals, consents or authorizations required by any governmental authority under or in connection with any Environmental Law applicable to the Business or the Business Assets and includes any and all orders, consent orders or binding agreements issued or entered into by a governmental authority under any applicable Environmental Law. "Equipment Sublease" means that agreement attached as Exhibit VI to this Agreement. -3- "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Excluded Assets" has the meaning ascribed to such term in Article 3 of this Agreement. "Excluded Liabilities" has the meaning ascribed to such term in Section 4.02 of this Agreement. "Finished Goods Inventories" means inventories of refined lead and silver held by the Seller on the Closing Date. "Fixtures" has the meaning ascribed to such term in Section 2.01(b) of this Agreement. "GAAP" means generally accepted accounting principles in effect in the United States from time to time. "Governmental Authority" means any federal, state, local or other governmental authority, agency or regulatory body, including, without limitation, any commission, court, tribunal or panel having jurisdiction over the matter at issue. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Improvements" has the meaning ascribed to such term in Section 2.01(b) of this Agreement. "Indemnifier's Basket" has the meaning ascribed to such term in Section 16.03 of this Agreement. "In-Process Metals Inventories" means inventories of concentrates and metals at various stages of milling, smelting and refining that are not Finished Goods Inventories. "Intellectual Property" means patents, copyrights, trademarks, registrations, metal stamps, service marks, trade names, brand names and application for the same, and Technical Information, in each case used or held for use in the Business, excluding (i) "off the shelf" software packages which may readily be obtained by Buyer and (ii) Seller's corporate computer assets described in Section 3.08 of this Agreement. "Inventory" has the meaning ascribed to such term in Section 2.06 of this Agreement. "Land" has the meaning ascribed to such term in Section 2.01(a) of this Agreement. -4- "Leased Equipment" has the meaning ascribed to such term in Section 2.02(b) of this Agreement. "Leased Mining Reserves" has the meaning ascribed to such term in Section 2.01(d) of this Agreement. "Leased Premises" has the meaning ascribed to such term in Section 2.01(c) of this Agreement. "Leases" has the meaning ascribed to such term in Section 2.01(c) of this Agreement. "Lien" means, with respect to any asset, any mortgage, title defect, lien, lease, pledge, charge, security interest, hypothecation, restriction, judgment, encumbrance or charge of any kind in respect of such asset. "Lone Star Release" has the meaning ascribed to such term in Section 4.11 of this Agreement. "Loss" or "Losses" means any and all actual losses (including, without limitation, actual losses in value), liabilities, costs, damages, investigative, cleanup, reclamation, disposal, encapsulation, transportation, remedial and monitoring costs, penalties and expenses (including, without limitation, reasonable attorneys' fees and expenses and litigation costs and environmental consultants fees), and any legal or other expenses reasonably incurred in connection with investigating or defending any claims or actions, whether or not resulting in any liability, but not including consequential damages (other than those described above), lost profits or business opportunities, indirect losses, liabilities, damages or expenses incurred due to the interruption of the indemnitee's business or punitive damages, except where such damages are incurred by or awarded to a third party making a claim against an indemnitee. "Machinery and Equipment" has the meaning ascribed to such term in Section 2.02(a) of this Agreement. "Manager's Residence" has the meaning ascribed to such term in Section 2.01(e) of this Agreement. "Master Lease Agreements" means the two substantially identical agreements, namely (a) the Lease Agreement [A] dated as of March 1, 1991, between The Connecticut National Bank, as Owner Trustee, as Lessor, and Seller, as Lessee and (b) the Lease Agreement [B] dated as of March 1, 1991, between the Lessor and The Connecticut National Bank, as Owner Trustee, as Lessor, and Seller, as Lessee, pursuant to which the Leased Equipment, among other items of machinery and equipment, are leased by Seller. "Material" means having an actual or potential economic impact of at least $250,000. -5- "Material Adverse Effect" means an effect which is or would reasonably be expected to be adverse in any Material respect to the Business Assets or the Business, or the Sugar Creek Assets, as the case may be (in each case as presently conducted), its condition (financial or otherwise), results of operations, properties, liabilities or prospects. "Material Contracts" means those Contracts with an aggregate remaining value of at least $100,000 or a remaining term in excess of 180 days, excluding Contracts which may by their terms be terminated by not more than 45 days notice. "Materials Inventories" means inventories of coke, smelter flux, natural gas, refractories, reagents and other raw materials (other than In-Process Metals Inventories) as well as warehouse inventories of tools and spare parts and other supplies used by the Mines or the Smelter in connection with the Business. "Materials of Environmental Concern" means any toxic or hazardous waste, pollutants or substances, including, without limitation, substances defined or listed as a pollutant, air pollutant, "hazardous substance", "toxic substance", "toxic pollutants", "hazardous constituent", "medical waste" or similarly identified substance or mixture, in or pursuant to any Environmental Law. "Mineral Substances" means all surface and subsurface merchantable and nonmerchantable ores, metals, minerals and mineral products of every nature or sort, including, without limitation, all gold, silver, platinum group metals, iron, cobalt, copper, molybdenum, lead, zinc, chalcopyrite, galena, sphalerite, bauxite, kaolin, and all other materials or substances of any nature whatsoever found in natural deposits, whether similar or dissimilar in character to the foregoing, and any minerals as defined under any mining lease, mineral lease or similar instrument constituting part of the Business. "Mines" means all of the operations included with and generally referred to as Seller's Sweetwater Unit and West Fork Unit, located in Reynolds and Shannon Counties, Missouri including, without limitation, all mine workings, support structures, tunnels, adits, drifts, shafts, ventilation shafts, supports, pillars, winzes, haulage ways, trackage, and other real and personal property and Mineral Substances relating thereto. "Non-transferable Contracts" means those agreements that would otherwise constitute "Contracts" within the meaning of Section 2.04 hereof, but for the lack of consent of a third party as required by such agreements. "Owned Mining Reserves" has the meaning ascribed to such term in Section 2.01(d) of this Agreement. "Parties" means both Buyer and Seller. "Party" means either Buyer or Seller. "Permits" means Environmental Permits, building permits, operating permits, consents, licenses, certificates of occupancy, authorizations and approvals issued by a -6- Governmental Authority, including, without limitation, permits with respect to the conduct of mining or mineral exploration activities. "Permitted Exceptions" has the meaning ascribed to such term in Section 5.06 of this Agreement. "Permitted Liens" means (i) Liens for Taxes or governmental assessments, charges or claims the payment of which is not yet due, or for Taxes the validity of which are being contested in good faith by appropriate proceedings; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar persons imposed by applicable law and incurred in the ordinary course of business for sums not yet delinquent or which are being contested in good faith; and (iii) Liens relating to deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security or to secure the performance of leases, trade contracts or other similar agreements. Notwithstanding the foregoing, no Lien arising under the Code or ERISA with respect to the operation, termination, restoration or funding of any benefit plan sponsored by, maintained by or contributed to by Seller or arising in connection with any excise tax or penalty tax with respect to such benefit plan shall be a Permitted Lien. "Plant" has the meaning ascribed to such term in Section 2.01(b) of this Agreement. "Plant Deed" means a special warranty deed substantially in the form of Exhibit I. "Pre-Closing Inventory Report" has the meaning ascribed to such term in Section 4.03(b)(2) of this Agreement. "Pre-Paid Expenses" means expenditures by the Seller in respect of future benefits to the Business, including, without limitation, prepaid royalties and prepaid tax assessments. "Purchase Price" has the meaning ascribed to such term in Section 4.03 of this Agreement. "Receivables" means the trade accounts receivable arising from the sale of products by the Business to its customers prior to the Closing Date and any amounts due to the Seller from employees of the Business. "Required Consents" has the meaning ascribed to such term in Section 12.04(f). "Royalty Agreement" means that agreement attached as Exhibit IV to this Agreement. "Seller Environmental Liabilities" the meaning ascribed to such term in Section 17.01 of this Agreement. "Seller Indemnified Parties" means Seller and its Affiliates, and each of the officers and directors of Seller and its Affiliates. -7- "Seller's knowledge" means the actual knowledge of Seller's executive officers and its managers associated with the Business. "Smelter" means Seller's lead smelter and refinery located in Iron County, Missouri. "Sugar Creek Assets" has the meaning ascribed to such term in Section 4.09 of this Agreement. "Sugar Creek Deed" means a special warrant deed substantially in the form of Exhibit VIII. "Sugar Creek Project" means Buyer's exploration lands and other assets and the exploration activities conducted to date at such properties in Jackson and Smith Counties, Tennessee. "Tax" or "Taxes" means all federal, state or local net or gross income, gross receipts, net proceeds, goods and services, sales, harmonized sales, use, ad valorem, value added, transfer, franchise, recapture, withholding, payroll, employment, social security, health, unemployment, excise, property, severance, alternative or add-on minimum or environmental taxes, assessments, duties, fees, levies or other governmental charges, whether disputed or not, together with any interest, penalties, additions to tax or additional amounts with respect thereto. "Technical Information" includes, without limitation, (a) ideas and conceptions of potentially patentable subject matter, including, without limitation, any invention or patent disclosures, whether or not reduced to practice and not yet made the subject of a patent application, (b) technology (including, without limitation, know-how and show-how), including mining, concentrating, smelting and refining processes and techniques, service and repair manuals, research and development information, drawings, specifications, designs, plans and technical data, whether secret or confidential or not, and (c) geological or geophysical surveys, drill cores and assays, in each case related to the Business or the Business Assets. "Transferred Employee(s)" has the meaning ascribed to such term in Section 10.01 of this Agreement. "Transitional Services Agreement" means an agreement substantially in the form attached as Exhibit VII to this Agreement. "Undertaking of Assumption" means that agreement attached as Exhibit II to this Agreement. All dollar amounts set forth herein are expressed in United States currency. -8- ARTICLE 2 BUSINESS ASSETS Seller agrees to grant, sell, convey, assign, transfer and deliver unto Buyer, and Buyer agrees to purchase, accept and take delivery of the Mines, the Smelter and the Business, free and clear of all Liens other than Permitted Liens (or, with respect to the Plant, Permitted Exceptions) to the extent the same relate to the Business (hereinafter collectively referred to as the "Business Assets") as of the Closing Date, as set out below: 2.01 Real Property. (a) Those surface and subsurface lands and, as and to the same extent owned by Seller, Mineral Substance and mineral estates in Reynolds and Shannon Counties, Missouri on which the Mines are located and those surface and, as and to the same extent as owned by Seller, subsurface lands, Mineral Substances and mineral estates in Iron County, Missouri on which the Smelter is located and certain associated real property and other lands shown on Disclosure Schedule 2.01(a) (the "Land") and all easements, rights-of-way, haulageways, access rights, ventilation rights, rights of support, boundary rights, rights of subjacent and lateral support and rights of ingress and egress appurtenant to the Land. Seller has furnished to Buyer prior to the date of this Agreement a legal description of the Land, which reflects the boundaries of the Land for each Mine and the Smelter and which is attached hereto and made a part hereof as Disclosure Schedule 2.01(a). (b) All above or below ground buildings, improvements, structures and fixtures now or on the Closing Date located on, in or under the Land, including, without limitation, headframes, hoists, shaft structures, ventilation installations, tailings, tailings dams, slag piles, landscaping, parking lots and structures, roads, drainage and all above ground and below ground utility structures, equipment systems, and so called "infrastructure" (the "Improvements"), all above ground and below ground permanently affixed equipment, machinery, fixtures, and other items of real and personal property, including, without limitation, all components thereof, now and hereafter located in, on or used in connection with, and permanently affixed to or incorporated into the Improvements, all of which, to the greatest extent permitted by law, are hereby deemed by the parties hereto to constitute real estate, together with all replacements, modifications, alterations and additions thereto (the "Fixtures"). The Land, the Owned Mining Reserves, the Improvements and the Fixtures of the Mines and the Smelter are collectively referred to herein as the "Plant". (c) The leasehold interest and, to the extent owned by Seller, leasehold Improvements and Fixtures created by each lease of real property and/or Mineral Substances, including mineral lease agreements and surface lease agreements (the "Leases"), in the locations described in Disclosure Schedule 2.01(c) (the "Leased Premises"), so long as a party thereto has consented to the assignment thereof, if such consent is required pursuant to such Lease or pursuant to a requirement of law, as the case may be. For any Lease that is not so transferable by Seller without the consent of any other party, Seller shall use its reasonable best efforts to arrange for Buyer to obtain such consent, and Buyer shall use its reasonable best efforts to assist Seller). (d) All of Seller's interest in mining reserves and Mineral Substances contained in the Land ("Owned Mining Reserves") and the Leased Premises ("Leased Mining Reserves"). -9- (e) All of Seller's rights in the residence located at 114 Oak Hill Drive in Arcadia, Missouri and the real property upon which such residence is located, as described in Disclosure Schedule 2.01(e) (the "Manager's Residence"). 2.02 Machinery and Equipment. (a) Except as described in Article 3 hereof, all fixed and mobile mining, milling, smelting, refining, storage, distribution, laboratory, transportation, computer hardware, office and other machinery and equipment owned by Seller, and primarily used, held for use in, or related to the Business (the "Machinery and Equipment"). Seller has furnished to Buyer a list of all Machinery and Equipment as in existence as of April 30, 1998, with a book value in excess of $5,000 per item. (b) All rights in and to those items of machinery and equipment listed on Disclosure Schedule 2.02(b) which are leased by Seller pursuant to the Master Equipment Lease (the "Leased Equipment"). 2.03 Permits. To the extent transferable or assignable to Buyer without breaching any applicable law or regulation or any other enforceable obligation of Seller (subject to the obligation of Seller to use its reasonable best efforts to assign the same to Buyer as described below), all rights in and to all Permits listed in Disclosure Schedule 5.11, primarily used, held for use in, or related to the Business, which are required by any Governmental Authority in order for Seller to conduct the Business as presently conducted (as distinct from general corporate and other similar authorizations not specific to the Business, such as qualifications to transact business). For any such Permit that is not so transferable by Seller without the consent of any other party, Seller shall use its reasonable best efforts to arrange for Buyer to obtain such consent, and Buyer shall use its reasonable best efforts to assist Seller and Buyer shall be responsible for any costs incurred to obtain the same, other than Seller's internal costs associated with such efforts. No such costs shall be incurred without Buyer's prior approval therefor. 2.04 Contracts. Except as identified in Article 3 hereof, all sales orders and contracts, purchase orders and contracts, equipment and other personal property leases and other contracts or agreements which relate primarily to the Business or the Business Assets, the terms of which have not expired on or before the Closing Date (the "Contracts"), so long as a party thereto has consented to the assignment thereof, if such consent is required pursuant to such contract or agreement or pursuant to a requirement of law, as the case may be. For any such contract or agreement that is not so transferable by Seller without the consent of any other party, Seller shall use its reasonable best efforts to arrange for Buyer to obtain such consent, and Buyer shall use its reasonable best efforts to assist Seller. For the purposes of this Agreement, the following shall not constitute Contracts: (a) Receivables and (b) agreements between Seller and its employees, relating to their terms and conditions of employment with Seller, including, without limitation, collective bargaining agreements. 2.05 Business Records. All existing business records related to the Business or the Business Assets, confidential (subject to third party confidentiality restrictions or legally required consents) and otherwise, located, as of the Closing Date, at the Plant, the Leased Premises, Seller's offices in Salt Lake City, Utah, in the case of certain records regarding environmental matters at the Mines or the Smelter, and Seller's head office in New York, New -10- York, in the case of certain records related to sales of products produced by the Business, other than records related to (a) the employees of the Business and (b) the divestiture of the Business (the "Business Records"). 2.06 Inventory. All Materials Inventories, In-Process Metals Inventories and Finished Goods Inventories held for use or generated by the Business, which are located at or in transit to or from the Plant, the Leased Premises, field warehouses or customer locations or any toll converting or third party facilities (the "Inventory"). 2.07 Intellectual Property. The rights to all Intellectual Property used, or held for use in, the Business, including, without limitation, all of Seller's rights in and to the "Glover Lead" brand name registered with the London Metals Exchange, but excluding those items referred to in Section 3.08 of this Agreement. 2.08 Goodwill. All goodwill associated with the Business and the Business Assets. 2.09 Miscellaneous Assets. All (i) counterclaims and defenses relating to Assumed Liabilities and (ii) Prepaid Expenses, associated with the Business as prorated to Buyer pursuant to Article 4. ARTICLE 3 EXCLUDED ASSETS Notwithstanding anything, express or implied, to the contrary contained in this Agreement, the following assets of Seller and Seller's Affiliates are excluded from the transaction described by this Agreement and shall not constitute a portion of the Business Assets (the "Excluded Assets"): 3.01 Promissory Notes. All promissory notes payable to the Seller. 3.02 Cash and Investments. All cash on hand or in banks, including cash equivalents and investments. 3.03 Prepaid Taxes, Expenses and Advances. All Prepaid Expenses, as prorated to Seller in accordance with Article 4. 3.04 Tax Withholdings. All Taxes withheld by Seller from its employees' salaries and wages, and other Taxes of Seller incurred by it as an employer or as a vendor, which Seller is obligated to pay, and rights to claims for refunds of Taxes. 3.05 Seller's Name and Trademarks. All rights in the trade name ASARCO or any other trademark or trade name of Seller, other than as provided in Section 2.07. 3.06 Insurance Policies. All insurance policies, agreements and contracts and all rights in connection therewith the proceeds or benefits thereof. -11- 3.07 Business Records. All records with respect to employees, the divestiture of the Business and all other business records not described in Section 2.05. 3.08 Corporate Computer Assets. All corporate computer systems and licenses (including, without limitation, Seller's electronic mail systems, mine planning systems, accounting systems, metals trading systems, freight related systems and fixed asset management systems), which are listed in Disclosure Schedule 3.08, provided that Seller shall provide Buyer with use of certain of such systems or software pursuant to the Transitional Services Agreement. 3.09 Other Assets. All other assets of Seller and its Affiliates that do not constitute Business Assets, including, without limitation: (a) any of Seller's offices or properties located outside of Missouri; (b) exploration properties within Missouri which are not contiguous to the Mines; (c) Non-transferable Contracts as set forth on Disclosure Schedule 3.09; (d) the Receivables; (e) any amounts awarded to Seller in connection with the proceeding initiated by Seller and Buyer seeking recovery of sales tax paid to the State of Missouri; and (f) any assets, including, without limitation, contracts or agreements, allocated or attributable to employee benefit plans or other compensation or benefit arrangements of Seller and/or its Affiliates, whether or not held in trust. ARTICLE 4 PURCHASE PRICE AND MISCELLANEOUS EXPENSES Subject to the terms and conditions of this Agreement, in consideration of the sale, conveyance, assignment, transfer and delivery by Seller of the Business Assets, Buyer and Seller agree as follows: 4.01 Assumption of Liabilities. (a) Pursuant to the terms of the Undertaking of Assumption and except as otherwise provided in this Agreement, Buyer shall assume and agree to pay, discharge and perform when due all liabilities and obligations (whether known or unknown, fixed or contingent), to the extent that such liabilities and obligations arise out of the conduct of the Business or the use, ownership or operation of the Business Assets from and after Closing (the foregoing being hereinafter referred to as the "Assumed Liabilities"), including liabilities for any Environmental Claims as provided under Article 17 ("Assumed Environmental Liabilities"). The Assumed Liabilities include, but are not limited to, all obligations arising on the Closing Date and at any time after the Closing under Contracts, Permits, Leases and other agreements assigned by Seller to Buyer in accordance with this Agreement. (b) Pursuant to an agreement substantially in the form of the Equipment Sublease, Buyer shall assume all liabilities of Seller arising with respect to the Leased Equipment under the Master Lease Agreement. The Parties acknowledge and agree that the Equipment Sublease is subject to the comments of the Lessor (as defined therein), provided that such comments are reasonably acceptable to the Parties. 4.02 Excluded Liabilities. Except as provided in Section 4.01, Buyer shall not assume any liabilities and obligations (whether known or unknown, fixed or contingent) of Seller 12 to the extent that such liabilities and obligations arise out of the conduct, ownership, use or operation of the Business or the Business Assets prior to the Closing Date ("Excluded Liabilities"). The Excluded Liabilities include, without limitation, the following: (a) Accounts payable incurred prior to the Closing Date; (b) Wages and salaries earned by employees of the Business prior to the Closing Date pursuant to Section 10.02 or any obligations of Seller in respect of workers' compensation claims as set forth in Section 10.03; (c) All liabilities and claims incurred, accrued or earned under any employee benefit plan or other compensation or benefit arrangement of Seller or its Affiliates, to the extent provided in Article 10; (d) Liabilities, whether presently existing or arising hereafter, attributable to an Excluded Asset; (e) Liabilities of Seller for Taxes relating to the conduct of the Business or the ownership, conduct, use or operation of the Business Assets prior to the Closing, other than as described in Sections 4.06(a) and 4.07(a) of this Agreement; and (f) As provided under Article 17, liabilities for any Environmental Claims to the extent such liabilities arise out of the use, ownership or operation of the Business Assets or the conduct of the Business prior to Closing ("Excluded Environmental Liabilities"). 4.03 Purchase Price. (a) The purchase price ("Purchase Price") of the Business Assets shall be the sum of: (1) Forty-Five Million Dollars ($45,000,000) for the Business Assets (other than Inventory) and for all other rights and obligations contemplated hereunder; (2) the value of the Inventory computed in accordance with Section 4.03(b); and (3) the transfer by Buyer to Seller of the Sugar Creek Assets, in accordance with Section 4.09. (b) (1) The Seller and the Buyer have jointly carried out a physical inventory and agreed to a calculation of the value of the Inventory as of June 30, 1998 in accordance with the Accounting Principles for Inventory Valuation described in Disclosure Schedule 4.03(b) hereof. From June 30, 1998 to the Closing Date, the Seller shall account for additions to and subtractions from the Inventory in accordance with its normal accounting procedures. Five Business Days prior to Closing, Seller shall provide to Buyer a report (the "Pre-Closing Inventory Report") setting out the value of the Inventory, computed in accordance with the Inventory Valuation Procedure described in Disclosure Schedule 4.03(b) hereof, as of the date which is the last day in the calendar month preceding the month which includes the Closing Date, provided that if the Closing occurs in the first seven days of a calendar month, the Pre-Closing Inventory Report shall 13 be as of the last day of the second preceding calendar month. The Pre-Closing Inventory Report shall be the basis for the payment at Closing for Inventory. (2) No later than 30 days following Closing, Seller shall provide to Buyer a report (the "Closing Inventory Report") setting forth the Inventory value at Closing, using the same valuation methods as were used in preparing the Pre-Closing Inventory Report. Seller shall make available to Buyer Seller's books, records and personnel related to and involved in the calculation of such actual values, and Buyer shall make available to Seller the Business books, records and personnel transferred to Buyer to the extent reasonably necessary for Seller to complete such valuations. (A) If the value for Inventory shown on the Closing Inventory Report is greater than the value shown on the Pre-Closing Inventory Report, Buyer shall remit to Seller such difference within ten days of receipt by Buyer of the Closing Inventory Report; and (B) If the value for Inventory shown on the Closing Inventory Report is less than the value shown on the Pre-Closing Inventory Report, Seller shall remit to Buyer such difference within ten days of receipt by Buyer of the Closing Inventory Report. (3) By submittal of a written objection thereto no later than 20 business days following receipt of the Closing Inventory Report, Buyer may dispute any amounts reflected on such report, but only on the basis that the amounts reflected thereon were not arrived at in accordance with the terms of this Agreement. Such objection shall identify each disputed item with a reasonable description of the amount in dispute and the nature of the objection. If Buyer and Seller are unable to resolve such dispute within 45 business days following Seller's receipt of Buyer's objection, they shall submit the open matter(s) to the firm of Pricewaterhouse Coopers LLP who shall, within 30 days of such submittal, issue a determination to both parties which determination shall have the legal effect of an arbitral award and be final and binding on the Parties. The fees and expenses of Pricewaterhouse Coopers LLP incurred pursuant to this Section 4.03 shall be allocated between Buyer and Seller in the same proportion that the aggregate amount of disputed items so submitted that is unsuccessfully disputed by Buyer bears to the total amount of all disputed items so submitted. 4.04 Payment Terms. (a) The Purchase Price provided in Section 4.03(a)(1) and (2) shall be payable in immediately available funds in United States Dollars by wire transfer to accounts of Seller at a bank or banks to be designated by Seller in writing to Buyer prior to the Closing Date. (b) Any amounts due from the Seller to the Buyer pursuant to Section 4.03(b)(2)(B) shall be payable in immediately available funds by wire transfer to accounts of the Buyer at a bank or banks to be designated by Buyer in writing to Seller prior to the Closing Date. 4.05 Allocation. Not later than 30 days after the Closing Date, the Parties will agree as to (i) the value of the Sugar Creek Assets and (ii) the allocation of the Purchase Price (including for purposes of this Section 4.05, any other consideration paid to Seller, including consideration in the form of liabilities being assumed or royalties or earnings being received as 14 described in Section 4.10 or Section 4.11) among the various categories of Business Assets and rights transferred to or otherwise acquired by Buyer pursuant to this Agreement. The allocation as so agreed (with any resulting adjustments to asset values arising out of application of Section 4.03(b)(3) above) shall be used by the Parties in reporting the transactions contemplated by this Agreement for all tax purposes, including as required by Section 1060 of the Code. Neither Party shall take any position on any of its tax returns that is inconsistent with such allocation and each Party shall file U.S. Internal Revenue Service Form 8594 in a manner consistent with this allocation. 4.06 Sales, Use, Transfer and Similar Taxes and Charges. (a) Buyer shall bear and pay all sales or use taxes, any applicable federal excise taxes, and any transfer, transfer gain, documentation, gross receipts, value added and other taxes and charges, as well as all interest and penalties thereon payable because of the action or inaction of Buyer, upon or with respect to the sale or transfer of the Business Assets by Seller to Buyer pursuant to this Agreement. To the extent that any applicable law or regulation imposes upon Seller the obligation to report or to pay such taxes, charges, interest or penalties, Seller shall issue an invoice to Buyer for the amount of such payments and shall effect such payments promptly upon receiving the amounts payable from Buyer and as soon as is practicable thereafter provide Buyer with evidence of such payments. If the sale or transfer of any or all of the Business Assets is exempt from such taxes or charges, Buyer shall provide Seller with a certificate from its Chief Financial Officer to this effect prior to the Closing Date. (b) Seller shall bear and pay all sales or use taxes, any applicable federal excise taxes, and any transfer, transfer gain, documentation, gross receipts, value added and other taxes and charges, as well as all interest and penalties thereon payable because of the action or inaction of Seller, upon or with respect to the sale or transfer of the Sugar Creek Assets by Buyer to Seller pursuant to this Agreement. To the extent that any applicable law or regulation imposes upon Buyer the obligation to report or to pay such taxes, charges, interest or penalties, Buyer shall issue an invoice to Seller for the amount of such payments and shall effect such payments promptly upon receiving the amounts payable from Seller and as soon as is practicable thereafter provide Seller with evidence of such payments. If the sale or transfer of any or all of the Sugar Creek Assets is exempt from such taxes or charges, Seller shall provide Buyer with a certificate from its Comptroller to this effect prior to the Closing Date. 4.07 Property Taxes. (a) All applicable real and personal property taxes levied or assessed for the tax year in which the Closing occurs against the Business Assets shall be prorated and shall be the responsibility of Seller up to and including midnight preceding the Closing Date; the balance of any such taxes shall be borne by Buyer; or, if Seller shall have paid any of the same, Buyer shall promptly reimburse Seller therefor. (b) All applicable real and personal property taxes levied or assessed for the tax year in which the Closing occurs against the Sugar Creek Assets shall be prorated and shall be the responsibility of Buyer up to and including midnight preceding the Closing Date; the balance of any such taxes shall be borne by Seller; or, if Buyer shall have paid any of the same, Seller shall promptly reimburse Buyer therefor. 15 4.08 Miscellaneous Charges. At the Closing, the following charges with respect to the transactions contemplated by this Agreement shall be paid, prorated or handled by the Parties, as follows: (a) Any fees, expenses, charges or accruals for utilities shall be prorated to and including midnight preceding the Closing Date and shall be paid by Seller, in the case of the Business, by the Buyer, in the case of the Sugar Creek Project, and all said amounts applicable to the period after midnight preceding the Closing Date, shall be paid by Buyer, in the case of the Business, and by the Seller, in the case of Sugar Creek Project. (b) Any Prepaid Expenses relating to the Business shall be prorated between the parties, and Buyer shall reimburse Seller for amounts paid that relate to periods on or after the Closing Date for the Business and Seller shall reimburse Buyer for amounts paid that relate to periods on or after the Closing Date for the Sugar Creek Project. (c) Premiums and other charges for the issuance of a title insurance policy on the Plant, if any is desired by Buyer, shall be paid by Buyer. (d) The cost for a new survey of the Plant, and preparing a plat thereof, if any is desired by Buyer, should be paid by Buyer, and the cost of a new survey of the Sugar Creek Project, and preparing a plat thereof, if any is desired by Seller, shall be paid by Seller. (e) The parties shall share equally the filing fee paid by Buyer in respect of its filing under the HSR Act. (f) Buyer shall pay Seller the amount of $40,000 in respect of property acquired by the Seller from Marvin Richards immediately prior to the Effective Date. 4.09 Conveyance of Sugar Creek Project. Buyer shall grant, sell, convey, transfer and deliver unto Seller, and Seller agrees to purchase, accept and take delivery of the following assets of Buyer free and clear of all Liens other than Permitted Liens, and assume all obligations under any underlying lease pertaining to the Sugar Creek Project (collectively, the "Sugar Creek Assets") as of the Closing Date: (a) All of Buyer's interest in land located in Jackson and Smith Counties, Tennessee, described in Buyer Disclosure Schedule Section 4.09(a), together with all of Buyer's interest in Mineral Substances and mineral reserves contained in such land; (b) All exploration, mining, laboratory and other machinery and equipment used primarily in connection with the Sugar Creek Project, as listed in Buyer Disclosure Schedule Section 4.09(b); (c) To the extent transferable or assignable to Seller without breaching any applicable law or regulation or any other enforceable obligation of Buyer, all rights in and to all Permits obtained by Buyer in connection with the Sugar Creek Project, as listed in Buyer Schedule Section 4.09(c); 16 (d) All contracts or agreements which are related primarily to the Sugar Creek Project, as listed in Buyer Disclosure Schedule Section 4.09(d); and (e) All written or electronic information held or controlled by Buyer relating to geological or geophysical surveys, drill cores and assays in respect of the Sugar Creek Assets. 4.10 Royalty Agreement. In partial consideration for the Business and the Business Assets, Buyer and Seller shall enter into the Royalty Agreement on the Closing Date. 4.11 Release from Lone Star Earn Out. Buyer shall be released from its profit participation obligations created by Section 2.1(iv) of the Asset Purchase Agreement dated August 31, 1995 among Lone Star Lead Construction Corp., the Seller and the Buyer (such release, the "Lone Star Release"). ARTICLE 5 SELLER'S WARRANTIES Except as otherwise provided in this Agreement, Seller warrants that as of the Effective Date and as of the Closing Date: 5.01 Organization, Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey and has corporate power to own the Business Assets and to carry on the Business as now being conducted. 5.02 No Conflict with Other Instruments or Agreements. Neither the execution, delivery or performance of this Agreement by Seller, nor the consummation of the transactions contemplated by this Agreement by Seller will: (a) violate any provision of the Certificate of Incorporation, Bylaws or similar constitutional documents of Seller, or any law, rule, regulation, order, judgment or decree by which Seller, the Business or any of the Business Assets may be bound; or (b) conflict with, result in a breach of the terms and conditions of, or result in the imposition of any Lien (other than Permitted Liens) with respect to any of the Business Assets as a result of any provision of, or constitute a default under, any agreement (except with respect to any Contract under which a default is caused by the assignment thereof by Seller) to which Seller or the Business is a party or by which either of them or any of the Business Assets may be bound. 5.03 Authorization; Binding Effect. Seller has the corporate power, including all necessary authorization in respect of corporate action on the part of Seller, to execute, deliver and fulfill the provisions of this Agreement, and this Agreement constitutes a legal, valid and binding agreement of Seller enforceable against Seller in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, or similar laws affecting the enforcement of creditors' rights generally and rules and laws concerning equitable remedies. 17 5.04 Litigation and Investigations. Except as disclosed to Buyer in Disclosure Schedule 5.04 or 5.05, there is no litigation, action, investigation or proceeding pending or, to Seller's knowledge, threatened against or relating to the Business or the Business Assets other than those which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; nor has Seller received any written notice (nor, to Seller's knowledge, are any pending) from any person or Federal, state, or municipal government, or governmental or regulatory agency threatening to institute same; and the use or operation of the Business Assets is not subject to any injunction, order, judgment, writ or decree other than those which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 5.05 Environmental Matters. Except as disclosed to Buyer in Disclosure Schedule 5.05, there are no pending Environmental Claims which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, nor has Seller received any written notice of any Environmental Claims which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, nor to Seller's knowledge are there any facts or circumstances relating to the Business Assets or the Business that would reasonably be expected to give rise to any Environmental Claims which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. Except as disclosed in Disclosure Schedule 5.05, Seller has received all Environmental Permits required for operation of the Plant and Leased Premises, including the emission and/or disposal of solid, liquid and gaseous materials from the operations at the Plant and Leased Premises and is operating in conformance with such permits and approvals required under any Environmental Laws and the Business and the Business Assets are otherwise in compliance with all applicable Environmental Laws and Environmental Permits, except in those instances in which failure to comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.06 Title to Real Property. Seller has good title in fee simple, such that Buyer could obtain title insurance with respect to surface rights from a recognized insurer at a reasonable cost, to the Plant, including all Owned Mining Reserves, and the Manager's Residence, free and clear of any mortgage, judgment, security interest, restriction, lease, Liens or other encumbrance of any nature other than Permitted Liens, subject, however, to the following (collectively, the "Permitted Exceptions"): (a) real estate taxes and installments of governmental assessments for public improvements benefiting the Plant or the Manager's Residence for the tax year in which the Closing Date occurs; (b) all matters which an inspection of the Plant or the Manager's Residence would show, as are set forth on Disclosure Schedule 5.06; and (c) those exceptions and reservations to Seller's title in the Land and the Manager's Residence as set forth in Disclosure Schedule 5.06. 5.07 Leases. Disclosure Schedule 5.07 sets forth a list of all Leases, including a list of Leased Mining Reserves. No party to any Lease has notified Seller that it considers Seller to be in breach thereof, and to Seller's knowledge neither the Seller nor any other party to any 18 Lease has breached or is contemplating the breach thereof. Except as stated in Disclosure Schedule 5.07, Seller has not defaulted with respect to any Lease, other than those defaults which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.08 Title to Tangible Property. Except as set forth on Disclosure Schedule 5.08, Seller has good and marketable title to the Machinery and Equipment, Inventory and other tangible property excluding the Plant and the Leased Equipment, free and clear of all Liens, other than Permitted Liens. 5.09 Contracts and Other Agreements. (a) Disclosure Schedule 5.09 sets forth a list of Contracts, including a list of Material Contracts. No party to any Material Contract has notified Seller that it considers Seller to be in breach thereof, and to Seller's knowledge no other party to any Material Contract has breached or is contemplating the breach thereof. Except as set forth on Disclosure Schedule 5.09, Seller has not materially breached or defaulted with respect to any Material Contract nor does Seller know of any fact which, if known, would result in a breach, other than in each case those defaults which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (b) Seller makes no warranty with regard to the assignability of rights or delegation of duties under the Contracts. Subject to confidentiality restrictions, Buyer shall form its own opinion with regard to the enforceability of the commitments of any party thereto therein contained, compliance by the other parties thereto with their undertakings thereunder, and assignability thereof, and ongoing obligations of Buyer to such other parties after Buyer's assumption of obligations as set forth in Section 4.01. 5.10 Compliance with Law; Governmental Consents. (a) Except as set forth in Disclosure Schedule 5.10 or as otherwise set forth herein, to Seller's knowledge, the operations of the Business as conducted by Seller are in compliance with all applicable laws, regulations and codes of the Federal, state or municipal governments, or other governmental or regulatory bodies having jurisdiction over the Business except in those instances in which failure to comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and Seller has not been notified in writing of, nor to Seller's knowledge is there, any noncompliance therewith. (b) Except for filing and approval requirements under the HSR Act or any other antitrust pre-merger or pre-acquisition requirements, no consent, authorization, or approval of, or exemption by, or filing with, any court or governmental, public, or self-regulatory body or authority, is required in connection with the execution, delivery and performance by Seller of this Agreement or of any of the instruments or agreements herein referred to, or the taking of any action herein contemplated to be taken by Seller, except where the failure to obtain or make any such consent, authorization, approval, exemption or filing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.11 Permits. All Permits required to operate the Business and the Business Assets, as operated by Seller, are set forth on Disclosure Schedule 5.11. The Business and the 19 Business Assets are operated by Seller in compliance with all Permits, except for such non-compliance as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.12 Brokers or Finders. Seller has not incurred any obligation or liability, contingent or otherwise, for broker's or finder's fees with respect to the matters provided for in this Agreement. 5.13 Taxes. There are no Taxes of Seller, or deficiencies in Taxes or claims for Taxes against Seller, for any taxable period that could become a liability of, or which could be assessed or collected against Buyer, or become a Lien on any Business Assets. No Taxes related to the Business Assets are in arrears or in material dispute. 5.14 Labor Matters. (a) Except as set forth in Disclosure Schedule 5.14(a), Seller has no oral or written labor contracts or collective bargaining agreements relating to the Transferred Employees. (b) The Seller has complied with all applicable laws relating to the employment of personnel and labor, occupational safety, plant closing, layoffs, employee benefits, collective bargaining and federal contracting, except for those failures to comply which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. (c) Neither Seller nor any Affiliate contributes to, or is or has been obligated to contribute to, any multiemployer plan (as defined in Section 3(37) of ERISA) on behalf of any employee of the Business. (d) Set out in Disclosure Schedule 5.14(d) is a listing of each employee benefit plan, within the meaning of Section 3(3) of ERISA, in which employees of the Business participate. 5.15 Disclosure. No representation or warranty of Seller contained in this Agreement or any other agreements, disclosure schedules or documents to be executed and delivered by Seller pursuant hereto or in connection herewith is untrue or omits or misstates a material fact necessary in order to make the statements herein or therein not misleading. 5.16 Year 2000 Compliance. Seller makes no present or future warranty, covenant, or representation, express or implied, and there is no condition including, without limitation, any warranty or condition of merchantability or fitness for a particular purpose, as to the sufficiency of its efforts relating to the year 2000 problem (a data handling problem relating to the Year 2000 date change that would cause a computer system, software or other equipment that may contain an embedded computer chip or computer algorithm to fail to correctly perform, process and handle date-related data for the dates within and between the twentieth and twenty-first centuries and all other centuries) (the "Year 2000 Problem"), whether the hardware, software, computer systems, or equipment are Year 2000 compliant or whether the Business will incur a Year 2000 Problem at any time in the future; the risks of the same and the costs of correction of any Year 2000 Problem related to the Business after the Closing are for Buyer's 20 account. In no event will Seller be responsible for any direct, indirect, punitive or consequential damages arising, in whole or in part, from a Year 2000 Problem. 5.17 Financial Statements. (a) Seller has furnished to Buyer the audited balance sheets of the Missouri Lead Division of Seller as of the fiscal years ended December 31, 1996 and 1997, and the related statements of income, shareholders' equity and changes in financial position for the years then ended, all certified by Coopers & Lybrand LLP. Except as set forth in the notes thereto, such financial statements were prepared in accordance with generally accepted accounting principles and fairly present the financial condition and the results of operations of the Missouri Lead Division of Seller as of the dates thereof and for the periods covered thereby. (b) Seller has furnished to Buyer an unaudited statement of earnings and a balance sheet of the Missouri Lead Division for the period from January 1, 1998 to April 30, 1998, which has been prepared in a manner which is consistent with the audited financial statements referred to in Section 5.17(a) and fairly presents the results of operations and the cash flows of the Missouri Lead Division for the period covered thereby. 5.18 Intellectual Property Rights. Except as disclosed in Disclosure Schedule 5.18, Seller (i) owns all rights to, has good title to, or has valid and subsisting license rights to use (as currently used) and (ii) has the right to convey all Intellectual Property used in connection with the Business. Seller has not received notice that it is infringing upon the Intellectual Property of any person, no claim is pending or, to the knowledge of Seller, has been made to the effect that Seller is infringing upon the Intellectual Property rights of any person. Other than the "ASARCO" mark and the "Glover Lead" brand name registered with the London Metals Exchange, there are no trademarks, services marks or brand names used in the conduct of the Business. 5.19 Affiliate Transactions. Except as disclosed in Disclosure Schedule 5.19, as of the date of this Agreement, (i) there are no intercompany liabilities between the Seller and any Affiliate of Seller which relate primarily to the Business or the Business Assets, (ii) no Affiliate of Seller provides or causes to be provided any asset, services, or facilities to the Business, (iii) the Business does not provide or cause to be provided any asset, services, or facilities to any Affiliate of the Seller, (iv) there are no intracompany liabilities between any divisions, formal or informal, of the Seller. All transactions listed on Disclosure Schedule 5.19 were concluded on an arm's-length basis. 5.20 Mineral Reserves. Seller has heretofore made available to Buyer information regarding estimates as to the lead ore reserves contained in the Mines. Such information and estimates were prepared for Seller in the ordinary course of business in accordance with Seller's customary practice by persons who are qualified to make such estimates and in accordance with accepted geologic and engineering practice. 5.21 Operation in Ordinary Course. Except for events and activities related to, in connection with or in contemplation of the transactions contemplated by this Agreement, the Business has been operated in the ordinary course since April 20, 1998. 21 5.22 No Other Representations or Warranties. Except as otherwise expressly set forth in this Agreement, or any other agreement, document or instrument to be executed and delivered by Seller pursuant to or in connection with this Agreement, neither Seller nor any Affiliate, agent or representative of Seller, has made, and Seller is not liable for or bound in any manner by, any warranties of merchantability or fitness for a particular purpose, or any express or implied warranties, guarantees, promises, statements, inducements, representations, or information pertaining to the Business Assets or any part thereof, and without limiting the foregoing, except as expressly set forth in this Agreement, Seller is not liable for or bound by (and Buyer has not relied upon) any verbal or written statements, representations, or any other information respecting any portion of the Business Assets furnished by Seller or any broker, employee, agent, consultant or other person representing or purportedly representing Seller. 5.23 No Warranty of Probable Success or Condition of Assets. Seller makes no warranty regarding the probable success or profitability of the ownership, use or operation of the Business Assets after the Closing. Seller makes no warranty as to the physical condition or suitability for any particular purpose of any of the Business Assets, individually or collectively, which are all being purchased on an "as is, where is" basis. ARTICLE 6 BUYER'S WARRANTIES Buyer warrants that as of the Effective Date: 6.01 Organization, Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite power and authority to execute, deliver and perform this Agreement. 6.02 No Conflict with Other Instruments or Agreements. Neither the execution, delivery or performance of this Agreement by Buyer, nor the consummation of transactions contemplated by this Agreement by Buyer will: (a) violate any provision of the Buyer's Certificate of Incorporation, By-Laws or similar constitutional documents of Buyer, or any law, rule, regulation, order, judgment or decree by which the Buyer may be bound; or (b) conflict with, result in a breach of the terms and conditions of, or constitute a default under, any agreement to which Buyer is a party or by which it may be bound. 6.03 Authorization, Binding Effect. (a) Buyer has all requisite power and authority to execute, deliver and fulfill the provisions of this Agreement, and this Agreement constitutes a legal, valid and binding agreement of Buyer enforceable against Buyer in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, or similar laws affecting the enforcement of creditors' rights generally and rules and laws concerning equitable remedies. 22 (b) Except for filing and approval requirements under the HSR Act or any other antitrust pre-merger or pre-acquisition requirements, and except as set forth in Buyer Disclosure Schedule 6.03, no consent, authorization, or approval of, or exemption by, or filing with, any court or governmental, public, or self-regulatory body of authority, is required in connection with the execution, delivery and performance by Buyer of this Agreement or of any of the instruments or agreements herein referred to, or the taking of any action herein contemplated to be taken by Buyer, except where the failure to obtain or make any such consent, authorization, approval, exemption or filing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.04 Brokers or Finders. Buyer has incurred no obligation or liability, contingent or otherwise, for broker's or finder's fees with respect to the matters provided for in this Agreement. 6.05 Litigation and Investigations. Except as disclosed to Seller in Buyer Disclosure Schedule 6.05 or 6.06, there is no litigation, action, investigation or proceeding pending or, to Buyer's knowledge, threatened against or relating to the Sugar Creek Assets other than those which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect; nor has Buyer received any written notice (nor to Buyer's knowledge are any pending) from any person or Federal, state, or municipal government, or governmental or regulatory agency threatening to institute same; and the use or operation of the Sugar Creek Assets is not subject to any injunction, order, judgment, writ or decree other than those which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. 6.06 Environmental Matters. Except as disclosed to Seller in Buyer Disclosure Schedule 6.06 there are no pending Environmental Claims which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, nor has Buyer received any written notice of any Environmental Claims which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, nor to Buyer's knowledge are there any facts or circumstances relating to the Sugar Creek Assets that would reasonably be expected to give rise to any Environmental Claims which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect. Except as disclosed in Buyer Disclosure Schedule 6.06, Buyer has received all Environmental Permits required for exploration operations of the Sugar Creek Project as conducted by Buyer and Buyer is operating in conformance with such permits and approvals required under any Environmental Laws and the Sugar Creek Assets are otherwise in compliance with all applicable Environmental Laws and Environmental Permits, except in those instances in which failure to comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on such Sugar Creek Project. 6.07 Title to Real Property. Buyer has good title in fee simple, such that Seller could obtain title insurance with respect to surface rights from a recognized insurer at a reasonable cost, to the land listed on Buyer Disclosure Schedule 4.09(a) constituting a part of the Sugar Creek Assets, free and clear of Liens or other encumbrance of any nature other than Permitted Liens, subject, however, to the following exceptions: 23 (a) real estate taxes and installments of governmental assessments for public improvements benefiting the Sugar Creek Project for the tax year in which the Closing Date occurs; (b) all matters which an inspection of the Sugar Creek Assets would show, as are set forth in Buyer Disclosure Schedule 6.07; and (c) those exceptions and reservations to Buyer's title in the Land as set forth in Buyer Disclosure Schedule 6.07. 6.08 Leases. Buyer Disclosure Schedule 6.08 sets forth a list of all leases of leased real or personal property, including a list of leases of mining reserves or in respect of leased Mineral Substances, related to the Sugar Creek Project. No party to any such lease has notified Buyer that it considers Buyer to be in breach thereof, and to Buyer's knowledge neither the Buyer nor any other party to any such lease has breached or is contemplating the breach thereof. Except as stated in Buyer Disclosure Schedule 6.08, Buyer has not defaulted with respect to any lease set out in such schedule, other than those defaults which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect on the Sugar Creek Project. 6.09 Title to Tangible Property. Buyer has good and marketable title to the machinery and equipment and other tangible property listed on Buyer's Disclosure Schedule 4.09(b), free and clear of all Liens, other than Permitted Liens. 6.10 Contracts and Other Agreements. (a) Buyer Disclosure Schedule 4.09(d) sets forth a list of contracts related to the Sugar Creek Project. No party to any such contract has notified Buyer that it considers Buyer to be in breach thereof, and to Buyer's knowledge no other party to any such contract has breached or is contemplating the breach thereof. Except as set forth on Buyer Disclosure Schedule 4.09(d), Buyer has not defaulted with respect to any such contract, other than those defaults which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (b) Buyer makes no warranty with regard to the assignability of rights or delegation of duties under the contracts listed on Buyer Disclosure Schedule 4.09(d). Subject to confidentiality restrictions, Seller shall form its own opinion with regard to the enforceability of the commitments of any party thereto therein contained, compliance by the other parties thereto with their undertakings thereunder, and assignability thereof, and ongoing obligations of Seller to such other parties after Seller's assumption of obligations thereunder. 6.11 Compliance with Law; Governmental Consents. Except as set forth in Buyer Disclosure Schedule 6.11 or as otherwise set forth herein, to Buyer's knowledge, the exploration and all other operations of the Sugar Creek Project as conducted by Buyer are in compliance with all applicable laws, regulations and codes of the Federal, state or municipal governments, or other governmental or regulatory bodies having jurisdiction over the Sugar Creek Project, its facilities or its operations, except in those instances in which failure to comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse 24 Effect, and the Buyer has not been notified in writing of, nor to Buyer's knowledge is there, any noncompliance therewith. 6.12 Permits. All Permits required to conduct the exploration and all other operations as conducted by Buyer in respect of the Sugar Creek Project are set forth on Buyer Disclosure Schedule 4.09(c). The Sugar Creek Project and the Sugar Creek Assets have been explored and otherwise operated by Buyer in compliance with all Permits, except for such non-compliance as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.13 Taxes. There are no Taxes of Buyer, or deficiencies in Taxes or claims for Taxes against Buyer, for any taxable period that could become a liability of, or which could be assessed or collected against Seller, or become a Lien on any Sugar Creek Assets. No Taxes related to the Sugar Creek Assets are in arrears or in material dispute. 6.14 Employee Matters. As of the date of this Agreement, Buyer has no employee whose employment relates primarily to the operation of the Sugar Creek Project or the maintenance or protection of the Sugar Creek Assets. There are no agreements with former employees, agents, independent contractors or contractors in respect of the Sugar Creek Project which are not disclosed in this Agreement and there are no employees that will be transferred with the Sugar Creek Project. 6.15 Disclosure. No representation or warranty of Buyer contained in this Agreement or any other agreements, Buyer's Disclosure Schedules or documents to be executed and delivered by Buyer pursuant hereto or in connection herewith is untrue or omits or misstates a material fact necessary in order to make the statements herein or therein not misleading. 6.16 No Other Representations or Warranties. Except as otherwise expressly set forth in this Agreement, or any other agreement, document or instrument to be executed and delivered by Buyer pursuant to or in connection with this Agreement, neither Buyer nor any Affiliate, agent or representative of Buyer, has made, and Buyer is not liable for or bound in any manner by, any warranties of merchantability or fitness for a particular purpose, or any express or implied warranties, guarantees, promises, statements, inducements, representations, or information pertaining to the Sugar Creek Assets or any part thereof, and without limiting the foregoing, except as expressly set forth in this Agreement, Buyer is not liable for or bound by (and Seller has not relied upon) any verbal or written statements, representations, or any other information respecting any portion of the Sugar Creek Assets furnished by Buyer or any broker, employee, agent, consultant or other person representing or purportedly representing Buyer. 6.17 No Warranty of Probable Success or Condition of Assets. Buyer makes no warranty regarding the probable success or profitability of the ownership, use or operation of the Sugar Creek Assets after the Closing. Buyer makes no warranty as to the physical condition or suitability for any particular purpose of any of the Sugar Creek Assets, individually or collectively, which are all being purchased on an "as is, where is" basis. 25 ARTICLE 7 BUYER'S INDEMNITY Subject to the limitations and procedures set forth in Article 16 hereof, and except for Environmental Claims that are dealt with exclusively in Article 17 hereof, after the Closing Date Buyer shall indemnify and hold each of the Seller Indemnified Parties harmless against and in respect from all Losses actually incurred by such Seller Indemnified Parties to the extent that such Losses arise out of: 7.01 Assumed Liabilities. The Assumed Liabilities assumed by Buyer as required by Section 4.01 or pursuant to the Undertaking of Assumption. 7.02 Buyer's Ownership, Use or Operation of the Business Assets. Buyer's ownership, use or operation of the Business Assets on or after the Closing Date. 7.03 Breach of Warranty. Any breach of any of the warranties of Buyer contained in this Agreement, or in any document delivered in connection herewith, or nonfulfillment of any agreement or covenants on the part of Buyer under this Agreement or in any document delivered in connection herewith. ARTICLE 8 SELLER'S INDEMNITY Subject to the limitations and procedures of Article 16 hereof, and except for Environmental Claims that are dealt with exclusively in Article 17 hereof, after the Closing Date Seller shall indemnify and hold the Buyer Indemnified Parties harmless against and in respect from all Losses actually incurred by such Buyer Indemnified Parties to the extent such Losses arise out of: 8.01 Excluded Liabilities. The Excluded Liabilities. 8.02 Seller's Ownership, Use or Operation of the Sugar Creek Assets. Seller's ownership, use or operation of the Sugar Creek Assets on or after the Closing Date. 8.03 Breach of Warranty. Any breach of any of the warranties of Seller contained in this Agreement or any document delivered in connection herewith, or nonfulfillment of any agreement or covenants on the part of Seller under this Agreement or any document delivered in connection herewith. ARTICLE 9 INTERIM PERIOD Seller and Buyer covenant and agree that between the date of this Agreement and the Closing Date: 9.01 Due Diligence, Confidentiality. Buyer, its counsel, accountants and other representatives shall be permitted reasonable access during normal business hours to the Mines, 26 the Smelter, the Leased Premises and to Seller's books, records, Contracts, commitments and other data at the Plant, the Leased Premises or other Seller locations directly related to the operation of the Business Assets or the Business. It is expected that between the date of this Agreement and either the Closing Date or termination of this Agreement, whichever is first to occur, Seller may give Buyer information that Seller considers confidential. In that event, Buyer shall require that all its representatives granted access to such data shall treat such data and information as confidential in accordance with the Confidentiality Agreement between the Parties, dated March 24, 1997, notwithstanding any termination of this Agreement. Such obligation of the Buyer shall continue following the Closing, except with respect to information relating to the Business Assets. 9.02 Operate Business Assets in Ordinary Course. Except as otherwise provided in this Agreement, or otherwise consented to or requested by Buyer in writing, Seller, to the best of its ability, shall operate and maintain the Business and Business Assets solely in the ordinary course of business consistent with past practice (except as otherwise provided herein or for events beyond Seller's reasonable control), so as not to diminish the value of the Business or the Business Assets in a way which would reasonably be expected to have a Material Adverse Effect. 9.03 No Material Change or Material Commitments to Business Assets. Seller shall not, without the prior written consent or at the written request of Buyer: (a) demolish, remove, alter, enlarge or dispose of any of the Business Assets (including Inventory) other than in the ordinary course of business consistent with past practice, other than removal of any of the Excluded Assets described in Article 3, provided that nothing in this Agreement shall be deemed to prohibit Seller from duplicating and removing for its own use copies of the Business Records; (b) make any individual commitments exceeding $100,000 or aggregate commitments exceeding $1,000,000 with respect to the Business Assets; and (c) make any material change in the Plant, the Leased Premises or Seller's operation of the Business or the Business Assets. 9.04 Due Diligence, Confidentiality. Seller, its counsel, accountants and other representatives shall be permitted reasonable access during normal business hours to the Sugar Creek Assets and to Buyer's books, records, contracts, commitments and other data at the Sugar Creek Assets or other Buyer locations directly related to the operation of the Sugar Creek Assets or the Sugar Creek Project. It is expected that between the date of this Agreement and either the Closing Date or termination of this Agreement, whichever is first to occur, Buyer may give Seller information that Buyer considers confidential. In that event, Seller shall and shall require that all its representatives granted access to such data shall, treat such data and information as confidential notwithstanding any termination of this Agreement. Such obligation of the Seller shall continue following the Closing, except with respect to information relating to the Sugar Creek Assets. 27 9.05 Operate Sugar Creek Assets in Ordinary Course. Except as otherwise provided in this Agreement, or otherwise consented to or requested by Seller in writing, Buyer, to the best of its ability, shall maintain the Sugar Creek Project and Sugar Creek Assets solely in the ordinary course of business consistent with past practice (except as otherwise provided herein or for events beyond Buyer's reasonable control), so as not to diminish the value of the Sugar Creek Project or the Sugar Creek Assets in a way which would reasonably be expected to have a Material Adverse Effect; provided, however, that the Buyer does not intend to conduct any further exploration activities (including any further on-ground or offsite activities) relating to the Sugar Creek Project. 9.06 No Material Change or Material Commitments to Sugar Creek Assets. Buyer shall not, without the prior written consent or at the written request of Seller: (a) demolish, remove, alter, enlarge or dispose of any of the Sugar Creek Assets other than in the ordinary course of business consistent with past practice; (b) make any commitments with respect to the Sugar Creek Assets; and (c) make any material change in the Sugar Creek Assets or Buyer's operation of the Sugar Creek Project. 9.07 Work Diligently Towards Closing. Buyer and Seller shall each use their reasonable best efforts to work diligently, including obtaining all necessary governmental approvals and filings, towards completing the transaction contemplated by this Agreement on the scheduled Closing Date. 9.08 Prompt Notification of Breach. Each Party shall use its reasonable best efforts to notify the other Party of any breach of any of the notified Party's representations, warranties, covenants or agreements or of any circumstance or event reasonably likely to cause any of such representations, warranties, covenants or agreements to be breached. 9.09 Transitional Services Agreement. If transitional services are requested by the Buyer, the Parties shall negotiate in good faith the terms, conditions and compensation to the Seller for such services, it being understood that the Seller has agreed in principle to provide transitional services such as computer software support, inventory management and payroll administration for a limited period of time on an "at cost" basis. The Parties have agreed that if transitional services are requested by the Buyer, they shall be governed by an agreement substantially in the form of the Transitional Services Agreement, with such schedules regarding specific services as the Parties have agreed following good faith negotiations. The Parties acknowledge and agree, however, that if they are unable to reach agreement on the terms, conditions or compensation in respect of such specific transitional services prior to the Closing Date, the execution of the Transitional Services Agreement shall be deemed to have been waived by each Party as a condition to Closing. 28 ARTICLE 10 EMPLOYEE MATTERS 10.01 Offer of Employment. (a) Not less than 15 days prior to the Closing Date, Seller shall advise Buyer in writing of those employees of the Business Seller wishes to retain as Seller's employees (the "Retained Employees"). Not less than seven days prior to the Closing Date, Buyer shall advise Seller in writing of those employees of the Business (other than Retained Employees) to whom Buyer does not intend to extend an offer of employment, the number of which shall not exceed 12 (the "Redundant Employees"). Effective as of the Closing, Seller shall terminate its employment of all employees of the Business, other than the Retained Employees and Redundant Employees. On the Closing Date, Buyer shall provide an offer of employment to all of the employees of the Business (other than Redundant Employees and Retained Employees), with each such offer providing for (i) substantially the same terms and substantially similar benefits as are then provided by Buyer to a similarly situated employee of Buyer and (ii) employment, if accepted by the employee, to be deemed effective for wage and benefit purposes as of the Closing Date. Each such offer shall be contingent upon the employee's (q) passing a drug test to be administered on behalf of the Buyer by a NIDA certified laboratory and (r) completion of the Buyer's employment application process to be administered during the eight Business Day period following the Closing Date. Buyer shall be responsible for and shall pay each former employee of the Business (other than Redundant Employees and Retained Employees) a fee for participation in Buyer's employment application process at a rate equivalent to the wage or salary rate paid to each such employee by the Seller. Neither Seller nor Buyer shall take any action intended to cause employees to reject Buyer's offer of employment. Not later than the 12th calendar day following the Closing Date, Buyer shall advise Seller of (x) those employees (other than Redundant Employees and Retained Employees) who did not satisfy the contingencies upon which the offer of employment was based and (y) those employees who have accepted Buyer's offer of employment. Those employees who have accepted such offer of employment, effective as of the Closing Date, shall be referred to herein as "Transferred Employees". (b) The term "Eligible Employees" shall mean all employees of the Business, other than Redundant Employees and Retained Employees, who pass the drug test administered on behalf of the Buyer by a NIDA certified laboratory during the eight Business Day period following the Closing Date. (c) Buyer covenants and agrees that it will comply with all state and federal laws which are applicable to its evaluation of the employees of the Business for employment by the Buyer and the extension of any offer of employment to such employees, including, without limitation, laws prohibiting employment discrimination. (d) In the event that 90% or more of all Eligible Employees do not satisfy the employment contingency specified in Section 10.01(a)(r), Buyer agrees to indemnify and hold Seller harmless against (i) any amounts payable in respect of severance or other termination benefits to former employees of the Business whose employment is terminated by Seller pursuant to Section 10.01(a) and (ii) any COBRA continuation coverage (as defined in Section 10.03) for such employees or their spouses or dependents. 29 10.02 Accrued Wages, Salaries. Seller will pay to all Transferred Employees wages, salaries and bonuses earned prior to the Closing Date. Subject to Section 10.01(d), Seller will be solely responsible for the payment of wages, salaries, severance, termination benefits and other benefits to employees of the Business other than Transferred Employees. 10.03 Welfare Liabilities. Except as specifically described herein, Seller shall retain and be responsible for all liabilities in connection with claims for services received or expenses incurred by employees of the Business, other than Transferred Employees, and in connection with claims incurred prior to the Closing Date by Transferred Employees, under Seller's employee welfare benefit plans (as defined in Section 3(l) of ERISA) and shall be responsible for compliance with the continuation health care coverage requirements of Code Section 4980B and ERISA Sections 601 - 609 ("COBRA") under Seller's group health plans with respect to Transferred Employees as a result of events occurring prior to the Closing and with respect to Retained Employees and Redundant Employees as a result of all events. Buyer shall assume and be responsible for all liabilities in connection with claims for services received or expenses incurred or events occurring on and after the Closing Date with respect to Transferred Employees under any of Buyer's employee welfare benefit plans (as defined in Section 3(l) of ERISA), including, without limitation, provision of continuation coverage with respect to Transferred Employees in accordance with COBRA due to events occurring on or after the Closing Date. For purposes of the foregoing, a claim shall be considered incurred on the date treatment is rendered or a service performed. Workers' compensation claims of any Transferred Employees shall be the responsibility and liability of Seller if the injury or condition giving rise to the claim occurs or arises prior to the Closing Date and shall be the responsibility and liability of Buyer if the injury or condition giving rise to the claim occurs or arises on or after the Closing Date. 10.04 Employee Benefit Plans - General. (a) Prior Service Credit: Buyer shall provide credit only for purposes of eligibility to participate and vesting under Buyer's Employee Benefit Plans for service of Transferred Employees with Seller and its subsidiaries and Affiliates prior to the Closing Date, but shall not provide credit for service for purposes of benefit determination, provided that if the prior service of a Transferred Employee does not meet the minimum requirements for vesting under Buyer's Employee Benefit Plans, such Transferred Employee will be credited with such prior service but will still be required to satisfy Buyer's requirements for vesting. Notwithstanding the foregoing, service of Transferred Employees prior to the Closing Date recognized under Seller's vacation policy shall be recognized by the Buyer under its vacation policies, but Transferred Employees will not receive credit for service with Seller and its subsidiaries and Affiliates prior to the Closing Date under any severance pay plan maintained by Buyer. (b) Enrollment in Buyer Benefit Plans: Effective on the Closing Date, Buyer shall enroll each Transferred Employee and their dependents in Employee Benefit Plans available for similarly situated employees of Buyer and shall cause any pre-existing conditions restrictions, waiting periods, or actively-at-work restrictions or similar limitations on participation or benefits to be waived to the extent necessary to provide full and immediate coverage under such Employee Benefit Plans. Buyer shall cause each such Employee Benefit Plan to take into account all co- 30 payments and deductibles incurred by Transferred Employees or their dependents on and prior to the Closing Date, provided that Seller has advised Buyer within 14 days from the Closing Date of the amount of co-payments and deductibles paid by each Transferred Employee during 1998. (c) Relation to Seller Benefit Plans: Certain of the Transferred Employees may be entitled to post-retirement or post-termination benefits under Seller provided Employee Benefit Plans (collectively, "Seller's Retirement Plans"). Buyer agrees that in respect of Transferred Employees, (i) enrollment in Seller's Retirement Plans shall not constitute evidence of medical insurance coverage for purposes of opting out of Buyer medical plans, (ii) Buyer's Employee Benefit Plans shall constitute the primary medical, life insurance and disability coverage for such employees, and (iii) Buyer shall cause such Employee Benefit Plans to be administered in such a way that benefits and coverage thereunder are not reduced or offset by any benefits or coverage provided or potentially available under Seller's Retirement Plans, and that such administration does not discriminate as between Buyer and Seller sponsored Employee Benefit Plans to the detriment of the Seller sponsored Employee Benefit Plans. 10.05 Pension and Savings Plans. Effective as of the Closing Date, Seller shall fully vest all Transferred Employees in their accrued benefits under its tax-qualified defined benefit pension plans. Such pension plan obligations shall remain the sole responsibility of such Seller plan. Following the Closing Date, Buyer shall designate a defined contribution plan which is qualified under Section 401(a) of the Code to which Transferred Employees may elect to roll over all or a portion of their distributions under such a plan maintained by Seller in which such employees currently participate. 10.06 Vacation. Buyer shall provide such vacation and other paid time off entitlements to the Transferred Employees which are generally comparable to the vacation entitlements of similarly situated employees of Buyer at comparable Buyer-owned facilities. Effective on the Closing Date, Buyer shall assume liability for all accrued but unused vacation of the Transferred Employees. 10.07 Wage Reporting. Buyer and Seller shall follow the standard Internal Revenue Service procedure (as set forth in Section 4 of Revenue Procedure 96-60) with regard to reporting of wages on Form W-2 and disposition of Forms W-4 and W-5 for Transferred Employees. 10.08 Recognition of Union. Buyer or its Affiliate which acquires the Smelter shall, to the extent required by law, recognize the United Steel Workers of America for purposes of collective bargaining with respect to wages, hours and other conditions of employment for production and maintenance employees at the Smelter only, specifically excluding all office, clerical and professional employees, guards and supervisors, as defined by the National Labor Relations Act, as set forth in the Certification of Representation issued by the National Labor Relations Board on July 22, 1968 in Case No. 14-RC-5966. 31 ARTICLE 11 GOVERNMENTAL CONSENTS 11.01 Governmental Consents. The sale contemplated by this Agreement is conditional upon receipt prior to Closing of the approvals, consents, authorizations and waivers from governmental and other regulatory agencies which are required to consummate the sale contemplated by this Agreement (including the expiration of any applicable premerger notification waiting period), to enable Buyer to own, use and operate the Business Assets and the Business. 11.02 Efforts. Each Party shall use its reasonable best efforts to obtain all authorizations, consents, orders and approvals of, and to give all notices to and make all filings with, all governmental authorities and other third parties that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to this Agreement or any document delivered in connection herewith, and also to enable Buyer to own, use and operate the Business Assets and the Business, and each Party will cooperate fully with the other Party in promptly seeking to obtain all such authorizations, consents, orders and approvals, giving such notices, and making such filings. Each Party has made an appropriate filing of a notification and report form pursuant to the HSR Act with respect to the transactions contemplated hereby prior to the date of this Agreement and has and shall continue to supply promptly any additional information and documentary material that may be requested pursuant to the HSR Act. The Parties acknowledge that time shall be of the essence in this Agreement and agree not to take any action that will have the effect of unreasonably delaying, impairing or impeding the receipt of any required authorizations, consents, orders or approvals. ARTICLE 12 CLOSING 12.01 Place and Date of Closing. The closing of the transaction contemplated by this Agreement (the "Closing") shall take place at the offices of White & Case LLP at 1155 Avenue of the Americas, New York, New York, at 10:00 a.m. local time on September 1, 1998, or, if any of the conditions to the Closing set forth in Section 12.04 or Section 12.05 have not been satisfied or waived by the Parties on or prior to such date, on the fifth Business Day following the satisfaction or waiver of such conditions. All transactions contemplated by this Agreement shall be deemed to be effective as of midnight on the day preceding the Closing Date, provided that the termination of the employees of the Business shall be effective when actual notice of termination becomes effective. 12.02 Buyer Deliverables at Closing. At the Closing, Buyer shall: (a) Pay to Seller, by wire transfer in immediately available funds in Seller's favor, the cash portion Purchase Price for the Business Assets and the Inventory as of the Closing Date. (b) Deliver to Seller a certificate of a duly authorized officer of Buyer confirming that, as at the Closing Date, all of the warranties of Buyer contained herein are true, complete and correct, as if made on such date, and that Buyer has performed or complied with all of the terms, covenants and conditions of this Agreement to be performed or complied 32 with by Buyer at or prior to Closing. (c) Deliver to Seller an opinion of Buyer's internal legal counsel in form reasonably satisfactory to Seller's legal counsel that as of the Closing Date: (i) Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite power to execute, deliver and perform the provisions of this Agreement. (ii) Neither the execution, delivery nor performance of this Agreement or the other documents provided for herein nor the consummation of the transactions contemplated by this Agreement violate any provision of Buyer's Certificate of Incorporation or By-Laws; or conflict with or result in a breach of any material term or condition or constitute a default under, any agreement, known to such counsel, and to which Buyer is a Party. (iii) All necessary proceedings to authorize the transactions contemplated by this Agreement and the other documents provided for herein, the performance by Buyer of its obligations under this Agreement and the other documents provided for herein, and the execution and delivery by Buyer of all instruments and other documents contemplated hereby have been taken. (iv) This Agreement and the other documents provided for herein and all instruments of transfer required hereunder have been duly authorized, executed and delivered by Buyer, and, subject to due execution by Seller if required, are valid, binding and enforceable upon Buyer in accordance with their terms except as enforcement may be limited by bankruptcy, insolvency, reorganization, or similar laws affecting the enforcement of creditors' rights generally and rules and laws concerning equitable remedies. (v) Except as otherwise set forth in this Agreement, there is not, as a result of Buyer's ownership or operation of the Sugar Creek Assets, to the knowledge of such counsel, any litigation, action, investigation or proceedings pending against Buyer or the Sugar Creek Assets, nor has such counsel received notice, nor is he aware of any notice received by Buyer from any person or Federal, state or municipal government, or governmental or regulatory agency, of its intent to institute the same; and the ownership, use and operation of the Sugar Creek Assets is not subject to compliance with any injunction, other order or judgment, writ or decree. (d) Execute and deliver a special warranty deed substantially in the form of the Sugar Creek Deed reasonably acceptable to Seller and otherwise in content, form and substance complying with local law and custom conveying the land, fixtures and improvements owned by Buyer included in the Sugar Creek Assets to Seller subject only to the Permitted Exceptions. 33 (e) Execute and deliver such assignments, bills of sale, endorsements, notices, consents, assurances and such other instruments of conveyance and transfer as counsel for Seller shall reasonably request and as shall be effective to vest in Seller good title or good leasehold interest to all of the Sugar Creek Assets including, without limitation, a bill of sale in respect of those assets owned by Buyer. Simultaneously with the delivery of such bill of sale and subject to receipt of any required third party consents, Buyer shall take all such steps as may be necessary to put Seller in actual possession and control of the Sugar Creek Assets. (f) Buyer shall enter into a contract with Seller relating to sales to Seller's Globe, Colorado facility substantially in the form of Exhibit V to this Agreement providing for the continued sale by Buyer to Seller's Globe facility of refined lead (low silver "test lead") through December 31, 1999, with such contract being renewable annually thereafter (g) Execute and deliver the instrument giving effect to Buyer's assumption of Seller's obligations arising from the 1996 Consent Decree relating to the Missouri State Implementation Plan in respect of the Smelter. (h) Execute and deliver (i) the Royalty Agreement, (ii) the Transitional Services Agreement (if the terms of such agreement have been agreed pursuant to Section 9.09) and (iii) the Equipment Sublease. (i) Execute and deliver the other documents provided for herein and the agreements described in Disclosure Schedule 12.02(f). 12.03 Seller Deliverables at Closing. At the Closing, Seller shall: (a) Deliver to Buyer a certificate of a duly authorized officer of Seller confirming that, as at the Closing Date, all of the warranties of Seller contained herein are true, complete and correct, as if made on such date, and that Seller has performed or complied with all of the terms, covenants and conditions of this Agreement to be performed or complied with by Seller at or prior to the Closing. (b) Deliver to Buyer an opinion of Seller's internal legal counsel in form reasonably satisfactory to Buyer's legal counsel that as of the Closing Date: (i) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey, and has corporate power to carry on the Business as now being conducted. (ii) Neither the execution, delivery or performance of this Agreement or the other documents provided for herein nor the consummation of the transactions contemplated by this Agreement violate any provision of Seller's Certificate of Incorporation or Bylaws, or any law, regulation, order, judgment or decree by which the Seller or the Business Assets may be bound; or conflict with or result in a breach of the terms and conditions or constitute a default, under any agreement, 34 known to such counsel, and to which Seller is a Party or by which the Business Assets may be bound, except as otherwise set forth in this Agreement. (iii) All necessary corporate proceedings to authorize the transactions contemplated by this Agreement and the other documents provided for herein, the performance by Seller of its obligations under this Agreement and the other documents provided for herein, and the execution and delivery by Seller of all instruments and other documents contemplated hereby have been taken. (iv) This Agreement and the other documents provided for herein and, all instruments of transfer required hereunder have been duly authorized, executed and delivered by Seller, and, subject to due execution by Buyer if required, are valid, binding and enforceable upon Seller in accordance with their terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, or similar laws affecting the enforcement of creditors' rights generally and rules and laws concerning equitable remedies. (v) Except as otherwise set forth in this Agreement, there is not, as a result of Seller's ownership or operation of the Business Assets, to the knowledge of such counsel, any litigation, action, investigation or proceedings pending against Seller or the Business Assets, nor has such counsel received notice, nor is he aware of any notice received by Seller from any person or Federal, state or municipal government, or governmental or regulatory agency, of its intent to institute the same; and the ownership, use and operation of the Business Assets is not subject to compliance with any injunction, other order or judgment, writ or decree. (c) Execute and deliver (i) a special warranty deed substantially in the form of the Plant Deed pertaining to each Mine and the Smelter reasonably acceptable to Buyer and otherwise in content, form and substance complying with local law and custom acceptable to the title company conveying the Plant, Land, Fixtures and Improvements to Buyer subject only to the Permitted Exceptions; (ii) such certificates or affidavits as the title company may reasonably require to delete the general exceptions from the title policy; and (iii) such agreements as may be necessary to transfer Seller's rights to the Leased Premises to Buyer. (d) Execute and deliver (i) the Royalty Agreement, (ii) the Transitional Services Agreement (if the terms of such agreement have been agreed pursuant to Section 9.09) and (iii) the Equipment Sublease. (e) Execute and deliver such assignments, bills of sale in respect of Business Assets owned by the Seller, endorsements, notices, consents, assurances and such other instruments of conveyance and transfer as counsel for Buyer shall reasonably request and as shall be effective to vest in Buyer good title or good leasehold interest to all of the Business Assets, including, without limitation, the Bill of Sale and the agreements described on Disclosure Schedule 12.02(f). Simultaneously with the delivery of such Bill of Sale and subject to receipt of any required third party consents, Seller shall take all such 35 steps as may be necessary to put Buyer in actual possession and control of the Business Assets. (f) Execute and deliver a Lone Star Release which is reasonably satisfactory to Buyer and its counsel. (g) Deliver a notice of termination to the employees of the Business (other than Retained Employees). 12.04 Conditions to Buyer's Obligation. The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions: (a) All of the warranties of Seller contained in Articles 5 and 9 shall be true, complete and correct on and as of the Closing Date as if made on the Closing Date and Buyer shall have received the certificate described in Section 12.03(a); (b) Buyer and Seller shall have received or obtained all governmental and regulatory consents and approvals as specified in Article 11 hereof, and the waiting period under the HSR Act shall have expired or been terminated; (c) No injunction restraining or prohibiting the transactions contemplated hereby shall have been issued by a court or governmental authority; (d) Seller and its officers and counsel shall have executed and delivered the items described in Section 12.03 of this Agreement; (e) No material damage to or loss of any of the Business Assets by fire or other casualty shall have occurred between the date of this Agreement and the Closing Date; (f) Seller shall have obtained the Required Consents listed on Disclosure Schedule 12.04(f) (the "Required Consents"); and (g) No changes to the Business or impairment of the Business Assets shall have occurred between the Effective Date and the Closing Date which have resulted in or are likely to result in a significant and ongoing impairment of the value of the Business as a going concern, other than changes which (a) are a direct result of the transactions contemplated by this Agreement or the Buyer's acquisition of the Business and the Business Assets, including, without limitation, any strike or work stoppage by employees (or an employee group) of the Business, or (b) result from economic or market conditions which are external to the Business and impact upon the demand or market for lead and associated products generally, including, without limitation, a decline in lead prices. 12.05 Conditions to Seller's Obligation. The obligation of Seller to consummate the transactions contemplated by this Agreement is subject to the satisfaction of the following conditions: 36 (a) All of the warranties of Buyer contained in Article 6 shall be true, complete and correct on and as of the Closing Date as if made on the Closing Date and Seller shall have received the certificate described in Section 12.02(b); (b) Buyer and Seller shall have received or obtained all governmental and regulatory consents and approvals as specified in Article 11 hereof, and the waiting period under the HSR Act shall have expired or been terminated; (c) No injunction restraining or prohibiting the transactions contemplated hereby shall have been issued by a court or governmental authority; (d) Buyer shall have delivered to Seller the funds required to be delivered to it pursuant to Sections 12.02(a) of this Agreement; (e) Buyer, and its officers and counsel shall have executed and delivered the items described in Section 12.02 of this Agreement; and (f) No material damage to or loss of any of the Sugar Creek Assets by fire or other casualty shall have occurred between the date of this Agreement and the Closing Date. ARTICLE 13 POST CLOSING Seller and Buyer agree that after the Closing Date: 13.01 Delivery of Business Records. All Business Records stored on site (excluding business records referred to in Section 3.07) shall be delivered to Buyer on the Closing Date. All Business Records stored off site (excluding business records referred to in Section 3.07) shall be delivered to Buyer as soon after the Closing as is reasonably practicable but in no event later than 30 days after the Closing Date. Seller shall use any copies of such Business Records as are retained by Seller solely for purposes of complying with this Agreement and any other requirement imposed by applicable law and for no other purposes. All business records maintained or copied by Buyer with respect to the Sugar Creek Project shall be used solely for purposes of complying with this Agreement and any other requirement imposed by applicable law and for no other purposes and shall be maintained in strict confidence. 13.02 Buyer Cooperation with Seller's Collection of Receivables and Disposal of Product. After the Closing Date: (a) Buyer shall reasonably cooperate in Seller's efforts to sell or resell any rejected or returned finished products which have been sold, shipped or set aside for a customer of the Business prior to the Closing Date. (b) If any Receivable is paid to Buyer, Buyer shall promptly pay such amount to Seller. 37 13.03 Access to Records. From time to time, upon request by Seller, and subject to the obligation of confidentiality set out in Section 9.04, Buyer shall permit Seller reasonable access to the books and records delivered to Buyer in accordance with Sections 13.01 for purposes of tax and other legal compliance, provided Buyer shall not be required to retain such books and records for a period of more than seven years from the Closing Date or such longer period as may be required by applicable law; provided, however, that laboratory notebooks shall be retained and made available to Seller upon request for a period of 20 years following Closing and employment records shall be retained and made available to Seller upon request for a period of 30 years following Closing; and provided, further, that Buyer may, at its sole discretion, offer to return such books and records to Seller pursuant to this Section 13.03, and if such offer is rejected by Seller in writing, Buyer may destroy such books and records. 13.04 Cooperation in Litigation. After Closing, each Party shall reasonably cooperate with the other Party and the other Party's attorneys in the defense or prosecution of any litigation, action, suit or proceeding instituted against or by the other Party pertaining to the Business Assets, the Business, the Sugar Creek Assets or the Sugar Creek Project, excluding, however, any litigation, action, suit or proceeding between the Parties (including their Affiliates). Such cooperation shall include, but not be limited to, conferring with the other Party's attorneys or experts at their offices during normal business hours at mutually convenient times and making available to the other Party's attorneys documents or copies of documents specific to the Business Assets, the Business, the Sugar Creek Assets or the Sugar Creek Project, and such cooperation shall include giving testimony voluntarily. Such cooperation shall not require the cooperating Party to be joined as a Party in any such litigation. Each Party further agrees that it shall not voluntarily disclose to any third party without the other Party's consent any information or documents received by it heretofore or hereafter from the other Party's attorneys in connection with the defense or prosecution of any litigation or proceedings. The other Party shall pay the out-of-pocket expenses of the cooperating Party and those expenses of the cooperating Party's employees and agents reasonably incurred in connection with providing such cooperation but shall not be responsible for paying any fees or for reimbursing the cooperating Party for the salaries or costs of fringe benefits or other similar expenses of the cooperating Party's employees and agents in connection with time spent providing such cooperation to the other Party. 13.05 Removal of Seller's Name from Property. Not later than 60 days after the Closing Date, Buyer shall return to Seller or, if so directed by Seller, destroy, any letterhead, envelopes, brochures, marketing materials, invoices, forms, stamps or similar materials bearing the ASARCO name and/or logo, and shall remove Seller's name from the exterior of the Plant and the Leased Premises. In the event Buyer fails to remove Seller's name within the 60 day period, Buyer hereby grants Seller the right of access to said property, during normal business hours to remove Seller's name from the exterior of the Plant and Leased Premises and other assets. 13.06 Tax Matters. Buyer and Seller agree to reasonably cooperate and assist one another regarding all Tax matters related to the Business Assets or the Sugar Creek Assets sold pursuant to this Agreement. Buyer agrees to cooperate and assist Seller in connection with any tax audits of Seller for any periods through the Closing Date. For a period of six years after the Closing Date, Seller shall provide Buyer with such assistance as may reasonably be requested in connection with the preparation of any tax return and the conduct of any audit or other 38 examination by any taxing authority or in connection with judicial or administrative proceedings relating to any liability for Taxes. 13.07 Consents to Assignment. Seller is a party to various Contracts and Leases relating to the Business, and included in the Business Assets, the transfer of which requires the consent of a third party. If, other than the Required Consents, notwithstanding the best commercial efforts of the Parties a consent cannot be obtained for such a Contract or Lease, but for which the Contract or Lease would have been transferred hereunder to Buyer, the Parties shall proceed as follows: (a) until the Contract or Lease is novated or assigned Seller shall hold it in trust for Buyer absolutely and Buyer shall (if such sub-contracting or sub-leasing is permissible and lawful under the Contract or Lease), as Seller's sub-contractor or sub-lessor, perform all the obligations of Seller under the Contract or Lease to be discharged after Closing and shall indemnify Seller against all actions, proceedings, costs, damages, claims and demands in respect of any failure on the part of Buyer to perform those obligations; and (b) until the Contract or Lease is novated or assigned Seller shall (so far as it lawfully may) use its reasonable best efforts to assist Buyer (at Buyer's request and expense) to enable Buyer to enforce its rights under the Contract of Lease. If the Contract or Lease prohibits Buyer from acting as Seller's sub-contractor or sub-lessor (as referred to in paragraph (a) above) or Buyer cannot be permitted to act as sub-contractor or sub-lessor because of confidentiality obligations, Seller shall, at the cost of Buyer and to the extent that Seller is reasonably able, do all such acts and things as Buyer may reasonably require to enable due performance of the Contract or Lease and to provide for Buyer the benefits, subject to the burdens, of the Contract or Lease and Buyer shall indemnify Seller in respect of all such acts and things. Buyer agrees to cooperate with such efforts by Seller to the fullest extent practicable, including, without limitation, supplying Seller with product at no cost to Seller provided Seller assigns to Buyer all consideration received therefor from a purchaser thereof. 13.08 Consents to Assignment. Buyer is a party to various contracts and leases relating to the Sugar Creek Project, and included in the Sugar Creek Assets, the transfer of which requires the consent of a third party. If notwithstanding the best commercial efforts of the Parties a consent cannot be obtained for such a contract or lease, but for which the contract or lease would have been transferred hereunder to Seller, the Parties shall proceed as follows: (a) until the contract or lease is novated or assigned Buyer shall hold it in trust for Seller absolutely and Seller shall (if such sub-contracting or sub-leasing is permissible and lawful under the contract or lease), as Buyer's sub-contractor or sub-lessor, perform all the obligations of Buyer under the contract or lease to be discharged after Closing and shall indemnify Buyer against all actions, proceedings, costs, damages, claims and demands in respect of any failure on the part of Seller to perform those obligations; and (b) until the contract or lease is novated or assigned Buyer shall (so far as it lawfully may) use its reasonable best efforts to assist Seller (at Seller's request and 39 expense) to enable Seller to enforce its rights under the contract or lease. If the contract or lease prohibits Seller from acting as Buyer's sub-contractor or sub-lessor (as referred to in paragraph (a) above) or Seller cannot be permitted to act as sub-contractor or sub-lessor because of confidentiality obligations, Buyer shall, at the cost of Seller and to the extent that Buyer is reasonably able, do all such acts and things as Seller may reasonably require to enable due performance of the contract or lease and to provide for Seller the benefits, subject to the burdens, of the contract or lease and Seller shall indemnify Buyer in respect of all such acts and things. Seller agrees to cooperate with such efforts by Buyer to the fullest extent practicable, including, without limitation, supplying Buyer with product at no cost to Buyer provided Buyer assigns to Seller all consideration received therefor from a purchaser thereof. 13.09 Manager's Residence. The Manager's Residence in which the current General Manager of the Seller's Missouri Lead Division, Darrell Himmesoete, resides constitutes a part of the Business Assets to be purchased by the Buyer pursuant to this Agreement. On the Closing Date, Buyer shall enter into a lease with Mr. Himmesoete permitting Mr. Himmesoete to continue to reside in the Manager's Residence for up to a period of six months following the Closing Date, at the same rent and under substantially the same terms and conditions as are currently enjoyed by Mr. Himmesoete. 13.10 Closure of Slag Pile. (a) The Parties have agreed that the existing slag pile at the Smelter shall be closed as soon as is reasonably practicable following the Closing, taking into consideration the necessity for the Buyer to identify a site, obtain required Permits and prepare the site for the new slag pile. Buyer will make best efforts to make all required arrangements for the new slag pile not later than 12 months following the Closing and will bear any and all costs in connection with the establishment of the new slag pile. Upon completion of such arrangements, the Buyer shall notify Seller that the existing slag pile may be closed, following which the Seller shall cause the slag pile to be closed and capped in accordance with applicable Environmental Law and Section 16.07(c) of this Agreement, with work on such closure and capping to commence not later than six months following Buyer's notice. Buyer agrees to continue to maintain the slag pile at its expense in accordance with applicable Environmental Law until such time as Seller commences closure and capping of same, following which Seller will assume responsibility for maintenance of the slag pile. Seller shall bear all costs associated with the closure and capping of the existing slag pile, provided that Buyer shall bear a proportion of such costs which is equal to the proportionate amount of slag added to the slag pile by the Buyer. (b) In the event that during the 12 month period referred to in Section 13.10(a), Buyer in its sole discretion elects not to open a new slag pile, Buyer shall provide Seller a written notice of such election. Following receipt of such notice, Seller shall have no further obligations pursuant to Section 13.10(a). 40 ARTICLE 14 BULK SALES ACT Buyer hereby waives compliance by Seller with the requirements of any and all laws relating to bulk sales and transfers. ARTICLE 15 RIGHT OF TERMINATION; DISPUTE SETTLEMENT 15.01 Termination. (a) The Parties recognize the potential damage to the Business from a failure to close or a delay in Closing. Therefore, the conditions precedent to Closing are limited as set forth in Sections 12.04 and 12.05. (b) This Agreement may, by notice given prior to or at the Closing, be terminated: (i) by mutual written consent of Buyer and Seller; or (ii) by either Party if the Closing has not occurred (other than through the failure of the Party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before November 30, 1998; or (iii) by either Party in the event of a material breach by the other Party of its obligations hereunder where such breach has not been cured within 30 days following receipt of notice of breach from the non-breaching Party; or (iv) by either Party if a change in law makes the transaction contemplated hereby illegal or otherwise prohibited, or if any final and nonappealable judgment, injunction, order or decree enjoining either Party hereto from consummating the transaction contemplated hereby is entered. (c) Each Party's right of termination under this Section 15.01 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to this Section 15.01, all further obligations of the Parties shall terminate except that the obligations in Sections 9.01 and 9.04 will survive; provided, however, that if this Agreement is terminated because of a breach of the Agreement by the other Party or because one or more conditions to the terminating Party's obligations under this Agreement is not satisfied as a result of the other Party's failure to comply with its obligations under this Agreement, the terminating Party's right to pursue all legal remedies will survive such termination unimpaired. 15.02 Alternative Dispute Resolution. Any dispute, controversy, or claim arising under this Agreement which cannot reasonably be anticipated to involve Losses in excess of $5 million ("Dispute") (other than a dispute with respect to valuation of Inventory which shall be resolved pursuant to Section 4.03(b)(3)) shall be resolved in accordance with this Section 15.02. (a) Negotiation. Within fifteen (15) days of receipt of notice of a Dispute and thereafter as often as the parties 41 jointly agree is reasonably necessary, executives of the parties who have authority to settle the Dispute shall meet at a mutually convenient time and place to attempt in good faith to resolve the Dispute. (b) Mediation. If the Dispute cannot be resolved in such a meeting(s) or if no meeting of the parties has taken place within fifteen (15) days of receipt of notice of a Dispute, either party may initiate mediation as provided hereinafter by giving written notice. Any such mediation will be conducted under the Center for Public Resources ("CPR") Model Procedure for Mediation of Business Disputes (Revision 1994). The mediator shall attempt to hold an initial mediation conference within thirty (30) days after his appointment and conclude the mediation within forty-five (45) days after his appointment. (c) Arbitration. Any Dispute which has not been resolved within ninety (90) days after the initiation of mediation shall be resolved by arbitration in accordance with the CPR Non-Administered Arbitration Rules in effect on the date of this Agreement by three independent and impartial arbitrators, of whom each party shall appoint one. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Section 1-16, and judgment upon an award rendered by the arbitrators may be entered in any court having jurisdiction hereof. The place of arbitration shall be New York, New York. The arbitrators are not empowered to award damages in excess of compensatory damages and each party hereby irrecoverably waives any right to recover such damages with respect to any dispute resolved by arbitration. The statute of limitation of the State of New York applicable to the commencement of a lawsuit shall apply to the commencement of an arbitration hereunder, except that no defense shall be available based upon the passage of time during any negotiation or mediation called for by subsections (a) or (b) of this section. Notwithstanding anything to the contrary contained in the CPR Non-Administered Arbitration Rules, the arbitration shall be subject to following procedures: (i) the parties shall be entitled to no pre-hearing discovery; (ii) each party may make a written pre-hearing submission of no more than forty (40) pages (plus exhibits) for each claim; (iii) the arbitration panel shall hold a hearing within sixty (60) days of appointment of the panel. The hearing shall be subject to the following limitations: (a) each party may make an oral opening statement limited to sixty (60) minutes; (b) no more than four (4) affidavits may be submitted; (c) each party shall be allowed to present no more than four witnesses, including party, non-party and expert witnesses; (d) each party shall be limited to a total of ten (10) hours for witness and exhibit presentation, including rebuttal; cross examination of same shall be limited to a total of four (4) hours total; 42 (e) each party may make an oral closing statement limited to sixty (60) minutes; and (f) the hearing shall be conducted in the English language; (iv) each party may make a written post hearing submission limited for each claim to forty (40) pages (plus exhibits) within ten (10) days of the close of evidence; and (v) the Tribunal shall render a written decision on the merits within thirty (30) days of the close of evidence. ARTICLE 16 SURVIVAL, REMEDIES AND PROCEDURE FOR INDEMNIFICATION 16.01 Period for Taking Action. (a) All obligations of (i) Seller for breach of the warranties set forth in Section 5.05 and to indemnify and hold harmless the Buyer Indemnified Parties under Sections 8.01, 8.02 and 17.01 and (ii) Buyer for breach of the warranties set forth in Section 6.06 and to indemnify and hold harmless the Seller Indemnified Parties under Sections 7.01, 7.02 and 17.02, shall survive the Closing Date and continue without time limitation. (b) No claim shall be brought or any other action instituted against the other Party with respect to the representations, warranties, covenants, agreements and indemnifications contained in this Agreement at any time after the twenty-fourth month anniversary of the Closing Date, other than for the indemnifications and warranties specified in Section 16.01(a). In the event a time period other than said twenty-fourth months is stipulated elsewhere in this Agreement, no claim shall be brought or any other action instituted against the other Party with respect to the relevant covenant or agreement or indemnification at any time after the time period stipulated in this Agreement. 16.02 Notice. No claim for indemnification may be made with respect to any of the indemnification provisions set forth in Articles 7 and 8 unless notice of such claim for indemnification which satisfies the provisions of Section 16.06 below or Section 16.07 below with regard to environmental matters is given to the indemnifying Party on or before the expiration date (if any) for such indemnification provision as set forth in Section 16.01, but the actual costs or expenses related thereto may be incurred or assessed after such expiration date. 16.03 Claims. The indemnification by an indemnifying Party under Article 7 or Article 8 shall be limited to such Losses which exceed $100,000 in the aggregate for all claims made for indemnification by the indemnified Party (the "Indemnifier's Basket"). 16.04 Limit. Buyer shall not be required to indemnify Seller Indemnified Parties pursuant to Article 7 and Seller shall not be required to indemnify the Buyer Indemnified Parties pursuant to Article 8 for Losses which exceed the Purchase Price in the aggregate. The foregoing limitation shall not apply to indemnification by: (a) Buyer or Seller, respectively, in respect of Assumed Environmental Liabilities and Excluded Environmental Liabilities; (b) Seller in respect of obligations for Taxes which are the obligation of the Seller pursuant to Section 4.02(e); and (c) 43 Seller in respect of obligations arising under Title IV of ERISA due to the action or inaction of Seller. 16.05 Not a Release of Other Obligations. Notwithstanding the limitations in this Article 16, such limits are not intended to terminate or in any way modify or reduce the obligation of Seller to be responsible for the payment and performance of its obligations under Sections 8.01, 8.02 and 17.01 and the obligation of Buyer to be responsible for the payment and performance of its obligations under Sections 7.01, 7.02 and 17.02. 16.06 Procedure. Each Party to this Agreement shall give prompt written notice to the other Party under each claim for indemnification hereunder specifying that indemnification is sought pursuant to this Agreement, the amount (to the extent known), nature of and event giving rise to the claim, and of any matter which is reasonably likely to give rise to an indemnification claim. The indemnifying Party has the right to control at its expense the defense of any such matter or its settlement, but the indemnified Party has the right to participate with counsel of its own choosing and at its own expense. Failure to give timely notice of a matter which may give rise to an indemnification claim shall not affect the rights of the indemnified Party to collect such claims from the indemnifying Party so long as such failure to so notify does not materially and adversely affect the indemnifying Party's ability to defend such claim against a third party. No indemnifying Party, in the defense of any claim or litigation, shall, except with the prior written consent of an indemnified Party, which consent shall not be unreasonably withheld or delayed, consent to entry of any judgment or enter into any settlement by which such indemnified Party is to be bound and which judgment or settlement 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 to such claim or litigation. 16.07 Environmental Procedure; Access and Use of Real Property. (a) Each Party indemnitee will at all times take all reasonable steps to mitigate the Buyer Environmental Liabilities or Seller Environmental Liabilities or potential Buyer Environmental Liabilities or Seller Environmental Liabilities, with respect to which it may claim indemnification under Article 17. As soon as reasonably practicable after a Party becomes aware of any Buyer Environmental Liabilities or Seller Environmental Liabilities (whether or not the Party is of the opinion that it has a valid claim against the other Party under Article 17), said Party shall give written notice thereof to the other Party including all material details of any Buyer Environmental Liabilities or Seller Environmental Liabilities. Failure to give timely notice of a matter which may give rise to an environmental indemnification claim shall not affect the rights of the indemnified Party to collect such claims from the indemnifying Party so long as such failure to so notify does not materially and adversely affect the indemnifying Party's ability to (x) defend such claim against a third party or (y) reduce the potential Losses arising as the result of such matter by performing environmental remediation work in accordance with Section 16.07(c). (b) With respect to any environmental matter for which Seller has sole liability pursuant to Article 17 of this Agreement, Seller shall have sole control over all negotiations with governmental authorities concerning any remediation measures for such matter. Seller shall apprise and consult with Buyer from time-to-time as to the status of such negotiations and shall provide Buyer with copies of all proposed documents involving such remediation, provided, 44 however, that Seller shall not agree to any environmental measures, which, individually or in the aggregate, would reasonably be expected to have a material effect on Buyer's ownership, use or operation of the Business Assets or the Business without the prior written approval of Buyer, which shall not be unreasonably withheld. (c) After Closing, Seller shall have access to Plant for environmental remediation work on the following terms and conditions: (i) Seller retains a right of access to Plant after the Closing for purposes of conducting environmental remediation work. Seller shall make every reasonable effort in implementing the work to reduce to the extent practicable any interference with Buyer's operations at and use of the property in question. Seller shall coordinate its need to access the Plant with Buyer's local management, including providing at least ten days' advance notice of Seller's intent to enter the Plant to conduct environmental remediation work, with such notice to include a description of Seller's plans for such work. Seller shall coordinate its plans with those of Buyer where remediation work occurs in areas of the Buyer's operations. Seller shall conduct all such environmental remediation work in accordance with all applicable laws and regulations, and shall obtain all necessary permits for such work. Buyer shall promptly provide, upon Seller's request, any signatures required for permit applications or other documentation in connection with the conduct of such work. Seller shall maintain commercial general liability insurance and worker's compensation insurance with respect to such work, in each case in commercially reasonable limits, and shall name Buyer as an additional insured in each such policy. (ii) If in the conduct of environmental remediation work, the Business Assets are damaged due to the action or inaction of Seller or Seller's agent and such damage results in an interruption of the Business as conducted by Buyer, Seller shall be liable for all Losses and consequential damages, including lost profits or business opportunities, due to such interruption, but only to the extent such Losses or consequential damages are not covered by Buyer's business interruption or other insurance. (iii) At the conclusion of any environmental remediation project by Seller at the Plant, Seller shall promptly dispose of and/or decontaminate all rubbish and debris caused by or otherwise associated with such work, and shall remove all equipment, materials and supplies, and shall restore the property in question to its condition immediately prior to the initiation of the work and leave the same ready for ordinary use, taking into account any necessary above-ground fixtures necessary for the work such as groundwater monitoring equipment. (iv) Buyer agrees to use its reasonable best efforts, consistent with its ownership, use and operation of the Business Assets and the Business, not to take affirmative action (including building or construction activities) that materially and unreasonably increases the cost of any remediation for which Seller is responsible under Section 17.01. In the event Buyer takes any action that materially and unreasonably increases the cost of any such remediation, Buyer shall be responsible for such increased cost. 45 (d) With respect to Buyer's use of Plant and Leased Premises after Closing, if Buyer disposes of any of the Land, Buyer shall either (i) impose deed restrictions that the site will continue to be used for industrial purposes, or (ii) release Seller from any further obligations for indemnity and remediation hereunder, and indemnify and hold Seller harmless from any costs and expenses of remediation above and beyond those costs and expenses associated with remediation of property used for industrial purposes. (e) Buyer acknowledges and agrees that: (i) the Land is currently used by Seller for industrial purposes, and (ii) Seller's obligations for any environmental measures shall be limited to those measures applicable to property used for industrial purposes or such higher standard as is required by applicable Environmental Law. 16.08 Claim Limitations. (a) Other than for Excluded Liabilities and covenants that are required to be fulfilled on and after the Closing Date and except as provided in Section 17.03(d), a Party shall not be liable with respect to any claim hereunder to the extent the liability of the Party in respect thereof is incurred or increased as a result of any legislation or regulation not in force at the Effective Date or as a result of any change in legislation or regulation thereafter. (b) It is intended that the provisions of this Agreement with respect to claims by one Party against the other shall apply to all claims relating to the transactions contemplated hereby, regardless of whether such claim is based in tort (including, without limitation, negligence), contract, or otherwise. ARTICLE 17 ENVIRONMENTAL INDEMNITY 17.01 Seller's Environmental Indemnity. (a) Subject to the applicable limitations and procedures of Article 16 hereof, after the Closing, Seller shall indemnify, defend and hold Buyer harmless against and in respect of all Losses, including, but not limited to, liabilities, costs, penalties, fines, financial responsibility requirements and expenses relating to or arising out of any remediation, removal, response, abatement, cleanup, investigation, monitoring, personal injury damages, property damages or natural resources damages arising out of or related to: (i) Excluded Environmental Liabilities; (ii) any liabilities for Environmental Claims arising out of Seller's use, ownership or operation of the Sugar Creek Assets after the Closing Date; or (iii) any breach of the representations and warranties set forth in Section 5.05 of this Agreement. The matters listed in (i) through (iii) above are referred to collectively as the "Seller Environmental Liabilities". 46 (b) Buyer may not assign its right to indemnity under Section 17.01(a) for the Seller Environmental Liabilities, in whole or in part, to a third party without the prior written consent of Seller (such consent not to be unreasonably withheld), except Buyer may assign its rights to: (i) any purchaser of substantially all of the assets of the Business; or (ii) any financing entities of Buyer in connection with the Business or Business Assets. 17.02 Buyer's Environmental Indemnity. (a) Subject to the limitations and procedures of Article 16 hereof after the Closing, Buyer shall indemnify, defend and hold Seller harmless against and in respect of all Losses, including, but not limited to, liabilities, costs, penalties, fines, financial responsibility requirements and expenses relating to or arising out of any remediation, removal, response, abatement, cleanup, investigation, monitoring, reclamation, closure requirements, post-closure requirements, personal injury damages, property damages, closure, capping or natural resources damages arising out of or related to: (i) Assumed Environmental Liabilities; (ii) any liabilities for Environmental Claims arising out of Buyer's use, ownership or operation of the Sugar Creek Assets prior to the Closing Date; (iii) the closure or cessation of operations at the Mines or the Smelter under Environmental Laws then in force; or (iv) any breach of the representations and warranties set forth in Section 6.06 of this Agreement. The matters listed in (i) through (iv) above are referred to collectively as the "Buyer Environmental Liabilities". (b) Seller may not assign its right to indemnity under Section 17.02(a) for the Buyer Environmental Liabilities, in whole or in part, to a third party without the prior written consent of Buyer (such consent not to be unreasonably withheld), except Seller may assign its rights to any purchaser of the Sugar Creek Assets. 17.03 Allocation of Certain Environmental Liabilities. (a) General Principles of Allocation. As reflected in the definitions of Assumed Environmental Liabilities and Excluded Environmental Liabilities in Sections 4.01 and 4.02(f) respectively of this Agreement, and in the specification of Seller Environmental Liabilities and Buyer Environmental Liabilities in Sections 17.01(a) and 17.02(a) respectively of this Agreement, the Parties intend that Seller Environmental Liabilities shall include all liabilities for Environmental Claims that arise out of the use, ownership or operation of the Business Assets or the conduct of the Business prior to the Closing Date, and the use, ownership or operation of the Sugar Creek Assets on or after the Closing Date, and that the Buyer Environmental Liabilities shall include all liabilities for Environmental Claims that arise out of the use, ownership or operation of the Business Assets or the conduct of the Business on or after the Closing Date, and the use, ownership or operation of the Sugar Creek Assets prior to the Closing Date. As reflected in such sections, the Parties also recognize that liabilities for Environmental Claims can arise from 47 conditions, including the presence, release or threat of release of Materials of Environmental Concern, or violations or alleged violations of Environmental Laws, that exist both before and after the Closing Date. To the extent that Seller Environmental Liabilities or Buyer Environmental Liabilities include an Environmental Claim that arises from the presence, release or threat of release of Materials of Environmental Concern, or from the violation or alleged violation of Environmental Laws, that may exist both before and after the Closing Date, the Parties intend that their respective liabilities therefor, for purposes of this Agreement, shall be allocated between them as follows: (i) The Party that is liable for the conduct of the Business or the use, ownership or operation of any assets prior to the Closing Date shall also be liable for (x) any Materials of Environmental Concern that continue to be present or released, or continue to present the threat of a release, with respect to such Business or assets, on or after the Closing Date except to the extent that the Party that is liable for the conduct of the Business or the use, ownership or operation of any assets on or after the Closing Date has by virtue of such conduct, use, ownership or operation on or after the Closing Date contributed to the presence, release or threat of release of such Materials of Environmental Concern with respect to such Business or assets, and for (y) any violation or alleged violation of Environmental Laws that continues on or after the Closing Date except to the extent that the Party that is liable for the conduct of the Business or the use, ownership or operation of any assets on or after the Closing Date is by virtue of such conduct, use, ownership or operation on or after the Closing Date liable for such violation or alleged violation under Environmental Laws with respect to such Business or assets; (ii) To the extent that both Parties are liable for any Materials of Environmental Concern under this Section 17.03, their respective liabilities shall be in proportion to the volume, impact or other relevant measure of such materials generated, treated, stored, transported, disposed of or released, as the case may be, during the time each of them conducted the Business or used, owned or operated the relevant assets; and (iii) To the extent that both Parties are liable for any violation or alleged violation of Environmental Laws under this Section 17.03, their respective liabilities for any fines, penalties or forfeitures in respect of such violation or alleged violation shall be in proportion to the length of time each of them conducted the Business or used, owned or operated the relevant assets during the period of such violation or alleged violation. Only the Party that is liable for the conduct of the Business or for the use, ownership or operation of any asset on or following the Closing Date is liable for the capital or other costs of compliance with Environmental Laws on or following the Closing Date with respect to such Business or assets, regardless of whether or not any violation or alleged violation of such Environmental Laws existed prior to the Closing Date. (b) Certain Specific Liabilities. Notwithstanding the foregoing general principles: (i) The specific methods set forth in the Environmental Methodology shall govern the allocation of liability between the Parties, for purposes of this Agreement, with respect to the issues to which such methods are stated to apply; 48 (ii) The Excluded Liabilities, which are part of the Seller Environmental Liabilities, shall include all liabilities arising under or in respect of the Consent Decree filed September 6, 1994, in the Circuit Court of Iron County, Missouri, in the matter of Asarco v. State of Missouri, et al. (CV 594-119CC), which are not subject to allocation; (iii) The Assumed Liabilities, which are part of the Buyer Environmental Liabilities, shall include all liabilities arising under or in respect of the Consent Decree with the Missouri Department of Natural Resources in connection with the State Implementation Plan for Lead, which are not subject to allocation; and (iv) The Assumed Liabilities, which are part of the Buyer Environmental Liabilities, shall include all Losses in connection with the closure or cessation of operations at the Mines or the Smelter under Environmental Laws then in force, which Losses are not subject to allocation. (c) Disputes Regarding Allocation of Environmental Liabilities. To the extent that, with respect to any Seller Environmental Liability or Buyer Environmental Liability that either Party asserts is subject to allocation under this Section 17.03, the Parties do not agree as to (1) whether or not the allocation methods set forth in the Environmental Methodology apply to such liability, (2) how such methods are to be applied to such liability or (3) any of the facts necessary to an allocation of such liability under this Section 17.03, the allocation of such liability shall be made pursuant to the procedures set out in Section 15.02 or, if the limitation set out in Section 15.02 applies, Section 18.09. (d) Liabilities Arising from Changes in Law. Environmental Laws, as defined in this Agreement, include such laws as they may be modified, amended or newly promulgated from time to time. For the avoidance of doubt, the Parties intend that the Party liable for the conduct of the Business or for the use, ownership or operation of any assets prior to the Closing Date shall also be liable for any Environmental Claims that did not exist prior to the Closing Date but arose after the Closing Date solely due to a modification amendment to or promulgation of Environmental Laws. To the extent that such a post-Closing modification amendment or promulgation creates an Environmental Claim arising from a condition, including the presence or release, or threat of release, of Materials of Environmental Concern, that existed prior to the Closing Date and continued on or after the Closing Date, liability for such claim shall be allocated between the Parties in accordance with this Section 17.03. ARTICLE 18 MISCELLANEOUS 18.01 Press Release. Buyer and Seller shall each be at liberty to issue a press release or public announcement following execution of this Agreement and also following Closing under this Agreement with respect to the transaction contemplated by this Agreement with the prior written consent of the other Party, which consent shall not be unreasonably withheld and the Parties shall consult each other in advance on the form and content of such releases or announcements. Each party will be free to issue a new press release or announcement containing previously approved content, provided that this provision shall not inhibit good faith responses to 49 questions or inquiries. Each Party shall also be entitled to make such disclosures as may be required by applicable law or by applicable regulations of regulatory authorities without prior consultation or consent. 18.02 Fees. Except as otherwise specifically provided herein, the Parties shall pay their own expenses including attorney's fees, incident to the preparation and performance of this Agreement, whether or not the transactions contemplated herein are consummated. 18.03 Amendments. This Agreement shall not be amended or modified except in writing, signed by both Parties. 18.04 Successors. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns, provided that neither Party shall assign this Agreement or any rights herein without the other Party's prior consent (which will not be unreasonably withheld or delayed) except to an Affiliate or in connection with a collateral pledge for purposes of securing a financing. In the event of assignment by one Party to an Affiliate, such Party will remain obligated under this Agreement. This Agreement is not intended to confer upon any person except Buyer or Seller any rights or remedies hereunder. 18.05 Integration. All understandings and agreements heretofore existing between the Parties regarding the purchase and sale of the Business Assets and of the Sugar Creek Assets are merged into this Agreement and the Schedules and Exhibits hereto, which fully and completely express the agreement of the Parties and was entered into after adequate investigation, neither Party relying upon any statement or representation not embodied in this Agreement, or the Exhibits hereto, made by the other. 18.06 Non-waiver of Remedy. The failure of Seller or Buyer to insist, in any one or more instances, upon the strict performance of any of the terms, conditions or covenants of this Agreement shall not be construed as a waiver or relinquishment for the future of such term, condition or covenant. A receipt by Seller or Buyer of any money with knowledge of the breach of any term, condition or covenant of this Agreement, shall not be deemed a waiver of such breach, and no waiver, change, modification or discharge by either Party hereto of any provision in this Agreement shall be deemed to have been made or shall be effective unless expressed in writing and signed by both Seller and Buyer. In addition to the other remedies provided in this Agreement, Seller and Buyer shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation of any of the terms, conditions or covenants of this Agreement, or to a decree compelling performance of any of such term, condition or covenant. 18.07 Notices. All notices, consents, requests and approvals, any notice of change in address for the purpose of this Article, and other communications provided for or required herein, shall be deemed validly given, made or served, if in writing, and delivered (a) on the day given if served personally; (b) two days following if sent by telecopy to the facsimile number indicated below with a confirmatory notice by delivery to a nationally-recognized express delivery service with instructions and payment for overnight delivery to the address set forth below; or (c) five days following if sent by U.S. Certified Mail, postage prepaid: 50 (i) if to Seller, at: ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Attention: General Counsel Facsimile Number: 212-510-1908 with a copy to: White & Case LLP 1155 Avenue of the Americas New York, NY 10036-2787 Attention: Kevin Keogh Facsimile Number: 212-354-8113 (ii) if to Buyer, at: The Doe Run Company Suite 300 1801 Park 270 Drive St. Louis, MO 63146 Attention: Vice President - Law Facsimile Number: 314-453-7177 with a copy to: Cadwalader, Wickersham & Taft 100 Maiden Lane New York, NY 10038 Attention: Michael C. Ryan, Esq. Facsimile Number: 212-504-6666 18.08 Governing Law. This Agreement shall be governed by and construed according to the laws of the State of New York (without regard to any conflict of laws rules which might apply the laws of any other jurisdiction) except to the extent that real property transfers are required to be governed by the laws of the jurisdiction in which the property is located. 18.09 Jurisdiction. Each Party hereby (i) submits to the exclusive jurisdiction of the state courts of the State of New York and the United States Federal District Court in the Southern District of New York in the borough of Manhattan for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or the subject matter hereof 51 brought by the other Party, any indemnified party or their respective heirs, legal representatives, successors or assigns (an "Action") and (ii) waives, and agrees not to assert by way of motion, a defense, or otherwise, in any such Action, any claim that it or he is not subject personally to the jurisdiction of the above-named courts, that its or his property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the subject matter hereof may not be enforced in or by such court. 18.10 Disclosure Schedules and Exhibits. All Disclosure Schedules and Exhibits referred to herein are hereby incorporated in this Agreement by reference and have been initialed for identification purposes by representatives of the Parties hereto. 18.11 Headings. The various headings used in this Agreement are for convenience only and are not to be used in interpreting the text of the Article in which they appear or to which they relate. 18.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. 18.13 Further Assurances. Each of the Seller and the Buyer will from time to time execute and deliver all such further documents and instruments and do all acts and things as the other Party may, either before or after the Closing Date, reasonably require to effectively carry out or better evidence or perfect the full intent or meaning of this Agreement. Such further documents, instruments, actions and things shall include, without limitation, those which are required to (a) convey to Buyer assets which are or should have been included in the Business Assets conveyed on the Closing Date, (b) give effect to the assumption by Buyer of liabilities which are or should have been included in the Assumed Liabilities, (c) convey to Seller assets which are or should have been included in the Sugar Creek Assets conveyed on the Closing Date and (d) give effect to the assumption by Seller of liabilities which are or should have been included in the liabilities related to the Sugar Creek Project. 52 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the day and year first above written. ASARCO INCORPORATED By: /s/ Kevin R. Morano ------------------------- Name: Kevin R. Morano Title: EXECUTIVE VICE PRESIDENT THE DOE RUN RESOURCES CORPORATION By: --------------------------- Name: Title: 53 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the day and year first above written. ASARCO INCORPORATED By: ------------------------- Name: Title: THE DOE RUN RESOURCES CORPORATION By: /s/ Marvin K. Kaiser --------------------------- Name: Marvin K. Kaiser Title: Vice President and Chief Financial Officer 53 EXHIBIT I Form of Special Warranty Deed - Plant SPECIAL WARRANTY DEED THIS INDENTURE, made on the ______________ day of ______________ A.D. One Thousand Nine Hundred and Ninety-Eight by and between ASARCO INCORPORATED, a New Jersey corporation, with its principal business office at 180 Maiden Lane, New York, New York 10038 of the First Part, and THE DOE RUN RESOURCES CORPORATION, a New York corporation with its principal business office at Suite 300, 1801 Park 270, St. Louis, Missouri 63146 of the Second Part. WITNESSETH, that the said party of the First Part, in consideration of the sum of ____________________________ DOLLARS, paid by the said party of the Second Part, the receipt of which is hereby acknowledged, does by these presence, grant, bargain and sell, convey and confirm unto the said party of the Second Part and its heirs and assigns, the following described Lots, Tracts, or Parcels of Land, lying, being and situate in the County of _________________ and State of Missouri, to-wit: [Legal description of Land comprising each of the Mines and the Smelter] TO HAVE AND TO HOLD, the premises aforesaid, with all and singular the rights, privileges, appurtenances and immunities thereto belonging or in anywise appertaining unto the said party of the Second Part and unto heirs and assigns, forever hereby covenanting that said party of the First Part will Warrant and Defend the title to the said premises unto the said party of the Second Part, and unto heirs and assigns, forever, against the lawful claims and demands of all persons claiming, under, by or through said grantor, but against no other person or persons whomsoever. EXHIBIT I Page 2 IN WITNESS WHEREOF, the said party of the First Part has hereunto set its hand as of the day and year first above written. ASARCO INCORPORATED By: --------------------- Name: Title: Signed, and delivered in the presence of us: - -------------------------------------- - -------------------------------------- STATE OF _________) ) ss. COUNTY OF _______ ) On this ______ day of ___________1998 before me personally appeared and proved to me on the basis of satisfactory evidence, and who, upon oath, acknowledged himself to be the ________ of ASARCO INCORPORATED, the within named grantor, a New Jersey corporation, and that be as such ______________, executed the foregoing instrument for the purpose therein contained, by signing the name of ASARCO INCORPORATED by himself as such _____________. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal at my office in ___________ the day and year first above written. My term expires _____________, 199_. EXHIBIT I Page 3 STATE OF MISSOURI) ) ss. COUNTY OF _______) On this _____ day of _______ 199_ before me personally appeared _________ ____________________________to me known to be the person described in and who executed the foregoing instrument, and acknowledged that ______ executed the same as _______ free act and deed. And the said _____________ further declare _________ to be single and unmarried. IN TESTIMONEY WHEREOF, I have hereunto set my hand and affixed my official seal at my office in ________ the day and year first above written. My term expires _________, 199_. STATE OF MISSOURI) ) ss. COUNTY OF _______) I, ____________, Recorder of said County do hereby certify that the within instrument of writing was, at ______ o'clock and _______ minutes ____ M__, on the _______ day of _________________ A.D. 1998, duly filed for record in my office, and is recorded in the records of this office, in book ______ at page ____. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal at _____________, this ___________ day of _________A.D. 1998. Recorder - ------------------------------ EXHIBIT II UNDERTAKING OF ASSUMPTION UNDERTAKING OF ASSUMPTION (this "Undertaking"), dated as of August 30, 1998, by and between ASARCO INCORPORATED, a New Jersey corporation ("Seller"), and THE DOE RUN RESOURCES CORPORATION, a New York corporation ("Buyer"). For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Buyer for itself, its successors and assigns, hereby assumes and agrees to pay or cause to be paid or otherwise discharge, perform and fulfill or cause to be discharged, performed and fulfilled to the extent that they are existing and outstanding on the date hereof, as they become due and payable, all Assumed Liabilities which are to be assumed by Buyer pursuant to an Asset Purchase and Sale Agreement, dated as of July __, 1998 between the Seller and the Buyer (the "Asset Purchase Agreement") (all terms used herein and not otherwise defined shall have the meaning ascribed thereto in the Asset Purchase Agreement). To the extent that the assignment of any contract, lease, commitment, sales order, purchase order, account, license, Permit, or undertaking to be assigned as provided under the Asset Purchase Agreement shall not have been assigned because a required consent of another party thereto shall not have been obtained prior to the date hereof, and Seller shall have made arrangements or shall be making arrangements designed to provide Buyer the benefits under such agreements, Buyer hereby assumes the obligations and liabilities of Seller thereunder and agrees to discharge, perform and fulfill such obligations and liabilities as though such agreements had been so assigned. Buyer agrees to indemnify and hold the Seller Indemnified Parties harmless from and against Losses arising out of the failure of Buyer to perform its obligations under this Undertaking in accordance with the Asset Purchase Agreement. This Undertaking is not intended to vary, supplement, modify or amend the terms and conditions of the Asset Purchase Agreement. In the event of any conflict or inconsistency between this Undertaking and the Asset Purchase Agreement, the Asset Purchase Agreement shall govern. This Undertaking shall inure to the benefit of and be binding upon the Parties hereto and their respective successors and assigns; provided, however, neither Party may assign this Undertaking, in whole or in part, without the express prior written consent of the other Party. THIS UNDERTAKING SHALL BE DEEMED TO BE A CONTRACT MADE IN AND UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN ACORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY WITHIN SUCH STATE. IN WITNESS WHEREOF, Buyer and Seller have each caused this Undertaking to be executed by its respective officers thereunto duly authorized on the day and year first above written. ASARCO INCORPORATED By: Name: Title: THE DOE RUN RESOURCES CORPORATION By: Name: Title: 2 Exhibit III BILL OF SALE ASARCO INCORPORATED, a New Jersey corporation ("Seller"), pursuant to the Asset Purchase and Sale Agreement dated as of July __, 1998 (the "Agreement"), between the Seller and THE DOE RUN RESOURCES CORPORATION ("Buyer"), for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby sell, convey, assign, transfer and deliver to Buyer and its successors and assigns, to have and to hold forever all of Seller's right, title and interest in and to the Business (as defined in the Agreement) and the Business Assets (as defined in the Agreement), except for those assets identified as "Excluded Assets" in the Agreement. On or after the date hereof and without further consideration, Seller will also, from time to time at Buyer's request, execute and deliver such further instruments of conveyance, assignment and transfer and shall take, or cause to be taken, such other action as Buyer may reasonably request for the more effective conveyance, assignment and transfer to the Buyer of any of the Business or the Business Assets, and the Seller will lend all reasonable assistance to the Buyer in the collection and reduction to possession of such Business and Business Assets, in the exercise of rights with respect thereto and otherwise in the carrying out of the intentions and purposes of the Agreement. IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be duly executed by its duly authorized officer this ____ day of _______, 1998. ASARCO INCORPORATED By: ------------------------------- Name: Title: Accepted and agreed on this _____ day of _____________, 1998. THE DOE RUN RESOURCES CORPORATION By: ------------------------------- Name: Title: Exhibit IV NET SMELTER RETURN ROYALTY AGREEMENT NET SMELTER RETURN ROYALTY AGREEMENT (this "Agreement") entered into and effective as of the [ ]th day of August, 1998, by and between ASARCO INCORPORATED, a New Jersey corporation, with its principal place of business at 180 Maiden Lane, New York, New York 10038 ("ASARCO"), and THE DOE RUN RESOURCES CORPORATION, a New York corporation with its principal business office at Suite 300, 1801 Park 270, St. Louis, Missouri 63146 ("Doe Run"). Terms which are defined in the Asset Purchase Agreement (as hereinafter defined) shall be used herein as so defined. W I T N E S S E T H, That: WHEREAS, Doe Run and ASARCO have entered into a Asset Purchase and Sale Agreement dated July 28, 1998 (the "Asset Purchase Agreement") pursuant to which, among other things, ASARCO has sold and Doe Run has purchased the Business and the Business Assets; WHEREAS, the Business involves the mining, milling, smelting, refining and sale of lead and associated metals as previously conducted by ASARCO from the Mines and the Smelter; and WHEREAS, as partial consideration from Doe Run for the Business and the Business Assets, the parties have agreed to enter this Agreement; NOW, THEREFORE, subject to the terms, conditions, covenants and provisions of this Agreement, ASARCO and Doe Run mutually covenant and agree as follows: 1. Definitions. As used in this Agreement, the following terms have the following meanings: "Amount Subject to Royalty" means Net Smelter Return plus Gross Proceeds. "Assay Deduction Lead" means 1.5%. "Assay Deduction Silver" means 1.0 ounce per dry Ton of concentrates. "Assay Lead" means the quantity of lead contained in each Lot of concentrates from the Mines delivered to the Smelter or any other smelter, as determined at the Smelter or any other smelter by the wet method, expressed as a percentage of the concentrates. "Assay Silver" means the quantity of silver contained in each Lot of concentrates from the Mines delivered to the Smelter or any other smelter and as determined by the Smelter or any other Smelter, expressed as the number of troy ounces per dry Ton of concentrates. "Average Lead Price" means the annual average closing "cash settlement" quotation in U.S. dollars per Pound of refined lead published daily by the London Metal Exchange, calculated by dividing the sum of all daily closing prices posted during the calendar year by the number of days for which such quotations were posted. If the London Metals Exchange cash settlement quotation lead price ceases to be published, the parties shall agree upon a similar alternative method for determining the annual average price for lead. "Average Silver Price" means the annual average closing market quotation for the Handy & Harman base price for a troy ounce of silver determined by dividing the sum of all daily prices posted during the calendar year by the number of days that prices were posted. If the Handy & Harman base price for silver ceases to be published, the parties shall agree upon a similar alternative method for determining the average daily spot market price for silver or upon failure to so agree, the average of the daily calculated spot COMEX closing price during such period shall be used. "Bonus Payment" has the meaning ascribed to such term in Section 4 of this Agreement. "Cu Deduction" means $25 per Ton for each 1.0%, or fractional amounts of same, that the percentage of copper contained in each Lot of concentrates from the Mines exceeds 0.25%. "Freight Deduction" means the actual average shipping cost incurred for shipments of one Lot of concentrates from the Mines to the Smelter, multiplied by the number of Lots of concentrates shipped from the Mines during the relevant period, provided that if concentrates are shipped from the Mines to a smelter other than the Smelter, Doe Run shall nevertheless apply the annual average shipping costs for shipments from the Mines to the Smelter. "Gross Proceeds" means the gross amount received by Doe Run from physical sales of zinc concentrates produced and sold by Doe Run from the Mines during the relevant calendar year, determined by the price received by Doe Run for zinc concentrates in bona fide transactions with independent parties or, if sales are made to an Affiliate of Doe Run, at a price which is equivalent to that which would be received in an arm's length transaction, but in each case excluding any Trading Proceeds. "Gross Weight" means the gross weight of concentrates (dry basis) produced by the Mines during the relevant calendar year, as received at the Smelter or any other smelter. "Lot" shall mean approximately 400 Tons of concentrates. "Maximum Payments" has the meaning specified in Section 6 of this Agreement. "Metal Content Lead" means the Gross Weight, expressed in Pounds, multiplied by the Net Assay Lead. "Metal Content Silver" means the number of troy ounces of silver contained in the Gross Weight, calculated by multiplying the number of Tons contained in the Gross Weight by the Net Assay Silver (which is expressed in ounces per Ton). 2 "Metal Value" means the sum of (i) the Metal Value Lead and (ii) the Metal Value Silver. "Metal Value Lead" means the Payable Metal Content Lead multiplied by the Net Price Lead. "Metal Value Silver" means the Payable Metal Content Silver multiplied by the Net Price Silver. "Moisture Deduction" means a deduction of $0.50 per Ton for each 1%, or fractional amounts of same, that the moisture content of the concentrates delivered from the Mines exceed 12%. "Net Assay Lead" means the Assay Lead less the Assay Deduction Lead. "Net Assay Silver" means the Assay Silver less the Assay Deduction Silver. "Net Price Lead" means the Average Lead Price. "Net Price Silver" means the Average Silver Price less the Price Deduction Silver. "Net Smelter Return" means for the applicable period, (i) Metal Value less (ii) the sum of (w) Treatment Charge (plus or minus the Treatment Charge Adjustment), (x) Moisture Deduction, (y) Cu Deduction and (z) Freight Deduction. "Payable Metal Content Lead" means the Metal Content Lead multiplied by the Percentage Payable. "Payable Metal Content Silver" means the Metal Content Silver multiplied by the Percentage Payable. "Payment Date" has the meaning specified in Section 5(a) of this Agreement. "Percentage Payable" means 95%. "Price Deduction Silver" means $0.30 per troy ounce. "Pound" means an avoirdupois pound. "Products" means any ores, concentrates, precipitates, cathodes, leach solutions or any other primary, intermediate or final product or any other Mineral Substance obtained from substances mined and removed from the Mines. "Royalty" has the meaning ascribed to such term in Section 3 of this Agreement. "Royalty Period" has the meaning ascribed to such term in Section 8 of this Agreement. 3 "Ton" means a short ton or 2,000 avoirdupois pounds. "Trading Proceeds" means the proceeds and/or losses attributable to any and all price hedging and price protection activities undertaken by Doe Run or its Affiliates with respect to any Products including, without limitation, any forward sale and/or purchase contracts, spot-deferred contracts, options contracts, speculative purchases and sales of forward, futures and options contracts, both on and off commodity exchanges. "Treatment Charge" means for each year, the amount of $145 multiplied by the number of Tons of Gross Weight. "Treatment Charge Adjustment" an increase or decrease, as the case may be, of $3.00 per Ton for each $0.01, or proportional amounts of same, that the Average Lead Price is greater or less than $0.30. "Work Sheet" has the meaning specified in Section 1 of this Agreement. 2. Calculation of Net Smelter Return. Net Smelter Return shall be calculated in accordance with the definitions set out above. Attached as Schedule I to this Agreement is a work sheet to be used for purposes of such calculation ("Work Sheet"). Attached as Schedule II to this Agreement is a sample calculation of Net Smelter Return for illustration purposes only. 3. Payment of Royalty. During the Royalty Period, in each calendar year for which the Average Lead Price exceeds $0.285 per pound, Doe Run shall pay ASARCO an annual royalty (the "Royalty") equal to 4% of the Amount Subject to Royalty. 4. Bonus Payment. During the Royalty Period and in addition to the Royalty, in each calendar year that the Average Lead Price exceeds $0.30 per pound, Doe Run shall pay ASARCO an annual bonus (the "Bonus Payment") equal to $800,000 for each $0.01 of such excess, or proportional amounts thereof. 5. Maximum Payments. The aggregate amount of all Royalties and Bonus Payments paid by Doe Run pursuant to this Agreement shall not exceed $12,500,000 (the "Maximum Payments"). 6. Payment of Royalties and Bonus; Statements. (a) Royalty and Bonus Payments shall be made by Doe Run no later than 60 days after the end of each calendar year or, if such date is not a Business Day, on the next preceding Business Day (the "Payment Date"). Payment shall be made in immediately available funds in United States Dollars by wire transfer to such accounts of ASARCO at such bank or banks as are advised by ASARCO to Doe Run in writing from time to time. (b) On or before the Payment Date, the Chief Financial Officer of Doe Run shall provide ASARCO with a certificate showing the calculation of the Average Lead Price for the preceding calendar year. In the event the Average Lead Price is such that a Bonus Payment 4 and/or Royalty is payable in respect of such year, Doe Run shall also provide ASARCO with a statement certified by the Chief Financial Officer of Doe Run with respect to (i) the calculation of Net Smelter Return for each calendar month during the relevant year substantially in the form of the Work Sheet and (ii) the calculation of the Bonus Payment and/or Royalty for such year. (c) Upon the request of ASARCO, Doe Run shall provide copies of all relevant data relating to the Royalty and Bonus calculation (including, but not limited to, assay reports and settlement sheets used in calculating ASARCO's Royalty and Bonus) to ASARCO. (d) Doe Run shall be obligated to effect payments of annual Bonus Payment and/or Royalty based upon the formula for calculating Net Smelter Return stated in this Agreement and irrespective of the profitability of Doe Run's overall business or the business by Doe Run utilizing the Business Assets. 7. Accounting Matters. (a) Weighing, Sampling And Assaying. Weighing, sampling, assay determination and the determination of moisture (at which ASARCO or ASARCO's representative may be present) as done by Doe Run according to Doe Run's standard practice at the receiving plant promptly after receipt of Products, will be accepted as final. The absence of ASARCO or ASARCO's representative shall be deemed a waiver of the right in each instance. (b) Accounting Principles. The calculation of Royalties shall be made in accordance with generally accepted accounting principles and practices consistently applied by Doe Run, using the accrual method. (c) Audit. ASARCO, upon written notice and at its own cost, shall have the right to have an independent firm of certified public accountants audit the records that relate to the calculation of the Royalty within 24 months after receipt of a payment described in Section 6(a) of this Agreement for any calendar year. (d) Disputes. ASARCO shall be deemed to have waived any right it may have had to object to a payment made for any calendar year, unless it provides notice in writing of such objection within 24 months after receipt of final payment for the calendar year. If the parties are unable to resolve the dispute within 60 days after the receipt of such notice, the dispute shall be resolved by arbitration in New York, New York, pursuant to the commercial arbitration rules of the American Arbitration Association. The arbitrator shall determine what part of the costs and expenses incurred in any such proceeding shall be borne by each party participating in the arbitration. 8. Royalty Period. The period for which the annual Royalty and Bonus Payment shall be payable by Doe Run shall commence on January 1, 1999 and continue for five complete calendar years or until such time as aggregate payments made by Doe Run equal the Maximum Payment (such period, the "Royalty Period"). 5 9. Records. Doe Run shall keep accurate records of tonnage, volume of products, analyses of products, weight, moisture, assays of payable metal content and other records, as appropriate, related to the computation of Royalties hereunder. 10. Right to Inspect. ASARCO or its authorized representative on not less than 30 days' notice to the Doe Run, may enter upon all surface and subsurface portions of the Mines for the purpose of inspecting the Mines, all improvements thereto and operations thereon, and may, subject to the obligations of confidentiality described herein, inspect and copy all records and data pertaining to the computation of its interest, including without limitation such records and data which are maintained electronically. ASARCO or its authorized representative shall enter the Mines at ASARCO's own risk and may not unreasonably hinder operations on or pertaining to the Mines. ASARCO shall indemnify and hold harmless the Doe Run and its Affiliates (including without limitation direct and indirect parent companies), and its or their respective directors, officers, shareholders, employees, agents and attorneys, from and against any Liabilities which may be imposed upon, asserted against or incurred by any of them by reason of injury to ASARCO or any of its agents or representatives incurred in connection with ASARCO's exercise of its rights herein. 11. Confidentiality. All information and data provided to ASARCO under this Agreement or obtained in connection with this Agreement shall be confidential; provided, however, that ASARCO shall have the right to disclose the same to its financial advisors and other representatives under an obligation of confidentiality that is at least as broad as ASARCO would require with respect to its own similar information. The obligation of confidentiality shall not apply to any information that is in the public domain through no fault of ASARCO or its assigns or representatives, or which is required to be disclosed as a matter of law, provided that in such case ASARCO notifies Doe Run of such required disclosure prior to disclosing the same. 12. Assignment of Mines. Doe Run and its Affiliates shall be free to convey, transfer, assign, abandon or encumber all or any portion of its interest in the Mines. If Doe Run or its Affiliates conveys, transfers, or assigns all or any portion of its interest in the mineral substances included with the Mines (other than a collateral assignment or the granting of a security interest in connection with a secured financing) it shall require the party or parties acquiring such interest to assume in writing the obligations of this Agreement, and thereupon it shall be relieved of all liability under this Agreement as to such interest in the Mines, except for liabilities existing on the date of such conveyance, transfer, or assignment. 13. Independent Parties. All production of lead, silver and other products by Doe Run at the Smelter or otherwise shall be for Doe Run's own account as an independent party and not as an agent or representative of ASARCO. ASARCO shall not as the result of this Agreement be in any way responsible for costs, liabilities or losses arising in connection with the production of lead, silver and other products by Doe Run. This Agreement conveys no rights to ASARCO other than the right to receive the Royalties and Bonus Payments stated herein. 14. Amendments. This Agreement shall not be amended or modified except in writing, signed by both parties. 6 15. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Doe Run shall not assign this Agreement or any obligations hereunder other than in accordance with Section 12 of this Agreement. ASARCO shall be permitted to assign this Agreement and its rights herein upon written notice to Doe Run provided, however, that Doe Run shall not be required to pay more than one entity and shall not be obligated to allocate any portion of any payment. No such assignment shall be binding upon Doe Run until notice of the same has been received in writing by Doe Run. This Agreement is not intended to confer upon any person except Doe Run or ASARCO any rights or remedies hereunder. 16. Integration. All understandings and agreements heretofore existing between the parties regarding the subject matter of this Agreement are merged into this Agreement which fully and completely express the agreement of the parties. 17. Non-waiver of Remedy. The failure of ASARCO or Doe Run to insist, in any one or more instances, upon the strict performance of any of the terms, conditions or covenants of this Agreement shall not be construed as a waiver or relinquishment for the future of such term, condition or covenant. A receipt by ASARCO of any money with knowledge of the breach of any term, condition or covenant of this Agreement, shall not be deemed a waiver of such breach, and no waiver, change, modification or discharge by either party hereto of any provision in this Agreement shall be deemed to have been made or shall be effective unless expressed in writing and signed by both ASARCO and Doe Run. In addition to the other remedies provided in this Agreement, ASARCO and Doe Run shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation of any of the terms, conditions or covenants of this Agreement, or to a decree compelling performance of any of such term, condition or covenant. 18. Notices. All notices, consents, requests and approvals, any notice of change in address for the purpose of this Article, and other communications provided for or required herein, shall be deemed validly given, made or served, if in writing, and delivered (a) on the day given if served personally, (b) two days following if sent by telecopy to the facsimile number indicated below with a confirmatory notice by delivery to a nationally-recognized express delivery service with instructions and payment for overnight delivery to the address set forth below; or (c) five days following if sent by U.S. Certified Mail, postage prepaid: 7 (i) if to ASARCO, at: ASARCO Incorporated 180 Maiden Lane New York, New York 10038 Attention: General Counsel Facsimile Number: (212) 510-1908 (ii) if to Doe Run, at: The Doe Run Resources Corporation Suite 300 1801 Park 270 Drive St. Louis, MO 63146 Attention: Vice President - Law Facsimile Number: (314) 453-7177 19. Governing Law. This Agreement shall be governed by and construed according to the laws of the State of New York (without regard to any conflict of laws rules which might apply the laws of any other jurisdiction). 20. Jurisdiction. Each of Doe Run and Asarco hereby (i) submits to the exclusive jurisdiction of the United States Federal District Court in the Southern District of New York in the Borough of Manhattan for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or the subject matter hereof brought by the other Party, any indemnified party or their respective heirs, legal representatives, successors or assigns (an "Action") and (ii) waives, and agrees not to assert by way of motion, a defense, or otherwise, in any such Action, any claim that it or he is not subject personally to the jurisdiction of the above-named courts, that its or his property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the subject matter hereof may not be enforced in or by such court. 21. Headings. The various headings used in this Agreement are for convenience only and are not to be used in interpreting the text of the Article in which they appear or to which they relate. 22. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. 8 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the day and year first above written. ASARCO INCORPORATED By:_____________________________ Name: Title: THE DOE RUN RESOURCES CORPORATION By:_____________________________ Name: Title: 9 Work Sheet Showing Calculation of Net Smelter Return: Month of ________, ____ Gross Weight of Products (dry Tons): __________
- ------------------------------------------------- --------------------- --------------------- --------------------- Lead Silver Total - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Prices: - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Average Price $0. $ - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Price Deduction 0.00000 (0.3000) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Net Price $ per lb. $ per oz. - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Metal Content: - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Assays % ozs. per Ton - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Assay Deduction (1.50%) (1.0) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Net Assay % ozs. per Ton - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Metal Content lbs. ozs. (Net Assay x Gross Weight) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Percentage Payable 95% 95% - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Payable Metal Content (Metal Content x Percentage Payable) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Metal Value: $ $ $ - ----------- (Metal Content x Net Price) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Refining Costs: - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Treatment Charge ( ) (Gross Weight (dry Tons) x $120) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Treatment Charge Adjustment (Inc/Dec by $3/ton for each $.01 lb price is greater than or less than $.30/lb) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Cu Deduction ( ) (Assay Cu (%) - 0.250%) x $25/ton - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Moisture Deduction ( ) ($.50 per dry Ton for each 1% that moisture content exceeds 12%) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- Freight Deduction ( ) - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- NET SMELTER RETURN - Lead Concentrates $ - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- $ GROSS PROCEEDS - Zinc Concentrates - ------------------------------------------------- --------------------- --------------------- --------------------- - ------------------------------------------------- --------------------- --------------------- --------------------- AMOUNT SUBJECT TO ROYALTY $ - ------------------------------------------------- --------------------- --------------------- ---------------------
2 Schedule II Asarco - Missouri Lead Division Summary of Sales (West Fork and Sweetwater Combined) For the Month of ________________
Lead Concentrate (dry tons): 13,082.00 (Gross Weight) Pb Ag Total ----------- ----------- ----------- PRICES: Average Price $0.24652 $5.58650 Price Deduction 0.000 (0.300) ----------- ----------- Net Price 0.24652 5.28650 METAL CONTENT: Assays 78.00 % 1.10 ozs/ton Assay Deduction (1.50)% (1.00)ozs/ton ----------- ----------- Net Assay 76.50 % 0.10 ozs/ton Metal Content 20,015,460 lbs 1,308 ozs Percentage Payable 95 % 95 % Payable Metal Content 19,014,687 lbs 1,243 ozs CALCULATION OF NET SMELTER RETURN: Metal Value $4.687,501 $6,571 $4,694,072 Less: Treatment Charge ($120 per ton) (1,569,840) Treatment Charge Adjustment 209,835 (Inc)/Dec by $3/ton for each 1 cent Pb price is > or < $.30/lb. Cu Deduction (67,765) Moisture Deduction 0 Freight Deduction (mine to smelter) (53,636) ----------- Net Smelter Return - Lead Concentrate $3,212,666 =========== Gross Proceeds From Sales Of Zinc Concentrate $47,695 ----------- Amount Subject to Royalty $3,260,361 ===========
EXHIBIT V --------- GLOBE CONTRACT Date 1/12/98 Contract No. 4003-98 ASARCO GLOBE 495 EAST 51ST AVENUE DENVER CO 80216 ATTN: M. STAUB PRODUCT: REFINED LEAD-(LOW SILVER-"TEST LEAD") AS REGULARLY PRODUCED AND AVAILABLE AT SELLER'S GLOVER, MO LEAD REFINERY. QUANTITY: TO BE EX-CONSIGNED AT THE APPROXIMATE RATE OF 120 NET TONS PER MONTH. DELIVERY: F.O.B. RAIL TO ASARCO GLOBE DENVER, CO SEE ATTACHMENT 1 PAYMENT: NET CASH 30 DAYS FROM DATE OF INVOICE SHIPMENT: THE PERIOD OF THIS AGREEMENT SHALL BE FROM JANUARY 1, 1998 THROUGH DECEMBER 31, 1998, BOTH DATES INCLUSIVE. (SEE ATTACHMENT 1) OTHER TERMS AND CONDITIONS: GENERAL TERMS AND CONDITIONS 1. GENERAL. This contract constitutes the entire agreement between Buyer and Seller with respect to the product(s) furnished hereunder. NO REPRESENTATION, PROMISE OR CONDITION NOT SET FORTH HEREIN HAS BEEN RELIED UPON BY BUYER OR SHALL BE BINDING ON EITHER PARTY HERETO. No waiver, alteration or modification of any of the provisions hereof shall be binding unless in writing and signed by an authorized representative of Seller.No acknowledgement, acceptance of any other communication by Buyer shall modify or alter the terms and conditions specified herein unless accepted in writing by an authorized representative of Seller. 2. WARRANTIES. Seller warrants that the product(s) furnished hereunder will conform to the description stated on the face hereof as interpreted in accordance with the standard specifications of the American Society for Testing Materials; that it will convey good title to such product(s); and that such product(s) will be delivered free from any lawful security interest or lien or encumbrance unknown to Buyer. THE WARRANTIES SET FORTH ABOVE ARE EXCLUSIVE AND IN LIEU OF AND SELLER EXPRESSLY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR PARTICULAR PURPOSE. IMPORTANT NOTE: GENERAL TERMS AND CONDITIONS CONTINUED ON REVERSE SIDE. ACCEPTED__________________________________19___ ASARCO Incorporated BY: /s/ 2/16/98 BY /s/ 1/27/98 --------------------------------------- ----------------------------- One copy signed by the Buyer to be returned to ASARCO Incorporated, 180 Maiden Lane, New York, N.Y. 10018 CONTRACT NO. 4003-98 ASARCO GLOBE ATTACHMENT 1 - ------------ PRICE: - ------ 1. The average London Metal Exchange (LME) cash settlement quotation for lead expressed in U.S. dollars for the month of scheduled ex-cosignment as published in PLATT'S METALS WEEK plus the Asarco announced premium for the month of ex-consignment. 2. In addition to the "Price" an additional premium of $40/N.T. of product will be applied at a LME Zinc Price less than or equal to $.50/lb. This premium will be increased by $.50/N.T. to each $.01 increase in the LME Zinc price above $.50/lb. TERMS AND AGREEMENTS - -------------------- FORCE MAJEURE - ------------- As set forth in Paragraph 5 of General Terms and Conditions, Force Majeure is understood to include shutdown or permanent closing of any production unit of a facility (including mine, smelter, and/or refinery) for economic reasons. ADDITIONAL TAXES - ---------------- In the event that the U.S. Government or any state government shall impose or levy, effective after the date of this agreement, any "Superfund" or environment tax upon the product which is subject to this agreement, (i) Seller shall promptly notify Buyer of such tax, to the extent that Seller is aware of it, and (ii) Buyer shall have the option of either paying or reimbursing Seller for such tax, or canceling any uncompleted deliveries provided for under this agreement. CONTRACT NO. 4003-98 ASARCO GLOBE ATTACHMENT 2 - ------------ SHIPMENT: - -------- Asarco Glover will ship into consignment at Asarco Denver at a rate such as to maintain an average consignment inventory of approximately 120 N.T. When consignment inventory is reduced to 180 N.T. Glover will schedule to produce and ship an additional kettle of approximately 220 N.T. into the consignment location. Globe plant is to advise lead product sales when inventory reaches 180 N.T. EXHIBIT VI NOTE: AGREEMENT SUBJECT TO LESSOR APPROVAL AND COMMENT. EQUIPMENT SUBLEASE AGREEMENT EQUIPMENT SUBLEASE AGREEMENT (this "Agreement") entered into and effective as of the [ ]th day of August, 1998, by and between ASARCO INCORPORATED, a New Jersey corporation, with its principal business office at 180 Maiden Lane, New York, New York 10038 ("ASARCO"), and THE DOE RUN RESOURCES CORPORATION, a New York corporation with its principal business office at Suite 300, 1801 Park 270, St. Louis, Missouri 63146 ("Doe Run"). W I T N E S S E T H, That: WHEREAS, Doe Run and ASARCO have entered into an Asset Purchase and Sale Agreement dated July __, 1998 (the "Asset Purchase Agreement") pursuant to which, among other things, ASARCO has sold and Doe Run has purchased the Business and the Business Assets (each as defined in the Asset Purchase Agreement); WHEREAS, the Business involves the mining, milling, smelting, refining and sale of lead and associated metals as previously conducted by ASARCO from the Mines and the Smelter (each as defined in the Asset Purchase Agreement); WHEREAS, certain of the equipment used in the West Fork Mine (as further described herein, the "Leased Equipment") has been leased by the Seller pursuant to one of two substantially identical agreements, either (i) Lease Agreement [A] dated as of March 1, 1991, between The Connecticut National Bank, as Owner Trustee, as Lessor (the "Lessor"), and ASARCO, as Lessee ("Lease [A]"), or (ii) Lease Agreement [B] dated as of March 1, 1991, between the Lessor and ASARCO ("Lease [B]"; Lease [A] and Lease [B], collectively, the "Lease Agreements" and individually a "Lease Agreement"); WHEREAS, Doe Run has agreed to sublease the Leased Equipment and assume certain of ASARCO's obligations in respect of such equipment arising pursuant to Lease [A] or Lease [B]; and WHEREAS, ASARCO has obtained all consents required to sublease the Leased Equipment to Doe Run (including, without limitation, the consent of the Lessor, the Owner Participant and the Indenture Trustee); NOW, THEREFORE, subject to the terms, conditions, covenants and provisions of this Agreement, ASARCO and Doe Run mutually covenant and agree as follows: 1. Definitions. Terms which are defined in the Lease Agreements shall have the same respective meanings when used herein, unless otherwise defined. 2. Sublease. Doe Run hereby agrees to sublease from ASARCO the Leased Equipment, in each case subject to the terms and conditions of the applicable Lease Agreement. Each Unit of Leased Equipment and the Lease Agreement applicable to such Unit is set out in Schedule A to this Agreement. 3. Rental Payments. Doe Run shall pay ASARCO rent in respect of the Leased Equipment on a monthly basis, payable in advance on or before the first day of each calendar month, in accordance with Schedule A to this Agreement. 4. Maintenance; Improvements. Doe Run shall comply with the requirements of Sections 5 and 7 of the applicable Lease Agreement in its maintenance and operation of the Leased Equipment. 5. Acknowledgment of Lien; Inspection. (a) Doe Run acknowledges the provisions of Section 8(a) of the applicable Lease Agreement and agrees to be bound by such provisions. In the event Doe Run takes action which is inconsistent with Section 8(a), Doe Run shall be responsible for performance of Section 8(b). (b) Doe Run acknowledges and agrees to give effect to the right of inspection with respect to the Leased Equipment created by Section 6 of the applicable Lease Agreement. ASARCO acknowledges and agrees that it shall make best efforts to cause the Lessor to give effect to the two provisos in Section 6 of the applicable Lease Agreement for the benefit of Doe Run. 6. Insurance. Doe Run shall maintain insurance on the Leased Equipment and otherwise in the amounts and with the terms and conditions set out in Section 10 of the respective Lease Agreement. 7. Purchase Option; Early Buyout Purchase Option; Termination; Re-delivery; Loss. (a) Doe Run shall have the right to request ASARCO to purchase the Leased Equipment on behalf of Doe Run upon the expiration of the Lease Term in accordance with Section 2(d) of the applicable Lease Agreement by notice to ASARCO not less than 10 days prior to the date when ASARCO's notice is required to be delivered to the Lessor pursuant to such Section 2(d). Doe Run provide ASARCO with the purchase price due in respect of the Leased Equipment to be purchased in immediately available funds not later than 10:00 AM on the day before such amount is payable by ASARCO pursuant to the applicable Lease Agreement. In the event that ASARCO fails to so purchase the Leased Equipment on Doe Run's behalf, ASARCO shall return to Doe Run the purchase price paid by Doe Run together with all earnings thereon. -2- (b) Doe Run shall have the right to request ASARCO to exercise the early buyout purchase option on behalf of Doe Run in accordance with Section 2(e) of the applicable Lease Agreement by notice to ASARCO not less than 10 days prior to the date when ASARCO's notice is required to be delivered to the Lessor pursuant to such Section 2(e). Doe Run shall provide ASARCO with the Early Buyout Purchase Price due in respect of the Leased Equipment to be purchased in immediately available funds not later than 10:AM on the day before such amount is payable by ASARCO pursuant to the applicable Lease Agreement. In the event that ASARCO fails to so purchase the Leased Equipment on Doe Run's behalf, ASARCO shall return to Doe Run the purchase price paid by Doe Run together with all earnings thereon. (c) Doe Run shall have the right to request ASARCO to cause the applicable Lease Agreement to be terminated in respect of any Unit of Leased Equipment in accordance with Section 12 of the applicable Lease Agreement by notice to ASARCO not less than 10 days prior to the date when ASARCO's notice is required to be delivered to the Lessor pursuant to Section 12. Doe Run shall pay ASARCO any amounts payable in respect of the Leased Equipment upon termination in immediately available funds not later than 10:00 AM on the day before such amount is payable pursuant to the applicable Lease Agreement. (d) In the event that Doe Run becomes obliged to re-deliver the Leased Equipment, it agrees to comply with the provisions of Section 2(b) and (c) of the applicable Lease Agreement. (e) Doe Run hereby acknowledges and agrees to be bound by the Section 11 of the applicable Lease Agreement in regards to loss, requisition or seizure of the Leased Equipment. 8. Disclaimer of Warranties. Doe Run acknowledges the disclaimers of warranties set out in Section 3 of the applicable Lease Agreement and Section 5.22 of the Asset Purchase Agreement. 9. Lease Agreement Events of Default; Indemnification. (a) Doe Run hereby acknowledges the Lease Events of Default set out in Section 14 of the applicable Lease Agreement and the actions of the Lessor set out in Section 15 of the applicable Lease Agreement permitted upon the occurrence of a Lease Event of Default. (b) If a Lease Event of Default occurs under a Lease Agreement as the result of action or inaction of Doe Run, Doe Run agrees to indemnify and hold ASARCO harmless for any and all Losses (as defined in the Asset Purchase Agreement) occurring as the result of such Lease Event of Default. If a Lease Event of Default occurs under a Lease Agreement as the result of action or inaction of ASARCO, ASARCO agrees to indemnify and hold Doe Run harmless for any and all Losses occurring as the result of such Lease Event of Default. (c) Doe Run hereby acknowledges the Lessor's right to perform under Section 21 of the Lease Agreement. -3- 10. Sublease Events of Default. In the event Doe Run breaches (i) any obligations under Sections 3 of this Agreement and such breach shall be continuing at the end of the fifth Business Day after the payment was due, (ii) any obligations under Section 6 of this Agreement, or (iii) or any other of its obligations under this Agreement where such breach continues for a period of 30 days after ASARCO's first written notice of same, then ASARCO shall have the right to repossess the Leased Equipment. Doe Run shall be liable for and shall indemnify ASARCO against any and all Losses suffered or incurred by ASARCO as the result of Doe Run's breach of this Agreement other than losses arising out of or relating to ASARCO's gross negligence, bad faith or willful misconduct. Recovery of the Leased Equipment by ASARCO shall not limit ASARCO's right to take action against Doe Run for any such Losses. 11. Amendments. This Agreement shall not be amended or modified except in writing, signed by both parties. ASARCO shall not permit or enter into any amendment to either Lease Agreement without the prior written consent of Doe Run, such consent not to be unreasonably withheld. 12. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Doe Run shall not assign this Agreement or any obligations hereunder. Doe Run shall not enter into any further sublease of the Leased Equipment. 13. Quiet Enjoyment. So long as no Sublease Event of Default (as set forth in Section 10 hereof) shall have occurred and be continuing, ASARCO shall not interfere with Doe Run's continued possession, use and operation of, and quiet enjoyment of, the Leased Equipment pursuant to the terms of this Sublease. 14. Integration. All understandings and agreements heretofore existing between the parties regarding the subject matter of this Agreement are merged into this Agreement which fully and completely express the agreement of the parties. 15. Non-waiver of Remedy. The failure of ASARCO or Doe Run to insist, in any one or more instances, upon the strict performance of any of the terms, conditions or covenants of this Agreement shall not be construed as a waiver or relinquishment for the future of such term, condition or covenant. A receipt by ASARCO of any money with knowledge of the breach of any term, condition or covenant of this Agreement, shall not be deemed a waiver of such breach, and no waiver, change, modification or discharge by either party hereto of any provision in this Agreement shall be deemed to have been made or shall be effective unless expressed in writing and signed by both ASARCO and Doe Run. In addition to the other remedies provided in this Agreement, ASARCO and Doe Run shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation of any of the terms, conditions or covenants of this Agreement, or to a decree compelling performance of any of such term, condition or covenant. 16. Notices. All notices, consents, requests and approvals, any notice of change in address for the purpose of this Article, and other communications provided for or required herein, shall be deemed validly given, made or served, if in writing, and delivered (a) on -4- the day given if served personally, (b) two days following if sent by telecopy to the facsimile number indicated below with a confirmatory notice by delivery to a nationally-recognized express delivery service with instructions and payment for overnight delivery to the address set forth below; or (c) five days following if sent by U.S. Certified Mail, postage prepaid: (i) if to ASARCO, at: ASARCO Incorporated 180 Maiden Lane New York, New York 10038 Attention: General Counsel Facsimile Number: (212) 510-1908 (ii) if to Doe Run, at: The Doe Run Resources Corporation Suite 300 1801 Park 270 Drive St. Louis, MO 63146 Attention: Vice President - Law Facsimile Number: (314) 453-7177 17. Governing Law. This Agreement shall be governed by and construed according to the laws of the State of New York (without regard to any conflict of laws rules which might apply the laws of any other jurisdiction). 18. Jurisdiction. Each of Doe Run and ASARCO hereby (i) submits to the exclusive jurisdiction of the state courts of the State of New York and the United States Federal District Court in the Southern District of New York for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or the subject matter hereof brought by the other Party, any indemnified party or their respective heirs, legal representatives, successors or assigns (an "Action") and (ii) waives, and agrees not to assert by way of motion, a defense, or otherwise, in any such Action, any claim that it or he is not subject personally to the jurisdiction of the above-named courts, that its or his property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the subject matter hereof may not be enforced in or by such court. 19. Headings. The various headings used in this Agreement are for convenience only and are not to be used in interpreting the text of the Article in which they appear or to which they relate. -5- 20. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. -6- IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the day and year first above written. ASARCO INCORPORATED By: ----------------------------- Name: Title: THE DOE RUN RESOURCES CORPORATION By: ----------------------------- Name: Title: -7- SCHEDULE A LEASED EQUIPMENT AND RENT PAYABLE IN RESPECT OF SAME Equipment Leased pursuant to Lease [A] and Monthly Rent -------------------------------------------------------
Equipment No. of Units Manufacturer Serial No. --------- ------------ ------------ ---------- Mine Cars 6 Nat'l Eng. & Con. 25 to 30 Mine Cars 6 Nat'l Eng. & Con. 1 to 6 Dozer 1 Dresser 8382 Loader - Wheel 7 YD 1 Michigan 828AC00707 RENT: $7,860 per month for a period of 30 months, commencing on September 1, 1998.
Equipment Leased pursuant to Lease [B] and Monthly Rent - -------------------------------------------------------
Equipment No. of Units Manufacturer Serial No. --------- ------------ ------------ ---------- Locomotive 1 Brookville 66D50520 RENT: $1,553 per month for a period of 90 months, commencing on September 1, 1998.
-8- EXHIBIT VII TRANSITIONAL SERVICES AGREEMENT AGREEMENT, entered into and effective as of the ____ day of _____, 1998 (the "Effective Date"), by and between ASARCO INCORPORATED, a New Jersey corporation, with its principal place of business at 180 Maiden Lane, New York, New York 10038 ("ASARCO"), and THE DOE RUN RESOURCES CORPORATION, a __________ corporation with its principal business office at Suite 300, 1801 Park 270, St. Louis, Missouri 63146 ("Buyer"), (Buyer and ASARCO are at times referred to herein individually as a "Party" and collectively as the "Parties"). W I T N E S S E T H: ASARCO INCORPORATEDWHEREAS, ASARCO and Buyer have entered into an Asset Purchase and Sale Agreement dated as of _________________, 1998 (the "Purchase Agreement") pursuant to which Buyer agreed to purchase those assets of ASARCO's Missouri lead business as described in the Purchase Agreement (the "Business"); and WHEREAS, as set forth in Section ____ of the Purchase Agreement, ASARCO agreed to make available to Buyer certain transitional administrative and support services for the Business for a limited period after the completion of the sale in accordance with the terms of this Agreement. NOW, THEREFORE, subject to the terms, conditions, covenants and provisions of this Agreement, ASARCO and Buyer mutually covenant and agree as follows: ARTICLE 1 SERVICES PROVIDED 1.01 Transitional Services. Upon the terms and subject to the conditions set forth in this Agreement, ASARCO will provide to Buyer for the Business each of those administrative and support services listed in Appendix A, which is attached to and made part of this Agreement (hereinafter referred to individually as a "Transitional Service", and collectively as the "Transitional Services"), during the initial term of each Transitional Service set forth on Appendix A (hereinafter referred to as the "Initial Terms" for all of the Transitional Services, and the "Initial Term" for each Transitional Service). 1.02 Personnel. In providing the Transitional Services, ASARCO, as it deems necessary or appropriate in its reasonable discretion acting as a Reasonable and Prudent Operator (as hereinafter defined), may (a) use personnel of ASARCO or its affiliates, and (b) employ the services of third parties. 1.03 Level of Transitional Services. (a) ASARCO shall perform the Transitional Services exercising the same degree of care as it exercises in performing the same or similar services for its own account and consistent with the degree of care a Reasonable and Prudent Operator would exercise, with priority equal to that provided to its own businesses or those of any of its affiliates, subsidiaries or divisions. Nothing in this Agreement shall require ASARCO to favor the Business over its own businesses or those of any of its affiliates, subsidiaries or divisions. (b) Unless otherwise specifically set forth in the Appendixes attached hereto, it is the intention of the Parties that Buyer's use of any Transitional Service that Buyer elects to use shall not be higher than the level of use reasonably required by the Business prior to the acquisition thereof by Buyer. In no event shall Buyer be entitled to any new service or to increase its use of any of the Transitional Services above that level of use without the prior written consent of ASARCO. (c) In addition to being subject to the terms and conditions of this Agreement for the provision of the Transitional Services, Buyer agrees that the Transitional Services provided by third parties shall be subject to the terms and conditions of any agreements between ASARCO and such third parties to the extent that such terms and conditions do not conflict with or supplement the terms and conditions of this Agreement. 1.04 Limitation of Liability and Warranty. (a) ASARCO shall have no liability to Buyer for any and all Claims and/or Damages arising out of this Agreement, whether such Claims and/or Damages arise on account of ASARCO's furnishing Transitional Services hereunder, the failure to furnish Transitional Services hereunder, or otherwise, except as provided in Section 1.05(b) below. As used herein, "Damages" means all expenses, costs, liabilities, obligations, damages, fines, penalties, deficiencies, losses and judgments, including incidental damages, indirect damages, consequential damages, strict liability, and reasonable attorneys' fees. (b) Limitation of ASARCO's Damages. If Buyer suffers Claims and/or Damages arising out of this Agreement which Claims and/or Damages were caused by the gross negligence or willful misconduct of ASARCO, ASARCO's sole liability to Buyer, and Buyer's sole and exclusive monetary remedy, shall be the refund of the cost of the Transitional Services provided during the occurrence of such gross negligence or willful misconduct. Buyer shall notify ASARCO of any gross negligence or willful misconduct by ASARCO promptly upon becoming aware thereof. (c) In no event shall either ASARCO or its subcontractor be liable for any damages caused by Buyer's failure to perform Buyer's obligations hereunder. As long as ASARCO is not in material breach hereunder, ASARCO will not be liable to Buyer for any act or omission of any other entity (other than due to a default by ASARCO in any agreement between ASARCO and such other entity) furnishing any Transitional Service. (d) OTHER THAN AS PROVIDED IN SECTIONS 1.04 AND 5.01 (TO WHICH THIS SUBSECTION IS SUBJECT), NOTWITHSTANDING ANYTHING TO -2- THE CONTRARY CONTAINED HEREIN OR AT LAW OR IN EQUITY, IN NO EVENT SHALL ASARCO NOR ITS SUBCONTRACTORS BE LIABLE FOR PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION OR ANY OTHER LOSS) ARISING FROM OR RELATING TO ANY CLAIM MADE UNDER THIS AGREEMENT OR REGARDING THE PROVISION OF OR THE FAILURE TO PROVIDE THE TRANSITIONAL SERVICES, EVEN IF EITHER OF THEM HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. (e) Year 2000 Compliance: ASARCO makes no present or future warranty, covenant, or representation, express or implied, and there is no condition including but not limited to, any warranty or condition of merchantability or fitness for a particular purpose, as to the sufficiency of its efforts relating to the year 2000 problem (a data handling problem relating to the Year 2000 date change that would cause a computer system, software or other equipment that may contain an embedded computer chip or computer algorithm to fail to correctly perform, process and handle date-related data for the dates within and between the twentieth and twenty-first centuries and all other centuries) (the "Year 2000 Problem") whether the hardware, software, computer systems, or equipment used in providing Transitional Services are Year 2000 compliant or whether Buyer will incur a Year 2000 Problem at any time in the future. In no event will Seller be responsible for any indirect, punitive or consequential damages arising, in whole or in part, from a Year 2000 Problem. 1.05 No Obligation to Continue to Use Services. a)" \* MERGEFORMAT (a) Buyer shall have no obligation to continue to use any of the Transitional Services and may terminate any Transitional Service that ASARCO is providing to Buyer by giving ASARCO at least ninety (90) days' advance written notice of its desire to terminate such Transitional Service unless otherwise set forth on the schedules attached hereto; provided, that the termination of any Transitional Service can only be effective on the last day of a calendar month, and any termination may not be effective before the end of the Initial Term for a Transitional Service. (b) If any Transitional Service is terminated by Buyer, ASARCO shall have the option, in its sole and absolute discretion, to discontinue any Transitional Service(s) related to such terminated Transitional Service(s) as set forth in Appendix A by providing at least 60 days' advance written notice to Buyer. (c) If any Transitional Service is not selected by Buyer as of the consummation of the sale of the Business, or is terminated by Buyer as described herein, Buyer may not select such Transitional Service or reinstitute such Transitional Services, as the case may be. 1.06 ASARCO Access. Subject to Article 3 hereof, to the extent reasonably required for ASARCO personnel to perform the Transitional Services, Buyer shall provide ASARCO personnel with access to its equipment, office space, plants, telecommunications and computer equipment and systems, and any other areas and equipment. -3- ARTICLE 2 COMPENSATION 2.01 Consideration. (a) As consideration for the Transitional Services, Buyer shall pay to ASARCO the amount specified for each Transitional Service as set forth in Appendix A. If the amount to be paid for any Transitional Service is described in Appendix A as "cost", the use of the term "cost" does not mean ASARCO's cost to provide that Transitional Service, but the cost to Buyer to receive such Transitional Service from ASARCO. Upon the termination of any Transitional Service in accordance with Section 1.06 above, the compensation to be paid under this Section 2.01 shall be reduced by the amount specified for such terminated Transitional Service. Upon the reduction of the level of any specific Transitional Service, ASARCO and Buyer shall determine in good faith a reduction of the amount to be paid by Buyer hereunder due to such reduction. (b) In addition to the payments described in subparagraph (a) above, Buyer shall reimburse to ASARCO an amount equal to the sum of (i) all or a portion of the costs, if any, required by any third party incurred by ASARCO to obtain consents from such third parties to permit ASARCO to provide any Transitional Service to Buyer hereunder. Such costs and expenditures will be billed to Buyer in the monthly invoice(s) described in Section 2.03 below. In the event that ASARCO will be making any such disbursements of funds from a ASARCO account on behalf of Buyer, before any disbursement will be made, Buyer shall deposit funds equal to a reasonable estimate of such costs and expenditures into a ASARCO bank account designated by ASARCO. (c) At the Closing, Buyer shall pay to Seller by wire transfer in immediately available funds __________ ($_______) dollars representing the Transitional Services one-time start-up costs, as set forth in Appendices __. 2.02 Taxes. Any applicable taxes (other than income taxes) assessed on the provision of the Transitional Services shall be paid by Buyer, subject to exemptions documented by Buyer. 2.03 Invoices. At the end of each month, ASARCO will submit one invoice to Buyer for (a) all Transitional Services provided to Buyer and its subsidiaries by ASARCO, and (b) those costs and expenditures described in Section 2.01(b) above incurred by ASARCO during such month. Such monthly invoices shall be issued no later than the fifteenth day of each month. Each invoice shall include a summary list of the previously agreed upon Transitional Services for which there are fixed dollar fees, together with documentation supporting each of the invoiced amounts that are not covered by the fixed fee agreements. All invoices shall be sent to Buyer at the following address or to such other address as Buyer shall have specified by notice in writing to ASARCO: The Doe Run Company [address] Fax: -4- 2.04 Payment of Invoices. (a) Payment of all invoices shall be made by electronic funds transmission in U.S. Dollars, without any offset or deduction of any nature whatsoever, within thirty (30) days of the date of the invoice in accordance with Section 6.04 below, unless otherwise specified in Appendix A. All payments shall be made to the account set forth below with written confirmation of payment sent by facsimile to the person set forth below. Account: Written Confirmation: (b) If any amount is not paid within fifteen (15) days after its due date, ASARCO shall have the right, without any liability to Buyer, or anyone claiming by or through Buyer, to immediately cease providing either all of the Transitional Services, or the Transitional Service(s) for which payment has not been made, which right may be exercised by ASARCO in its sole and absolute discretion, and shall not limit or otherwise affect ASARCO's right to terminate this Agreement in accordance with Article 4 below; provided, however, that if the failure to pay for a particular Transitional Service relates to a dispute made in good faith by Buyer and Buyer has paid for all Transitional Services that are not the subject of a good faith dispute, then ASARCO may not cease providing any Transitional Services that are not the subject of the good faith dispute pending the resolution of such dispute. ARTICLE 3 CONFIDENTIALITY 3.01 Obligation. (a) In addition to any obligations of confidentiality pursuant to other agreements between the Parties, without the prior written consent of the other Party, each Party shall hold in confidence and not disclose to any third party (other than for disclosures by ASARCO to its subcontractors, but only if such subcontractors commit in advance of such disclosure to be bound by the terms of this Section 3.01 with regard to such information) (i) any confidential information received by it from the other Party, or generated or created by it from confidential information received from the other Party, during the provision of the Transitional Services, including, without limitation, information which is not related to the Transitional Services; and (ii) the specific terms, conditions and information contained in this Agreement and any attachment hereto. (b) For the purposes of this Agreement, confidential information shall not include information: -5- (i) which is or becomes part of the public domain other than through breach of this Agreement or through the fault of the receiving Party; (ii) which is or becomes available to the receiving Party from a source other than the disclosing Party, which source has no obligation of confidentiality to the disclosing Party in respect thereof; (iii) which is required to be disclosed by law or governmental order; or (iv) the disclosure of which is mutually agreed to by the Parties. 3.02 Effectiveness. The foregoing obligation of confidentiality shall be in effect during the term of this Agreement and any extensions thereof and for a period of ten (10) years after the termination or expiration of this Agreement. ARTICLE 4 TERM AND TERMINATION 4.01 Term. This Agreement shall become effective on the Effective Date and shall remain in force until the expiration of the longest Initial Term (after giving effect to any extensions thereof in accordance with Section 4.02 below) unless all of the Transitional Services are terminated by Buyer in accordance with Section 1.06 above, or this Agreement is terminated under Section 4.03, 6.07 or 6.11 below prior to the end of such period. 4.02 Extension. Subject to the earlier termination of this Agreement in accordance with Section 4.03, 6.07 or 6.11 below, Buyer may only extend any Initial Term on the terms and conditions set forth herein and in Appendix A, for up to that number of days of such extension as expressly set forth in such Appendix by giving ASARCO at least forty-five (45) days, prior written notice prior to the end of the Initial Term in question. 4.03 Termination. If either Party (hereafter called the "Defaulting Party") shall fail to perform or default in the performance of any of its obligations under this Agreement (other than as described in subparagraph (b) below) , the other Party (hereinafter called the "Non-Defaulting Party") may give written notice to the Defaulting Party specifying the nature of such failure or default and stating that the Non-Defaulting Party intends to terminate this Agreement if such failure or default is not cured within forty-five (45) days of such written notice. If any failure or default so specified is not cured within such forty-five (45) day period, the Non-Defaulting Party may elect to immediately terminate this Agreement; provided, however, that if the failure or default relates to a dispute made in good faith by the Defaulting Party, the Non-Defaulting Party may not terminate this Agreement pending the resolution of such dispute. Such termination shall be effective upon giving a written notice of termination from the Non-Defaulting Party to the Defaulting Party following such forty-five (45) day period and shall be without prejudice to any other remedy which may be available to the Non-Defaulting Party against the Defaulting Party. -6- 4.04 Buyer's Administrative and Support Services. (a) Buyer acknowledges that ASARCO is providing the Transitional Services as an accommodation to Buyer to allow Buyer a period of time to obtain its own administrative and support services. During the term of this Agreement, Buyer agrees that it shall take all steps necessary to obtain its own administrative and support services prior to the expiration of the Initial Term for each Transitional Service. (b) Buyer specifically agrees and acknowledges that all obligations of ASARCO to provide each Transitional Service shall immediately cease upon the expiration of the Initial Term (and any extension thereof in accordance with Section 4.02) for such Transitional Service, and ASARCO's obligations to provide all of the Transitional Services shall immediately cease upon the termination of this Agreement. Upon the cessation of ASARCO's obligation to provide any Transitional Service, Buyer shall immediately cease using, directly or indirectly, such Transitional Service (including, without limitation, any and all ASARCO software or third party software provided through ASARCO, or computer systems or equipment). (c) ASARCO SHALL HAVE NO LIABILITY OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL OR PUNITIVE DAMAGES) TO BUYER, OR TO ANYONE CLAIMING BY OR THROUGH BUYER, FOR ASARCO'S CEASING TO PROVIDE ANY TRANSITIONAL SERVICE UPON THE EXPIRATION OF THE INITIAL TERM (AND ANY EXTENSION THEREOF IN ACCORDANCE WITH SECTION 4.02) FOR SUCH TRANSITIONAL SERVICE OR ASARCO'S TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH THE TERMS HEREOF. BUYER SHALL HOLD ASARCO HARMLESS AND WAIVES ANY AND ALL RIGHTS, AT LAW OR IN EQUITY, THAT IT MAY HAVE TO BRING ANY SUIT, INCLUDING, BUT NOT LIMITED TO, INJUNCTIVE RELIEF, OR TO ANY CLAIMS, DAMAGES, LOSS, COSTS (INCLUDING ATTORNEY FEES), ACTIONS, OR LIABILITY AGAINST ASARCO OR ASARCO'S EMPLOYEES, AGENTS, ASSIGNEES, SUBSIDIARIES OR AFFILIATES ARISING OUT OF ASARCO'S CEASING TO PROVIDE ANY TRANSITIONAL SERVICE UPON THE EXPIRATION OF THE INITIAL TERM (AND ANY EXTENSION THEREOF IN ACCORDANCE WITH SECTION 4.02) FOR SUCH TRANSITIONAL SERVICE OR ASARCO'S TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH THE TERMS HEREOF. 4.05 Survival of Certain Obligations. Without prejudice to the survival of the other agreements of the Parties, the following obligations shall survive the termination of this Agreement: (a) for the period set forth therein, the obligations of each Party under Section Articles 3 and 5, and (b) ASARCO's right to receive the compensation for the Transitional Services provided, and reimbursement of the costs and expenditures described in Section 2.01 above incurred, prior to the effective date of termination, and ASARCO's obligations under Section 4.06 below. 4.06 Post Termination Arrangements. In the event of termination of this Agreement, ASARCO shall deliver to Buyer all records, data, confidential information and reports relating to Buyer or the Business and obtained, generated or prepared by ASARCO in furtherance of the terms hereof and the Parties shall take all steps as may be reasonably required to complete -7- any final accounting between them and to provide for an orderly transfer of the Transitional Services to Buyer or to whom Buyer may direct. ARTICLE 5 INDEMNITIES 5.01 ASARCO shall indemnify, defend and hold harmless Buyer from and against any and all Claims and Damages resulting from the provision of or failure to provide the Transitional Services caused by the failure by ASARCO to act as a Reasonable and Prudent Operator up to an amount not to exceed the limitation on ASARCO's liability under Section 1.04. 5.02 Buyer shall indemnify defend and hold harmless ASARCO from and against any and all Claims and Damages resulting from the receipt of (or failure to receive) Transitional Services caused by the failure by Buyer to act as a Reasonable and Prudent Operator up to an amount not to exceed the limitation on Buyer's liability under Section 1.04. 5.03 Priority Among Agreements. In the event of any inconsistency between the terms of this Agreement (including, without limitation, any schedule, appendix or other, attachment thereto) and the Purchase Agreement, the terms of the Purchase Agreement will govern, provided that Section 5.01 hereof shall supersede the indemnity obligations of Buyer pursuant to Article 8 of the Purchase Agreement to the extent that Section 5.01 hereof is applicable. 5.04 Term of Indemnity. The indemnities contained in this Article shall survive for a period of three (3) years after the termination of the Transitional Service at issue for any reason. ARTICLE 6 MISCELLANEOUS 6.01 Amendments. This Agreement shall not be amended or modified except in writing signed by the Parties. 6.02 Successors and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns. 6.03 Merger. All understandings, representations, warranties and agreements, if any, heretofore existing between the Parties regarding the Transitional Services are merged into this Agreement, including the Schedules, Exhibits and Appendices attached hereto, which fully and completely express the agreement of the Parties with respect to the subject matter hereof. 6.04 Notices. All invoices, notices, consents, requests, approvals, and other communications provided for or required herein, and all legal process in regard thereto, must be in writing and shall be deemed validly given, made or served, (a) when delivered personally or sent by telecopy to the facsimile number indicated below with a required confirmation copy sent in accordance with subparagraph (c) below; or (b) on the next business day after delivery to a nationally-recognized express delivery service with instructions and payment for overnight -8- delivery; or (c) on the fourth day after deposited in any depository regularly maintained by the United States postal service, postage prepaid, certified or registered mail, return receipt requested, addressed to the following addresses (unless otherwise specified in this Agreement), or to such other address as the Party to be notified shall have specified, from time to time, to the other Party in accordance with this paragraph: If to ASARCO: ASARCO Incorporated 180 Maiden Lane New York, NY 10038 Attention: General Counsel Fax: If to Buyer: The Doe Run Resources Corporation Suite 300 1801 Park 270 Drive St. Louis, MO 63146 Attention: Fax: 6.05 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the United States of America and the State of New York. 6.06 Headings. The various headings used in this Agreement are for convenience only and are not to be used in interpreting the text of the Articles or Sections in which they appear or to which they relate. 6.07 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law. If any portion of this Agreement is declared invalid for any reason in any jurisdiction, such declaration shall have no effect upon the remaining portions of this Agreement, which shall continue in full force and effect as if this Agreement had been executed with the invalid portions thereof deleted; provided, that the entirety of this Agreement shall continue in full force and effect in all other jurisdictions. 6.08 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. 6.09 Rights of the Parties. Nothing expressed or implied in this Agreement is intended or will be construed to confer upon or give any person or entity, other than the Parties and their respective subsidiaries and affiliates, any rights or remedies under or by reason of this Agreement or any transaction contemplated thereby. -9- 6.10 Reservation of Rights. Either Party's waiver of any of its remedies afforded hereunder or at law is without prejudice and shall not operate to waive any other remedies which that Party shall have available to it, nor shall such waiver operate to waive the Party's rights to any remedies due to a future breach, whether of a similar or different nature. 6.11 Force Majeure. (a) As used herein, "Force Majeure" means, for either Party, any circumstance(s) beyond the reasonable control of that Party and other than that caused by the failure of such Party to act as a Reasonable and Prudent Operator, which prevents full performance, including, but not limited to: acts of God; fire; accident; flood; explosion; war; hurricanes; tornadoes; riots; Government Authority action or inaction or request of Governmental Authority, including any law, decree, order or regulation of any Governmental Authority whether federal, state or local, strike, collective bargaining obligations, labor dispute or shortage, injunction, inability to obtain, or shortage of, fuel, utilities, equipment, transportation or materials, accident to, malfunction or breakage of machinery, equipment or apparatus. (b) Provided always that the Party in question operates as a Reasonable and Prudent Operator to prevent and/or mitigate an event constituting Force Majeure, the Party affected shall be excused from performance of its obligations under or pursuant to this Agreement if, and to the extent that, performance of such obligations is delayed, hindered or prevented by such Force Majeure. For the avoidance of doubt, a Force Majeure event affecting a third party supplier of any Transitional Service and any failure by such a supplier to supply (in whole or in part) any Transitional Service for any other reason (except in the event of a breach, or alleged breach by ASARCO of its contract with such third party supplier) shall constitute Force Majeure hereunder if, and to the extent that such event or failure prevents, hinders or delays ASARCO or its third party in the performance of its obligations hereunder. A Force Majeure may excuse a delay in making any payment due hereunder where the delay in payment was caused by the Force Majeure, but otherwise the parties shall continue to make payments due hereunder for the particular Transitional Service in question. Notwithstanding the above, and subject to the last sentence of Section 6.11(f) below with regard to permanent substitute Transitional Services, with respect to any Force Majeure, any fee payable to ASARCO pursuant to any Transitional Service set forth in the Appendixes hereto shall be paid by the Buyer to ASARCO. (c) If a Party is in a position of Force Majeure or is aware of the likelihood of a situation constituting Force Majeure arising, it shall notify the other Party in writing promptly of the cause and extent of such non-performance or likely non-performance, the date or likely date of commencement thereof and the means proposed to be adopted to remedy or abate the Force Majeure; and the parties shall without prejudice to the other provisions of this Section 6.11 consult with a view to taking such steps as may be appropriate to mitigate the effects of such Force Majeure. (d) The Party subject to Force Majeure shall act as follows: (i) The affected Party shall coordinate closely with the other Party, shall keep the other Party regularly informed during the course of the Force Majeure as to when resumption of performance shall or is likely to occur, and shall use its reasonable best -10- efforts to remedy or abate the Force Majeure as expeditiously as possible; however, nothing herein shall require a Party to settle or compromise any strike or labor dispute. (ii) The affected Party shall resume performance as expeditiously as possible after termination of the Force Majeure or the Force Majeure has abated to an extent which permits resumption of such performance. (iii) The affected Party shall promptly notify the other Party when the Force Majeure has terminated or abated to an extent which permits resumption of performance to occur. (e) If the Party affected by Force Majeure complies with the provisions of Section 6.11, it shall not be liable for any failure to perform its obligations hereunder arising from such Force Majeure. (f) Upon the occurrence and during the continuance of a Force Majeure, a Buyer shall be entitled to seek to obtain substitute Transitional Services on a temporary or permanent basis. ASARCO shall cooperate with the Buyer's efforts to obtain temporary substitute Transitional Services. On the later of: (i).the thirtieth (30th) day after the date on which the Buyer notifies ASARCO that it intends to exercise its right to obtain permanent substitute Transitional Services and (ii) any date of termination specified in such notice, ASARCO will have no further obligation to provide and the Buyer shall have no further obligation to accept such Transitional Service or Transitional Services and all costs associated with such Transitional Service shall cease to accrue. 6.12 Relationship of the Parties. It is expressly understood and agreed that in rendering the Transitional Services hereunder, ASARCO is acting as an independent contractor and that this Agreement does not constitute either Party as an employee, agent or other representative of the other Party for any purpose whatsoever. Neither Party has the right or authority to enter into any contract, warranty, guarantee or other undertaking in the name or for the account of the other Party, or to assume or create any obligation or liability of any kind, express or implied, on behalf of the other Party, or to bind the other Party in any manner whatsoever, or to hold itself out as having any right, power or authority to create any such obligation or liability on behalf of the other or to bind the other Party in any manner whatsoever (except as to any actions taken by either Party at the express written request and direction of the other Party). IN WITNESS WHEREOF, the parties hereto have caused this Transitional Services Agreement to be executed the day and year first above written. ASARCO INCORPORATED By ----------------------------------- Name: Title: -11- THE DOE RESOURCES CORPORATION By ----------------------------------- Name: Title: -12- APPENDIX A Transitional Services A(l) Human Resources A(2) Information Systems A(3) Finance A(4) Logistics Services EXHIBIT VIII Form of Special Warranty Deed - Sugar Creek
Owner/Responsible Taxpayer This Instrument Prepared By: Map Group Parcel - ----------------------- ---------------------- - ----------------------- ----------------------- ------ ------ ------
SPECIAL WARRANTY DEED THIS INDENTURE is made as of the __day of ____________, 1998, between THE DOE RUN RESOURCES CORPORATION, a New York corporation with its principal business office at Suite 300, 1801 Park 270, St. Louis, Missouri 63146 (hereinafter called "First Party"), and ASARCO INCORPORATED, a New Jersey corporation, with its principal business office at 180 Maiden Lane, New York, New York 10038 (hereinafter called "Second Party"). W I T N E S S E T H: THAT for and in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, First Party has granted, bargained, sold and conveyed, and does hereby grant, bargain, sell and convey unto Second Party the following described premises, to wit: [legal description of owned Sugar Creek Project land] together with the hereditaments and appurtenances thereunto appertaining, hereby releasing all claims to homestead and dower therein. TO HAVE AND TO HOLD the said premises to the said Second Party, its successors and assigns, forever. AND said First Party for itself and for its successors and assigns, does hereby covenant with said Second Party, its successors and assigns, that First Party will forever warrant and defend the said premises and the title thereto against the lawful claims of all persons claiming by, through or under First Party; but First Party warrants no further or otherwise EXHIBIT VIII Page 2 IN WITNESS WHEREOF, the First Party has caused this instrument to be executed by its duly authorized officer, as of the date first above written. THE DOE RUN RESOURCES CORPORATION By: ----------------------------- Name: Title: STATE OF _____________) ) COUNTY OF ____________) Before me, the undersigned authority, a Notary Public in and for said County and State, personally appeared ______________ and proved to me on the basis of satisfactory evidence, and who, upon oath, acknowledged himself to be the ________ of THE DOE RUN RESOURCES CORPORATION, the within named grantor, a New York corporation, and that be as such ______________, executed the foregoing instrument for the purpose therein contained, by signing the name of THE DOE RUN RESOURCES CORPORATION by himself as such ____________________. Witness my hand and seal at office this __________ day of ___________1998. ----------------------------------- Notary Public My Commission Expires: --------------- EXHIBIT VIII Page 3 STATE OF _____________) ) COUNTY OF ____________) I hereby swear or affirm that the actual consideration or true value of this transfer, whichever is greater, is ___________. ----------------------------------- Affiant Sworn to and subscribed before me this ______ day of _________, 199_. ----------------------------------- Notary Public My Commission Expires: ---------------- The preparer of this instrument makes no representations nor warranties concerning the accuracy of the foregoing property description, nor as to the status of the title to the property conveyed herein. EXHIBIT IX ENVIRONMENTAL METHODOLOGY The following methodology concepts will be used by the Parties to determine the allocation of liability for Environmental Claims under the Asset Purchase and Sale Agreement dated July 28, 1998 (the "Agreement") between ASARCO INCORPORATED ("Seller") and THE DOE RUN RESOURCES CORPORATION ("Buyer") in the specific situations described. For situations not described here, the general principles of the Agreement shall prevail. Capitalized terms which are defined in the Agreement will have the same respective meanings when used in this Schedule. 1. Offsite Soil Contamination. If the Environmental Claim arises from the spillage of material or offsite mechanical redistribution of material, it shall be allocated to the Party responsible for the spill or mechanical redistribution or who owned the Business where the spill or movement occurred. Spill does not include a dam break. For the Smelter, if the Environmental Claim arises from non-sudden releases of materials from regular air pollution emissions, then the liability shall be allocated all or in part according to an air pollution deposition model: US Environmental Protection Agencies Model ISC-LT3 in deposition mode, or an equivalent or newer model if agreed to by the Parties. The historical emission inventory records updated by later fugitive estimates shall be used to model on a year to year basis and a proportion of impact calculated from the sum impact of all of the years of operation of each party. If there are operational changes in the facility that affect emissions or the location of emissions, or changes in the concentrates that affect chemistry, those changes will be reflected in the emissions inventory and modeling. The meteorological conditions shall be taken from a representative multiyear period of onsite data and applied to the entire period if not readily available for the entire period. This modeling approach would be applicable to that portion of offsite contamination related to smelter emissions. For the Mines, if the Environmental Claim arises from non-sudden releases of materials from regular air pollution emissions substantially from windblown tailings, then the liability shall be allocated according to the ratio of tailings deposited in the tailings pile. The deposition of tailings prior to the purchase by the Buyer shall be determined from the historical operating records of the Business for all periods prior to Closing made available during due diligence (the "Baseline Data"). If either Party states in writing to the other that it believes the facts suggest that a dispersion model will be a more accurate representation of the allocation, then the US Environmental Protection Model ISC-LT3 in deposition mode shall be used or a newer or equivalent model if agreed to by the parties. The emission inventory shall be generated using the TRC algorithm "WIND" or an improved function if approved by the parties. If there are operational changes in the facility that affect emissions or the location of emissions, or changes in the concentrates that affect chemistry, those changes will be reflected in the emissions inventory and modeling to the extent possible. In those situations where such management changes cannot be quantitatively modeled, then the general principles of the Agreement shall prevail. 2. Waste Material Removal. If the Environmental Claim arises from the process or non-process material or contaminated material specifically requiring it to be relocated, stabilized, and/or landfilled, it shall be allocated to the Party responsible for the generation of the material or that owned the Business when the material was generated. If the material was generated under the ownership of both Parties, then the liability shall be allocated by the ratio of the material generated according to the estimated production from the Baseline Data (and other information available from historical data) and the subsequent production records of the Buyer. To the extent such relevant records were not kept for a specific material, estimates shall be made. 3. Groundwater Contamination. If the Environmental Claim arises from the contamination of groundwater, then the responsibility shall be allocated all or in part based on a groundwater dispersion model. The recommended models to use are published by the Unites States Geological Survey known as MODCOM or newer or updated models if agreed to by the Parties. When used with another module PHREEQC, it can be used to predict the impact of multiple source contributions to stream contamination and groundwater contamination. The material stockpile inventories which are believed to be responsible for the liability (as nominated by either one of the Parties) will be used as they are available from the Baseline Data or other historical information and the subsequent production records of Buyer. Buyer as the ongoing operator will make reasonable efforts to manage the materials left behind by Seller either in the manner that they had been managed or in a manner which will not exasperate any problems that might potentially arise. 4. Surface Water Impacts and Stream Sediments. If the Environmental Claim arises from the contamination of Surface Water or Stream Sediments on a non-sudden basis, then the responsibility shall be allocated according to the contribution of each party to the contamination for each period of time in question. Water contamination liability shall be the responsibility of the operator for contributions to constituents of water quality from currently treated releases. For releases due to historic deposition of materials, the responsibility shall be allocated according to the ratio of deposition of materials where one source is found to be responsible. Where multiple sources are found to be responsible, the responsibility shall be determined based on a composite stream water contamination model consisting of contributions from the groundwater models referenced in section 3 above, and current emissions from the water treatment plant or any untreated releases. The Parties shall rely on models published by the EPA's Center for Exposure Assessment Modeling for this purpose or an equivalent model or updated version as agreed by the Parties. 5. Ecotoxic Impacts. The responsibility for Environmental Claims arising from ecotoxic impacts shall be allocated based on the underlying contamination for which a Party is able to successfully demonstrates impact was caused. The allocation of liability for the contamination shall be determined from the preceding paragraphs. 2 6. Human Health Risks. The responsibility for the liability arising from human health risks due to heavy metal contamination shall be allocated based on the underlying contamination for which a Party, regulatory or non-government-organization is able to successfully claim impact. The time factor for which the impact or health effects are claimed is also a basis for allocation of responsibility. For example, if a claimant claimed damages for injury incurred when he lived near the Smelter or Mine as a child, then the allocation will be based on the underlying contamination contributed during that time period. ------------------------ This Exhibit IX constitutes an integral part of the Agreement and not a separate and distinct undertaking of the Parties. 3 EX-5.1 3 EXHIBIT 5.1 EXHIBIT 5.1 [Letterhead of Cadwalader, Wickersham & Taft] July 31, 1998 The Doe Run Resources Corporation Fabricated Products, Inc. Doe Run Cayman Ltd. Doe Run Mining S.R. Ltda. Doe Run Peru S.R. Ltda. c/o The Doe Run Resources Corporation 1801 Park 270 Drive St. Louis, MO 63146 Re: Registration Statement on Form S-4 related to 11 1/4% Senior Notes due 2005, Series B and Floating Interest Rate Senior Notes due 2003, Series B Gentlemen: We have acted as special counsel for The Doe Run Resources Corporation, a New York corporation ("Doe Run"), Fabricated Products, Inc., a Delaware corporation ("FPI"), Doe Run Cayman Ltd., a Cayman Islands company ("Doe Run Cayman"), Doe Run Mining S.R. Ltda., a Peruvian company ("Doe Run Mining"), and Doe Run Peru S.R. Ltda., a Peruvian company ("Doe Run Peru"), (collectively, the "Issuers") in connection with the preparation of the Issuers' Registration Statement on Form S-4 pursuant to the Securities Act of 1933, as amended (the "Securities Act"), being filed with the Securities and Exchange Commission (the "Commission") on the date hereof and to which this opinion letter is an exhibit. The Registration Statement relates to Doe Run's offer to exchange its 11 1/4% Senior Notes due 2005, Series B and Floating Interest Rate Senior Notes due 2003, Series B (collectively, the "Exchange Notes") for any and all of its outstanding 11 1/4% Senior Notes due 2005, Series A and Floating Interest Rate Senior Notes due 2003, Series A (collectively, the "Old Notes"), respectively. The Old Notes were issued, and the Exchange Notes are to be issued, under an indenture, dated as of March 12, 1998 (the "Indenture"), by and among Doe Run, as issuer, and FPI, Doe Run Cayman, Doe Run Mining and Doe Run Peru, as guarantors (collectively, in such capacity, the "Guarantors"), and State Street Bank and Trust Company, as trustee. In rendering the opinions expressed below, we have examined and relied upon, among other things, (a) the Registration Statement, including the Prospectus constituting a part thereof, (b) the Indenture filed as an exhibit to the Registration Statement and (c) originals or copies, certified or otherwise identified to our satisfaction, of such certificates, corporate, public or other records, and other documents as we have deemed appropriate for the purpose of rendering this opinion letter. In connection with such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the The Doe Run Resources Corporation Fabricated Products, Inc. Doe Run Cayman,Ltd. Doe Run Mining S.R. Ltda. Doe Run Peru S.R. Ltda. c/o The Doe Run Resources Corporation July 31, 1998 Page 2 conformity to original documents and instruments of all documents and instruments submitted to us as copies or specimens, and the authenticity of the originals of such documents and instruments submitted to us as copies or specimens. We have also made such investigations of law as we have deemed appropriate. In addition, we have assumed that the Exchange Notes and the guarantees of the Guarantors (the "Guarantees") will be executed and delivered in substantially the form in which they are filed as exhibits to the Registration Statement. Based upon the foregoing and subject to the qualifications set forth herein, we are of the opinion that: 1. The Exchange Notes and the Guarantees will be legally and validly issued and binding obligations of Doe Run and the Guarantors, as the case may be, (except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws affecting the enforcement of creditors' rights generally and by the effect of general principles of equity, regardless of whether enforceability is considered in a proceeding in equity or at law), when the Registration Statement, as finally amended, shall have become effective under the Securities Act and the Indenture shall have been qualified under the Trust Indenture Act of 1939, as amended, and (b) the Exchange Notes shall have been duly executed, authenticated and delivered, and the Guarantees shall have been duly executed and delivered, as contemplated in the Registration Statement. 2. The statements made in the Prospectus constituting a part of the Registration Statement under the caption "Certain U.S. Federal Income Tax Considerations," insofar as such statements purport to summarize certain federal income tax laws of the United States of America, constitute a fair summary of the principal federal income tax consequences of an investment in the Exchange Notes. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the reference to this Firm in the Prospectus constituting a part of the Registration Statement under the caption "Legal Matters," without admitting that The Doe Run Resources Corporation Fabricated Products, Inc. Doe Run Cayman,Ltd. Doe Run Mining S.R. Ltda. Doe Run Peru S.R. Ltda. c/o The Doe Run Resources Corporation July 31, 1998 Page 3 we are "experts" within the meaning of the Securities Act or the rules and regulations of the Commission issued thereunder with respect to any part of the Registration Statement, including this exhibit. Very truly yours, /s/ Cadwalader, Wickersham & Taft EX-10.9 4 EXHIBIT 10.9 Exhibit 10.9 SENOR NOTARIO: Sirvase usted extender en su Registro de Escrituras Publicas, una por la cual conste el Contrato de Linea de Credito en Moneda Extranjera que celebran, de una parte, el BANCO DE CREDITO DEL PERU, con Registro Unico de Contribuyentes No. 10004721, con domicilio en Calle Centenario No. 156, esquina con Av. Huarochiri, Urb. Las Laderas de Melgarejo, La Molina, Lima, representado por el senor Jesus Antonio Zamora Leon y la senora Aida Lucia Ghiglino Zimic, facultados al efecto segun poderes inscritos en los asientos 19-C y 32-C de la ficha 117464 del Registro Mercantil de Lima, respectivamente, a quien en adelante se denominara EL BANCO; y, de la otra parte DOE RUN PERU S.R.L., con Registro Unico de Contribuyentes No. 37630381, con domicilio en Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro, debidamente representada por el senor Kenneth Richard Buckley, facultado al efecto segun poder otorgado en Junta General de Socios de fecha 15 de mayo de 1998, a quien en adelante se denominara EL CLIENTE; en los terminos y condiciones siguientes: PRIMERA: DEFINICIONES En el presente contrato, los terminos que aparecen a continuacion tendran las definiciones que se senalan: 1.1. CONTRATOS DE GARANTIA.- Son el Contrato de Prenda de Minerales y el Contrato de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas Cobranza que suscribe EL CLIENTE a favor del BANCO a la fecha de celebracion de este contrato. 1.2 DEUDA PERMITIDA.- Es la deuda u obligacion financiera que consiste en: (i) deudas y obligaciones financieras del CLIENTE derivadas del presente contrato; (ii) deudas y obligaciones financieras que aparecen en los Estados Financieros trimestrales del CLIENTE al cierre del trimestre previo a la fecha de suscripcion de este contrato; (iii) deudas y obligaciones financieras derivadas de los Contratos de Leasing y Lease-back celebrados por EL CLIENTE con posterioridad a la fecha de suscripcion de este contrato siempre que el monto adeudado por concepto de principal de dichas obligaciones no exceda en forma conjunta de US $ 20'000,000.00. (iv) deudas y obligaciones financieras derivadas de Contratos de Cobertura celebrados por EL CLIENTE a efectos de protegerse contra la eventual variacion de la tasa de interes siempre que el monto adeudado por concepto de principal en dichos contratos no exceda el monto adeudado por concepto de principal en los contratos a los que sirve de proteccion, y las obligaciones derivadas de Contratos de Cobertura (HEDGE AGREEMENTS) celebrados en el curso ordinario de los negocios y relacionados exclusivamente a la venta de la produccion local del CLIENTE. (v) deudas y obligaciones financieras incurridas en la renovacion, extension, sustitucion y/o refinanciacion de cualquier deuda mencionada en los literales (ia), (iib) y este mismo literal (v) del presente numeral, siempre y cuando dicha renovacion, extension, sustitucion y/o refinanciacion sea en condiciones iguales o mas favorables y no resulte en un incremento en el monto por concepto de principal, en forma agregada, de las deudas representadas por dichos acuerdos. (vi) deudas y obligaciones financieras que EL CLIENTE pueda incurrir en el curso ordinario de sus negocios, tales como: cuentas comerciales, gastos acumulados, pago de impuestos, cartas-fianza para garantizar el pago de obligaciones aduaneras y alquiler de equipos. (vii) otras deudas y obligaciones financieras que EL CLIENTE pueda incurrir fuera de la Linea de Credito que se le concede en virtud de este contrato, siempre que el monto por concepto de principal de dichas deudas y obligaciones financieras no exceda, en forma conjunta, la suma de US $ 5'000,000.00 1.3. EFECTO MATERIAL ADVERSO PARA EL CLIENTE.- Es cualquier evento o condicion que origine un efecto adverso sustancial en (a) el negocio, condicion (financiera u otra), operaciones o propiedades del CLIENTE, (b) la capacidad del CLIENTE para cumplir con sus obligaciones bajo el presente contrato o alguno de los Contratos de Garantia, o (c) los derechos creados en los Contratos de Garantia. 1.4. EVENTO DE INCUMPLIMIENTO.- Son las circunstancias detalladas en la Clausula Decimo Primera de este contrato, que originan las consecuencias mencionadas en la Clausula Decimo Segunda de este contrato. 1.5. FECHA DE VENCIMIENTO FINAL.- Es la fecha de vencimiento del plazo de utilizacion de la Linea de Credito, conforme lo indicado en el numeral 3.3 de la Clausula Tercera de este contrato. 1.6. FECHA DE VENCIMIENTO.- Es la fecha de vencimiento de cada uno de los prestamos y/o creditos otorgados por EL BANCO a favor del CLIENTE en el marco de la Linea de Credito a que se refiere este contrato. 1.7. MONTO BASE DEL PRESTAMO.- Es el monto resultante de la suma de las siguientes cuentas del activo del CLIENTE, en los porcentajes que se senalan: (i) 85% de las "cuentas por cobrar de compradores elegibles", (ii) 70% de las "cuentas inventario elegibles de concentrados adquiridos", (iii) 30% de las "cuentas inventario elegibles de materias primas y productos en proceso" y (iv) 80% de las "cuentas inventario elegibles de productos finales"; utilizandose para tal efecto las definiciones que se contemplan en los siguientes parrafos. Se entiende por "cuenta por cobrar de compradores elegibles" a aquella(s) cuenta(s) del CLIENTE elegida(s) por EL BANCO, a su sola discrecion, para ser incluida(s) en el computo del Monto Base del Prestamo. A efectos de determinar el monto de la(s) cuenta(s) a ser computado se deducira del valor nominal de dicha(s) cuenta(s) el monto de los descuentos, reembolsos, deducciones, reclamos, creditos, cargos, reintegros o rebajas. Para efectos del computo del valor de aquella(s) cuenta(s) que no se encuentre(n) en dolares americanos, se procedera a efectuar la conversion correspondiente al tipo de cambio venta de la fecha del calculo. Salvo que EL BANCO asi lo determine, en ningun caso constituiran "cuentas por cobrar de compradores elegibles": (i) aquellas derivadas de la(s) venta(s) efectuadas por EL CLIENTE a su empresa matriz, empresas subsidiarias o empresas afiliadas, entendiendose por estas ultimas a aquellas que estan bajo el control de o bajo el control comun con EL CLIENTE; (ii) aquellas cuyo plazo para el pago es mas extenso que aquel normalmente utilizado por EL CLIENTE en sus transacciones comerciales; (iii) aquellas que se encuentran impagas por mas de sesenta (60) dias desde su fecha de vencimiento o por mas de noventa (90) dias desde su fecha de facturacion; (iv) aquellas cuyo deudor tiene mas del cincuenta por ciento (50%) de sus deudas como inelegibles de conformidad con el criterio establecido en el numeral (iii) anterior; (v) aquellas que, agregadas a las otras cuentas del mismo deudor, excedan en valor nominal al 10% de todas las cuentas del CLIENTE pendientes de cobro, pero solo en cuanto al exceso; (vi) aquellas cuyo deudor es, a su vez, un acreedor del CLIENTE con derecho a compensacion o dicho deudor ha reclamado o discutido su responsabilidad respecto de la cuenta, pero solo en cuanto al monto por el que el deudor tiene derecho a compensacion o ha reclamado o discutido al CLIENTE; (vii) aquellas cuyo deudor ha iniciado voluntariamente o le han iniciado un procedimiento de reestructuracion patrimonial, insolvencia y/o quiebra, se ha liquidado o disuelto, ha suspendido el desarrollo de sus negocios o se ha declarado insolvente; (viii) aquellas derivadas de una venta en la que, por alguna razon, el deudor tenga el derecho a retornar el bien o EL CLIENTE tenga la obligacion de recomprarle el mismo; (ix) aquellas derivadas de una venta respecto de la cual las mercaderias no han sido aun embarcadas y enviadas a la localidad designada por el deudor de la cuenta o que no representa una venta definitiva; (x) aquellas respecto de las cuales el deudor ha entregado con anterioridad a la cuenta un monto, valor o bien en garantia, pero solo en cuanto a dicho monto, valor o bien. (xi) aquellas que por alguna otra razon sean ilegales o hayan sido ilegamente constituidas. Se entiende por "cuentas inventario elegibles de concentrados adquiridos" al inventario de concentrados adquiridos del CLIENTE que, a criterio y discrecion del BANCO, cumple con los siguientes requisitos: (i) consista en concentrados localizados o ubicados fisicamente en las plantas o establecimientos del CLIENTE o en almacenes generales de deposito; los mismos que el CLIENTE debera especificar por escrito al BANCO dentro de los treinta (30) dias calendario siguientes a la fecha de suscripcion de este contrato y de cada uno de sus aniversarios --salvo en el caso del traslado de una parte importante de estos concentrados a lugares no especificados por el CLIENTE al BANCO en el plazo senalado, supuesto en el cual el CLIENTE se obliga a dar aviso inmediato al BANCO indicando el lugar de destino--, o que, estando depositados, localizados o ubicados fisicamente en lugares distintos a los mencionados, pero siempre dentro del territorio de la Republica del Peru, puedan ser inspeccionados libremente por EL BANCO y no pese sobre los mismos derecho o gravamen alguno a favor del depositario; (ii) este en buena condicion, no danado ni obsoleto, cumpliendo con todos los estandares establecidos por cualquier autoridad gubernamental que tenga autoridad respecto de dichos bienes, su uso y/o su venta y sea normalmente usable o vendible en el curso normal de los negocios del CLIENTE; (iii) no sea inventario consignado; y (iv) sea comerciable. Se entiende por "cuentas inventario elegibles de materias primas y productos en proceso" al inventario de materias primas y productos en proceso del CLIENTE que, (A) tratandose de materias primas, cumpla, a criterio y discrecion del BANCO, con los siguientes requisitos: (i) consista en materias primas localizadas o ubicadas fisicamente en las plantas o establecimientos del CLIENTE o en almacenes generales de deposito; los mismos que el CLIENTE debera especificar por escrito al BANCO dentro de los treinta (30) dias calendario siguientes a la fecha de suscripcion de este contrato y de cada uno de sus aniversarios --salvo en el caso del traslado de una parte importante de estas materias primas a lugares no especificados por el CLIENTE al BANCO en el plazo senalado, supuesto en el cual el CLIENTE se obliga a dar aviso inmediato al BANCO indicando el lugar de destino--, o que, estando localizadas o ubicadas fisicamente en lugares distintos a los mencionados, pero siempre dentro del territorio de la Republica del Peru, puedan ser inspeccionadas libremente por EL BANCO y no pese sobre las mismas derecho o gravamen alguno a favor del depositario; (ii) este en buena condicion, no danadas ni obsoletas, cumpliendo con todos los estandares establecidos por cualquier autoridad gubernamental que tenga autoridad respecto de dichos bienes, su uso y/o su venta y sea normalmente usable o vendible en el curso normal de los negocios del CLIENTE; (iii) no sea inventario consignado; y (iv) sea comerciable; Y (B) tratandose de productos en proceso, cumpla, a criterio y discrecion del BANCO, con los siguientes requisitos: (i) sean productos en proceso que esten en buen estado; (ii) sean vendibles, comerciables y no obsoletos; (iii) este localizado o ubicado fisicamente en la planta y/o establecimientos del CLIENTE o en cualquier otro lugar autorizado por EL BANCO, dentro del territorio de la Republica del Peru, y sea posible identificarla en forma separada respecto de los demas bienes ubicados en los referidos lugares; (iv) sea de propiedad exclusiva del CLIENTE, el mismo que tiene legitimo titulo para transferir el mismo; y (v) esta libre de gravamen o medida alguna que pueda afectar la titularidad del CLIENTE. Se entiende por "cuentas inventario elegibles de productos finales" al inventario de productos finales del CLIENTE que, a criterio y discrecion del BANCO, cumple con los siguientes requisitos: (i) consista en productos finales localizados o ubicados fisicamente en las plantas o establecimientos del CLIENTE o en almacenes generales de deposito; los mismos que el CLIENTE debera especificar por escrito al BANCO dentro de los treinta (30) dias calendario siguientes a la fecha de suscripcion de este contrato y de cada uno de sus aniversarios --salvo en el caso del traslado de una parte importante de estos productos finales a lugares no especificados por el CLIENTE al BANCO en el plazo senalado, supuesto en el cual el CLIENTE se obliga a dar aviso inmediato al BANCO indicando el lugar de destino--, o que, estando depositados, localizados o ubicados fisicamente en lugares distintos a los mencionados, pero siempre dentro del territorio de la Republica del Peru, puedan ser inspeccionados libremente por EL BANCO y no pese sobre los mismos derecho o gravamen alguno a favor del depositario; (ii) este en buena condicion, no danados ni obsoletos, cumpliendo con todos los estandares establecidos por cualquier autoridad gubernamental que tenga autoridad respecto de dichos bienes, su uso y/o su venta y sea normalmente usable o vendible en el curso normal de los negocios del CLIENTE; (iii) no sea inventario consignado; y (iv) sea comerciable. 1.8. OBLIGACIONES.- Son, en general, todos los compromisos, deberes y obligaciones asumidas por EL CLIENTE frente al BANCO en virtud de este contrato y, en particular, aquellos compromisos y obligaciones detallados en la Clausula Decima. 1.9. OBLIGACIONES FINANCIERAS.- Son los compromisos y obligaciones asumidas por EL CLIENTE frente al BANCO en virtud de lo dispuesto por el numeral 10.1 de la Clausula Decima de este contrato. 1.10. PATRIMONIO NETO CONSOLIDADO MINIMO.- El Patrimonio Neto Consolidado Minimo del CLIENTE es de US$275'000,000.00 (DOSCIENTOS SETENTICINCO Y 00/100 MILLONES DE DOLARES AMERICANOS); donde el Patrimonio Neto Consolidado es la suma de (i) todas las partidas que, de conformidad con los Principios de Contabilidad Generalmente Aceptados (GAAP) en el Peru, figuran como patrimonio en su Balance y (ii) el monto correspondiente a las participaciones representativas del capital social. Para efectos de determinar el Patrimonio Neto Consolidado Minimo de Doe Run Peru se deducira de la suma que resulte de la formula anterior el monto de US$ 125 millones correspondiente al prestamo efectuado por Doe Run Peru a Doe Run Mining, o, en caso de pre-pago o amortizacion, el monto menor que por concepto de principal este pendiente de pago, asi como el monto correpondiente a otros prestamos y adelantos entre companias afiliadas. 1.11. RATIO DE COBERTURA DE LAS OBLIGACIONES FIJAS CONSOLIDADAS.- Es el Ratio de 2.25 A 1.0, como minimo, determinado en base a proyecciones (PRO FORMA BASIS) para el Plazo de Utilizacion de la Linea de Credito; que se define como el ratio DE (i) UAIIDA (tal como se define mas adelante en este mismo parrafo) durante los cuatro trimestres fiscales previos a la fecha de la transaccion que da lugar al calculo del ratio A (ii) la suma de (A) gasto por concepto de intereses, (B) amortizacion del principal de deudas vencidas o por pagar, y (C) obligaciones financieras por concepto de arrendamiento financiero pagadas, acumuladas y/o programadas por pagar durante dicho periodo, determinado sobre una base consolidada de conformidad con los Principios de Contabilidad Generalmente Aceptados (GAAP) en el Peru; donde la UAIIDA (Utilidad Antes de Impuestos, Intereses, Depreciaciones y Amortizaciones) de una persona juridica es la suma (sin duplicar) de (i) la Utilidad Neta Consolidada menos las ganancias o perdidas extraordinarias, inusuales o no recurrentes, (ii) el impuesto a la renta de dicha persona y sus subsidiarias, por tal periodo, pagado o acumulado de conformidad con los Principios de Contabilidad Generalmente Aceptados (GAAP) en el Peru (siempre que no sea el impuesto a la renta atribuible a ganancias o perdidas extraordinarias, inusuales o no recurrentes), los gastos de por concepto de intereses consolidados (neto de cualquier ingreso por concepto de intereses), los gastos de amortizacion (incluyendo amortizacion de costos de financiamiento diferidos) y los gastos de depreciacion y (iii) otras partidas no monetarias que reducen la Utilidad Neta Consolidada (incluyendo, sin limitacion, cualquier cargo no monetario con respecto a beneficios para jubilacion, por concepto de salud, seguros de vida y beneficios de largo plazo por discapacitacion, requeridos de conformidad con los Principios de Contabilidad Generalmente Aceptados (GAAP) en el Peru) MENOS otras partidas no monetarias que incrementan la Utilidad Neta Consolidada, todo determinado en forma consolidada para dicha persona y sus subsidiarias, de conformidad con los Principios de Contabilidad Generalmente Aceptados (GAAP) en el Peru. Por la presente EL CLIENTE declara conocer y aceptar que, en caso se transforme en una sociedad anonima, se incluira, como uno de los sumandos de la suma mencionada en el primer numeral (ii) del parrafo anterior, para efectos del calculo del referido ratio, al producto de (a) el monto de todos los dividendos declarados, pagados y/o devengados a favor de las accionistas por (b) una fraccion cuyo numerador es uno y el denominador es uno menos la tasa de impuestos vigente. SEGUNDA: ANTECEDENTES EL CLIENTE es una empresa privada cuyo objeto es el dedicarse a actividades mineras, incluyendo, pero no limitado a, el procesamiento de minerales. En Octubre de 1997, EL CLIENTE adquirio la Empresa Metalurgica La Oroya S.A de su anterior propietario, la empresa estatal Empresa Minera del Centro del Peru S.A, en el marco del proceso de privatizacion llevado a cabo por el Gobierno de la Republica del Peru. En Diciembre de 1997, mediante fusion por absorcion, EL CLIENTE absorbio a la Empresa Metalurgica La Oroya S.A. TERCERA: OBJETO DEL CONTRATO EL CLIENTE requiere financiamiento de capital de trabajo para sus operaciones de comercio exterior y/o ventas locales, por lo que ha solicitado a EL BANCO una Linea de Credito Revolvente hasta por la suma de US$ 40'000,000.00 (CUARENTA MILLONES Y 00/100 DOLARES AMERICANOS) y EL BANCO, accediendo a la solicitud formulada, conviene en otorgarla, con arreglo a los terminos y condiciones que se senalan en este contrato: 3.1. LINEA DE CREDITO REVOLVENTE.- EL BANCO conviene en conceder al CLIENTE, sujeto a los terminos y condiciones de este contrato, diversos prestamos y/o creditos en dolares durante el periodo comprendido desde la fecha en que se cumplen las condiciones precedentes para la realizacion de los desembolsos y la emision de las cartas de credito, senaladas en la Clausula Octava de este contrato, hasta, pero excluyendo, la Fecha de Vencimiento Final, por la suma maxima de US$ 40'000,000.00 (CUARENTA MILLONES Y 00/100 DOLARES AMERICANOS), con la precision mencionada en el numeral 3.2 de esta misma Clausula. Sujeto a las condiciones de este contrato, durante dicho periodo EL CLIENTE podra tomar prestado, pagar y volver a tomar prestado la suma antes expuesta, en todo o en parte. 3.2. MONTO.- El monto maximo de utilizacion de la Linea de Credito que EL BANCO concede en virtud de este contrato sera en todo momento la cantidad que resulte menor de (i) US $ 40'000,000.00, y (ii) el Monto Base del Prestamo, siempre que lo permitan los limites legales para sus operaciones que establece la Ley General del Sistema Financiero y del Sistema de Seguros y Organica de la Superintendencia de Banca y Seguros (Ley No. 26702) o cualquier otra que pudiera reemplazarla en el futuro, teniendo en consideracion la linea de credito para la solicitud de emision de cartas-fianza otorgada por EL BANCO y cualquier otro credito otorgado o que pudiera otorgar en el futuro EL BANCO al CLIENTE. En caso que, como consecuencia de las variaciones del Monto Base del Prestamo, el monto utilizado de la Linea de Credito este por encima del monto maximo permitido contemplado en el parrafo anterior, EL BANCO tendra la facultad de exigir al CLIENTE el pre-pago de la suma que sea necesaria para que el monto utilizado de la linea de credito sea igual o inferior al monto maximo permitido de conformidad con lo dispuesto por el parrafo anterior. 3.3. PLAZO DE UTILIZACION.- El plazo maximo de utilizacion de la Linea de Credito es de cuatro (4) anos contados a partir de la fecha de suscripcion de este contrato, sin perjuicio de lo dispuesto en la Clausula Octava de este contrato. En tal sentido, la Fecha de Vencimiento Final sera el 10 de junio del 2002. Sin embargo, al vencimiento del primer ano, y de cada uno de los anos subsiguientes del plazo de utilizacion de la Linea de Credito, EL BANCO podra, sin estar obligado a ello, extender la Fecha de Vencimiento Final por periodos anuales adicionales. 3.4. FORMAS DE UTILIZACION.- EL CLIENTE podra utilizar la Linea de Credito que se le concede en virtud de este contrato, mediante la solicitud de (i) prestamos, incluidos, pero no limitados a, prestamos pre y post embarque, o (ii) emision por parte del BANCO de Cartas de Credito para el pago de sus importaciones de concentrados, materias primas y materiales. 3.5 POSIBILIDAD DE REDUCCION DEL MONTO DE LA LINEA DE CREDITO.- EL CLIENTE podra solicitar en cualquier momento la reduccion del monto maximo de la Linea de Credito mencionado en el numeral 3.2 anterior. Reducido el monto maximo de la Linea de Credito, el mismo no podra ser restaurado nuevamente. 3.6. REPAGO DE LA LINEA DE CREDITO.- Sin perjuicio de lo dispuesto en las Clausulas Decimo Primera y Decimo Segunda, referidas a los "Eventos de Incumplimiento" y a las "Consecuencias de los Eventos de Incumplimiento", respectivamente, EL CLIENTE se obliga a pagar integramente al BANCO los prestamos y/o creditos que se encuentren vigentes en virtud de esta Linea de Credito en la Fecha de Vencimiento Final. CUARTA: DE LOS TERMINOS Y CONDICIONES DE LOS PRESTAMOS REFERIDOS EN LA CLAUSULA 3.4(i). 4.1. DEL MONTO.- El monto de los prestamos individuales solicitados por EL CLIENTE no podra ser inferior a US $ 1'000,000.00, salvo en el caso que el monto disponible de la Linea de Credito sea inferior a dicha suma, y debera ser en cantidades que sean multiplos de US$ 200,000.00. Los prestamos deberan ser solicitados por EL CLIENTE al BANCO con una anticipacion minima de tres (3) dias utiles. En la solicitud que EL CLIENTE presente al BANCO debera especificar, como minimo, la siguiente informacion: (a) tratandose de financiamientos para operaciones de comercio exterior: (i) el monto, (ii) la fecha en la que desea el desembolso, (iii) el plazo del financiamiento, conforme a lo estipulado en el numeral siguiente de esta Clausula, (iv) la fecha probable de embarque, (v) la mercaderia a ser exportada, (vi) el pais de destino, (vii) los documentos que sustentan la exportacion, (viii) el nombre del comprador y (ix) el numero de cobranza (en caso se trate de un financiamiento post-embarque); y (b) tratandose de financiamientos con otros fines mencionados en la Clausula Tercera del objeto del contrato: (i) la referencia a la linea de credito, (ii) el monto, y (iii) el plazo del financiamiento, conforme a lo estipulado en el numeral siguiente de esta Clausula. Adicionalmente, en el caso de financiamientos para operaciones de comercio exterior, EL CLIENTE debera adjuntar a su solicitud, debidamente suscrito, el formato de solicitud de credito externo que le proporcionara oportunamente el BANCO. 4.2 DE LOS PLAZOS.- Siempre que el plazo de utilizacion de la Linea de Credito lo permita, teniendo en consideracion lo acordado en el numeral 3.6 de la Clausula anterior, los prestamos tendran plazos de 1, 3 o 6 meses, a eleccion del CLIENTE, manifestada por escrito al BANCO en su solicitud. EL CLIENTE podra solicitar al BANCO el pre-pago de los prestamos otorgados con una anticipacion de dos (2) dias utiles a la fecha prevista para el pre-pago, lo cual sera evaluado y decidido por el BANCO, a su entera discrecion, pudiendo en estos casos cobrar el BANCO al CLIENTE una comision por pre-pago que sera informada en forma previa y oportuna al CLIENTE. 4.3 DE LA TASA DE INTERES.- La tasa de interes compensatorio que devengaran estos prestamos, durante el primer ano del plazo de utilizacion de la Linea de Credito sera la tasa LIBOR a 1, 3 o 6 meses (dependiendo del plazo del prestamo solicitado por EL CLIENTE) + 1.50%. La tasa LIBOR a 1, 3 o 6 meses es la tasa de interes a la cual se ofrecen por el mismo plazo depositos de Eurodolares en el mercado interbancario de Londres, tasa registrada diariamente a las 11:00 horas, conforme aparece en la pagina LIBO del monitor del sistema informativo REUTERS (ajustada de ser necesario al 1/16 del 1% superior mas cercano). Las partes convienen y senalan que la tasa de interes pactada para este prestamo es de caracter flotante, de acuerdo a las variaciones de la tasa LIBOR y, en tal virtud, EL BANCO procedera a fijar la tasa que corresponda para cada prestamo con una anticipacion de dos (2) dias utiles a la fecha prevista de desembolso del respectivo prestamo, teniendo en cuenta la tasa LIBOR que se senale en el Monitor Reuters a dicha fecha. Sobre esta base se establecera el importe que debera pagar EL CLIENTE por intereses al final de dicho plazo. El retardo en el cumplimiento de pago de los intereses y/o capital de los prestamos en la fechas de sus respectivos vencimientos, estara sujeto a partir de dicho momento y hasta la total cancelacion de las obligaciones vencidas, al pago de intereses moratorios a la tasa de 3% anual, adicional a los intereses compensatorios. Para tal efecto, EL CLIENTE incurrira en mora automatica sin necesidad de requerimiento o intimacion alguna, de conformidad con lo dispuesto por el inciso 1 del Articulo 1333 del Codigo Civil. Al termino del primer ano del plazo de utilizacion de la Linea de Credito y al vencimiento de los subsiguientes periodos anuales, EL BANCO podra, sin estar obligado a ello, revisar y modificar la tasa de interes compensatorio mencionada en el parrafo anterior; de lo cual notificara al CLIENTE con treinta (30) dias calendario de anticipacion. 4.4 DE LOS PAGARES.- Los prestamos seran instrumentados mediante la emision por parte del CLIENTE de uno o varios pagares, utilizando para tal efecto el formato de pagare que, como Anexo I, forma parte integrante de este contrato. Las partes declaran que este formato de pagare podra ser modificado por EL BANCO en cualquier momento. 4.5 DEL REPAGO DE LOS PRESTAMOS.- Sin perjuicio de lo dispuesto en el Numeral 3.6 de la Clausula Tercera, referido al "Repago de la Linea de Credito", y en las Clausulas Decimo Primera y Decimo Segunda, referidas a los "Eventos de Incumplimiento" y a las "Consecuencias de los Eventos de Incumplimiento", respectivamente, EL CLIENTE se obliga a pagar al BANCO los prestamos en sus respectivas Fechas de Vencimiento, para lo cual autoriza al BANCO a cargar en cualesquiera de las cuentas que EL CLIENTE mantiene en EL BANCO el importe de lo adeudado, de conformidad con lo dispuesto en la Clausula Decimo Tercera. QUINTA: DE LOS TERMINOS Y CONDICIONES DE LAS CARTAS DE CREDITO REFERIDAS EN LA CLAUSULA 3.4(ii) 5.1 DE LA EMISION DE LAS CARTAS DE CREDITO.- Siempre que EL CLIENTE lo solicite por escrito mediante la suscripcion y presentacion al BANCO del formulario correspondiente, con una anticipacion de tres (3) dias utiles, EL BANCO podra, como parte de los creditos otorgados al CLIENTE en virtud de la Linea de Credito Revolvente a que se refiere este contrato, emitir Cartas de Credito para el pago de las importaciones de materias primas, concentrados o materiales efectuadas por EL CLIENTE. En tal sentido, el monto de las Cartas de Credito emitidas por EL BANCO sera considerado como monto utilizado de la referida Linea de Credito. 5.2 DEL MONTO.- El monto de las Cartas de Credito solicitadas por EL CLIENTE no podra ser inferior a US $ 100,000.00, salvo en el caso que el monto disponible de la Linea de Credito sea inferior a dicha suma. 5.3 DE LOS PLAZOS.- Siempre que el plazo de utilizacion de la Linea de Credito lo permita, teniendo en consideracion lo acordado en el numeral 3.6 de la Clausula Tercera, las Cartas de Credito tendran los plazos solicitados por EL CLIENTE y aprobados por EL BANCO, los mismos que, en principio, no excederan el plazo de 6 meses. 5.4 DEL PAGO DE LAS CARTAS DE CREDITO.- Al momento del pago efectivo de una Carta de Credito emitida en virtud de lo dispuesto en esta Clausula, EL BANCO financiara al CLIENTE la suma adeudada, mediante el otorgamiento de un prestamo por un plazo de tres (3) meses en los terminos y condiciones senalados en la Clausula Cuarta y demas Clausulas de este documento; salvo que EL CLIENTE solicite al BANCO hacerse cobro en forma inmediata de la suma pagada en la carta de credito, para lo cual, por la presente EL CLIENTE autoriza desde ya al BANCO para cargar en su cuenta corriente o en una(s) cualesquiera de sus cuentas el importe correspondiente, de conformidad con lo dispuesto en la Clausula Decimo Tercera. SEXTA: DE LAS COMISIONES EL CLIENTE esta obligado a pagar al BANCO las siguientes comisiones: 6.1 COMISION DE UNDERWRITING.- EL CLIENTE pagara al BANCO, por concepto de Comision de Underwriting, US$ 500,000.00 (QUINIENTOS MIL Y 00/100 DOLARES AMERICANOS), equivalente al 1.25% del monto maximo de la Linea de Credito (US $ 40'000,000.00) los mismos que seran pagados a la suscripcion del presente contrato. 6.2 COMISION DE AGENCIA.- EL CLIENTE pagara al BANCO, por concepto de Comision de Agencia, US$ 30,000.00 (TREINTA MIL Y 00/100 DOLARES AMERICANOS) anuales durante el plazo de utilizacion de la Linea de Credito, incluida cualquier prorroga al mismo, los mismos que seran pagados por adelantado a la suscripcion del presente contrato y en cada fecha de aniversario de la suscripcion del presente contrato. 6.3 COMISION DE COMPROMISO.- EL CLIENTE pagara al BANCO, por concepto de Comision de Compromiso, durante el plazo de utilizacion de la Linea de Credito, la suma equivalente al 0.375% anual de la porcion no utilizada promedio de la Linea; que sera calculada teniendo en cuenta las porciones no utilizadas diarias, de lo cual se obtendra un promedio trimestral sobre el que se aplica la tasa antes mencionada. Esta Comision sera pagada por trimestre vencido dentro de los primeros diez (10) dias calendario del trimestre siguiente . Para efectos del calculo, el monto nominal de las Cartas de Credito a que se refiere el numeral (ii) de la Clausula 3.4 sera considerado como "monto utilizado" de la Linea de Credito. 6.4 COMISION DE EMISION DE CARTA DE CREDITO.- EL CLIENTE pagara al BANCO, por concepto de Comision de Emision de Carta de Credito, la suma equivalente al 0.375% del monto de cada Carta de Credito a ser emitida conforme a lo dispuesto por el numeral (ii) de la Clausula 3.4. Esta comision sera pagada al momento de la emision de cada Carta de Credito. SETIMA: CONDICIONES PRECEDENTES PARA LA CELEBRACION DEL CONTRATO Son condiciones precedentes para la celebracionCONSUMACION de este contrato: 7.1. CAPACIDAD LEGAL DEL CLIENTEAutorizaciones, etc.- La recepcion por parte del BBANCO de copias legalizada del acta de la Junta General de Socios del CLIENTE autorizando la suscripcion y ejecucion de este contrato, y de los Contratos de Garantia y nombrando a su(s) representante(s) para la suscripcion de los mismos. 7.2. ESTADOS FINANCIEROS.- La recepcion por parte del BANCO de las copias de los estados financieros auditados correspondientes al ejercicio economico cerrado al 31 de diciembre de 1997 y de los estados financieros no auditados correspondientes al primer trimestre del ejercicio 1998, acompanados de una certificacion por parte del CLIENTE, de fecha reciente, de que dichos estados financieros son correctos y completos. 7.3. OPINIONES LEGALES.- La recepcion por parte del BANCO de las opiniones legales satisfactorias suscritas por los abogados del CLIENTE y de su empresa matriz, Doe Run Resources Corporation, referida esta ultima a la validez de la subordinacion de las deudas que pueda tener EL CLIENTE, actuales o futuras, derivadas de la Emision de Pagares (SENIOR NOTES) efectuada en Marzo de 1998 por la empresa matriz, a las deudas que EL CLIENTE pueda incurrir ante EL BANCO por este contrato. 7.4. INEXISTENCIA DE ACCION GUBERNAMENTAL Que el Gobierno peruano no haya promulgado legislacion ni haya tomado accion alguna que, a criterio y discrecion del BANCO, pueda limitar la exportacion, por parte del CLIENTE, de sus productos. 7.5. INEXISTENCIA DE CIRCUNSTANCIAS QUE AFECTEN EL SISTEMA FINANCIERO. - Que no se hayan producido circunstancias o situaciones que, a criterio y discrecion del BANCO, afecten en forma negativa (i) el sistema financiero peruano, (ii) el sistema financiero internacional, (iii) el entorno politico o economico del Peru, o (iv) las politicas tributarias o monetarias del gobierno peruano, sus leyes y regulaciones. 7.6. Inexistencia de circunstancias que afecten la Condicion Financiera del CLIENTE.- Que no se hayan producido, desde la fecha de los ultimos estados financieros auditados, circunstancias o situaciones que, a criterio y discrecion del BANCO, afecten o puedan afectar de manera sustancial (i) la capacidad de repago de los prestamos y/o creditos por parte del CLIENTE, o (ii) los negocios, operaciones, propiedad, activos o pasivos del CLIENTE. 7.7. INEXISTENCIA DE GRAVAMENES RESPECTO DE LOS INGRESOS Y ACTIVOS DEL CLIENTE.- Que los activos y cuentas por cobrar del CLIENTE se encuentren libres de cualquier gravamen. 7.8. CERTIFICADO DEL MONTO BASE DEL PRESTAMO.- La recepcion por parte del BANCO de un certificado suscrito por el Gerente Financiero del CLIENTE, o el funcionario designado por este para tal efecto y comunicado en forma previa por EL CLIENTE al BANCO, estableciendo el Monto Base del Prestamo. 7.9. DUE DILIGENCE.- La conclusion, en forma satisfactoria, del due diligence del CLIENTE por parte del BANCO. OCTAVA: CONDICIONES PRECEDENTES PARA LA REALIZACION DE LOS DESEMBOLSOS Y LA EMISION DE LAS CARTAS DE CREDITO Son condiciones precedentes para la realizacion de los desembolsos de los creditos y/o prestamos a que se refiere el presente contrato: 8.1. CONTRATOS DE GARANTIA Y ESTABLECIMIENTO DE CUENTAS COBRANZAA.- La recepcion por parte del BANCO de los Contratos de Garantia, debidamente suscritos por EL CLIENTE, y su conformidad en relacion con el establecimiento de las Cuentas Cobranza en Lima y Nueva York. Asimismo, el envio de notificaciones a los clientes del CLIENTE instruyendolos para que realicen sus pagos en las Cuentas Cobranza y el consentimiento escrito por parte de aquellos de cumplir con dichas instrucciones. 8.2. INEXISTENCIA DE CIRCUNSTANCIAS QUE PUEDAN AFECTAR EL SISTEMA FINANCIERO.- Que no se hayan producido, desde la fecha de suscripcion del presente contrato, circunstancias o situaciones que, a criterio y discrecion del BANCO, afecten o puedan afectar en forma negativa (i) el sistema financiero peruano, (ii) el sistema financiero internacional, (iii) el entorno politico o economico del Peru, o (iv) las politicas tributarias o monetarias del gobierno peruano, sus leyes y regulaciones. 8.3. CUMPLIMIENTO DE OBLIGACIONES DEL CLIENTE.- Que el CLIENTE se encuentre en cumplimiento de todas sus Obligaciones establecidas en el presente contrato, incluyendo las Obligaciones Financieras. 8.4. INEXISTENCIA DE CIRCUNSTANCIAS QUE PUEDAN AFECTAR LA CONDICION FINANCIERA DEL CLIENTE.- Que no se hayan producido, desde la fecha de celebracion del presente contrato, circunstancias o situaciones que, a criterio y discrecion del BANCO, afecten o puedan afectar de manera sustancial (i) la capacidad de repago del prestamo por parte del CLIENTE, o (ii) los negocios, operaciones, propiedad, activos o pasivos del CLIENTE. 8.5. INEXISTENCIA DE ACCION GUBERNAMENTAL.- Que el Gobierno peruano no haya promulgado legislacion ni haya tomado, desde la fecha de celebracion del presente contrato, accion alguna que, a criterio y discrecion del BANCO, pueda limitar la exportacion, por parte del CLIENTE, de sus productos. 8.6. INEXISTENCIA DE ALGUN EVENTO DE INCUMPLIMIENTO.- Que, a la fecha del respectivo desembolso, no se haya producido Evento de Incumplimiento alguno. 8.7. DECLARACIONES Y GARANTIAS.- Que las declaraciones y garantias hechas por el CLIENTE en la Clausula Novena del presente contrato, y en los Contratos de Garantia, sean correctas y completas en todo aspecto en y desde el momento del desembolso, a menos que el defecto en tal declaracion o garantia no pueda, razonablemente, causar un Efecto Material Adverso en la situacion del CLIENTE, y siempre y cuando tal declaracion o garantia haya sido cierta y completa en todos sus aspectos en la fecha en que fue hecha. 8.8. INEXISTENCIA DE EFECTO MATERIAL ADVERSO.- Que, a la fecha del respectivo desembolso, no haya ocurrido evento o circunstancia alguna que resulte o pueda, razonablemente, resultar en un Efecto Material Adverso para EL CLIENTE. 8.9. CNSCRIPCION DEL CONTRATO DE PRENDA DE MINERALES.- Que se haya inscrito en el Registro Publico de Mineria el Contrato de Prenda de Minerales otorgado por EL CLIENTE a favor NOVENTA: DECLARACIONES Y GARANTIAS EL CLIENTE declara y garantiza al BANCO que: 9.1. ORGANIZACION Y CALIFICACION.- EL CLIENTE es una Sociedad Comercial de Responsabilidad Limitada organizada y en existencia bajo la legislacion peruana, que esta facultada, bajo las leyes peruanas, para ser propietaria de sus bienes y llevar a cabo sus actividades ordinarias. 9.2. PODERES Y AUTORIZACIONES.- EL CLIENTE posee y ha otorgado a sus representantes todos los poderes y autorizaciones necesarias para suscribir este contrato, y los Contratos de Garantia y para cumplir todas las obligaciones asumidas en cada uno de ellos. 9.3. CUMPLIMIENTO FORZOSO.- Este contrato, y los Contratos de Garantia constituyen obligaciones validas y vinculantes, de cumplimiento forzoso para EL CLIENTE, salvo por lo dispuesto en la legislacion aplicable en materia de quiebra, insolvencia y reestructuracion patrimonial. 9.4. AUTORIZACIONES GUBERNAMENTALES.- EL CLIENTE cuenta con tTodas las autorizaciones gubernamentales necesarias, bajo la legislacion vigente, para cumplir con el presente contrato y los Contratos de Garantia y para cumplir con las obligaciones asumidas en cada uno de ellos; que las mismas se encuentran en vigencia y no estan sujetas a condicion o requerimiento alguno. Cualquier autorizacion que EL CLIENTE requiera desde la fecha de suscripcion del presente contrato sera obtenida por este oportunamente. 9.5. INEXISTENCIA DE CONFLICTOS.- La suscripcion y ejecucion, por parte del CLIENTE del presente contrato, y de los Contratos de Garantia, (i) no esta en conflicto ni crea una situacion de incumplimiento con respecto a (a) cualquiera de los terminos, condiciones o provisiones de los estatutos y demas documentos de constitucion del CLIENTE, (b) alguna ley o regulacion que le sea aplicable, o alguna sentencia, mandato judicial o decreto de alguna corte o autoridad pertinente, (c) algun acuerdo o contrato en que EL CLIENTE es parte o por el cual esta obligado; (ii) ni puede resultar en la creacion o imposicion de algun gravamen, carga o afectacion sobre alguna propiedad del CLIENTE, salvo que tal gravamen, carga o afectacion no pueda, razonablemente, causar un Efecto Material Adverso en la situacion del CLIENTE y haya sido debidamente informado al BANCO con anterioridad a la fecha de suscripcion de este contrato. 9.6. SITUACION LEGAL.- EL CLIENTE no se encuentra en situacion de incumplimiento bajo ley o regulacion alguna que le sea aplicable, sentencia, mandato judicial o decreto de alguna corte o autoridad pertinente, salvo que tal situacion no pueda, razonablemente, causar un Efecto Material Adverso en la situacion del CLIENTE y haya sido debidamente informado al BANCO con anterioridad a la fecha de suscripcion de este contrato. 9.7. ESTADOS FINANCIEROS.- EL CLIENTE ha puesto a disposicion del BANCO sulos Estados Financieros al 31 de diciembre de 1997, debidamente auditados. Toda esta informacion financiera es correcta y completa, y refleja de manera precisa la condicion financiera del CLIENTE. A la fecha de la suscripcion del presente contrato, EL CLIENTE no posee pasivos directos o contingentes mas que los (i) referidos o reflejados en los mencionados estados financieros en tales fechas, (ii) emergentes del presente contrato y de los Contratos de Garantia, o (iii) aquellos comunicados al BANCO. A la fecha de la suscripcion del presente contrato, no ha ocurrido ningun cambio sustancial que sea adverso para la condicion financiera consolidada del CLIENTE de aquella condicion financiera reflejada en los estados financieros al 31 de diciembre de 1997. 9.8. PROCESOS JUDICIALES. - A excepcion de lo revelado al BANCO antes de la suscripcion del presente contrato, no existe accion, investigacion, demanda o proceso judicial alguno pendiente o, a conocimiento de algun funcionario o empleado del CLIENTE, no existe demanda o reclamo escrito alguno contra EL CLIENTE o sus bienes, en alguna corte, comision o comite gubernamental, junta, agencia gubernamental o arbitro. 9.9. REVELACION.- A la fecha de la firma del presente contrato, las declaraciones hechas por EL CLIENTE en este documento y en los Contratos de Garantia, no incluyen declaracion falsa de algun hecho ni omiten algun hecho material que pueda generar que la informacion proporcionada por EL CLIENTE conduzca al BANCO a incurrir en error. A la fecha de suscripcion del presente contrato, no existe hecho alguno conocido por EL CLIENTE que no haya sido revelado al BANCO, y que puede resultar en un Efecto Material Adverso para EL CLIENTE. 9.10. INEXISTENCIA DE CASOS FORTUITOS Y FUERZA MAYOR.- Los negocios y propiedades del CLIENTE no han sido afectados por fuego, explosion, accidentes, huelgas, paros forzosos o cualquier otro problema laboral, sequia, tormenta, granizo, terremotos, embargos, o por cualquier otra circunstancia que, de manera razonable, pueda causar un Efecto Material Adverso al CLIENTE. 9.11. INEXISTENCIA DE DANOS AL MEDIO AMBIENTE.- EL CLIENTE opera su negocio cumpliendo todas las normas de la legislacion y regulacion ambiental aplicables a las actividades minero-metalurgicas, asi como todos los terminos y condiciones del Programa de Adecuacion al Medio Ambiente (PAMA) que ha presentado al Ministerio de Energia y Minas. Ningun material danino, toxico o peligroso, asi definido por dichas normas, ha sido o es vertido, arrojado, esparcido o librado por EL CLIENTE en violacion de alguna norma de la legislacion o regulacion ambiental minero-metalurgica, salvo que acciones apropiadas y aceptadas por las autoridades gubernamentales correspondientes y reveladas al BANCO esten siendo tomadas para remediar esta situacion. EL CLIENTE no ha transportado ni transporta material danino, toxico o peligroso alguno, asi definido por las normas antes mencionadas, salvo que acciones apropiadas y aceptadas por las autoridades gubernamentales correspondientes y reveladas al BANCO esten siendo tomadas para remediar esta situacion. 9.12. IMPUESTOS.- EL CLIENTE ha preparado, suscrito y presentado ante la autoridad competente los formularios de todos los tributos e impuestos a los que esta obligado legalmente y ha pagado los mismos, excepto aquellos que: (i) estan siendo reclamados por EL CLIENTE a traves de los recursos impugnativos apropiados y (ii) sobre los cuales, en los libros contables del CLIENTE, se han hecho las provisiones y reservas correspondientes. No existe procedimiento o disputa alguna pendiente entre EL CLIENTE y autoridad gubernamental alguna en materia de tributos e impuestos, distinto(a) de aquellos(as) detallados(as) en el Anexo II, que forma parte integrante de este contrato. 9.13. INMUNIDAD.- EL CLIENTE no posee inmunidad respecto de la jurisdiccion y competencia de corte, juzgado, arbitro o tribunal alguno o respecto de algun proceso legal o demanda. 9.14. RANGO.- Todas las obligaciones que el CLIENTE asume bajo el presente contrato son obligaciones de primer rango para EL CLIENTE y, por lo tanto, tienen preeminencia respecto de las otras obligaciones, directas o indirectas, presentes o futuras, del CLIENTE. En tal sentido, las obligaciones que pudieran derivarse para EL CLIENTE de la garantia otorgada a la Emision de Pagares (SENIOR NOTES) efectuada por Doe Run Resources Corporation en Marzo de 1998, estaran contractualmente subordinadas respecto de las obligaciones que EL CLIENTE asume en virtud de este contrato. DECIMA: OBLIGACIONES Por medio de la presente Clausula, EL CLIENTE asume ante EL BANCO las siguientes Obligaciones: 10.1 OBLIGACIONES FINANCIERAS (i) Enviar al BANCO, con una anticipacion no menor de sesenta (60) dias a la fecha prevista para incurrir en una deuda adicional, diferente a una Deuda Permitida, un certificado suscrito por su Gerente Financiero: (a) senalando que se encuentra cumpliendo con el Ratio de Cobertura de las Obligaciones Fijas Consolidadas; (b) describiendo en detalle la naturaleza de dicha deuda adicional, incluyendo, pero sin limitarse a, una mencion respecto al uso de los fondos, el acreedor, el plazo de la deuda, el programa de amortizaciones, el monto del principal e intereses, la garantia, si la hubiere, y cualquier otra informacion que EL CLIENTE considere importante para entender los alcances de dicha deuda adicional; y (c) proyectando en detalle un calculo del Ratio de Cobertura de las Obligaciones Fijas Consolidadas determinado en una base proforma (Pro Forma Basis) como si la propuesta deuda adicional hubiese sido incurrida en el primer dia del ultimo trimestre fiscal y, en adelante, por cada trimestre fiscal durante los cuales este pendiente de pago. (ii) Enviar al BANCO, dentro de los diez (10) dias utiles posteriores a cada trimestre fiscal, un certificado suscrito por su Gerente Financiero certificando que EL CLIENTE cumple con el Patrimonio Neto Consolidado Minimo. 10.2. INFORMACION. (i) VERACIDAD.- Proporcionar informacion correcta y completa al formular la solicitud de credito y, en todo momento, a lo largo de la vigencia del presente contrato. (ii) INFORMACION FINANCIERA.- Remitir al BANCO o a quien este designe, informacion financiera completa, asi como una version auditada de la misma al cierre de cada ejercicio y en un plazo no mayor de ciento veinte (120) dias calendario del cierre respectivo, obligandose a comunicar prontamente al BANCO, o a quien este designe, cualquier hecho o circunstancia que pudiere dar origen a un deterioro sustancial en los ingresos, utilidades, capacidad de pago y/o situacion financiera del CLIENTE. Asimismo, remitir al BANCO o a quien este designe una version no auditada de los estados financieros del CLIENTE al cierre de cada trimestre del ejercicio. (iii) INFORMACION ADICIONAL.- Remitir al BANCO, tan pronto como sea posible luego de su solicitud, cualquier informacion adicional relacionada con el presente contrato, con los Contratos de Garantia y con la capacidad del CLIENTE de cumplir con las obligaciones asumidas en virtud de dichos documentos. 10.3. NOTIFICACION DE EVENTOS EXTRAORDINARIOS.- Notificar prontamente al BANCO sobre la ocurrencia de alguno de los siguientes eventos, incluyendo una descripcion sobre su naturaleza y las acciones que EL CLIENTE planea tomar al respecto: (i) algun Evento de Incumplimiento, y/o (ii) algun litigio, arbitraje o procedimiento administrativo en los que EL CLIENTE sea parte y que, de ser resuelto en forma desfavorable para EL CLIENTE, pueda tener un Efecto Material Adverso para EL CLIENTE. 10.4. MANTENIMIENTO DE LIBROS Y RREGISTROS CONTABLES. .- Llevar sus libros y registros de contabilidad de acuerdo con principios y practicas contables de aceptacion general en el Peru, comprometiendose ante EL BANCO a que los estados financieros anuales de la empresa seran dictaminados por una firma de auditores externos de reputacion internacional, debiendo poner en conocimiento del BANCO, en forma oportuna, los auditores seleccionados. Los registros deberan ser llevados con suficiente detalle para precisar las inversiones realizadas, el costo de ellas y, de ser el caso, el progreso de su ejecucion. 10.5. Inspeccion.- Permitir que el personal tecnico del BANCO, o el que este designe, pueda constatar la informacion proporcionada y la correcta aplicacion de los recursos concedidos en virtud de creditos y/o prestamos otorgados por EL BANCO al CLIENTE en el marco de este contrato, asi como realizar inspecciones a la planta y establecimientos del CLIENTE. 10.6. EXISTENCIA Y CAPACIDAD.- Mantener su existencia como Sociedad Comercial de Responsabilidad Limitada bajo las leyes peruanas. 10.7. NO PARTICIPACION EN ACTIVIDADES NO VINCULADAS Mantener el giro propio de su negocio y abstenerse de participar directa o indirectamente en actividades no vinculadas. 10.8. USO DE LOS RECURSOS..- Destinar los recursos de los creditos y/o prestamos, que EL BANCO le otorgue en el marco del presente contrato, al fin mencionado en la Clausula Tercera del presente contrato. 10.9. MANTENIMIENTO DE ACTIVOS.- Mantener en buenas condiciones la planta y otras areas productivas necesarias para el desarrollo de su objeto social y, cada cierto tiempo, efectuar las reparaciones y restituciones necesarias en tal sentido. 10.10 LIMITACION EN LA DISPOSICION DE ACTIVOS.- Abstenerse, durante la vigencia del presente prestamo, de vender, arrendar, traspasar o ceder el uso de los activos fijos necesarios para mantener la produccion y ventas de la empresa estimadas en la solicitud de credito presentada al BANCO, a menos que hayan sido repuestos o vayan a ser repuestos a satisfaccion del BANCO y hubiese autorizacion expresa y por escrito del BANCO en tal sentido y salvo por los bienes que sean transferidos por EL CLIENTE en el marco de los Contratos de Lease-back que pretende celebrar en el futuro, incluyendo aquellos celebrados con el BANCO al amparo de lo dispuesto en los numerales 10.19 de esta Clausula Decima y 1.2 (iii) de la Clausula Primera de este contrato. EL BANCO se compromete a hacer sus mejores esfuerzos para dar respuesta a la referida solicitud en un plazo maximo de diez (10) dias utiles de presentada la misma. 10.11. AUTORIZACIONES GUBERNAMENTALES.- Mantener vigentes, durante el plazo de vigencia del presente contrato, todas las licencias, permisos y, en general, cualquier autorizacion que resulte necesaria para el normal desenvolvimiento de sus actividades y la ejecucion del presente contrato. 10.12. . IMPUESTOS.- Cumplir con pagar todos los tributos e impuestos que le correspondan de acuerdo con la legislacion vigente, excepto aquellos que estan siendo cuestionados y/o reclamados por EL CLIENTE a traves de los recursos impugnativos apropiados y respecto de los cuales se han hecho las reservas y provisiones correspondientes, en los libros y registros contables del CLIENTE. 10.13. ABSTENCION D FUSIONES O ESCISIONES.- Abstenerse de participar en procesos de fusion o escision y no vender ni transferir todos o una parte sustancial de sus activos fijos a persona alguna, ni adquirir todos, o sustancialmente todos, los activos de persona alguna, sin previa autorizacion expresa y por escrito del BANCO. 10.14. CUMPLIMIENTO DE LA LEY.- Mantenerse al dia en el cumplimiento de sus obligaciones fiscales, laborales, incluyendo aquellas derivadas de la legislacion sobre seguridad social y administracion privada de fondo de pensiones, asi como con las demas aspectos de la legislacion peruana o extranjera que le sea aplicable y de cualquier regulacion al respecto, a menos que la necesidad de cumplir con tal legislacion o regulacion este siendo debatida y/o cuestionada por EL CLIENTE, de buena fe, a traves de los medios apropiados y haya sido provisionada en los libros y registros contables del CLIENTE. 10.15. CUMPLIMIENTO DE LA LEGISLACION AMBIENTAL.- Sin perjuicio de la obligacion contemplada en el numeral anterior, cumplir con todas y cada una de las obligaciones de la legislacion ambiental minero-metalurgica vigente; debiendo, para tal efecto, realizar los estudios y cumplir con los requisitos establecidos en las leyes y reglamentos respectivos. 10.16. INEXISTENCIA DE CONTRATOS DE COBERTURA (HEDGING AGREEMENTS) CON FINES ESPECULATIVOS.- Abstenerse de celebrar contratos de cobertura con fines especulativos, que no tengan por objeto esencial protegerse ante la eventual fluctuacion en el mercado de los precios de los minerales que produce y vende. 10.17. TRANSACCIONES Y CONTRATOS CON PERSONAS AFILIADAS O VINCULADAS.- Abstenerse de celebrar con empresas o personas vinculadas, transacciones en condiciones menos ventajosas de aquellas que se obtendrian en caso la transaccion fuera celebrada con terceras personas no relacionadas. Quedan excluidas de la limitacion a que se refiere este numeral las obligaciones que tiene EL CLIENTE con personas afiliadas o vinculadas y que se encuentran detalladas en el Anexo III que forma parte integrante de este contrato. 10.18. OBLIGACIONES.- Cumplir, en o antes de la fecha de vencimiento, todas las obligaciones que haya asumido en virtud de este u otros contratos que tenga celebrados, y cuyo incumplimiento podria resultar, a criterio y discrecion del BANCO, en un Efecto Material Adverso para EL CLIENTE, a menos que dicho cumplimiento: (i) este siendo debatido o reclamado por EL CLIENTE, de buena fe, a traves de los medios apropiados y (ii) sobre los cuales, en los libros contables del CLIENTE, se han hecho las reservas y provisiones correspondientes. 10.19. LIMITACION EN LA ASUNCION DE DEUDAS Y OBLIGACIONES FINANCIERAS.- Abstenerse de asumir, crear o incurrir en alguna deuda u obligacion financiera diferente a una Deuda Permitida, salvo que cuente con la autorizacion previa y por escrito del BANCO, para lo cual antes de incurrir en dicha deuda u obligacion financiera adicional, EL CLIENTE enviara al BANCO el certificado que se menciona en el numeral 10.1(i) de esta Clausula Decima. EL BANCO se compromete a hacer sus mejores esfuerzos para comunicar al CLIENTE con prontitud, pero en todo caso con una anticipacion minima de treinta (30) dias calendario a la fecha propuesta para incurrir en dicha deuda u obligacion financiera adicional, su aprobacion o desaprobacion a dicha propuesta de deuda adicional, basado en un analisis razonable. En caso EL BANCO desapruebe la deuda adicional propuesta, EL CLIENTE estara impedido de incurrir en la misma, bajo apercibimiento de considerarse un Evento de Incumplimiento. 10.20. LIMITACION EN GRAVAMENES.- Abstenerse de crear o asumir gravamenes sobre alguno de sus bienes, activos o derechos contractuales, presentes o futuros, salvo que se trate de: (i) Gravamenes especificamente creados, requeridos o permitidos por el presente contrato o los Contratos de Garantia; y (ii) Gravamenes impuestos por alguna autoridad u organo gubernamental por concepto de impuestos o contribuciones. 10.21. CERTIFICADO INDICANDO EL MONTO BASE DEL PRESTAMO.- Enviar al BANCO un Certificado suscrito por su Gerente Financiero estableciendo el Monto Base del Prestamo con efectos al dia vigesimo de cada mes calendario, asi como el detalle de las cuentas que sirvieron para la determinacion del mismo; teniendo esta informacion el caracter de declaracion jurada. Este Certificado debera ser entregado por EL CLIENTE al BANCO dentro de los cinco (5) dias utiles siguientes al vigesimo dia de cada mes calendario. Este Certificado estara vigente por el mes calendario siguiente contado a partir del vigesimo dia de cada mes, salvo que en el interin EL CLIENTE presente al BANCO un nuevo Certificado en reemplazo de aquel, en cuyo caso este nuevo Certificado estara vigente por los dias que resten hasta el vigesimo dia del mes calendario. 10.22. LIMITACION EN LA DISTRIBUCION DE DIVIDENDOS.- Abstenerse de distribuir dividendos o pagar deudas subordinadas, en caso se produzca un Evento de Incumplimiento o en caso de encontrarse en mora en sus obligaciones contractuales con el BANCO. DECIMO PRIMERA: EVENTOS DE INCUMPLIMIENTO Las partes convienen que cada una de las siguientes circunstancias constituy un Evento de Incumplimiento: 11.1. INCUMPLIMIENTO EN LA OBLIGACION DE PAGO.- Si EL CLIENTE incumple en el pago de (i) algun monto correspondiente al principal o intereses de alguno de los prestamos y/o creditos otorgados bajo el presente contrato,, (ii) alguna comision,honorario o gasto que deba pagar y/o reembolsar en virtud del presente contrato o los Contratos de Garantia, o (iii) cualquier otra obligacion asumida bajo el presente contrato, o los Contratos de Garantia. 11.2. FALSEDAD DE ALGUNA DECLARACION O GARANTIA.- Si es, o deviene en, falsa o incompleta alguna de las declaraciones o garantias hechas por EL CLIENTE en el presente contrato, o en los Contratos de Garantia, y tal circunstancia continua sin ser corregida por un plazo de quince (15) dias calendario desde la fecha de notificacion notarial en tal sentido enviada por el BANCO. 11.3. INCUMPLIMIENTO DE OBLIGACION.- Si EL CLIENTE incumple una cualesquiera de las obligaciones asumidas bajo el presente contrato o los Contratos de Garantia, distinta a la Obligacion de Pago referida en el numeral 11.1 de esta Clausula Decimo Primera, y tal incumplimiento no es corregido (si tal incumplimiento es susceptible de correccion) dentro de los quince (15) dias calendario siguientes a la notificacion en tal sentido enviada por el BANCO, o si EL CLIENTE incurre en deuda u obligacion financiera adicional sin contar con la autorizacion previa y por escrito del BANCO. 11.4. INCUMPLIMIENTO DE OBLIGACION FINANCIERA.- Si EL CLIENTE incumple alguna de las Obligaciones Financieras descritas en el numeral 10.1 de la Clausula Decima de este contrato y tal incumplimiento no es remediado dentro de los treinta (30) dias calendario siguientes a la notificacion notarial en tal sentido enviada por el BANCO. 11.5. QUIEBRA O INSOLVENCIA.- Si EL CLIENTE inicia o le es iniciado un procedimiento de quiebra, insolvencia o reestructuracion patrimonial, y tal procedimiento no es declarado inadmisible dentro de los treinta (30) dias calendario siguientes a su inicio. 11.6. INCUMPLIMIENTO DE OBLIGACIONES CONTEMPLADAS EN OTROS CONTRATOS (CROSS DEFAULT).- Si EL CLIENTE incumple alguna de las obligaciones asumidas en virtud de otro contrato de financiamiento que tiene celebrado y dicho incumplimiento origina la resolucion o el vencimiento anticipado del plazo para el cumplimiento de sus obligaciones derivadas de dicho contrato. 11.7. INVALIDEZ DE LOS CONTRATOS DE GARANTIA.- Si alguno de los Contratos de Garantia es rescindido, se resuelve o deja de (i) crear una garantia valida y completa sobre la propiedad sujeta a dicha garantia, con la prioridad otorgada en ella, o (ii) encontrarse en total vigencia yo vigor, por haber sido declarado ineficaz y sin valor. 11.8. AUTORIZACIONES GUBERNAMENTALES.- Si cualquier autorizacion gubernamental que pueda ser requerida por EL CLIENTE con respecto al presente contrato, o a los Contratos de Garantia, deja de estar en total vigencia y eficacia. 11.9. CAMBIO EN EL ACCIONARIADO.- Si Doe Run Resources Corporation deja de poseer, directa o indirectamente, el 66.66% del accionariado en Doe Run Peru, salvo que cuente con la aprobacion del BANCO. 11.10. EXPROPIACION.- Si en fecha posterior a la suscripcion del presente contrato el gobierno peruano realiza cualquier acto que, a criterio y discrecion del BANCO, (i) pueda resultar en la privacion de alguno de sus derechos como acreedor bajo el presente contrato o los Contratos de Garantia, o (ii) confisque, expropie o nacionalice la propiedad o control del CLIENTE sobre los bienes materia del presente contrato, o de los Contratos de Garantia. 11.11. VIOLENCIA POLITICA.- Si en fecha posterior a la suscripcion del presente contrato, ocurre algun acto de guerra (declarada o no declarada), guerra civil, revolucion, insurreccion o terrorismo en la Republica del Peru, que tenga un Efecto Material Adverso en la habilidad del CLIENTE para cumplir con sus obligaciones bajo el presente contrato, y los Contratos de Garantia. DECIMO SEGUNDA: CONSECUENCIAS DEL EVENTO DE INCUMPLIMIENTO 12.1 En caso de producirse uno cualesquiera de los Eventos de Incumplimiento descritos en la Clausula anterior, EL BANCO podra, de pleno derecho, declarar resuelto el presente contrato, de conformidad con lo dispuesto en el Articulo 1430 del Codigo Civil, mediante comunicacion escrita enviada por la via notarial al CLIENTE, acompanando estado de cuenta del saldo deudor; entendiendose resuelto el presente contrato, sin necesidad de otra comunicacion o formalidad alguna, dandose por vencido el plazo y exigiendose el pago inmediato de las sumas adeudadas; en cuyo caso EL BANCO tendra derecho de ejecutar y/o demandar judicialmente la cancelacion del integro de las sumas adeudadas, asi como a ejecutar las garantias a que se refiere la Clausula Decimo Cuarta de este contrato. La demora por parte del BANCO en el ejercicio de este derecho no significara en ningun caso la presuncion de renuncia al mismo. 12.2 En caso de producirse el supuesto contemplado en el numeral anterior y en tanto EL BANCO no cobre el integro de lo que le adeude EL CLIENTE, seran aplicables a la referida deuda los intereses compensatorios y moratorios a las tasas mas altas que EL BANCO tenga establecidas. DECIMO TERCERA: DE LA MONEDA Y LA FORMA DE PAGO DE LAS OBLIGACIONES 13.1 Es condicion de este contrato y especialmente respecto del pago del capital y de los intereses compensatorios y moratorios, de las comisiones y demas gastos, servicios, tributos e impuestos a que hubiere lugar, que todos los pagos deberan efectuarse en la misma moneda extranjera en que se han pactado y otorgado los prestamos y/o creditos, de conformidad con la salvedad establecida en el articulo 1237 del Codigo Civil. 13.2 Para tal efecto, EL CLIENTE pondra a disposicion del BANCO, en forma oportuna, los fondos suficientes para atender integramente los pagos. Por medio del presente documento, EL CLIENTE autoriza de manera irrevocable al BANCO a realizar los cargos correspondientes a los importes adeudados, procediendo EL BANCO a cargar dichos importes en cualquiera de sus cuentas mantenidas en cualesquiera de sus Sucursales, ya sea en el pais o en el exterior, o aplicar los fondos en cualquier moneda que tuviese en su poder para serle acreditados al CLIENTE, sin necesidad de autorizacion previa ni conformidad posterior del mismo. EL BANCO tambien tendra derecho a retener y aplicar a la amortizacion y/o cancelacion de lo que EL CLIENTE le adeudare toda suma, deposito o valor de cualquier naturaleza que por cualquier causa tenga en su poder y este destinado a serle acreditado o entregado. 13.3 EL BANCO queda expresamente autorizado por EL CLIENTE para que por su cuenta y orden adquiera en el mercado cambiario que legalmente este disponible, la moneda extranjera necesaria que aplicara a la amortizacion y/o cancelacion de lo adeudado, de acuerdo al presente contrato, con cargo a cualquiera de las cuentas en moneda nacional que EL CLIENTE tuviese en dicha institucion financiera o cualquiera de sus filiales o subsidiarias, de ser el caso. DECIMO CUARTA: GARANTIAS En garantia del cumplimiento de las obligaciones que asume en virtud de este contrato, EL CLIENTE se obliga a otorgar a favor del BANCO las siguientes garantias que se regiran por sus respectivos contratos: (i) Afectar y mantener afectado a favor del BANCO , en forma irrevocable e incondicional, el producto de las ventas que obtenga de contratos u operaciones de venta de sus productos, asi como las cobranzas que de ellos se generen, otorgando en garantia las ccuentas cobranza, locales o extranjeras, en las que sus clientes depositen el precio de compra; para lo cual EL CLIENTE procedera a suscribir el Contrato de Garantia correspondiente. (ii) Otorgar a favor del BANCO primera y preferencial Prenda de Minerales sobre la totalidad de los concentrados, materias primas, productos en proceso y productos finales mantenidos y/o elaborados por EL CLIENTE; para lo cual procedera a firmar el Contrato de Garantia correspondiente. DECIMO QUINTA: INDEMNIZACION Por la presente Clausula, EL CLIENTE se obliga a indemnizar al BANCO y a sus Directores, funcionarios y empleados (en adelante en esta Clausula "las Partes Indemnizables") por cualquier perdida, dano o gasto en que una cualesquiera de las Partes Indemnizables sufra o incurra como consecuencia del presente contrato, incluyendo, pero no limitado a, honorarios profesionales de abogados y gastos surgidos de la transaccion celebrada, a menos que dicha perdida, dano o gasto sea consecuencia de la culpa o dolo de dicha Parte Indemnizable. DECIMO SEXTA: CESIONES Y PARTICIPACIONES Por la presente EL CLIENTE conviene y acepta expresamente que EL BANCO podra ceder y/o participar la Linea de Credito que le otorga en virtud del presente contrato con terceras instituciones financieras de primer orden, ya sean peruanas o extranjeras. Por excepcion y solo en el caso de cesiones a terceras instituciones financieras en virtud de las cuales EL BANCO deje de estar obligado parcialmente frente al CLIENTE por la Linea de Credito, sera necesario el consentimiento previo del CLIENTE respecto de la institucion financiera cesionaria; el mismo que no podra ser irrazonablemente retenido (dejado de otorgar) por EL CLIENTE. Igualmente, EL CLIENTE acepta que los recursos del presente prestamo podran ser obtenidos por EL BANCO de instituciones financieras de primer orden del exterior, motivo por el cual debera colaborar razonablemente con EL BANCO haciendo su mayor esfuerzo a fin de proveer diligentemente toda la informacion que sea razonablemente solicitada por la(s) referida(s) institucion(es) para la evaluacion economico-financiera de la empresa. DECIMO SETIMA: COSTOS Y GASTOS 17.1 Todos los costos y gastos que se originen para EL BANCO como consecuencia de la preparacion, negociacion y celebracion del presente contrato, incluyendo, pero no limitandose, a los honorarios profesionales de abogados, los gastos del due dilligence, los gastos derivados de la participacion y/o sindicacion del BANCO y las comisiones que cobren los bancos en los que se establezcan las Cuentas-cobranza, como consecuencia de este contrato, seran asumidos y pagados por EL CLIENTE. 17.2 Asimismo, seran asumidos y pagados por EL CLIENTE todos los gastos judiciales y extrajudiciales que pudieran originarse como consecuencia del cobro de las sumas que EL CLIENTE pudiera adeudar al BANCO en virtud del presente contrato y/o de la ejecucion de los Contratos de Garantia. 17.3. Igualmente seran asumidos y pagados por EL CLIENTE las comisiones y gastos que pudieran cobrar al BANCO los bancos corresponsales que participen de una u otra manera en las Cartas de Credito emitidas por el BANCO, a que se refiere el numeral (ii) de la Clausula 3.4 de este documento. EL BANCO se compromete a entegar al CLIENTE una copia de la evidencia de la liquidacion que le haga(n) llegar el(los) banco(s) corresponsal(es) 17.4. Sin perjuicio de lo senalado en los parrafos anteriores, seran asumidos por EL CLIENTE todos los demas costos y gastos que se deriven del presente contrato, incluyendo los gastos notariales derivados de la elevacion a Escritura Publica de este documento, asi como los de un Testimonio y una Copia Simple del mismo para EL BANCO. DECIMO OCTAVA: IMPUESTOS Las partes acuerdan que todos los pagos a ser efectuados por EL CLIENTE al BANCO en virtud del presente contrato deberan ser efectuados libres de todo tributo, impuesto, contribucion o carga que afecte o pudiera afectar en el futuro a los mismos. DECIMO NOVENA: NOTIFICACIONES Cualquier notificacion, solicitud, demanda, consentimiento, designacion, direccion, instruccion, certificado u otra comunicacion a ser dada bajo el presente contrato, debera ser dada por escrito o enviada por facsimil (con confirmacion escrita de recepcion, confirmacion que puede ser hecha por facsimil) a la direccion y numero de facsimil abajo indicadas del CLIENTE y del BANCO y cuando sea requerido por la ley peruana, a las direcciones del CLIENTE y del BANCO indicadas en la introduccion de este Contrato, o a cualquier otra direccion que sea comunicada por escrito para tal efecto por el CLIENTE y el BANCO: CLIENTE DOE RUN PERU S.R.L Atencion: Sres. Kenneth Richard Buckley y Henry Eric Peitz Direccion: Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro Facsimil: 215-1235 215-1281 BANCO BANCO DE CREDITO DEL PERU Atencion: Sr. Giorgio Badani - Banca Corporativa Sra. Marcela Parodi - Area de Operaciones Internacionales Direccion: Centenario 156, Las Laderas de Melgarejo La Molina Facsimil: 349-0794 426-5644 VIGESIMA: LEGISLACION APLICABLE En todo lo no previsto en este documento, el presente Contrato se rige por las Legislacion de la Republica del Peru. VIGESIMO PRIMERA: ARBITRAJE 21.1 Las partes acuerdan expresamente que cualquier conflicto o controversia que pudiera surgir entre ellas como consecuencia de la interpretacion o ejecucion de este Contrato, incluidas las relacionadas con su nulidad e invalidez, seran resueltas mediante arbitraje de derecho, a cargo de un Tribunal Arbitral compuesto por tres miembros que necesariamente deberan ser abogados colegiados, realizado conforme al Reglamento de Conciliacion y Arbitraje Nacional e Internacional de la Camara de Comercio de Lima. 21.2 El Tribunal Arbitral estara constituido de la siguiente manera: cada una de las partes designara a un arbitro y el tercero sera designado de comun acuerdo por los dos primeros, quien sera el Presidente del Tribunal Arbitral. 21.3 El arbitraje se llevara a cabo en la ciudad de Lima y la duracion del mismo no podra exceder los sesenta (60) dias utiles, contados a partir de la fecha de instalacion del Tribunal Arbitral hasta la expedicion del laudo respectivo. 21.4 El laudo del Tribunal Arbitral sera definitivo e inapelable. 21.5 Los gastos que ocasione el arbitraje seran de cargo de la parte perdedora. 21.6 En caso de que alguna(s) de las partes decidiera(n) interponer recurso de anulacion contra el laudo arbitral ante el Poder Judicial, debera constituir previamente a favor de la parte contraria una Carta Fianza otorgada por un Banco de primer orden con sede en Lima, equivalente a US$ 50,000.00 (CINCUENTA MIL DOLARES Y 00/100 DE LOS ESTADOS UNIDOS DE NORTEAMERICA), ejecutable en caso que dicho recurso, en fallo definitivo, no fuera declarado fundado. Dicha Carta Fianza debera estar vigente durante el tiempo que dure el proceso promovido. Agregue usted senor Notario las demas Clausulas de Ley y eleve a Escritura Publica la presente Minuta. Lima , 11 de junio de 1,998. DOE RUN PERU S.R.L. BANCO DE CREDITO DEL PERU /s/ Kenneth Buckley /s/ Jesus Antonio Zamora Leon /s/ Aida Lucia Ghiglino Zimic /s/ Guillermo Ferrero Alvarez Calderon GUILLERMO FERRERO ALVAREZ CALDERON ABOGADO REG. CAL. 26011 Exhibit 10.9 (English) Mr. NOTARY: Kindly issue in your Registry of Public Deeds one containing the Contract for a Credit Line in Foreign Currency entered into by and between, on one part, the BANCO DE CREDITO DEL PERU, with Single Taxpayer's Registration Nr. 10004721, domiciled at Centenario Street Nr. 156, corner with Av. Huarochiri, Urb. Las Laderas de Melgarejo, La Molina, Lima, represented by Mr. Jesus Antonio Zamora Leon and Mrs. Aida Lucia Ghiglino Zimic, empowered by virtue of powers registered in entries 19-C and 32-C of filing card 117464 of the Government Registry of Commercial Concerns of Lima, respectively, hereinafter referred to as THE BANK, and on the other part, DOE RUN PERU S.R.L., with Single Taxpayer's Registration Nr. 37630381, domiciled at Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro, duly represented by Mr. Kenneth Richard Buckley, empowered by virtue of a power-of-attorney granted by the General Meeting of Partners on May 15, 1998, hereinafter referred to as THE CLIENT, under the following terms and conditions: FIRST DEFINITIONS The terms that appear below in this contract will have the indicated definitions: 1.1 GUARANTEE CONTRACTS.- These are the Ore Collateral Contract and the Contract of Pledging as a Guarantee for Payments and/or Collections and for Collection Accounts signed by THE CLIENT in favor of the BANK on the date of the execution of this contract. 1.2 AUTHORIZED DEBT.- This is the debt or financial obligation which consists in: (i) debts and financial obligations of the CLIENT derived from this contract; (ii) debts and financial obligations that appear in the quarterly Financial Statements of the CLIENT at the end of the quarter before the date of the signing of this contract; (iii) debts and financial obligations derived from the Leasing and Lease-back Contracts entered into by the CLIENT after the date of the signing of this contract, provided that the amount owed as principal for those obligations does not jointly exceed US$20'000,000.00; (iv) debts and financial obligations derived from Hedge Agreements entered into by THE CLIENT to protect itself against possible variations in interest rates provided that the amount owed as principal in those agreements does not exceed the amount owed as principal in the contracts which it protects and the obligations derived from the Hedge 2 Agreements entered into in the normal course of business that are solely related to the sale of the CLIENT's local production; (v) debts and financial obligations incurred in the renewal, extension, substitution and/or refinancing of any debt mentioned in sections (i), (ii) and this same section (v) of this subclause, provided that that renewal, extension, substitution and/or refinancing be made under equal or more favorable terms and does not result in an increase in the amount of principal in an added form of the debts that are represented by those agreements; (vi) debts and financial obligations that THE CLIENT may incur in the normal course of his business, such as commercial accounts, accumulated costs, payment of taxes, letters of guaranty to insure the payment of customs duties and leasing of equipment; (vii) other debts and financial obligations that THE CLIENT may incur outside the Credit Line that is granted to it in accordance with this contract, provided that the amount of the principal of such debts and financial obligations does not jointly exceed the sum of US$5'000,000.00. 3 1.7 MATERIALLY HARMFUL EFFECT FOR THE CLIENT.- This is any event or condition that causes a substantially harmful effect on (a) the business, (financial or other) condition, operations or properties of the CLIENT, (b) the capacity of the CLIENT to fulfill its obligations under this contract or under any of the Guarantee Contracts or (c) the rights created in the Guarantee Contracts. 1.8 EVENT OF DEFAULT.- These are the circumstances listed in detail in the Eleventh Clause of this contract, that result in the consequences mentioned in the Twelfth Clause of this contract. 1.9 FINAL EXPIRATION DATE.- This is the expiration date of the term for the use of the Credit Line as indicated in subclause 3.3 of the Third Clause of this contract. 1.10 EXPIRATION DATE.- It is the expiration date of each of the loans and/or credits granted by THE BANK in favor of the CLIENT within the framework of the Credit Line that is mentioned in this contract. 1.11 BASE AMOUNT OF THE LOAN.- This is the amount that results from the addition of the following accounts of the CLIENT's assets in the indicated percentages: (i) 85% of the "Accounts Receivable of eligible buyers"; (ii) 70% of the "eligible inventory accounts of purchased concentrates"; (iii) 30% of the "eligible 4 inventory accounts of raw materials and products in process" and (iv) 80% of the eligible inventory accounts of end products"; using for that purpose the definitions that are contemplated in the following paragraphs. The "accounts receivable of eligible buyers" are understood to be that(those) account(s) of the CLIENT selected by THE BANK at its sole discretion to be included in the calculation of the Base Amount of the Loan. The amount of the discounts, reimbursements, deductions, claims, credits, charges, repayments or reductions shall be deducted from the nominal value of that (those) account(s) so as to determine the amount of that(those) account(s) that are to be computed. The respective conversion to the rate of exchange of sale on the date of the calculation shall be made for the purposes of calculating the value of that(those) account(s) that are to be calculated. Unless THE BANK determines otherwise, the "accounts receivable of eligible buyers" will not in any case be: (i) those derived from the sale (s) made by THE CLIENT to his home office, subsidiary companies or affiliated companies. The latter shall be understood to be those that are under the control of or under mutual control with THE CLIENT: 5 (ii) those whose term of payment is more extensive that the term normally used by THE CLIENT in its commercial transactions; (iii) those that are unpaid from more than sixty (60) days from their expiration date or more than ninety (90) days from their invoicing date; (iv) those whose debtor has more than fifty per cent (50%) of its debts as ineligible in accordance with the criteria established in the foregoing section (iii); (v) those that added to the other accounts of this same debtor exceed in their face value to 10% of all the outstanding accounts of the CLIENT but only with regard to the surplus; (vi) those whose debtor is at the same time a creditor of THE CLIENT entitled to compensation or such debtor has claimed or argued his liability with regard to the account but only with regard to the amount on which the debtor is entitled to compensation or has claimed or argued THE CLIENT to obtain; (vii) those whose debtor has voluntarily initiated or against whom proceedings for restructuring his equity, insolvency and/or bankruptcy, which has been wound up or dissolved, which 6 has suspended the development of its business or which has been declared to be insolvent; (viii) those derived from a sale in which for some reason the debtor is entitled to recover the property or THE CLIENT has the obligation of repurchasing the same; (ix) those derived from a sale with regard to which the merchandise has not yet been shipped and sent to the site designated by the debtor of the account or that does not represent a final sale; (x) those with regard to which the debtor has handed over before to the account, an amount, a security or goods as a guarantee but only with regard to this amount, security or goods; (xi) those that are illegal for some other reason or have been illegally established. The "eligible inventory accounts of acquired concentrates" in the purchased concentrates' inventory of the CLIENT are understood to be the accounts that in the judgment and opinion of the BANK comply with the following requirements: (i) consist in concentrates that are physically located or localized in the plants or establishments of THE CLIENT or in general deposit warehouses, the same that THE CLIENT shall specify in writing to THE BANK within the thirty (30) calendar days 7 following to the signing date of this contract and each of its anniversaries -except for the case of conveying an important part of these concentrates to places not specified by THE CLIENT to THE BANK in the indicated term, in which event THE CLIENT may be bound to give notice immediately to THE BANK indicating the place of destination-, or that having been deposited, localized or physically located in sites that are different from the aforementioned but always within the territory of the Republic of Peru may be freely inspected by THE BANK and on which there is no right or lien whatsoever in favor of the depositary; (ii) is in good condition, not damaged nor obsolete and complies with all the standards established by any government authority that has faculty with regard to these goods, their use and/or sale and which is normally usable or salable in the normal course of business of THE CLIENT; (iii) is not a consigned inventory; and (iv) is marketable. "Eligible inventory accounts or raw materials and products in process" in the inventory of raw materials and products in process of the CLIENT are understood to be: 8 (A) When dealing with raw materials, those that in the opinion and judgment of the BANK comply with the following requirements: (i) consists in raw materials that have been localized or physically located in the plants or establishments of THE CLIENT or in general deposit warehouses, the same that THE CLIENT shall specify in writing to THE BANK within the thirty (30) calendar days following to the signing date of this contract and each of its anniversaries, except for the case of conveying an important part of these raw materials to places not specified by THE CLIENT to THE BANK in the indicated term, in which event THE CLIENT may be bound to give notice immediately TO THE BANK indicating the place of destination, or which being physically located or localized in sites different from those mentioned but always within the territory of the Republic of Peru may be freely inspected by THE BANK and are not encumbered with any lien or right whatsoever in favor of the depository; (ii) are in good condition, not damaged nor obsolete and comply with all the standards established by any government authority that has faculty with regard to these goods, their use and/or 9 their sale and which are normally usable or salable in the normal course of business of THE CLIENT; (iii) are not consigned inventory; and (iv) are marketable; AND (D) when dealing with products that are in process, complies in the BANK's judgment and discretion with the following requirements: (ii) they are products in process which are in good condition; (iii) they are salable, marketable and not obsolete; (iv) they are physically localized or located in the plant and/or establishment of the CLIENT or in any other site authorized by THE BANK within the territory of the Republic of Peru and it is possible to separately identify them with regard to the other goods located in the aforementioned sites; (v) are solely the property of the CLIENT who has a legitimate title to transfer the same; and (vi) are free from any lien or measure that could affect the entitlement of the CLIENT. "Eligible inventory accounts of end products" are understood to be the inventory of end products of the CLIENT that in the BANK's judgment and discretion complies with the following requirements: 10 (i) consists in end products that are physically located or localized in the plants or establishments of the CLIENT or in general deposit warehouses, the same that THE CLIENT shall specify in writing to THE BANK within the thirty (30) calendar days following to the signing date of this contract and each of its anniversaries, except for the case of conveying an important part of these end products to places not specified by THE CLIENT to THE BANK in the indicated term, in which event THE CLIENT may be bound to give notice immediately to THE BANK indicating the place of destination-, or which are physically located, deposited or localized in sites different from those mentioned but always within the territory of the Republic of Peru may be freely inspected by THE BANK and no lien or right whatsoever exists on them in favor of the depository; (ii) are in good condition, not damaged nor obsolete and comply with all the standards established by any government authority that has faculty with regard to those goods, their use and/or their sale and which are normally usable or salable in the normal course of business of the CLIENT; (iii) are not consigned inventory; and (iv) are marketable. 11 1.4 OBLIGATIONS.- They are generally the commitments, duties and obligations assumed by THE CLIENT with regard to the BANK due to this contract and particularly those commitments and obligations listed in detail in the Tenth Clause. 1.5 FINANCIAL OBLIGATIONS.- They are the commitments and obligations assumed by THE CLIENT with regard to the BANK in accordance with the provisions of subclause 10.1 of the Tenth Clause of this contract. 1.6 MINIMUM NET CONSOLIDATED PATRIMONY.- The Minimum Net Consolidated Patrimony of the CLIENT is of US$275'000,000.00 (TWO HUNDRED AND SEVENTY FIVE AND 00/100 MILLION AMERICAN DOLLARS); where the Consolidated Net Patrimony is the sum of (i) all the items that in accordance with the Generally Accepted Accounting Principles (GAAP) in Peru appear as patrimony on its Balance Sheet and (ii) the amount that corresponds to the representative shares of the capital stock. For the purposes of determining the Minimum Net Consolidated Patrimony of Doe Run Peru, the amount of US$125 million which corresponds to the loan made by Doe Run Peru to Doe Run Mining will be deducted from the sum that results from the above formula or in case of pre payment or amortization, the lesser amount whose payment is outstanding as principal as well as the 12 amount that corresponds to other loans and advances amongst affiliated companies. 1.7 HEDGE RATIO OF THE CONSOLIDATED FIXED OBLIGATIONS.- This is the Ratio of 2.25 to 1.0 as a minimum, determined on the basis of projections (PRO FORMA BASIS) for the Term of Utilization of the Credit Line; that is defined as the ratio OF (i) UAIIDA (as it is hereinafter defined within this same paragraph) during the four fiscal quarters prior to the date of the transaction that causes the calculation of the ratio to (ii) the sum of (A) cost due to interest, (B) amortization of the principal of due debts or debts payable, and (C) paid, accumulated and/or scheduled for payment financial obligations due to financial leasing determined on a consolidated basis in accordance with the Generally Accepted Accounting Principles (GAAP) in Peru; where the UAIIDA (Profit before taxes, Interest, Depreciation and Amortization) of a juridical person is the sum (without duplication) of (i) the Consolidated Net Profit minus the special, unusual or not repeated profits or losses, (ii) the income tax of that person and its subsidiaries for that period paid or accumulated in accordance with the Generally Accepted Accounting Principles (GAAP) in Peru (provided that they are not the income tax attributable to special, unusual or not repeatable profits or losses), the costs due to consolidated interest 13 (net of any income due to interest), amortization costs (including amortization of deferred financing costs) and depreciation costs and (iii) other non-monetary items that reduce the Consolidated Net Profit (including without limitation any non-monetary charge with regard to retirement benefits, health benefits, life insurance and long term benefits for disability, required in accordance with the Generally Accepted Accounting Principles (GAAP) in Peru) MINUS other non monetary items that increase the Consolidated Net Profit, all of which is determined in a consolidated manner for that person and its subsidiaries in accordance with the Generally Accepted Accounting Principles (GAAP) in Peru. THE CLIENT hereby declares to know and accept that in case it becomes a corporation, it shall be included, as one of the addends of the mentioned sum in the first subclause (ii) of the foregoing paragraph, for purposes of calculation of the referred ratio, the product of (a) the amount of all the declared, paid and/or accrued dividends in favor of the shareholders for (b) a fraction whose numerator is one and the demoninator is one minus the tax rate in force. SECOND: BACKGROUND THE CLIENT is a private company whose object is to devote itself to mining activities, including, but not limiting to, the ore 14 processing. THE CLIENT purchased in October 1997, the Empresa Metalurgica La Oroya S.A. (La Oroya Metallurgical Company) from its previous owner, the state company Empresa Minera del Centro del Peru S.A. within the framework of the privatization process executed by the Government of the Republic of Peru. THE CLIENT absorbed the Empresa Metalurgica La Oroya S.A. in December 1997 by a merger. THIRD: OBJECT OF THE CONTRACT THE CLIENT requires working capital financing for its foreign trade operations and/or local sales which is why it has applied for a Revolving Credit Line from THE BANK for up to the sum of US$40'000,000.00 (FORTY MILLION AND 00/100 AMERICAN DOLLARS) and THE BANK, accepting the application that was made, agrees to grant it in accordance with the terms and conditions stipulated in this contract. 3.1 REVOLVING CREDIT LINE.- THE BANK agrees to grant the CLIENT, subject to the terms and conditions of this contract, different loans and/or credits in dollars during the period included from the date on which the foregoing conditions for making the disbursements and issuing the letters of credit, stipulated in the Eighth Clause of this contract are complied with up to, but excluding, the Final Expiration Date, for the maximum sum of 15 US$40'000,000.00 (FORTY MILLION AND 00/100 AMERICAN DOLLARS), with the specification mentioned in subclause 3.2 of this same Clause. Subject to the terms of this contract, during such term, THE CLIENT may receive loans, pay and ask once more for loans for part or all of the above indicated sum. 3.2 AMOUNT.-The maximum amount of use of the Credit Line that THE BANK grants in accordance with this contract, shall be at all times the amount that is less than (i) US$40'000,000.00 and (ii) the Base Amount of the Loan, provided that the legal limits allow so for its transactions which are established by the Financial System and Insurance System General Act and the Organic Act of the Superintendency of Banking and Insurance (Law Nr. 26702) or any other that may replace it in the future, considering the credit line for the request of issuance of letters of guaranty granted by THE BANK and any other credit granted or which THE BANK may grant in the future to THE CLIENT. In the event that, as consequence of the variations in the Base Amount of the Loan, the amount used of the Credit Line is over the maximun amount permitted which is contemplated in the foregoing paragraph, THE BANK will be entitled to demand to THE CLIENT the prepayment of the sum which is necessary so that the 16 amount used of the credit line be equal or lower than the maximun amount permitted in accordance with the provisions of the foregoing paragraph. 3.3 TERM OF USE.- The maximum term for the use of the Credit Line is of four (4) years counted from the signing of this contract, without prejudice to the provisions set forth in Eighth Clause of this contract . In that sense, the Final Expiration Date shall be on June 10, 2002. Nevertheless, at the end of the first year and of each of the subsequent years of the term of use of the Credit Line, THE BANK may, without being obliged to do so, extend the Final Expiration Date by additional annual periods. 3.4 FORMS OF USE.- THE CLIENT may use the Credit Line that is granted in accordance with this contract by requesting (i) loans, including but not restricted to pre and post-shipment loans, or (ii) issuing on the part of the BANK of Letters of Credit for the payment of its imports of concentrates, raw materials and materials. 3.5 POSSIBILITY OF REDUCTION OF THE AMOUNT OF THE CREDIT LINE.- THE CLIENT may request at any time the reduction of the maximum amount of the Credit Line mentioned in the foregoing subclause 3.2. Once the maximum amount of the Credit Line has been reduced, it may not be once more restored. 17 3.6 REPAYMENT OF THE CREDIT LINE.- Without prejudice to the provisions of the Eleventh and Twelfth Clauses which refer to "Events of Default" and the "Consequences of the Events of Default" respectively, THE CLIENT pledges to completely pay to the BANK the loans and/or credits that are outstanding in accordance with this Credit Line on the Final Expiration Date. FOURTH: OF THE TERMS AND CONDITIONS OF THE LOANS MENTIONED IN SECTION 3.4(I) 4.1 THE AMOUNT.- The amount of the individual loans requested by THE CLIENT may not be lower than US$1'000,000.00 (except in the case that the amount available of the Credit Line is lower than the aforementioned sum) and must be in amounts that are multiples of US$200,000.00. The loans must be requested by THE CLIENT to the BANK at least three (3) workdays in advance. The request that THE CLIENT submits to THE BANK shall specify at least the following information: (a) in the case of financing for foreign trade operations: (i) the amount, (ii) the date on which the disbursement is desired, (iii) the financing term in accordance with what is stipulated in the following subclause of this Clause, (iv) the probable date of shipment, (v) the merchandise to 18 be exported, (vi) the country of destination, (vii) the documents supporting the exportation, (viii) the buyer's name and (ix) the number of collections (in case of post-shipment financing); and (b) in the case of financing for other purposes mentioned in the Third Clause concerning the object of the contract: (i) the reference to the credit line, (ii) the amount, and (iii) the financing term in accordance with the provisions of the following subclause of this Clause. In addition, in the case of financing for foreign trade operations, THE CLIENT shall enclose to the request the duly signed form of request for foreign credit which THE BANK shall timely supply. TERMS.- Provided that the term of use of the Credit Line permits it, taking into consideration what was resolved upon in subclause 3.6 of the foregoing Clause, the loans shall have terms of 1, 3 or 6 months at the option of the CLIENT, stated in writing to the BANK in his application. THE CLIENT shall request to THE BANK the prepayment of the loans granted two (2) workdays in advance to the date foreseen for the prepayment, which will be evaluated and decided by THE BANK, at its sole discretion, being in these cases THE BANK empowered to collect from THE CLIENT a fee for prepayment which will be previously and timely informed to THE CLIENT. 19 4.3 INTEREST RATE.- The compensatory interest rate accrued by these loans during the first year of the term of use of the Credit Line shall be the LIBOR rate at 1, 3 or 6 months (depending on the term of the loan requested by THE CLIENT) + 1.50%. The LIBOR rate at 1, 3 or 6 months is the interest rate at which Eurodollar deposits are offered for that same term on the London interbanking market, a rate that is recorded daily at 11.00 hours, as appears on the LIBOR page of the monitor of the REUTERS informative system (adjusted if necessary to 1/16 of the closest high 1%). The parties agree and stipulate that the interest rate agreed upon for this loan is of a floating nature in accordance with the variations of the LIBOR rate and therefore THE BANK will proceed to set the rate the applies to each loan not less than two (2) workdays in advance of the date provided for the disbursement of the respective loan, taking into account the LIBOR rate stipulated in the Reuters Monitor on that date. The amount that must be paid by THE CLIENT for interest at the end of that term will be established on this basis. Delays on the fulfillment of the payment of interest and/or capital of the loans on the dates of their respective expiration shall be subject at that time and until the total repayment of the expired obligations, to the payment of interests for delayed payments at the rate of 3% yearly in addition to the 20 compensatory interest. For that purpose, THE CLIENT will incur in automatic default without need for any summons or notice whatsoever in accordance with the provisions of section 1 of Article 1333 of the Civil Code. At the end of the first year of the term of use of the Credit Line and at the expiration of the subsequent annual periods, THE BANK may, without being obliged to do so, review and amend the compensatory interest rate mentioned in the foregoing paragraph; which it will notify the CLIENT thirty (30) calendar days in advance. 4.4 PROMISSORY NOTES.- The loans shall be documented by the issuing on the part of the CLIENT of one or several promissory notes, using for this purpose the form of promissory note which as Exhibit 1 forms an integral part of this contract. The parties declare that this form of promissory note may be modified by THE BANK at any moment. 4.5 REPAYMENT OF THE LOANS.- Without prejudice to the provisions of Subclause 3.6 of the Third Clause, which refers to the "Repayment of the Credit Line" and to the Eleventh and Twelfth Clauses, which refer to "Events of Default" and the "Consequences of the Events of Default" respectively, THE CLIENT pledges to pay the BANK the loans on their respective 21 Expiration Dates, for which purpose it authorizes the BANK to charge the amount owed to any of the accounts that THE CLIENT maintains in THE BANK in accordance with the provisions of the Thirteenth Clause. FIFTH: OF THE TERMS AND CONDITIONS OF THE LETTERS OF CREDIT MENTIONED IN CLAUSE 3.4(II) 5.1 ISSUING OF LETTERS OF CREDIT.- Provided that THE CLIENT requests in writing by signing and submitting the respective form to the BANK three (3) workdays in advance, THE BANK may, as part of the credits granted to THE CLIENT in accordance with the Revolving Credit Line which this contract refers to, issue Letters of Credit for the payment of imports of raw materials, concentrates or materials made by THE CLIENT. The amount of the Letters of Credit issued by THE BANK shall be considered in this sense as an amount that has been used of the aforementioned Credit Line. 5.2 THE AMOUNT.- The amount of the Letters of Credit requested by THE CLIENT may not be less than US$100,000.00 except in the case that the amount available of the Credit Line is lower than that sum. 22 5.3 THE TERMS.- Provided that the term of use of the Credit Line permits it, taking into consideration what was resolved in subclause 3.6 of the Third Clause, the Letters of Credit will have the terms requested by THE CLIENT and approved by THE BANK, the same which, in principle, shall not exceed the term of 6 months. 5.4 PAYMENT OF THE LETTERS OF CREDIT.- At the time of the effective payment of a Letter of Credit issued in accordance with the provisions of this Clause, THE BANK shall finance to THE CLIENT the amount due, by granting a loan for a term of (3) months in the terms and conditions indicated in the Fourth Clause and other Clauses of this document; unless THE CLIENT requests to THE BANK to immediately collect the sum paid through the letter of credit for which THE CLIENT hereby authorizes THE BANK to charge in his current account or in any of his accounts the corresponding amount, in accordance with the Thirteenth Clause. SIXTH: FEES THE CLIENT is obliged to pay the following fees to the BANK: 6.1 UNDERWRITING FEE.- THE CLIENT will pay to the BANK as an Underwriting Fee, US$500,000.00 (FIVE HUNDRED THOUSAND AND 00/100 AMERICAN DOLLARS) equivalent to 1.25% of the maximum amount of the Credit Line 23 (US$40'000,000.00) which will be paid on the signing of this contract. 6.2 AGENCY FEE.- THE CLIENT will pay to the BANK as Agency Fee US$30,000.00 (THIRTY THOUSAND AND 00/100 AMERICAN DOLLARS) a year during the term of use of the Credit Line including any extension of the same, which shall be paid in advance on the signing of this contract and on each date of anniversary of the signing of this contract. 6.3 COMMITMENT FEE.- THE CLIENT will pay the BANK as a Commitment Fee, during the term of use of the Credit Line, a sum equivalent to 0.375% annually of the average unused portion of the Line, which shall be calculated by taking into account the daily unused portions, from which a quarterly average shall be obtained on which the aforementioned rate will be applied. This Fee will be paid on a lapsed quarter within the first ten (10) calendar days of the following quarter. For purposes of the calculation, the nominal amount of the Letters of Credit mentioned in subclause (ii) of Clause 3.4 shall be considered to be the "amount used" of the Credit Line. 6.4 FEE ON THE ISSUING OF A LETTER OF CREDIT.- THE CLIENT will pay the BANK as a Fee for the Issuing of a Letter of Credit, a sum equivalent to 0.375% of the amount of each Letter of Credit 24 to be issued in accordance with the provisions of subclause (ii) of Clause 3.4. This fee will be paid at the time of the issuing of each Letter of Credit. SEVENTH: PRIOR CONDITIONS FOR THE EXECUTION OF THE CONTRACT The prior conditions for the execution of this contract are: 7.1 LEGAL CAPACITY OF THE CLIENT.- The reception on behalf of the BANK of a legalized copy of the minutes of the General Meeting of Partners of the CLIENT authorizing the signing and execution of this contract and of the Guarantee Contracts and appointing their attorneys for the signing of the same. 7.2 FINANCIAL STATEMENTS.- The reception on behalf of the BANK of the copies of the audited financial statements which correspond to the economic fiscal year which ended on December 31, 1997 and of the unaudited financial statements which correspond to the first quarter of the 1998 Fiscal Year together with a certification from THE CLIENT of a recent date that those financial statements are correct and complete. 7.3 LEGAL OPINIONS.- The reception on behalf of the BANK of satisfactory legal opinions signed by the lawyers of THE CLIENT and of the parent company, Doe Run Resources Corporation, this latter referred to the validity of the subordination of the present or 25 future debts, which THE CLIENT may have, derived from the issuance of Senior Notes made in March 1998 by the parent company, to the debts that THE CLIENT may incur before THE BANK by virtue of this contract. 7.4 NONEXISTENCE OF GOVERNMENT ACTION.- That the Peruvian Government shall not have enacted legislation nor taken any measure whatsoever that at the criteria and discretion of the BANK could restrict the exporting of its products by THE CLIENT. 7.5 NONEXISTENCE OF CIRCUMSTANCES THAT AFFECT THE FINANCIAL SYSTEM.- That no circumstances or situations have arisen that, in the opinion and judgment of the BANK negatively affect (i) the Peruvian financial system, (ii) the international financial system, (iii) the political or economic environment of Peru, or (iv) the tax or currency policies of the Peruvian government, its laws and regulations. 7.6 NONEXISTENCE OF CIRCUMSTANCES THAT AFFECT THE FINANCIAL CONDITION OF THE CLIENT.- That no circumstance or situation has arisen since the date of the last audited financial statements that in the BANK'S opinion and judgment affect or could substantially affect (i) the repayment capacity of the loans and/or credits by 26 THE CLIENT or (ii) the business, operations, properties, assets or liabilities of THE CLIENT. 7.7 NONEXISTENCE OF LIENS WITH REGARD TO THE CLIENT'S INCOME AND ASSETS.- That the assets and accounts receivable of the CLIENT be free from any lien. 7.8 CERTIFICATE OF THE BASE AMOUNT OF THE LOAN.- The reception on behalf of the BANK of a certificate signed by the Financial Manager of THE CLIENT or the official designated by him for that purpose which was previously communicated by THE CLIENT to the BANK establishing the Base Amount of the Loan. 7.9 DUE DILIGENCE.- The conclusion by the BANK in a satisfactory manner of THE CLIENT's due diligence. EIGHTH: PRIOR CONDITIONS FOR THE EXECUTION OF THE DISBURSEMENTS AND THE ISSUANCE OF LETTERS OF CREDIT The prior conditions for the execution of the disbursements of the credits and/or loans referred to in this contract are: 8.1 GUARANTEE CONTRACTS AND ESTABLISHMENT OF COLLECTION ACCOUNTS.- The reception by THE BANK of the Guarantee Contracts duly signed by THE CLIENT and its conformity with the establishment of the Collection Accounts in Lima and New York. Likewise, the service of notices to the clients of THE 27 CLIENT instructing them to make their payments in the Collection Accounts and the written consent by them indicating their compliance with such instructions. 8.2 NONEXISTENCE OF CIRCUMSTANCES THAT COULD AFFECT THE FINANCIAL SYSTEM.- That no circumstances or situations have arisen since the date of the signing of this contract that in the opinion and judgment of the BANK affect or could affect in a negative form (i) the Peruvian financial system, (ii) the international financial system, (iii) the political or economic environment of Peru, or (iv) the tax or monetary policies of the Peruvian government, its laws and regulations. 8.3 FULFILLMENT OF OBLIGATIONS BY THE CLIENT.- That THE CLIENT has fulfilled all his Obligations established in this contract, including the Financial Obligations. 8.4 NONEXISTENCE OF CIRCUMSTANCES THAT COULD AFFECT THE FINANCIAL SITUATION OF THE CLIENT.- That there have not occurred since the date of the execution of this contract, circumstances or situations that in the opinion and judgment of the BANK affect or could affect in a substantial manner (i) the loan repayment capacity of THE CLIENT or (ii) the businesses, operations, properties, assets or liabilities of THE CLIENT. 28 8.5 NONEXISTENCE OF GOVERNMENT ACTION.- That the Peruvian Government not have enacted any legislation nor taken, since the date of the signing of this contract, any action whatsoever that in the opinion and judgment of the BANK could restrict the exporting of his products by THE CLIENT. 8.6 NONEXISTENCE OF ANY EVENT OF DEFAULT.- That on the date of the respective disbursement, no Event of Default whatsoever have occurred. 8.7 STATEMENTS AND GUARANTEES.- That the statements and guarantees made by THE CLIENT in the Ninth Clause of this contract and in the Guarantee Contracts be correct and complete in all aspects in and from the time of the disbursement unless the flaw in that statement or guarantee cannot reasonably cause a Materially Harmful Effect on the situation of THE CLIENT and provided that such declaration or guarantee has been true and complete in all its aspects on the date on which it was made. 8.8 NONEXISTENCE OF MATERIALLY HARMFUL EFFECT.- That on the date of the respective disbursement, no event or circumstance whatsoever has taken place that results or which could reasonably result in a Materially Harmful Effect for THE CLIENT. 29 8.9 REGISTRATION OF THE ORE COLLATERAL CONTRACT.- That the Ore Collateral Contract executed by THE CLIENT in favor of the BANK have been registered in the Public Mining Registry. NINTH: STATEMENTS AND GUARANTEES THE CLIENT states and guarantees to the BANK that: 9.1 ORGANIZATION AND QUALIFICATION.- THE CLIENT is a Limited Liability Commercial Company that was incorporated and exists under Peruvian laws. It is authorized under Peruvian law to own its property and to perform its normal activities. 9.2 POWERS OF ATTORNEY AND AUTHORIZATIONS.- THE CLIENT possesses and has granted to its attorneys all the necessary powers of Attorney and authorizations to sign this contract and the Guarantee Contracts and to comply with all the obligations assumed in each one of them. 9.3 COMPULSORY COMPLIANCE.- This contract and the Guarantee Contracts are valid and binding obligations that are of compulsory compliance for THE CLIENT except for what is provided for in the applicable bankruptcy, insolvency and equity restructuring laws. 9.4 GOVERNMENT AUTHORIZATIONS.- THE CLIENT has all the necessary government authorizations under the laws in force to execute this contract and the Guarantee Contracts and to comply 30 with the obligations assumed in each of them. These authorizations are in force and are not subject to any condition or requirement whatsoever. THE CLIENT shall obtain timely any authorization he requires since the signing date of this contract. 9.5 NONEXISTENCE OF CONFLICTS.- The signing and execution on behalf of THE CLIENT of this Contract and of the Guarantee Contracts, (i) is not in conflict nor does it create a situation of default with regard to (a) any of the terms, conditions or provisions of the bylaws and other incorporation documents of THE CLIENT, (b) any law or regulation that may be applicable, or any sentence, judicial order or decree from any relevant court or authority, (c) any resolution or contract in which THE CLIENT is a party or by which it is bound, (ii) nor can it result in the creation or imposition of any lien, charge or encumbrance on any property of THE CLIENT unless that lien, charge or encumbrance cannot reasonably cause a Materially Harmful Effect on the situation of THE CLIENT and has been duly reported to the BANK before the date of the signing of this contract. 9.6 LEGAL SITUATION.- THE CLIENT is not in default under any law or regulation whatsoever that may be applicable nor any sentence, judicial order or decree of any relevant authority or court, unless that situation cannot reasonably cause a Materially 31 Harmful Effect in the situation of THE CLIENT and has been duly reported to the BANK before the date of the signing of this contract. 9.7 FINANCIAL STATEMENTS.- THE CLIENT has placed at the disposal of the BANK its Financial Statements to December 31, 1997 which have been duly audited. All this financial information is correct and complete and precisely reflects the financial condition of THE CLIENT. On the date of signing of this contract, THE CLIENT does not have direct or contingent liabilities aside from those (i) mentioned or reflected in the aforementioned financial statements on those dates, (ii) that emerge from this contract and from the Guarantee Contracts, or (iii) those that were communicated to the BANK. No substantial change has occurred on the date of the signing of this contract that is harmful for the consolidated financial condition of THE CLIENT with regard to that financial condition that is reflected in the financial statements up to December 31, 1997. 9.8 JUDICIAL PROCEEDINGS.- Except for what was revealed to the BANK before the signing of this contract, there is no action, investigation, demand or judicial proceeding whatsoever that is pending or as far as any official or employee of THE CLIENT may know, there is no suit or written claim whatsoever against 32 THE CLIENT or its property in any court, fee or government committee, board, governmental agency or arbitration court. 9.9 DISCLOSURE.- On the date of the signing of this contract, the statements made by THE CLIENT in this document and in the Guarantee Contracts do not include any false statement of any fact nor do they omit any material fact that could cause the information furnished by THE CLIENT to lead the BANK to incur in a mistake. On the date of the signing of this contract, there is no fact known by THE CLIENT that has not been disclosed to the BANK, and that could result in a Materially Harmful Effect for THE CLIENT. 9.10 NONEXISTENCE OF ACTS OF GOD AND FORCE MAJEURE.- The businesses and properties of THE CLIENT have not been affected by fire, explosion, accidents, strikes, shutdowns or any other labor problem, drought, storm, hail, earthquakes, embargoes or any other circumstance that in a reasonable manner could cause a Materially Harmful Effect on THE CLIENT. 9.11 NONEXISTENCE OF DAMAGES TO THE ENVIRONMENT.- THE CLIENT operates his business complying with all environmental legal and regulatory standards applicable to mining-metallurgical activities, as well as with all the terms and conditions of the Environment Adaptation Program (PAMA) that it has submitted to 33 the Ministry of Energy and Mines. No harmful, toxic or dangerous material as defined by said standards has been or is being spilled, thrown, spread or freed by THE CLIENT violating any mining-metallurgical environmental law or regulatory standard unless suitable measures accepted by the respective government authorities and disclosed to the BANK are being taken to remedy this situation. THE CLIENT has not transported nor is he transporting any harmful, toxic or dangerous material whatsoever as defined by the aforementioned standards unless suitable measures that are accepted by the respective government authorities and disclosed to the BANK are being taken to remedy this situation. 9.12 TAXES.- THE CLIENT has prepared, signed and submitted before the competent authority the forms of all taxes and contributions which he is legally obliged to pay and has paid the same except for those that: (i) are being claimed by THE CLIENT through suitable impugning appeals and (ii) those on which the respective provisions and reserves have been made in THE CLIENT's accounting records. There is no outstanding proceeding or dispute between THE CLIENT and any government authority with regard to contributions and taxes, 34 different from those detailed in Exhibit II, which forms integral part of this contract. 9.13 IMMUNITY.- THE CLIENT has no immunity with regard to the jurisdiction and rights of any court, judge or tribunal or with regard to any legal proceeding or demand. 9.14 PRIORITY.- All the obligations assumed by THE CLIENT under this contract are first priority for THE CLIENT and therefore prevail with regard to the other direct or indirect, present or future obligations of THE CLIENT. In this sense, the obligations that could be derived for THE CLIENT from the guarantee given to the Issuance of Senior Notes made by Doe Run Resources Corporation in March 1998, will be contractually subordinated with regard to the obligations assumed by THE CLIENT in accordance with this contract. TENTH: OBLIGATIONS THE CLIENT assumes by this Clause the following Obligations with regard to THE BANK: 10.1 FINANCIAL OBLIGATIONS.- (1) To send to the BANK, not less than 60 days in advance of the date foreseen to incur in an Additional Debt, which differs from an Authorized Debt, a certificate signed by its Financial Manager (a) indicating that it is complying with the Fixed 36 Consolidated Obligations Hedge Ratio, (b) describing in detail the nature of that Additional Debt, including but without restricting itself to, a mention with regard to the use of the funds, the creditor, the term of the debt, the amortization program, the amount of the principal and interest, the guarantee, should there be any, and any other information that THE CLIENT considers to be important to understand the scope of that Additional Debt; and (c) projecting in detail a calculation of the Fixed Consolidated Obligations Hedge Ratio determined on a Pro Forma Basis as if the proposed additional debt had been incurred on the first day of the last fiscal quarter and thereinafter on each fiscal quarter during which its payment is pending. (ii) Send to the BANK within the ten (10) workdays after each fiscal quarter, a certificate signed by its Financial Manager certifying that THE CLIENT complies with the Net Minimum Consolidated Patrimony. 10.2 INFORMATION.- (ii) VERACITY.- Providing correct and complete information when drafting the credit application and at all times during the time this contract is in force. 37 (iii) FINANCIAL INFORMATION.- Send to the BANK or to whomever it designates complete financial information as well as an audited version of the same at the end of each fiscal year and within a term of not more than 120 (one-hundred and twenty) calendar days from the respective closing, committing to promptly communicate to the BANK or whomever it designates any fact or circumstance that could lead to a substantial deterioration in the income, profits, ability to pay and/or financial situation of THE CLIENT. Likewise, to send to THE BANK or to whomever it designates a non-audited version of the financial statements of THE CLIENT at the closing of each quarter of the fiscal year. (iv) ADDITIONAL INFORMATION.- Send to the BANK as soon as possible after its application, any additional information related to this contract with the Guarantee Contracts and with the capacity of THE CLIENT to comply with the obligations assumed in accordance with those documents. 10.3 NOTIFICATION OF SPECIAL EVENTS.- Immediately notify the BANK when any of the following events takes place, including a description on its nature and the measures that THE CLIENT plans to take with regard to it: (i) an Event of Default, and (ii) any suit, arbitration or administrative proceeding in which THE 37 CLIENT is a party, and in case of being solved in an unfavorable manner for THE CLIENT, it may have a materially harmful effect for THE CLIENT. 10.4 MAINTENANCE OF ACCOUNTING BOOKS AND RECORDS.- Keep accounting books and records in accordance with generally accepted accounting principles and practices that are accepted in Peru, committing before THE BANK that the annual financial statements of the company will be reported upon by a firm of independent auditors with an international reputation. The names of the selected auditors must be communicated to THE BANK in a timely manner. The records must be kept in sufficient detail so as to specify the investments made, their cost and should this be the case, the progress of their execution. 10.5 INSPECTION.- Allow the technical personnel of THE BANK or the persons that THE BANK designate, to verify the information that is supplied and the proper application of the resources granted due to credits and/or loans granted by THE BANK to THE CLIENT within the framework of this contract as well as to perform inspections in the plant and establishments of THE CLIENT. 10.6 EXISTENCE AND CAPACITY.- Maintain its existence as a Limited Liability Commercial Company under Peruvian law. 39 10.7 NON-PARTICIPATION IN UNRELATED ACTIVITIES.- Maintain the proper line of its business and abstain from directly or indirectly participating in unrelated activities. 10.8 USE OF THE RESOURCES.- Assign the resources from the credits and/or loans that THE BANK grants within the framework of this contract for the purpose indicated in the Third Clause of this contract. 10.9 MAINTENANCE OF ASSETS.- Maintain the plant and other productive areas that are necessary for the development of its corporate purpose in good condition and at certain times perform the repairs and restorations that may be necessary for this purpose. 10.10 LIMITATIONS IN THE DISPOSAL OF ASSETS.- Abstain, during the time this loan is in force, from selling, leasing, transferring or assigning the use of the fixed assets that are necessary to maintain the production and sales of the company that are estimated in the credit application submitted to the BANK unless they have been replaced or are to be replaced upon satisfaction of THE BANK and there has been a specific authorization in writing by the BANK in that sense, and except for the properties which may be transferred by THE CLIENT within the framework of the Lease-back Contracts which he intends to enter into in the future, including those entered into with THE BANK, under the 39 provisions of subclauses 10.19 of the Tenth Clause and 1.2 (iii) of the First Clause of this contract. THE BANK commits its best efforts to answer the aforementioned application within a maximum period of ten (10) workdays after it has been submitted. 10.11 GOVERNMENT AUTHORIZATIONS.- Maintain in force during the time that this contract is in force, all licenses, permits and generally any authorization that is necessary for the normal performance of its activities and the execution of this contract. 10.12 TAXES.- Comply with the payment of all contributions and taxes that may correspond to it in accordance with the laws in force except for those that are been questioned and/or claimed by THE CLIENT through proper impugning appeals and concerning which the respective reserves and provisions have been made in the accounting books and records of THE CLIENT. 10.13 ABSTAIN FROM MERGERS OR SPLITS.- Abstain from participating in merger or split processes and not sell nor transfer all or a substantial part of its fixed assets to any person whatsoever nor acquire all or substantially all the assets of any person whatsoever without the specific prior authorization in writing of the BANK. 10.14 COMPLIANCE WITH THE LAW.- Keep up to date in the fulfillment of its fiscal and labor obligations including those that derive from the social security laws and private management of pension funds 40 as well as with the other aspects of Peruvian or foreign legislation that may be applicable and of any regulations concerning this unless the need for that legislation or regulation is being debated and/or questioned by THE CLIENT in good faith through suitable means and provisions have been taken in the accounting records and books of THE CLIENT. 10.15 COMPLIANCE WITH ENVIRONMENTAL LEGISLATION.- Without prejudice to the obligation contemplated in the foregoing subclause, comply with each and all the obligations in the mining-metallurgical environmental legislation in force and for that purpose it must perform the studies and comply with the requirements established in the respective laws and regulations. 10.16 NONEXISTENCE OF HEDGING AGREEMENTS FOR SPECULATIVE PURPOSES.- Abstain from executing hedging agreements for speculative purposes that do not have the essential purpose of protecting oneself against possible fluctuations on the market of the prices of the minerals that it produces and sells. 10.17 TRANSACTIONS AND CONTRACTS WITH AFFILIATED OR LINKED PERSONS.- Abstain from entering into transactions with related companies or persons that are less advantageous than those that would be obtained should the transaction be entered into with non-related third parties. Excluded from the limitation referred to in this 41 subclause are the obligations THE CLIENT have with affiliated or linked persons and who appear in detail on Exhibit III which forms integral part of this contract. 10.18 OBLIGATIONS.- Comply on or before the expiration date with all the obligations assumed due to this or other contracts that it has entered into and whose default could result in the opinion and judgment of the BANK in a Materially Harmful Effect for THE CLIENT unless this compliance: (i) is being questioned by THE CLIENT in good faith through the proper means and (ii) on which the respective reserves and provisions have been made in the accounting books of THE CLIENT. 10.19 RESTRICTION IN THE ASSUMPTION OF FINANCIAL DEBTS AND OBLIGATIONS.- Abstain from assuming, creating or incurring in any financial debt or obligation different from an Authorized Debt unless it has the prior authorization in writing of the BANK; for which before incurring in this additional debt or financial obligation, THE CLIENT will send to the BANK the certificate mentioned in subclause 10.1(i) of the Tenth Clause. THE BANK commits its best efforts to communicate to THE CLIENT promptly, but at least thirty (30) calendar days before the proposed date to incur in such additional financial debt or obligation, its approval or rejection of the proposal of additional debt based on a 42 reasonable analysis. In case that THE BANK disapproves the proposed additional debt, THE CLIENT will not be permitted to incur in the same under penalty of being regarded as an Event of Default. 10.20 LIMITATION IN LIENS.- Abstain from creating or assuming liens on any of its present or future properties, assets or contractual rights, unless they refer to: (xix) Liens that are specifically created, required or permitted by this contract of by the Guarantee contracts. (xx) Liens imposed by some government body or authority due to taxes or contributions. 10.2 CERTIFICATE INDICATING THE BASE AMOUNT OF THE LOAN.- Send to the BANK, a Certificate signed by its Financial Manager establishing the Base Amount of the Loan effective on the twentieth day of every calendar month, as well as the details of the accounts that served to determine the same. This information is of the nature of an affidavit. This certificate shall be delivered by THE CLIENT to THE BANK within five (5) workdays following to the twentieth day of every calendar month. This certificate shall be in force during the next calendar month counted as from the twentieth day of every month, unless in the meanwhile THE CLIENT submits to THE BANK a new certificate replacing the 43 former, in which case this new certificate shall be in force for the remaining days until the twentieth day of the calendar month. 10.3 LIMITATION IN THE DISTRIBUTION OF DIVIDENDS.- Abstain from distributing dividends or paying subordinate debts should an Event of Default occur or should it be in default on its contractual obligations with THE BANK. ELEVENTH EVENTS OF DEFAULT The parties agree that each of the following circumstances constitutes an Event of Default: 11.1 DEFAULT IN THE OBLIGATION OF PAYMENT.- If THE CLIENT does not comply with the payment of (i) some amount which corresponds to the principal or interest of any of the loans and/or credits granted under this contract, (ii) some commission, fee or expense that must be paid and/or reimbursed in accordance with this contract or the Guarantee Contracts, or (iii) any other obligation assumed under this contract or the Guarantee Contracts. 11.2 FALSITY OF SOME STATEMENT OR GUARANTEE.- If any of the statements or guarantees made by THE CLIENT in this contract or in the Guarantee Contracts is or becomes false or incomplete and this circumstance continues without being corrected during a term of fifteen (15) calendar days from the date of the notice sent for that purpose by the BANK. 44 11.3 DEFAULT ON OBLIGATION.- If THE CLIENT defaults on any of the obligations assumed under this contract or under the Guarantee Contracts, different from the Obligation of Payment mentioned in subclause 11.1 of this Eleventh Clause and this default is not corrected (if this default is susceptible to correction) within the fifteen (15) calendar days after the notice in this sense sent by the BANK or if THE CLIENT incurs in an additional debt or financial obligation without the prior authorization in writing of the BANK. 11.4 DEFAULT ON FINANCIAL OBLIGATION.- If THE CLIENT defaults on any of the Financial Obligations described in subclause 10.1 of the Tenth Clause of this contract and this default is not remedied within the thirty (30) calendar days following the notice in that sense sent by the BANK. 11.5 BANKRUPTCY OR INSOLVENCY.- If THE CLIENT initiates a bankruptcy, insolvency or equity restructuring proceeding or one is initiated for him and these proceedings are not declared to be inadmissible within the thirty (30) calendar days following its initiation. 11.6 DEFAULT ON OBLIGATIONS CONTEMPLATED IN OTHER CONTRACTS (CROSS DEFAULT).- If THE CLIENT defaults on any of the obligations assumed in accordance with another financing contract that he has 45 entered into and this default causes the conclusion or anticipated expiration of the term for the compliance with his obligations derived from that contract. 11.7 INVALIDITY OF GUARANTEE CONTRACTS.- If any of the Guarantee Contracts is terminated, cancelled or ceases to (i) create a valid and complete guarantee on the property subject to this guarantee with the priority granted on it or (ii) be fully in force and valid because it was declared ineffective and without value. 11.8 GOVERNMENT AUTHORIZATIONS.- If any government authorization that may be required by THE CLIENT with regard to this contract or the Guarantee Contracts ceases to be fully in force and valid. 11.9 CHANGES IN THE SHAREHOLDERS.- If Doe Run Resources Corporation ceases to directly or indirectly own 66.66% of the shares of Doe Run Peru unless it has the approval of the BANK. 11.10 EXPROPRIATION.- If on a date after the signing of this contract, the Peruvian Government should perform any act that in the opinion and judgment of the BANK (i) could result in depriving it of any of its rights as a creditor under this contract or under the Guarantee Contracts or (ii) confiscates, expropriates or nationalizes the ownership or control of THE CLIENT on the 46 property that is the subject of this contract or the Guarantee Contracts. 11.11 POLITICAL VIOLENCE.- If on a date after the signing of this contract, some act of war (declared or undeclared), civil war, revolution, insurrection or terrorism in the Republic of Peru that has a materially harmful effect on the capacity of THE CLIENT to comply with its obligations under this contract and under the Guarantee Contracts. TWELFTH: CONSEQUENCES OF THE EVENT OF DEFAULT 12.1 Should any of the Events of Default described in the foregoing Clause take place, THE BANK is fully entitled to declare this contract cancelled in accordance with the provisions of Article 1430 of the Civil Code by means of a written communication served through notarial way to THE CLIENT, attaching a statement of accounts of the debtor balance. This contract shall be understood to have been cancelled without need for any other communication or procedure. The term shall be regarded as expired and the immediate payment of the sums owed may be demanded, in which case THE BANK shall be entitled to execute and/or demand in court the payment of all the sums owed as well as to execute the guarantees mentioned in the Fourteenth 47 Clause of this contract. A delay on the part of THE BANK in the exercise of this right will not mean in any case a presumption of waiver of the same. 12.2 Should the presumption contemplated in the foregoing subclause occur and until THE BANK does not collect all the amounts owed by THE CLIENT, the compensatory interest and additional interest for delays will be applicable at the highest rates established by THE BANK. THIRTEENTH: CURRENCY AND FORM OF PAYMENT OF OBLIGATIONS 13.1 A condition of this contract and particularly with regard to the payment of the interests for delayed payments and compensatory interest, of the fees and the other costs, services, contributions and taxes that are applicable, is that all payments must be made in the same foreign currency in which the loans and/or credits have been stipulated and granted in accordance with the exception provided for in article 1237 of the Civil Code. 13.2 THE CLIENT shall place for that purpose at the disposal of the BANK in a timely manner, sufficient funds to fully make the payments. By means of this document, THE CLIENT irrevocably authorizes the BANK to make the charges that correspond to the amounts owed. THE BANK shall proceed to charge these 48 amounts in any of its accounts maintained in any of its Branch Offices, whether in Peru or abroad, or apply the funds in any currency that it has in its hands to credit it to THE CLIENT without need of prior authorization or later acceptance of the same. THE BANK shall also be entitled to withdraw and apply to the amortization and/or cancellation of the amount owed to it by THE CLIENT, all sums, deposits or securities of any nature that it has in its hands for any reason and which is destined to be credited or delivered to it. 13.3 THE BANK is expressly authorized by THE CLIENT so that on its account and order it will acquired on the exchange market that is legally available, the necessary foreign currency that it will apply to the amortization and/or cancellation of the amount owed in accordance with this contract, charged to any of the accounts in Peruvian currency that THE CLIENT had in that financial institution or any of its branches or subsidiaries, should this be the case. FOURTEENTH: GUARANTEES As a guarantee for the fulfillment of the obligations assumed according to this contract, THE CLIENT is bound to grant in favor of the BANK the following guarantees that will be governed by their respective contracts: 49 (i) Pledge and keep pledged in favor of the BANK, in an irrevocable and unconditional manner, the proceeds of the sales obtained from contracts or operations of sale of its products as well as the collections generated from them, granting as a guarantee the local or foreign collection accounts in which its clients deposit the purchase price, for which purpose THE CLIENT will proceed to sign the corresponding Guarantee Contract. (ii) Grant in favor of THE BANK a first and preferential Ore Collateral on all the concentrates, raw materials, products in process and end products that are maintained and/or prepared by THE CLIENT, for which purpose THE CLIENT will proceed to sign the corresponding Guarantee Contract. FIFTEENTH: INDEMNITY By this Clause, THE CLIENT commits to indemnify the BANK and its Directors, officials and employees (hereinafter in this Clause "the Compensable Parties") for any loss, damage or expense in which any of the Compensable Parties suffers or incurs as a result of this contract, including but not limited to professional fees of lawyers and costs arising from the transaction that took place unless such loss, damage or expense is a result of the negligence or fraud of the aforementioned Compensable Party. 50 SIXTEENTH: ASSIGNMENTS AND SHARES By these presents THE CLIENT expressly agrees and accepts that THE BANK may assign and/or offer shares in the Credit Line that it grants in virtue of this contract to third financial institutions of first order whether Peruvian or foreign. As an exception and only in the case of assignments to other financial institutions by virtue of which THE BANK ceases to be bound partially before THE CLIENT for the Credit Line, the prior consent of THE CLIENT shall be necessary with regard to the assignee financial institution, and this consent may not be unreasonably retained (failed to be granted) by THE CLIENT. THE CLIENT also accepts that the resources of this loan may be obtained by THE BANK from foreign financial institutions of first order. This is the reason why it must reasonably cooperate with THE BANK making the greatest efforts to diligently furnish all the information reasonably requested by the institution(s) for the economic and financial evaluation of the company. SEVENTEENTH: COSTS AND EXPENSES 17.1 THE CLIENT shall assume and pay all the costs and expenses that are originated for THE BANK as a result of the preparation, negotiation and execution of this contract, including but not limited to the professional fees of the lawyers, the due 51 diligence expenses and the costs derived from THE BANK's participation and/or syndication, and the fees collected by the banks where the Collection Accounts are established, as a result of this contract. 17.2 THE CLIENT shall also assume all the in and out-of-court expenses that may arise as a result of the collection of the sums that THE CLIENT may owe THE BANK due to this contract and/or the execution of the Guarantee Contracts. 17.3 THE CLIENT shall also assume and pay the fees and costs that may be charged by the correspondent banks that participate in one way or another in the Letters of Credit issued by THE BANK mentioned in subclause (ii) of Clause 3.4 of this document. THE BANK is bound to deliver to THE CLIENT a copy of the evidence of liquidation that the correspondent bank(s) remit(s) to THE BANK. 17.4 Without prejudice to what is indicated in the foregoing paragraphs, THE CLIENT shall assume all the other costs and expenses derived from this contract, including the Notary's expenses derived from the recording as a Public Deed of this document as well as those of a Testimony and of a Simple Copy of the same for THE BANK. EIGHTEENTH TAXES 52 The parties agree that all the payments to be made by THE CLIENT to THE BANK in accordance with this contract must be made free from all contribution, tax, payment or charge that could be charged now or in the future on the same. NINETEENTH: NOTICES Any notice, application, demand, consent, designation, address, instruction, certificate or other communication that is to be given under this contract shall be given in writing or sent by facsimile (with a written confirmation of receipt, which may be made via facsimile) to the address and facsimile number indicated below of THE CLIENT and of THE BANK, and when so required by Peruvian law, to the addresses of THE CLIENT and THE BANK indicated in the introduction of this Contract, or to any other address that is communicated in writing for that purpose by THE CLIENT and by THE BANK: CLIENT: DOE RUN PERU S.R.L. Attention: Mr. Kenneth Richard Buckley and Mr. Henry Eric Peitz Address: Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro Facsimile: 215-1235 53 215-1281 BANK: BANCO DE CREDITO DEL PERU Attention: Mr. Giorgio Badani - Corporate Banking Mrs. Marcela Parodi - International Transactions Area Address: Centenario 156, Las Laderas de Melgarejo La Molina Facsimile: 349-0794 426-5644 TWENTIETH: APPLICABLE LAWS This contract shall be governed in all matters not provided for in this document by the Legislation of the Republic of Peru. TWENTY FIRST: ARBITRATION 21.1 The parties expressly agree that any conflict or controversy that may arise between them as a result of the interpretation or execution of this Contract including those related to its being invalid or void shall be resolved by means of a de jure arbitration entrusted to an Arbitration Court formed by three members that must necessarily be lawyers registered in the Bar Association held in accordance with the National and International Conciliation and Arbitration Regulations of the Chamber of Commerce of Lima. 21.2 The Arbitration Court will be formed in the following manner: each of the parties will designate one arbitrator and the 54 third will be designated by mutual agreement by the first two arbitrators, who will be the Chairman of the Arbitration Court. 21.3 The arbitration will be held in the city of Lima and the duration of the same may not exceed sixty (60) workdays counted from the date of installation of the Arbitration Court until the respective award is issued. 21.4 The award of the Arbitration Court shall be final and may not be appealed. 21.5 The losing party shall assume the costs caused by the arbitration. 21.6 Should any of the parties decide to appeal for the annulment of the arbitration award before the Judiciary, it must first issue a Letter of Guaranty to the other party executed by a first rank Bank with headquarters in Lima equivalent to US$50,000.00 (FIFTY THOUSAND AND 00/100 UNITED STATES OF AMERICA DOLLARS) that can be executed should that appeal be declared in a final sentence to be without grounds. This Letter of Guaranty must be in force during the time that the proceedings that have been filed are in force. Please add, Mr. Notary the other Clauses required by Law and record this Draft as a Public Deed. Lima, June 11, 1998. 55 DOE RUN PERU S.R.L. /s/ Kenneth Buckley BANCO DE CREDITO DEL PERU /s/ Jesus Antonio Zamora Leon /s/ Aida Lucia Ghiglino Zimic /s/ Guillermo Ferrero Alvarez Calderon, Attorney Lima Bar registration Nr. 26011 - -------------------------------------------------------------------------------- I CERTIFY that the copy on the reverse side is identical to the document I have seen. Lima, June 19, 1998 /s/ Anibal Corvetto Romero Notary - Attorney - at - law Lima - Peru 56 EX-10.10 5 EXHIBIT 10.10 Exhibit 10.10 SENOR NOTARIO: Sirvase usted extender en su Registro de Escrituras Publicas, una por la cual conste el Contrato de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas Cobranza que otorga DOE RUN PERU S.R.L.COMPANIA MINERA ARES S.A., con Registro Unico de Contribuyentes No. 3763038119277933, con domicilio en Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidroesquina calle "Z" con Pasaje El Carmen, Urb. El Vivero de Monterrico, Santiago de Surco, Provincia de Lima, Departamento de Lima, debidamente representada por el senor Kenneth Richard Buckley, Eduardo Hochschild Beeck y Carlos Fernando Ortiz Ugarte, facultados al e facultado al efecto segun poder otorgado en Junta General de Socios de fecha 15 de mayo de 1998,fecto segun a quien en adelante se denominara EL "CLIENTEtda; a favor del BANCO DE CREDITO DEL PERU, con Registro Unico de Contribuyentes No. 10004721, con domicilio en Calle Centenario No. 156, esquina con Av. Huarochiri, Urb. Las Laderas de Melgarejo, La Molina, Lima, representado por el senor Jesus Antonio Zamora Leon y la senora Aida Lucia Ghiglino Zimic, facultados al efecto segun poderes inscritos en los asientos 19-C y 32-C de la ficha 117464 del Registro Mercantil de Lima, respectivamente, a quien en adelante se denominara EL BANCO; en los terminos y condiciones siguientes: PRIMERA: ANTECEDENTES 1.1 En virtud de Contrato de Linea de Credito en Moneda Extranjera suscrito en esta misma fecha, EL BANCO ha otorgado a favor de EL CLIENTE una linea de credito hasta por US $ 40'000,000.00 para efectos de financiar capital de trabajo que requiere EL CLIENTE para sus operaciones de comercio exterior; en los terminos y condiciones contemplados en el referido contrato. 1.2. En la Clausula Decimo Cuarta.................... del referido Contrato de Linea de Credito se establece que, en garantia del cumplimiento de todas las oObligaciones que asume en virtud del mismo (en adelante, en este contrato, "las Obligaciones Garantizadas"), EL CLIENTE se obliga obliga a afectar y mantener afectado a favor del BANCO , en forma irrevocable e incondicional, el producto de las ventas que obtenga de contratos u operaciones deo transacciones de venta de sus productos, asi como el producto de las cobranzas que de ellos se generen, otorgando en garantia las ccuentas cobranza, locales o extranjeras, en las que sus clientes depositen el precio de compra; para lo cual procedera a suscribir el Contrato de Garantia correspondiente. 1.3 Los terminos Cada termino en mayusculas o con iniciales en mayusculas, que no esten definidos en forma expresa en este documento, tienen la definicion que se les asigna en el Contrato de Linea de Credito en Moneda Extranjera mencionado en el numeral 1.1 anterior. SEGUNDA: OBJETO En virtud de lo senalado en el numeral 1.2 de la Clausula anterior y en garantia del pago oportuno y total y fiel cumplimiento por parte del EL CLIENTE de todas y cada una de las OObligaciones Ggarantizadas, ya sean presentes o futuras, EL CLIENTE afecta y se obliga a mantener afectado a favor del BANCO, en forma irrevocable e incondicional, el producto de las ventas que obtenga de contratos u operaciones de venta, actuales o futuras, de sus productos, asi como las cobranzas que de ellos se generen, otorgando en garantia las cuentas cobranza, locales o extranjeras, en las que sus clientes depositen el precio de compra; para lo cual EL CLIENTE afecta en garantia a favor del BANCO el producto de las ventas que obtenga de contratos o transacciones de transferencia de sus productos asi como las cobranzas que de ellos se generen, otorgando en garantia las cuentas cobranza locales o extranjeras en las que sus clientes depositen el precio de compra; para lo cual, EL CLIENTE se obligacompromete a canalizar, a trave s de las cuentass cuentas senaladas en el numeral 5.2 de la Clausula Quinta de este contrato (en adelante, en este contrato, "las Cuentas Cobranza"), el integro de los pagos y/o cobranzas por la la totalidad de sus ventas de minerales provenientes de contratos comerciales suscritos con anterioridad o posterioridad a la fecha de suscripcion de este Contrato de Garantia de minerales;, asi como a asignar y mantener asignado a favor del BANCO la totalidad de las cobranzas derivadas de sus ventas provenientes de contratos de venta de minerales.en los terminos y condiciones estipulados en este documento. TERCERA: ASIGNACION DE LOS CONTRATOS 3.1 En virtud de lo acordado en la Clausula anterior, EL CLIENTE afecta en garantia a favor del BANCO la totalidad de las cobranzas derivadas de sus ventas de minerales provenientes de contratos comerciales, incluyendo las ventas en los mercados futuros, celebrados por EL CLIENTE; Para efectos de la afectacion a que se refiere la Clausula anterior y respecto de los contratos vigentes a la fecha de suscripcion de este Contrato de Garantiapara lo cual EL CLIENTE (i) enviara un aviso a cada uno de sus compradores con contrato vigente, que se encuentran comprendidos en la lista proporcionada por EL CLIENTE al BANCO, utilizando el modelo que como ANEXOnexo I forma parte integrante de este cContrato, informandole de la afectacion en garantia a favor del BANCO , en forma irrevocable, de los pagos a cobranza o cuenta por cobrarpendientes e instruyendolo a efectuar los mismospagos correspondientes en la Cuenta Cobranza abierta en el BANCO y (ii) debera recabar de cada uno de ellos y remitir al BANCO su respectiva conformidad y consentimiento a la afectacion comunicada, la misma que se instrumentara mediante el modelo de comunicacion que como ANEXOnexo II forma parte integrante de este contrato. 3.2 Para la afectacion de los contratos de venta de minerales y de transferencia por cualquier otro titulo a ser suscritos por EL CLIENTE con posterioridad a la suscripcion de este Contrato de Garantia, EL CLIENTE se obliga a incluir en los mismos la Clausula que, como ANEXO III, forma parte integrante de este contrato, en virtud de la cual comunica al comprador y/o adquirente, de la afectacion en garantia a favor del BANCO, en forma irrevocable, de los pagos y lo instruye a efectuar los mismos en la Cuenta Cobranza abierta en el BANCO; a lo cual el comprador y/o adquirente prestara su consentimiento en la misma Clausula. Los terminos y condiciones de cada Contrato de Compraventa a ser suscritos en el futuro por EL CLIENTE, deberan contar con la aprobacion previa del BANCO. 3.3 Para la afectacion de las operaciones de venta, existentes o futuras, que, por los usos y costumbres del mercado, no constan en un contrato formal, EL CLIENTE (i) enviara un aviso a los respectivos compradores, utilizando el modelo que como ANEXOnexo I forma parte integrante de este cContrato, informandole de la afectacion en garantia a favor del BANCO , en forma irrevocable, de los pagos a cobranza o cuenta por cobrarpendientes e instruyendolo a efectuar los mismospagos correspondientes en la Cuenta Cobranza abierta en el BANCO y (ii) debera recabar de cada uno de ellos y remitir al BANCO su respectiva conformidad y consentimiento a la afectacion comunicada, la misma que se instrumentara mediante el modelo de comunicacion que como ANEXOnexo II forma parte integrante de este contrato. CUARTA: DE LOS PAGOS POR PARTE DE LOS COMPRADORES Las obligaciones de pago de los compradores y/o adquirentes del CLIENTE seran cumplidas en forma absoluta e incondicional, sin lugar a descuentos, rebajas, deducciones o compensaciones que no sean usuales en este tipo de contratos; efectuandose el pago en las Ccuentas Cobranza indicadas por EL BANCO. QUINTA: DE LAS CUENTAS COBRANZA 5.1 EL CLIENTE abrira dos Cuentas Cobranza en EL BANCO , una en Lima-Peru y otra en la Sucursal del BANCO en Nueva York,una cuenta especial (en adelante en este documento la "Cuenta Cobranza") en las cuales los compradores y/o adquirentes del CLIENTE del CLIENTE (o EL CLIENTE en caso que aquellos incumplan sus instrucciones irrevocables de pago y le entreguen las sumas gravadas), depositaran el integro de los pagos y/olas cobranzas afectadas en garantia. 5.2 Los compradores y/o adquirentes locales del CLIENTE procederan a afectuar los pagos en la Cuenta Cobranza No. 191-1040982-1-78 abierta en EL BANCO en Lima-Peru; en tanto que los compradores y/o adquirentes del CLIENTE residentes en el exterior procederan a efectuar los pagos en la Cuenta Cobranza No. 866700-001 abierta en la Sucursal del BANCO en Nueva York. 5.3 Las partes acuerdan que, siempre que no se haya producido luna Causal de Ejecucion de la Garantia prevista en la Clausula Novena de este contrato, EL BANCO entregara al CLIENTE, siguiendo sus instrucciones, toda suma que haya sido depositada en las Cuentas Cobranza, que exceda al monto equivalente a un trimestre de pago de intereses, calculado en base a una tasa de interes del 8% anual sobre un monto del 75% de US $ 40'000,000.00 o, en caso se haya producido una reduccion del monto de la Lineas de Credito, del monto menor comprometido. Las partes acuerdan que el referido porcentaje de 8% podra ser revisado periodicamente por EL BANCOlo adeudado por EL CLIENTE en el proximo trimestre, por concepto de intereses por los prestamos y/o creditos que le ha otorgado EL BANCO en virtud del Contrato de Linea de Credito. Esta obligacion del BANCO cesara en caso se produzca luna Causal de Ejecucion de la Garantia, en cuyo caso y sin perjuicio de lo dispuesto en la Clausula Decima de este contrato, EL BANCO retendra en las Cuentas Cobranza todos las sumas que en ellas se depositen de conformidad con lo previsto en este documento. 5.4 Asimismo, EL BANCO se compromete a informar periodicamente/mensualmente/ trimestralmente al CLIENTE sobre el monto de dinero depositado en las Cuentas Cobranza. SEXTA: PLAZO En la medida que existan Obligaciones Ggarantizadas del CLIENTE para con EL BANCO derivadas del Contrato de Linea de Credito en Moneda Extranjera, EL CLIENTE estara obligado a afectar en garantia la totalidad de loas pagos y/o cobranzas derivadas de sus ventas de minerales provenientes de contratos comerciales, en los terminos y condiciones senalados en este contrato. SETIMA: DECLARACIONES Y GARANTIAS EL CLIENTE declara y/o garantiza al BANCO que: 7.1 EL CLIENTE es el unico y absoluto titular de las cobranzas que en virtud de este contrato afecta en garantia a su favor. 7.2 Sobre las cobranzas afectadas en garantia en virtud de lo dispuesto en este contrato no existe prenda, embargo, carga, gravamen, medida judicial o extrajudicial alguna que limite su derecho a ser libremente transferidas y/o gravadas por EL CLIENTE. En cualquier caso, EL CLIENTE se obliga a sanear el titulo y cualquier vicio oculto que las cobranzas afectadas en garantia puedan tener. OCTAVA: OBLIGACIONES EL CLIENTE se obliga, durante todo el tiempo que permanezca vigente el presente Contrato, a: 8.1 Cumplir en forma oportuna todas las obligaciones asumidas en los cContratos de Compraventa y demas contratos de venta que haya celebrado y cuyos pagos y/oa cobranzas ha afectado en garantia a favor del BANCO. 8.2 En el eventual caso que EL CLIENTE desee constituir una nueva prenda o gravamen de cualquier tipo o transferir o celebrar cualquier contrato o acto sobre parte o todoas loas pagos y/o cobranzas afectadas en garantia en virtud de este Contrato, EL CLIENTE debera obtenersolicitar el previo consentimiento por escrito del BANCO. En caso contrario, elCualquier contrato o acto, remocion y/o retiro de parte o toda la Garantia sin dicho consentimiento, sera invalido e ineficaz, siempre que ello no contravenga la ley peruana. EL CLIENTE conviene en incluir en cualquier contrato o convenio por el cual transfiera, prende o constituya cualquier otro tipo de garantia o prometa transferir a terceros todo o parte de la Garantia, una clausula por la cual dicho tercero expresamente reconozca este Contrato de Afectacion y todos y cada uno de los derechos establecidos en este Contrato en favor del BANCO. 8.3 Notificar oportunamente al BANCO cualquier circunstancia o hecho relacionado a las cobranzas afectadas en garantia que pudiera afectar su exigibilidad, su rango o su valor como garantia. 8.4. No realizarNo tomar u omitir accion alguna, que, como resultado, ocasione un perjuicio que pueda tener un Efecto Material Adverso sobre ael valor de las cobranzas afectadas en garantia. 8.5 Depositar en la Cuenta Cobranza que corresponda aquellos pagos y/o cobranzas que hubiera recibido directamente de sus compradores que hayan incumplido su compromiso de canalizacion de sus pagos a traves de las referidas Cuentas Cobranza. 8.6 Pagar al BANCO la comision anual por la administracion de la Cuenta Cobranza abierta en la Sucursal del BANCO en Nueva York, como contraprestacion por los servicios que dicha entidad le presta. NOVENA: CAUSALES DE EJECUCION DE LA GARANTIA EL BANCO podra ejecutar la garantia que se otorga en virtud de este contrato en caso se produzcaujera un Evento de Incumplimiento conforme al Contrato de Linea de Credito. DECIMA: EJECUCION DE LA GARANTIA En el caso contemplado en establecido en la Cclausula anteriorprecedente, EL BANCO podra, de conformidad con lo dispuesto poren el Articulo 1089 del Codigo Civil, cobrarse directamente de los montos depositados en las Cuentas Cobranza las sumas que le adeude EL CLIENTE. DECIMO PRIMERA: INDEMNIZACION Por la presente Clausula, EL CLIENTE se obliga a indemnizar al BANCO y a sus Directores, funcionarios y empleados (en adelante en esta Clausula "las Partes Indemnizables") por cualquier perdida, dano o gasto en que este(os) incurra(n) o pudiera(n) sufrir como consecuencia del presente contrato, incluyendo, pero no limitado a, honorarios profesionales de abogados y gastos surgidos de la transaccion celebrada, a menos que dicha perdida, dano o gasto sea consecuencia de la culpa o dolo de las Partes Indemnizables. DECIMO SEGUNDA: NOTIFICACIONES Cualquier notificacion, solicitud, demanda, consentimiento, designacion, direccion, instruccion, certificado u otra comunicacion a ser dada bajo el presente contrato, debera ser dada por escrito o enviada por facsimil (con confirmacion escrita de recepcion, confirmacion que puede ser hecha por facsimil) a la direccion y numero de facsimil abajo indicadas del CLIENTE y del BANCO y cuando sea requerido por la ley peruana, a las direcciones del CLIENTE y del BANCO indicadas en la introduccion de este Contrato, o a cualquier otra direccion que sea comunicada por escrito para tal efecto por el CLIENTE y el BANCO: CLIENTE DOE RUN PERU S.R.L Atencion: Sres. Kenneth Richard Buckley y Henry Eric Peitz Direccion: Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro Facsimil: 215-1235 215-1281 BANCO BANCO DE CREDITO DEL PERU Atencion: Sr. Giorgio Badani - Banca Corporativa Sra. Marcela Parodi - Area de Operaciones Internacionales Direccion: Centenario 156, Las Laderas de Melgarejo La Molina Facsimil: 349-0794 426-5644 DECIMO TERCERA: GASTOS Seran asumidos por EL CLIENTE todos los costos y gastos que se deriven del presente contrato, incluyendo los gastos notariales derivados de la elevacion a Escritura Publica de este documento, asi como los de un Testimonio y una Copia Simple del mismo para EL BANCO. DECIMO CUARTA: LEGISLACION APLICABLE En todo lo no previsto en este documento, el presente Contrato se rige por la Legislacion de la Republica del Peru. DECIMO QUINTA: ARBITRAJE 15.1 Las partes acuerdan expresamente que cualquier conflicto o controversia que pudiera surgir entre ellas como consecuencia de la interpretacion o ejecucion de este Contrato, incluidas las relacionadas con su nulidad, invalidez e ineficacia, seran resueltas mediante arbitraje de derecho, a cargo de un Tribunal Arbitral compuesto por tres miembros que necesariamente deberan ser abogados colegiados, realizado conforme al Reglamento de Conciliacion y Arbitraje Nacional e Internacional de la Camara de Comercio de Lima. 15.2 El Tribunal Arbitral estara constituido de la siguiente manera: cada una de las partes designara a un arbitro y el tercero sera designado de comun acuerdo por los dos primeros, quien sera el Presidente del Tribunal Arbitral. 15.3 El arbitraje se llevara a cabo en la ciudad de Lima y la duracion del mismo no podra exceder los sesenta (60) dias utiles, contados a partir de la fecha de instalacion del Tribunal Arbitral hasta la expedicion del laudo respectivo. 15.4 El laudo del Tribunal Arbitral sera definitivo e inapelable. 15.5 Los gastos que ocasione el arbitraje seran de cargo de la parte perdedora. 15.6 En caso de que alguna(s) de las partes decidiera(n) interponer recurso de anulacion contra el laudo arbitral ante el Poder Judicial, debera constituir previamente a favor de la parte contraria una Carta Fianza otorgada por un Banco de primer orden con sede en Lima, equivalente a US$ 50,000.00 (CINCUENTA MIL DOLARES Y 00/100 DE LOS ESTADOS UNIDOS DE NORTEAMERICA), ejecutable en caso que dicho recurso, en fallo definitivo, no fuera declarado fundado. Dicha Carta Fianza debera estar vigente durante el tiempo que dure el proceso promovido. Agregue usted, senor Notario, las demas Clausulas de Ley, eleve a Escritura Publica la presente Minuta. Lima, 11 de junioabril de 1998 DOE RUN PERU S.R.L. BANCO DE CREDITO DEL PERU /s/ Kenneth Buckley /s/ Jesus Antonio Zamora Leon /s/ Aida Lucia Ghiglino Zimic /s/ Guillermo Ferrero Alvarez Calderon GUILLERMO FERRERO ALVAREZ CALDERON ABOGADO REG. CAL. 26011 ANEXO I MODELO DE AVISO DE CESION DE DERECHOS E INSTRUCCIONES IRREVOCABLES DE PAGO Lima, ....... de ................. de ......... Senores (NOMBRE Y DIRECCION DEL COMPRADOR) - ------------------- Atencion: Sr. . ------------------------------------------ De nuestra consideracion: Nos dirigimos a Uds. en relacion con el [[(1)Contrato de Compraventa que celebramos con fecha ....... de ................ de ........ o (2) la operacion de venta de nuestros productos acordada con Uds.]], en virtud de la cual les vendimos .............. (producto: calidad y cantidad).......... por el precio de venta acordado [[(1)en el referido contrato o (2)en dicha ocasion]]. ascendente a US$ ............ (precio de venta) ............... Por la presente damos a Uds. instrucciones irrevocables de realizar el(los) pago(s) correspondiente(s) al mencionado precio de venta por medio de una transferencia a la Cuenta de Cobranza No. establecida en el Banco de Credito del Peru/la Sucursal Nueva York del Banco de Credito del Peru.. Asimismo, les informamos que el producto de nuestras ventas esta afectado encomo gGarantia en favor del Banco de Credito del Peru, en virtud de lo dispuesto por los Contratos de Linea de Credito en Moneda Extranjera y de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas en Cobranza celebrados entre nuestra empresa y el referido Banco, y les senalamos que cualquier modificacion de estas instrucciones podra ser efectuada unica y exclusivamente por el Banco de Credito del Peru. DOE RUN PERU S.R.LTDA. /s/ Kenneth Buckley NOTA: Se utilizara la alternativa (1) para aquellos contratos a que se refiere el numeral 3.1 del Contrato y la alternativa (2) para las operaciones de venta a que se refiere el numeral 3.3 del Contrato. ANEXO II MODELO DE CARTA DE CONFORMIDAD Y CONSENTIMIENTO Senores BANCO DE CREDITO DEL PERU Centenario 156, La Molina Lima- Peru.- - ------------ Att.: Sres. Giorgio Badani/Alvaro Ossio Division de Banca Corporativa --------------------------------- De nuestra consideracion: El suscrito presta su conformidad a los terminos de la carta de aviso de cesion de derechos e instrucciones irrevocables de pago (en adelante en este documento "el AvisoVISO") de fecha ...... de .............. de ......, recibida de DOE RUN PERU S.R.LtdaTDA. (en adelante en este documento "la EmpresaMPRESA"), remitida de conformidad con los Contratos de Linea de Credito en Moneda Extranjera y de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas en Cobranza celebrados entre la referida empresa y el Banco de Credito del Peru (en adelante en este documento "el BancoANCO"). Por la presente el suscrito se compromete, en beneficio del BancoANCO, a realizar el pago de todas las sumas debidas a la EmpresaMPRESA [[(1)bajo el Contrato de Compraventa o (2)por la operacion de venta]] mencionado(a) en el AvisoVISO y ascendentes a US $ ..................... directamente al BancoANCO en la Cuenta de Cobranza No abierta en el Banco/la Sucursal Nueva York del BancoANCO,; sin descuento, rebaja o reduccion alguna por concepto de demanda, reclamo o derecho alguno que el suscrito pudiera tener contra la EmpresaMPRESA o alguna otra entidad, que no sean usuales en este tipo de contratos, o por alguna otra razon; y acuerda que tales pagos seran definitivos por lo que el suscrito no intentara recobrar del BancoANCO la totalidad o alguna parte de tales pagos. Este documento se regira por las leyes de la Republica del Peru. (COMPRADOR) NOTA: Se utilizara la alternativa (1) para aquellos contratos a que se refiere el numeral 3.1 del Contrato y la alternativa (2) para las operaciones de venta a que se refiere el numeral 3.3 del Contrato. ANEXO III MODELO DE CLAUSULA DE CESION DE DERECHOS E INSTRUCCIONES IRREVOCABLES DE PAGO A SER INCLUIDA EN LOS CONTRATOS DE VENTA QUE CELEBRE EN EL FUTURO EL CLIENTE CLAUSULA : Por la presente LA VENDEDORAascendente a US$ .......... (precio de venta) ............... instruye en forma irrevocable a LA COMPRADORA para que efectue el(los) pago(s) correspondiente(s) al precio de venta mencionado en la Clausula .............. de este contrato por medio de una transferencia a la Cuenta de Cobranza No. establecida en el Banco de Credito del Peru/la Sucursal Nueva York del Banco de Credito del Peru. Por la presente LA VENDEDORA informa a LA COMPRADORA y esta declara tomar conocimiento que LA VENDEDORA ha afectado en garantia el producto de sus ventas acomo favor del Banco de Credito del Peru, en virtud de lo dispuesto por los Contratos de Linea de Credito en Moneda Extranjera y de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas en Cobranza celebrados con fecha 11 de junio de 1998, entre LA VENDEDORA y el referido Banco. Asimismo LA VENDEDORA senala a LA COMPRADORA que cualquier modificacion de las instrucciones contenidas en esta Clausula podra ser efectuada unica y exclusivamente por el Banco de Credito del Peru. Exhibit 10.10 (English) MR. NOTARY: Kindly issue in your Registry of Public Deeds, a deed recording the Contract for Pledging as a Guarantee of Payments and/or Collections and of Collection Accounts executed by DOE RUN PERU S.R.L. with Single Taxpayer's Registration Number 37630381, domiciled at Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real-Torre Real 3, Piso 9, San Isidro, duly represented by Mr. Kenneth Richard Buckley, empowered by virtue of power of attorney granted in the General Meeting of Partners dated May 15, 1998, hereinafter referred to as THE CLIENT in favor of the BANCO DE CREDITO DEL PERU, with Single Taxpayer's Registration Number 10004721, domiciled at Calle Centenario NDEG. 156, corner with Av. Huarochiri, Urb. Las Laderas de Melgarejo, La Molina, Lima, represented by Mr. Jesus Antonio Zamora Leon and Mrs. Aida Lucia Ghiglino Zimic, empowered by virtue of powers of attorney respectively registered in entries 19-C and 32-C of filing card 117464 of the Government Registry of Commercial Concerns of Lima, hereinafter referred to as THE BANK, under the following terms and conditions: FIRST: BACKGROUND 1.1 In accordance with the Contract for a Credit Line in Foreign Currency that was signed on this same date, THE BANK has granted in favor of THE CLIENT a credit line for up to US$40'000,000.00 for the purpose of financing working capital required by THE CLIENT for its foreign trade operations; in the terms and under the conditions that are contemplated in the aforementioned contract. 1.2 In the Fourteenth Clause of the aforementioned Contract for a Credit Line, it is established that as a guarantee for the enforcement of all the obligations assumed in accordance with the same (hereinafter in this contract, "the Guaranteed Obligations"), THE CLIENT commits itself to pledge as a lien and maintain as a lien in favor of THE BANK in an irrevocable and unconditional manner, the proceeds of the sales obtained from sales contracts or sales operations of its products, as well as the proceeds of collections generated by them, granting as guarantee the local or foreign collection accounts in which its clients deposit the purchase price; for which purpose it will proceed to sign the respective Guarantee Contract. 1.3 The terms with capitalized initials which are not expressly defined in this document will have the definition assigned to 2 them in the Contract for a Credit Line in Foreign Currency mentioned in the foregoing subclause 1.1. SECOND: PURPOSE In accordance with the provisions of subclause 1.2 of the foregoing Clause and as a guarantee for the timely and total fulfillment on the part of THE CLIENT of each and all of the Guaranteed Obligations, whether present or future, THE CLIENT pledges and commits itself to maintain as a lien in favor of THE BANK in an irrevocable and unconditional manner, the proceeds of the sales obtained from present or future sales contracts or sales operations of its products as well as the collections generated by them, granting the local or foreign collection accounts in which its clients deposit the purchase price as guarantee; for which purpose THE CLIENT commits itself to channel through the accounts indicated in subclause 5.2 of the Fifth Clause of this contract (hereinafter within this contract, "the Collection Accounts"), all the payments and/or collections for all its ore sales from the commercial contracts that were signed before or after the date of the signing of this Guarantee Contract, in the terms and under the conditions stipulated within this document. 3 THIRD: ASSIGNMENT OF THE CONTRACTS 3.1 For the purposes of the lien mentioned in the foregoing Clause and with regard to the contracts in force on the date of the signing of this Guarantee Contract, THE CLIENT (i) will notify each one of its purchasers which has a contract in force that is included in the list supplied by THE CLIENT to THE BANK, using the model that as EXHIBIT I forms an integral part of this contract, informing them of the lien in favor of THE BANK in an irrevocable manner of the outstanding payments and instructing them to make the payments into the Collection Account opened in THE BANK and (ii) must obtain from each one of them and send to THE BANK their respective acceptance and consent to the reported lien, the same which will be documented by the communication model that forms an integral part of this contract as Exhibit II. 3.2 To pledge as a lien, the sales contracts for ores and for the assignment of any other title to be signed by THE CLIENT after the signing of this Guarantee Contract, THE CLIENT commits itself to include within them the Clause that as EXHIBIT III forms an integral part of this contract, in accordance with which it will communicate to the purchaser and/or buyer, the pledging as a guarantee in favor of THE 4 BANK in an irrevocable manner of the payments and instructs them to make them into the Collection Account opened in THE BANK; to which the purchaser and/or buyer will grant his consent within the same Clause. 3.3 For the pledging of the present or future sales operations that, due to the uses and customs of the market, are not recorded in a formal contract, THE CLIENT (i) shall send a notice to the respective purchasers, using the model that as EXHIBIT I forms an integral part of this contract, informing them of the pledging of the outstanding payments as a lien in favor of THE BANK in an irrevocable manner and instructing them to pay the same into the Collection Account opened in THE BANK and (ii) must obtain from each of them and forward to THE BANK their respective acceptance and consent to the lien that has been communicated to them, which shall be documented by the communication model that forms an integral part of this contract as EXHIBIT II. FOURTH: THE PAYMENTS ON THE PART OF THE PURCHASERS The payment obligations of the purchasers and/or buyers of THE CLIENT shall be absolutely and unconditionally executed without any discounts, rebates, deductions or compensations that are not 5 normal for this type of contracts. The payment shall be made into the Collection Accounts indicated by THE BANK. FIFTH: COLLECTION ACCOUNTS 5.1 THE CLIENT shall open two Collection Accounts in THE BANK, one in Lima-Peru and another in the Branch of THE BANK in New York, in which the purchasers or buyers of THE CLIENT (or THE CLIENT should they not comply with their irrevocable instructions for payment and not deliver the pledged sums), shall deposit all the payments and/or collections subject to lien. 5.2 THE CLIENT's local purchasers and/or buyers shall proceed to pay their payments into Collection Account NDEG. 191-1040982-1-78 opened in THE BANK in Lima-Peru; while the purchasers and/or buyers of THE CLIENT that reside abroad shall proceed to pay their payments into Collection Account NDEG. 866700-0001 opened in the New York Branch of THE BANK. 5.3 The Parties agree that, provided that the Cause for the Execution of the Lien provided for in the Ninth Clause of this Contract has not occurred, THE BANK shall deliver to THE CLIENT in accordance with its instructions, any sum that has been deposited into the Collection Accounts that exceeds the amount equivalent to a quarter term of payment of interest, 6 calculated on the basis of an interest rate of 8% a year on an amount that represents 75% of US$40'000,000.00 or, should a reduction of the amount of Credit Lines have occurred, of the lesser amount that has been committed. The Parties agree that the respective 8% percentage may be periodically reviewed by THE BANK. This obligation of THE BANK shall cease, should the Cause for the Execution of the Lien arise, in which case and without prejudice to the provisions of the Tenth Clause of this contract, THE BANK shall withhold within the Collection Accounts all the sums that are deposited in them in accordance with the provisions of this document. 5.4 THE BANK also pledges to inform THE CLIENT on a monthly basis on the amount of money deposited in the Collection Accounts. SIXTH: TERM Insofar as there are Guaranteed Obligations of THE CLIENT to THE BANK, THE CLIENT shall be obliged to pledge as a lien all the payments and/or collections derived from his ore sales from commercial contracts, under the terms and conditions stipulated within this contract. SEVENTH: STATEMENTS AND GUARANTEES THE CLIENT states and/or guarantees to THE BANK that: 7 7.1 THE CLIENT is the sole and absolute holder of the collections that are pledged as a lien in its favor in accordance with this contract. 7.2 That with regard to the collections pledged as a lien in accordance with the provisions of this contract there is not any lien, attachment, charge, encumbrance, decree in or out of court that restrict their right to be freely transferred and/or encumbered by THE CLIENT. THE CLIENT pledges a title clearance and a clearance of any hidden defect that the collections pledged as a lien may have. EIGHTH: OBLIGATIONS THE CLIENT commits during all the time that this Contract is in force to: 8.1 Comply in a timely manner with all the obligations assumed in the sales contracts and in the other sales contracts that it has entered into and whose payments and/or collections have been pledged as a lien in favor of THE BANK. 8.2 Should THE CLIENT wish to establish a new lien or encumbrance of any type or to transfer or enter into any contract or act on part or all the payments and/or collections pledged as a lien in accordance with this Contract, THE 8 CLIENT must previously obtain THE BANK's consent in writing. Otherwise, the contract or act shall be null and void. 8.3 Notify THE BANK in a timely manner of any circumstance or fact related to the collections pledged as a lien that could affect their demandability, their rank or their value as a guarantee. 8.4 Not to execute or omit any measure that as a result should harm the value of the collections that are pledged as a guarantee. 8.5 To deposit in the respective Collection Account those payments and/or collections that it may receive directly from its purchasers that have not complied with their commitment to channel their payments through the aforementioned Collection Accounts. 8.6 Pay to THE BANK the annual commission for the management of the Collection Account opened in the New York Branch of THE BANK, as a consideration for the services rendered by that entity. NINTH: CAUSE FOR THE EXECUTION OF THE LIEN THE BANK may execute the lien granted in accordance with this contract should a Cause of Default occur in accordance with the Contract for a Credit Line. TENTH: EXECUTION OF THE LIEN 10 In the case contemplated in the foregoing Clause, THE BANK may, in accordance with the provisions of Article 1089 of the Civil Code, directly collect from the amounts deposited in the COLLECTION ACCOUNTS the sums owed by THE CLIENT. ELEVENTH: INDEMNITY By this Clause, THE CLIENT commits to indemnify THE BANK and its Directors, officers and employees (hereinafter in this Clause "the Compensable Parties") for any loss, damage or expense incurred by them or in which they may incur as a result of this contract, including, but not limited to, professional fees by lawyers and expenses arising from the transaction that was entered into unless this loss, damage or expense were the result of fault or fraud of the Compensable Parties. TWELFTH: NOTICES Any notice, application, demand, consent, designation, address, instruction, certificate or other communication that is to be given under this contract shall be given in writing or sent by facsimile (with a written confirmation of receipt, which may be made via facsimile) to the address and facsimile number indicated below of THE CLIENT and of THE BANK, and when so required by Peruvian law, to the addresses of THE CLIENT and THE BANK 10 indicated in the introduction of this Contract, or to any other address that is communicated by writing for that purpose by THE CLIENT and by THE BANK: CLIENT: DOE RUN PERU S.R.L. Attention: Mr. Kenneth Richard Buckley and Mr. Henry Eric Peitz Address: Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro Facsimile: 215-1235 215-1281 BANK: BANCO DE CREDITO DEL PERU Attention: Mr. Giorgio Badani - Corporate Banking Mrs. Marcela Parodi - International Transactions Area Address: Centenario 156, Las Laderas de Melgarejo La Molina Facsimile: 349-0794 426-5644 THIRTEENTH: EXPENSES 11 THE CLIENT shall assume all the costs and expenses derived from this contract, including the Notary's expenses derived from the recording as a Public Deed of this document, as well as those of a Testimony and of a Simple Copy of the same for the THE BANK. FOURTEENTH: APPLICABLE LEGISLATION In all matters not provided for in this document, this Contract shall be governed by the Legislation of the Republic of Peru. FIFTEENTH: ARBITRATION 15.1 The parties expressly agree that any conflict or controversy that may arise between them as a result of the interpretation or execution of this Contract, including those related to its nullity, invalidity and inefficiency shall be resolved by means of a de jure arbitration entrusted to an Arbitration Court formed by three members that must necessarily be lawyers registered in the Bar Association, held in accordance with the Regulations for Conciliation and National and International Arbitration of the Chamber of Commerce of Lima. 15.2 The Arbitration Court shall be constituted in the following manner: each of the parties shall designate an arbitrator and the third shall be designated by mutual agreement by the first two, who will be the Chairman of the Arbitration Court. 12 15.3 The arbitration shall be held in the city of Lima and the duration of the same may not exceed sixty (60) workdays, counted from the date of the installation of the Arbitration Court until the issuing of the respective award. 15.4 The award of the Arbitration Court shall be final and may not be appealed. 15.5 The costs that arise from the arbitration shall be borne by the losing party. 15.6 Should either or several of the parties decide to file an appeal for annulment against the arbitration award before the Judiciary, it must first establish in favor of the opposing party a Letter of Guaranty issued by a first rank Bank with headquarters in Lima, equivalent to US$50,000.00 (FIFTY THOUSAND DOLLARS AND 00/100 OF THE UNITED STATES OF AMERICA), executable should said appeal in a final sentence be declared to be without grounds. This Letter of Guaranty must be in force during the time that the process that has been promoted lasts. Please insert you, Mr. Notary, the clauses of law and raise this Draft to a Public Deed. Lima, June 11, 1998 DOE RUN PERU S.R.L. /s/ Kenneth Buckley 13 BANCO DE CREDITO DEL PERU /s/ Jesus Antonio Zamora Leon /s/ Aida Lucia Ghiglino Zimic /s/ Guillermo Ferrero Alvarez Calderon Guillermo Ferrero Alvarez Calderon, Attorney Lima Bar Registration Nr. 26011 - -------------------------------------------------------------------------------- I CERTIFY that the copy on the reverse side is identical to the document I have seen. Lima, June 19, 1998 /s/ Anibal Corvetto Romero Notary - Attorney - at - law Lima - Peru 14 EXHIBIT I MODEL OF NOTICE OF ASSIGNMENT OF RIGHTS AND IRREVOCABLE PAYMENT INSTRUCTIONS Lima, , Messrs. (NAME AND ADDRESS OF THE BUYER) - ----------------------------- ATTENTION: MR.________ Dear sirs: We are addressing you with regard to [[(1) the Sales Contract we entered into with you dated .......... OR (2) the sales operation of our products resolved upon with you, ]] in accordance with which we sold to you.......(PRODUCT, QUALITY AND AMOUNT)......for the agreed upon sales price [[(1) in the aforementioned contract OR (2) in that occasion ]]. By these presents we are giving you irrevocable instructions to execute the respective payment(s) of the aforementioned sales price by means of a transfer to the Collection Account No. ......... established in the Banco de Credito del Peru/ New York Branch Office of the Banco de Credito del Peru. We also inform you that the proceeds of our sales is pledged as a guarantee in favor of the Banco de Credito del Peru in accordance 15 with the provisions of the Contracts of a Credit Line in Foreign Currency and of Pledging as a Guarantee of Payments and/or Collections and Collection Accounts entered into between our company and the aforementioned Bank, and we indicate that any amendment of these instructions may solely and exclusively be made by the Banco de Credito del Peru. /s/ Kenneth Buckley DOE RUN PERU S.R.L. NOTE: Alternative (1) will be used for those contracts referred to in subclause 3.1 of the Contract and alternative (2) for the sales operations referred to in subclause 3.3 of the Contract. 16 EXHIBIT II MODEL OF A LETTER OF ACCEPTANCE AND CONSENT Messrs. BANCO DE CREDITO DEL PERU Centenario 156, La Molina Lima-Peru - ------------------------- Att.: Messrs. Giorgio Badani/Alvaro Ossio Corporate Banking Division ----------------------------------- Dear sirs: The undersigned accepts the terms of the letter of notice of assignment of rights and irrevocable payment instructions (hereinafter in this document "the Notice") dated received from DOE RUN PERU S.R. LTDA. (hereinafter in this document "the Company") sent in accordance with the Contracts for a Credit Line in Foreign Currency and of Pledging as a Guarantee of Payments and/or Collections and of Collection Accounts entered into between the aforementioned company and the Banco de Credito del Peru (hereinafter in this document "the Bank"). By these presents, the undersigned commits to the benefit of the Bank, to pay all the sums owed to the Company [[ under the Sales Contract OR (2) by the sales operation]] mentioned in the Notice 17 directly to the Bank in the Collection Account No. opened in the Bank/New York branch office of the Bank without any discount, rebate or reduction whatsoever due to claim or right whatsoever that the undersigned may have against the Company or any other entity, which are not common in this kind of contracts or for any other reason and agrees that such payments shall be final and therefore the undersigned will not attempt to recover from the Bank all or any part of said payments. This document shall be governed by the laws of the Republic of Peru. (PURCHASER) NOTE: Alternative (1) shall be used for those contracts referred to in subclause 3.1 of the Contract and alternative (2) for sales operations mentioned in subclause 3.3 of the Contract. 18 EXHIBIT III MODEL OF CLAUSE OF ASSIGNMENT OF RIGHTS AND IRREVOCABLE PAYMENT INSTRUCTIONS TO BE INCLUDED IN THE SALE CONTRACTS ENTERED INTO BY THE CLIENT IN THE FUTURE CLAUSE : THE SELLER by these presents instructs THE BUYER in an irrevocable manner to make the respective payment(s) of the sales price mentioned in Clause .......... of this contract by means of a transfer to the Collection Account No. ......... established in the Banco de Credito del Peru/New York Branch Office of the Banco de Credito del Peru. By these presents, THE SELLER informs THE BUYER and it declares that it understands that THE SELLER has pledged as a guarantee the proceeds of its sales in favor of the Banco de Credito del Peru, in accordance with the provisions of the Contracts for a Credit Line in Foreign Currency and of Pledging as a Guarantee of Payments and/or Collections and of Collection Accounts entered into on June 11, 1998, between THE SELLER and the aforementioned Bank. 19 THE SELLER also indicates to THE BUYER that any amendment of the instructions contained in this Clause may only be solely and exclusively made by the Banco de Credito del Peru. (An illegible signature) EX-10.11 6 EXHIBIT 10.11 Exhibit 10.11 SENOR NOTARIO: Sirvase usted extender en su Registro de Escrituras Publicas, una de Constitucion de Primera y Preferencial Prenda de Minerales que otorga DOE RUN PERU S.R.L.COMPANIA MINERA ARES S.A., con Registro Unico de Contribuyentes No. 37630381, con domicilio en Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidroesquina calle "Z" con Pasaje El Carmen, Urb. El Vivero de Monterrico, Santiago de Surco, Provincia de Lima, Departamento de Lima, debidamente representada por el senor Kenneth Richard Buckley, Eduardo Hochschild Beeck y Carlos Fernando Ortiz Ugarte, facultados al e facultado al efecto segun poder otorgado en Junta General de Socios de fecha 15 de mayo de 1998,fecto segun a quien en adelante se denominara EL CLIENTE; a favor del BANCO DE CREDITO DEL PERU, con Registro Unico de Contribuyentes No. 10004721, con domicilio en Calle Centenario No. 156, esquina con Av. Huarochiri, Urb. Las Laderas de Melgarejo, La Molina, Lima, representado por el senor Jesus Antonio Zamora Leon y la senora Aida Lucia Ghiglino Zimic, facultados al efecto segun poderes inscritos en los asientos 19-C y 32-C de la ficha 117464 del Registro Mercantil de Lima, respectivamente, a quien en adelante se denominara EL BANCO; en los terminos y condiciones siguientes: PRIMERA: ANTECEDENTES 1.1 En virtud de Contrato de Linea de Credito en Moneda Extranjera suscrito en esta misma fecha, EL BANCO ha otorgado a favor de EL CLIENTE una linea de credito hasta por US $ 40'000,000.00 para efectos de financiar capital de trabajo que requiere EL CLIENTE; para sus operaciones de comercio exterior; en los terminos y condiciones contemplados en el referido contrato. 1.2. En la Clausula Decimo Cuarta.................... del referido Contrato de Linea de Credito se establece que, en garantia del cumplimiento de todas las oObligaciones que asume en virtud del mismo (en adelante, en este contrato, "las Obligaciones Garantizadas"), EL CLIENTE se obliga a otorgar a favor del BANCO primera y preferencial Prenda de Minerales sobre loas concentrados, materias primas, productos en proceso concentrados y productos finales elaborados por EL CLIENTE; para lo cual procedera a firmar el Contrato de Garantia correspondiente. 1.3 LosCada terminos en mayusculas o con iniciales en mayusculas, que no esten definidos en forma expresa en este documento, tienen la definicion que se les asigna en el Contrato de Linea de Credito en Moneda Extranjera mencionado en el numeral 1.1 anterior. SEGUNDA: OBJETO 2.1 En virtud de lo senalado en el numeral 1.2 de la Clausula anterior y en garantia del pago oportuno y total y fiel cumplimiento por parte delr EL CLIENTE de todas y cada una de las Obligaciones Ggarantizadas, ya sean presentes o futuras, por el presente documento, EL CLIENTE constituye primera y preferencial Pprenda de Minerales en favor del BANCO, sobre los concentrados, materias primas, productos en proceso y productos finales de propiedad del CLIENTE de minerales, sobre los minerales ya refinados y sobre cualquier otro mineral o producto derivado, cualquiera sea su e, cualquiera sea su estado, que, en cualquier momento durante la vigencia de este cContrato de Prenda de Minerales, esten ubicados fisicamente dentro de, o en transito hacia, cualquier propiedad del CLIENTE o almacenes de terceros contratados por EL CLIENTE para el deposito de los referidos bienes (tales concentradosen adelante, en este contrato de minerales, sobre los minerales ya refinados y sobre cualquier otro mineral o producto derivado que en cualquier momento esten prendados conforme a esta clausula constituyen, en adelante,, dichos bienes se denominaran "la Garantia"),, hasta por la suma determinable equivalente a las Obligaciones Ggarantizadas que, en cualquier momento y por cualquier concepto durante la vigencia de este cContrato de Prenda de Minerales, esten pendientes de pago y/o de cumplimiento. bajo el Contrato de Linea de Credito en Moneda Extranjera. La prenda descrita en el primerel parrafo anterior de este numeral 2.1 se denomina, en adelante, en este contrato, la "Prenda de Minerales", estando la Garantia sustituyendose y/o reponiendose permanentemente. 2.2. Solo para fines de calculo de los derechos de inscripcion a ser pagados para el registro de la Prenda de Minerales en el Registro Publico de Mineria, EL CLIENTE y EL BANCO han establecido que la Prenda de Minerales es por US$ 40'000,000.00. Sin embargo, (i) no podra interpretarse, entenderse, considerarse o suponerse que tal cantidad sea el importe de la Prenda de Minerales para efectos de la venta de la Garantia, si se produjera tal venta, (ii) dicho importe no limita en forma alguna el ejercicio por EL BANCO de los terminos y condiciones de este Contrato de Prenda de Minerales, y (iii) la suma determinable equivalente a las Obligaciones Garantizadas puede exceder los referidos US$ 40'000,000.00 La Prenda de Minerales se extiende al importe de indemnizaciones por seguros y al justiprecio que en caso de expropiacion, pudiera pagarse por parte o toda la Garantia. 2.3. El ANEXO I, conteniendo la descripcion generica de las caracteristicas de cada uno de los concentrados, materias primas, productos en proceso y productos finales de minerales, minerales refinados y demas minerales y productos derivados que conforman la Garantia y el valor referencial que a la fecha corresponde a los mismos, forma parte integrante de este contrato. TERCERA: INDIVISIBILIDAD DE LA PRENDA DE MINERALES 3.1 La Prenda de Minerales es indivisible y subsiste por entero sobre toda la Garantia, garantizando el oportuno y total cumplimiento de todas y cada una de las Obligaciones Garantizadas, y no puediendo levantarsee ser parcial o totalmente levantada., removida o separada. Sin embargo, EL CLIENTE podra procesar los concentrados de minerales y vender el mineral refinado y demas productos derivados que integran la Garantia, siempre EL CLIENTE podra procesar los concentrados y materias primas y vender los productos finales que conforman la Garantia siempre queque para tal efecto cuenta con la aprobacion escrita del BANCO y el respectivo el comprador de los productos finales se obligue a efectuar los pagos correspondientes al precio de venta en las Cuentas Cobranza que EL CLIENTE constituye y afecta en garantia a favor del BANCO, conforme al Contrato de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas en Cobranza suscrito en esta misma fecha; entendiendose por comprador para estos efectos a los compradores actuales del CLIENTE que se encuentran comprendidos en la lista proporcionada por EL CLIENTE al BANCO, asi como todos los compradores futuros del CLIENTE. 3.2 La Prenda de Minerales se mantendra plenamente vigente hasta que (i) las Obligaciones Garantizadas esten totalmente pagadas y/o cumplidas, y (ii) el Contrato de Prenda de Minerales este terminado conforme a la Clausula Decimo Primera de este contrato............. CUARTA: DECLARACIONES Y GARANTIAS ELCLIENTE declara y/o garantiza al BANCO que: 4.1 EL CLIENTE es el unico y absoluto propietario de la Garantia. 4.2 Sobre la Garantia no existe prenda, embargo, carga, gravamen, medida judicial o extrajudicial alguna que limite su derecho a ser libremente transferida y/o gravada por EL CLIENTE. En cualquier caso, EL CLIENTE se obliga a sanear el titulo y cualquier vicio oculto que la Garantia pueda tener. QUINTA: OBLIGACIONES EL CLIENTE se obliga, durante todo el tiempo que permanezca vigente el Contrato de Prenda de Minerales a: 5.1 Actuar como depositario de la Garantia, de conformidad con las estipulaciones del Titulo I, Seccion 4, Libro V; y el Capitulo V, Titulo IX, Seccion 2, Libro VII del Codigo Civil Peruano. Tambien actuara como depositario su Gerente General, con las mismas responsabilidades del CLIENTE, siendo ambos solidariamente responsables por el cuidado y existencia de la Garantia. 5.2 Cumplir oportunamente todas las obligaciones relativas a la Garantia bajo la Ley General de Mineria, cuyo Texto Unico Ordenado fue aprobado por Decreto Supremo No.014-92-EM, sus normas modificatorias y reglamentarias, y bajo cualquier otra disposicion legal aplicable que este vigente en el Peru. 5.3 Mantener la Garantia dentro del perimetro de sus propiedades o en los almacenes contratados para su deposito, salvo los casos en que sea vendida con la previa aprobacion escrita del BANCO, o en transito entre los mismos. 5.4 Tener asegurada la Garantia contra todos los riesgos que EL BANCO senale y necesariamente contra huelga y conmocion civil, dano malicioso, vandalismo y terrorismo, explosion, terremoto, temblor, danos de agua., inundacion, incendio y rayos, en una Compania de Seguros y por una cantidad a satisfaccion de EL BANCO. EL CLIENTE queda obligado a transferir a EL BANCO su derecho a la indemnizacion que debe pagar la compania aseguradora en caso de siniestro, para cuyo efecto le entregara la poliza debidamente endosada de manera que EL BANCO cobre el importe de la indemnizacion y lo aplique a la amortizacion o cancelacion de lo que se le adeudase. 5.5 En el eventual caso que EL CLIENTE desee constituir una nueva prenda o gravamen de cualquier tipo sobre parte o toda la Garantia, EL CLIENTE debera obtener el previo consentimiento por escrito del BANCO. En caso contrario, dicho acto o contrato sera invalido, sin perjuicio de lo dispuesto por el Articulo 175 de la Ley General del Sistema Financiero y del Sistema de Seguros y Organica de la Superintendencia de Banca y Seguros (Ley 26702). 5.6 Notificar oportunamente al BANCO cualquier circunstancia o hecho relacionado a la Garantia que pudiera afectar la exigibilidad de la Prenda de Minerales, su rango, o el valor de la Garantia. 5.7. No realizar u omitir accion alguna que, como resultado, pueda ocasionar un perjuicio a la Garantia o afectarar o impedir la ejecucion de cualquier parte de la Garantia. SEXTA: CAUSALES DE EJECUCION DE LA GARANTIA EL BANCO podra ejecutar la Prenda de Minerales y la Garantia en caso que se produzcajera un Evento de Incumplimiento conforme al Contrato de Linea de Credito. SETIMA: VENTA DE LA GARANTIA En el caso contemplado establecido en la Cclausula anteriorprecedente, EL BANCO podra, a su sola discrecion: 7.1 Ejecutar y vender toda o parte de la Garantia sin necesidad de un proceso judicial previo, conforme al articulo 1069 del Codigo Civil de una manera comercialmente razonable en un mercado en que activos como los que integran la Garantia se negocian normalmente, en el lugar o lugares que EL BANCO considere mas apropiado, a traves de ventas publicas o privadas, dando un aviso notarial con una anticipacion de quince (15) dias, indicando el momento y lugar en que la respectiva venta tendra lugar. Para fines de la venta extrajudicial de la Garantia contemplada en este numeral 7.1, los valores de la Garantia establecidos en el Anexo 1 son unicamente referenciales para EL BANCO. Por el presente, EL CLIENTE renuncia expresamente a cualquier otra notificacion y derecho en conexion con la venta extrajudicial de la Garantia y se obliga a entregar la Garantia al BANCO y a permitir el ingreso de posibles compradores a sus propiedades; o 7.2. Conforme al articulo 1069 del Codigo Civil Peruano, rematar parte o toda la Garantia a traves de un proceso judicial de ejecucion de garantias iniciado ante un Tribunal competente y sujeto a las reglas del Codigo Procesal Civil. 7.3. Ejecutar todos los derechos sobre la Garantia que este Contrato de Prenda de Minerales otorga al BANCO. En caso que el BANCO ejercite el poder otorgado a su favor conforme a la Clausula .................... y venda todo o parte de la Garantia en la forma en que EL BANCO lo estime mas conveniente, tal venta debera ser hecha en una forma comercialmente razonable y en un mercado en que bienes como los que integran la Garantia son normalmente negociados. 7.4 EL CLIENTE renuncia a su derecho a formular cualquier reclamo contra EL BANCO sobre la base de que el precio obtenido en la venta extrajudicial de la Garantia o de cualquier parte de la misma (aun en el caso de una venta privada) fuera inferior al precio de venta que pudiera ser obtenido bajo otro procedimiento de venta. 7.5 EL CLIENTE debera entregar o poner a disposicion del BANCO toda la Garantia existente en la forma y oportunidad requerida por EL BANCO. Si el EL CLIENTE no entrega al BANCO o no pone a su disposicion toda la Garantia dentro del plazo establecido por EL BANCO, EL BANCO podra solicitar al Juez que ordene al CLIENTE entregar dicha Garantia conforme a lo dispuesto en el articulo 183 de la Ley General de Mineria, cuyo Texto Unico Ordenado ha sido aprobado por Decreto Supremo No.014-92-EM. OCTAVA: REDUCCION DE LA PRENDA DE MINERALES EL CLIENTE renuncia expresamente a su derecho a la reduccion del importe de la Prenda de Minerales contenido en el Articulo 1083 del Codigo Civil Peruano. NOVENA: INDEMNIZACION Por la presente Clausula, EL CLIENTE se obliga a indemnizar al BANCO y a sus Directores, funcionarios y empleados (en adelante en esta Clausula "las Partes Indemnizables") por cualquier perdida, dano o gasto en que este(os) incurra(n) o pudiera(n) sufrir como consecuencia del presente contrato, incluyendo, pero no limitado a, honorarios profesionales de abogados y gastos surgidos de la transaccion celebrada, a menos que dicha perdida, dano o gasto sea consecuencia de la culpa o dolo de las Partes Indemnizables. DECIMA: NOTIFICACIONES Cualquier notificacion, solicitud, demanda, consentimiento, designacion, direccion, instruccion, certificado u otra comunicacion a ser dada bajo el presente contrato, debera ser dada por escrito o enviada por facsimil (con confirmacion escrita de recepcion, confirmacion que puede ser hecha por facsimil) a la direccion y numero de facsimil abajo indicadas del CLIENTE y del BANCO y cuando se requerido por la ley peruana, a las direcciones del CLIENTE y del BANCO indicadas en la introduccion de este Contrato de Prenda de Minerales,, o a cualquier otra direccion que sea comunicada por escrito para tal efecto por el CLIENTE y el BANCO: CLIENTE DOE RUN PERU S.R.L Atencion: Sres. Kenneth Richard Buckley y Henry Eric Peitz Direccion: Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro Facsimil: 215-1235 215-1281 BANCO BANCO DE CREDITO DEL PERU Atencion: Sr. Giorgio Badani - Banca Corporativa Sra. Marcela Parodi - Area de Operaciones Internacionales Direccion: Centenario 156, Las Laderas de Melgarejo La Molina Facsimil: 349-0794 426-5644 DECIMO PRIMERA: LEVANTAMIENTO Y TERMINO DE LA GARANTIA Ante el pago y/o cumplimiento total de las Obligaciones Ggarantizadas, la Prenda de Minerales quedara terminada y todos los derechos sobre la Garantia revertiran al CLIENTE. Ocurrida tal terminacion, EL BANCO debera, por cuenta y costo del CLIENTE y dentro de un plazo de dos (2)tres meses, celebrar aquellos documentos que EL CLIENTE le solicite para evidenciar dicha terminacion. DECIMO SEGUNDA: GASTOS Seran asumidos por EL CLIENTE todos los costos y gastos que se deriven del presente contrato, incluyendo los gastos notariales derivados de la elevacion a Escritura Publica de este documento, asi como los de un Testimonio y una Copia Simple del mismo para EL BANCO, y los gastos registrales. DECIMO TERCERA: LEGISLACION APLICABLE En todo lo no previsto en este documento, el presente Contrato se rige por las Legislacion de la Republica del Peru. DECIMO CUARTA: ARBITRAJE 14.1 Las partes acuerdan expresamente que cualquier conflicto o controversia que pudiera surgir entre ellas como consecuencia de la interpretacion o ejecucion de este Contrato, incluidas las relacionadas con su nulidad e invalidez, seran resueltas mediante arbitraje de derecho, a cargo de un Tribunal Arbitral compuesto por tres miembros que necesariamente deberan ser abogados colegiados, realizado conforme al Reglamento de Conciliacion y Arbitraje Nacional e Internacional de la Camara de Comercio de Lima. 14.2 El Tribunal Arbitral estara constituido de la siguiente manera: cada una de las partes designara a un arbitro y el tercero sera designado de comun acuerdo por los dos primeros, quien sera el Presidente del Tribunal Arbitral. 14.3 El arbitraje se llevara a cabo en la ciudad de Lima y la duracion del mismo no podra exceder los sesenta (60) dias utiles, contados a partir de la fecha de instalacion del Tribunal Arbitral hasta la expedicion del laudo respectivo. 14.4 El laudo del Tribunal Arbitral sera definitivo e inapelable. 14.5 Los gastos que ocasione el arbitraje seran de cargo de la parte perdedora. 14.6 En caso de que alguna(s) de las partes decidiera(n) interponer recurso de anulacion contra el laudo arbitral ante el Poder Judicial, debera constituir previamente a favor de la parte contraria una Carta Fianza otorgada por un Banco de primer orden con sede en Lima, equivalente a US$ 50,000.00 (CINCUENTA MIL DOLARES Y 00/100 DE LOS ESTADOS UNIDOS DE NORTEAMERICA), ejecutable en caso que dicho recurso, en fallo definitivo, no fuera declarado fundado. Dicha Carta Fianza debera estar vigente durante el tiempo que dure el proceso promovido. Agregue Ud. senor Notario las clausulas de ley y sirvase pasar partes al Registro Publico de Mineria para su inscripcion. Lima, 11 de junio de 1998 DOE RUN PERU S.R.L. BANCO DE CREDITO DEL PERU /s/ Kenneth Buckley /s/ Jesus Antonio Zamora Leon /s/ Aida Lucia Ghiglino Zimic /s/ Guillermo Ferrero Alvarez Calderon Exhibit 10.11 (English) Mr. NOTARY: Kindly issue in your Registry of Public Deeds one of constitution of First and Preferential Ore Collateral, granted by DOE RUN PERU S.R.L., with Single Taxpayer's Registration Nr. 37630381, domiciled at Av. Victor Andres Belaunde 147 Via Principal 155, Centro Empresarial Real-Torre Real 3, Piso 9 - San Isidro, duly represented by Mr. Kenneth Richard Buckley, empowered by virtue of power of attorney granted in General Meeting of Partners on May 15, 1998, hereinafter referred to as THE CLIENT, in favor of the BANCO DE CREDITO DEL PERU, with Single Taxpayer's Registration Nr. 10004721, domiciled at Calle Centenario Nr. 156, corner with Av. Huarochiri, Urb. Las Laderas de Melgarejo, La Molina, Lima, duly represented by Mr. Jesus Antonio Zamora Leon and Mrs. Aida Lucia Ghiglino Zimic, empowered by virtue of powers of attorney registered in entries 19-C and 32-C of filing card 117464 of the Government Registry of Commercial Concerns of Lima, hereinafter referred to as THE BANK, under the following terms and conditions: FIRST: BACKGROUND 1.1 In accordance with the Contract for a Credit Line signed on this same date, THE BANK has granted in favor of THE CLIENT a credit line of up to US$40'000,000.00 for purposes of financing working capital required by THE CLIENT for its foreign trade operations in the terms and conditions contemplated in the aforementioned contract. 1.2 In the Fourteenth Clause of the aforementioned Contract for a Credit Line, it is established that as a guarantee for the enforcement of all the obligations assumed in accordance with the same (hereinafter in this contract: "the Guaranteed Obligations"), THE CLIENT pledges in favor of the BANK a first and preferential Ore Collateral on the concentrates, raw materials, products in process and end products worked by THE CLIENT, for which it will proceed to sign the respective Guarantee Contract. 1.3 The terms with capitalized initials which are not expressly defined in this document will have the definition assigned to them in the Contract for a Credit Line in Foreign Currency mentioned in the foregoing subclause 1.1. SECOND: OBJECT 2.1 In accordance with the provisions of subclause 1.2 of the foregoing Clause and as a guarantee of the timely and total fulfillment on the part of THE CLIENT of each and all of the Guaranteed Obligations, whether present or future, THE 2 CLIENT constitutes a first and preferential Ore Collateral in favor of THE BANK on the concentrates, raw materials, products in process and end products, owned by THE CLIENT, whatever their state, that at any time during the time this contract is in force are physically located within or in transit to any property of THE CLIENT or warehouses of third parties controlled by THE CLIENT for the deposit of the aforementioned goods (hereinafter in this contract, those goods shall be designated as "the Guarantee") for up to the determinable sum equivalent to the Guaranteed Obligations that at any time and for any concept during the time this contract is in force are pending of payment and/or enforcement. The collateral described in the foregoing paragraph shall hereinafter be designated within this contract as the "Ore Collateral", the Guarantee shall be permanently substituted and/or replaced. 2.2 Solely for the purpose of the calculation of the registration fees to be paid for the registration of the Ore Collateral in the Public Registry of Mining, THE CLIENT and THE BANK have established that the Ore Collateral is for 3 US$40'000,000.00 Nevertheless, (i) may not be interpreted, understood, considered or presumed to be that said amount is the amount of the Ore Collateral for the purpose of the sale of the Guarantee should such sale occur, (ii) said amount does not restrict in any way the exercise by THE BANK of the terms and conditions of this Ore Collateral Contract and (iii) the determinable sum equivalent to the Guaranteed Obligations may exceed the aforementioned US$40'000,000.00. The Ore Collateral extends to the amount of indemnities by insurance and to the appraisal that in case of expropriation may be paid for part or all the Guarantee. 2.3 EXHIBIT I containing the generic description of the characteristics of each of the concentrates, raw materials, products in process and end products that form the Guarantee and the referential value that to date corresponds to the same forms an integral part of this contract. THIRD: INDIVISIBILITY OF THE ORE COLLATERAL 3.1 The Ore Collateral is indivisible and fully subsists on all the Guarantee, guaranteeing the timely and total fulfillment of each and all the Guaranteed Obligations and may not be 4 partially or totally released. THE CLIENT may process the concentrates and raw materials and sell the end products that form the Guarantee provided that the buyer of the end products pledges to make the respective payment at the sales price into the Collection Accounts that THE CLIENT constitutes and pledges as a guarantee in favor of THE BANK in accordance with the Contract for Pledging as a Guarantee of Payments and/or Collections and Collection Accounts signed on this same date; it being understood that buyers for these purposes are the present buyers of THE CLIENT who appear on the list provided by THE CLIENT to THE BANK, as well as all the future buyers of THE CLIENT. 3.2 The Ore Collateral shall remain fully in force until (i) the Guaranteed Obligations are fully paid up and/or complied with, and (ii) the Ore Collateral Contract is concluded in accordance with the Eleventh Clause of this contract. FOURTH: STATEMENTS AND GUARANTEES THE CLIENT declares and/or guarantees to THE BANK that: 4.1 THE CLIENT is the sole and absolute owner of the Guarantee. 5 4.2 There does not exist any lien, attachment, charge, encumbrance, judicial or out of court measure whatsoever that restricts its right to be freely transferred and/or pledged by THE CLIENT. THE CLIENT commits in any case to warrant free from encumbrance the title and any hidden flaw that the Guarantee may have. FIFTH: OBLIGATIONS THE CLIENT commits during all the time that the Ore Collateral Contract is in force to: 5.1 Act as depository of the Guarantee, in accordance with the stipulations of Title I, section 4, Book V and of Chapter V, Title IX, Section 2, Book VII of the Peruvian Civil Code. Its General Manager will also act as depository with the same responsibilities as THE CLIENT, both being jointly and severally liable for the care and existence of the Guarantee. 5.2 Comply in a timely manner with all the obligations that refer to the Guarantee under the General Mining Law, whose Single Ordered Text was approved by Supreme Decree No. 014-92-EM,. its amending and regulatory rules and under any other applicable legal provision that is in force in Peru. 6 5.3 Maintain the Guarantee within the perimeter of its properties or in the warehouses hired for its deposit or in transit among them. 5.4 Maintain the Guarantee insured against all the risks indicated by THE BANK and necessarily against strike and civil riots, malicious mischief, vandalism and terrorism, explosion, earthquake, earth tremors, damage by water, flood, fire and rays, in an Insurance Company and for an amount that is to the satisfaction of THE BANK. THE CLIENT is obliged to transfer to THE BANK his right to the indemnity that must be paid by the insurance company in case of damages for which purpose he will deliver the duly endorsed policy so that THE BANK will collect the amount of the indemnity and apply it to the amortization or cancellation of the amount owed. 5.5 Should THE CLIENT wish to constitute a new collateral or encumbrance of any type on part or all of the Guarantee, THE CLIENT must obtain the prior consent in writing of THE BANK. The act or contract will otherwise be null and void, without prejudice of the provisions set forth in Article 175 of the Financial System and Insurance System General 7 Act and Organic Act of the Superintendency of Banking and Insurance (Law 26702). 5.6 Notify the BANK in a timely manner of any circumstance or fact related to the Guarantee that could affect the demandability of the Ore Collateral, its rank or the value of the Guarantee. 5.7 Not perform or omit any action that as a result could cause harm to the Guarantee or affect or hinder the execution of any part of the Guarantee. SIXTH: CAUSE FOR THE EXECUTION OF THE GUARANTEE THE BANK may execute the Ore Collateral and the Guarantee should an Event of Default occur in accordance with the Contract for a Credit Line. SEVENTH: SALE OF THE GUARANTEE In the case contemplated in the foregoing Clause, THE BANK may, at its sole option: 7.1 Execute and sell all or part of the Guarantee without need for prior judicial proceedings, in accordance with article 1069DEG. of the Civil Code in a reasonably commercial manner in a market in which assets such as those that form part of the 8 Guarantee are normally negotiated, at the site or sites, that THE BANK considers most suitable, through private or public sales giving a notice legalized by a notary fifteen (15) days in advance indicating the time and place in which the respective sale will take place. For the purposes of the sale out of court of the Guarantee contemplated in this subclause 7.1, the Guarantee values established in Exhibit I are only referential for THE BANK. By these presents, THE CLIENT expressly waives any other notice and right with regard to the out of court sale of the Guarantee and obliges himself to deliver the Guarantee to THE BANK and permit the entrance of possible buyers into its properties; and/or 7.2 In accordance with article 1069DEG. of the Peruvian Civil Code, auction off part or all the Guarantee through judicial proceedings for the execution of guarantees filed before a competent Court and subject to the rules of the Code of Civil Procedure; and/or 7.3 Execute all rights on the Guarantee that this Ore Collateral Contract grants THE BANK. Should THE BANK sell all or part of the Guarantee in the form that THE BANK deems most advisable, that sale must be made in a commercially 9 reasonable manner and in a market in which properties such as those that make up the Guarantee are normally negotiated. 7.4 THE CLIENT waives its right to make any claim against THE BANK on the basis that the price obtained in the out of court sale of the Guarantee or any part of the same (even in the case of a private sale) is lower than the sales price that could be obtained under another sales procedure. 7.5 THE CLIENT must deliver or place at the disposal of THE BANK all the existing Guarantee in the form and at the time required by THE BANK. Should THE CLIENT not deliver to the BANK or not place at its disposal all the Guarantee within the term stipulated by THE BANK, THE BANK may request the Judge to order THE CLIENT to deliver this Guarantee in accordance with the provisions of article 183DEG. of the General Mining Act, whose Sole Orderly Text has been approved by Supreme Decree No. 014-92-EM. EIGHTH: REDUCTION OF THE ORE COLLATERAL THE CLIENT expressly waives his right to the reduction of the amount of the Ore Collateral contained in Article 1083DEG. of the Peruvian Civil Code. NINTH: INDEMNITY 10 By this Clause, THE CLIENT commits to indemnify THE BANK and its Directors, officials and employees (hereinafter in this Clause "the Compensable Parties") for any loss, damage or expense in which they incur or suffer as a result of this contract, including but not limited to, professional fees of lawyers and expenses arising from the transaction that was entered into unless that loss, damage or expense was a result of gross negligence or fraud of the Compensable Parties. TENTH: NOTICES Any notice, application, demand, consent, designation, address, instruction, certificate or other communication that is to be given under this contract shall be given in writing or sent by facsimile (with a written confirmation of reception, which may be made via facsimile) to the address and facsimile number indicated below of THE CLIENT and of THE BANK, and when so required by Peruvian law, to the addresses of THE CLIENT and THE BANK indicated in the introduction of this Ore Collateral Contract, or to any other address that is communicated in writing for that purpose by THE CLIENT and by THE BANK: CLIENT: DOE RUN PERU S.R.L. 11 Attention: Mr. Kenneth Richard Buckley and Mr. Henry Eric Peitz Address: Av. Victor Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro Facsimile: 215-1235 215-1281 BANK: BANCO DE CREDITO DEL PERU Attention: Mr. Giorgio Badani - Corporate Banking Mrs. Marcela Parodi - International Transactions Area Address: Centenario 156, Las Laderas de Melgarejo La Molina Facsimile: 349-0794 426-5644 ELEVENTH: RELEASE AND TERMINATION OF THE GUARANTEE Upon payment and/or full compliance with the Guaranteed Obligations, the Ore Collateral shall be terminated and all the rights on the Guarantee shall revert to THE CLIENT. Once such termination occurred, THE BANK shall, for THE CLIENT'S 12 account and expense and within the term of two (2) months, execute such documents as THE CLIENT may request to evidence such termination. TWELFTH: EXPENSES THE CLIENT will pay all the costs and expenses derived from this contract, including the notary's fee for converting this instrument into a public deed, as well as the expenses from a Testimony and a Simple Copy thereof for THE BANK, and the registration fees. THIRTEENTH: APPLICABLE LEGISLATION In all matters not provided for in this document, this Contract shall be governed by the Legislation of the Republic of Peru. FOURTEENTH: ARBITRATION 14.1 The parties expressly agree that any conflict or controversy that may arise between them as a result of the interpretation or execution of this Contract, including those related to its nullity or invalidity shall be resolved by means of a de jure arbitration entrusted to an Arbitration Court formed by three members that must necessarily be lawyers registered in the Bar Association, held in accordance with the Regulations for Conciliation and National and International Arbitration of the Chamber of Commerce of Lima. 13 14.2 The Arbitration Court shall be constituted in the following manner: each of the parties shall designate an arbitrator and the third shall be designated by mutual agreement by the first two, who will be the Chairman of the Arbitration Court. 14.3 The arbitration shall be held in the city of Lima and the duration of the same may not exceed sixty (60) workdays, counted from the date of the installation of the Arbitration Court until the issuing of the respective award. 14.4 The award of the Arbitration Court shall be final and may not be appealed. 14.5 The costs that arise from the arbitration shall be borne by the losing party. 14.6 Should either or several of the parties decide to file an appeal for annulment against the arbitration award before the Judiciary, it must first establish in favor of the opposing party a Letter of Guaranty issued by a first rank Bank with headquarters in Lima, equivalent to US$50,000.00 (FIFTY THOUSAND DOLLARS AND 00/100 OF THE UNITED STATES OF AMERICA), executable should said appeal in a final sentence be declared to be without grounds. This Letter 14 of Guaranty must be in force during the time that the process that has been promoted lasts. Please insert you, Mr. Notary, the clauses of law and render the pertinent documents to the Public Registry of Mining for its registration. Lima, June 11, 1998 DOE RUN PERU S.R.L. /s/ Kenneth Buckley BANCO DE CREDITO DEL PERU /s/ Jesus Antonio Zamora Leon /s/ Aida Lucia Ghiglino Zimic /s/ Guillermo Ferrero Alvarez Calderon Attorney Lima Bar Registration Nr. 26011 - -------------------------------------------------------------------------------- I CERTIFY that the copy on the reverse side is identical to the document I have seen. Lima, June 19, 1998 /s/ Anibal Corvetto Romero Notary - Attorney Lima - Peru 15 DOE RUN PERU MEMORANDUM CMV - 069 - 98 DATE : June 11, 1998 TO : E. Peitz FROM : J. Begazo SUBJECT : INVENTORY OF PRODUCTS IN PROCESS AND END PRODUCTS AS OF MAY 31, 1998 Enclosed hereto are the appraised summary table and its respective exhibits (units and essays) according to your order. The values in dollars are preliminary and subject to variation as soon as Financial Statements from May are issued. (Illegible signature) (Illegible signature) EX-12 7 EXHIBIT 12 Exhibit 12 RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Thousands)
The Doe Run Resources Corporation --------------------------------------------------------------- Seven Months Ended Year Ended October 31, Six Months Ended October 31, -------------------------- April 30, 1994 1995 1996 1997 1997 1998 ------- ------- ------- ------- ------- ------- Income before taxes 1,018 7,575 18,916 3,978 5,375 16,759 Fixed charges 8,568 14,831 15,635 16,049 8,752 15,687 Less: capitalized interest (12) (8) (253) (461) (208) (110) ------- ------- ------- ------- ------- ------- Earnings 9,574 22,398 34,298 19,566 13,919 32,336 Interest Expense, excluding capitalization of interest 7,927 13,229 13,703 13,565 7,644 13,771 Amortization of financing costs 460 1,140 898 636 132 844 Rental/lease interest 181 462 1,034 1,848 976 1,072 ------- ------- ------- ------- ------- ------- Fixed Charges 8,568 14,831 15,635 16,049 8,752 15,687 Ratio of earnings to fixed charges 1.12 x 1.51 x 2.19 x 1.22 x 1.59 x 2.06 x ======= ======= ======= ======= ======= =======
EX-15.1 8 EXHIBIT 15.1 Exhibit 15.1 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: The Doe Run Resources Corporation Registration on Form S-4 We are aware that our report dated July 28, 1998 on our review of the interim financial information of the Missouri Lead Division for the periods ended March 31, 1998 and 1997 is included in this Amendment No. 1 to the registration statement on Form S-4 (File No. 333-52285). Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ PricewaterhouseCoopers LLP -------------------------------------- PricewaterhouseCoopers LLP New York, New York July 30, 1998 EX-23.2 9 EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors The Doe Run Resources Corporation and Subsidiaries We consent to the use of our report, which was based on our audits and the audits of other auditors, dated December 19, 1997, except for note 15 as to which the date is March 12, 1998, included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Peat Marwick LLP St. Louis, Missouri July 31, 1998 EX-23.3 10 EXHIBIT 23.3 Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS July 27, 1998 Dear Sirs: As independent public accountants, we hereby consent to the use of our auditors' report dated December 5, 1997, on the financial statements of La Oroya Division of Empresa Minera del Centro del Peru S.A. as of October 23, 1997 and December 31, 1996 and 1995 and for the period from January 1 to October 23, 1997 and the three-year period ended December 31, 1996; and our auditors' report dated December 5, 1997 on the financial statements of Doe Run Cayman Ltd. as of October 31, 1997 and the period from October 23, 1997 to October 31, 1997 (included in the audited financial statements of The Doe Run Resources Corporation as of October 31, 1997 and for the year then ended) which were prepared in accordance with U.S. generally accepted accounting principles, and to all references to our firm, in connection with the Registration Statement on Form S-4 to be filed by The Doe Run Resources Corporation. MEDINA, ZALDIVAR Y ASOCIADOS, a Member Firm of Andersen Worldwide S.C. Marco Antonio Zaldivar Partner EX-23.4 11 EXHIBIT 23.4 EXHIBIT 23.4 CONSENT OF INDEPENDENT MINING CONSULTANTS July 28, 1998 Mr. Marvin Kaiser Chief Financial Officer The Doe Run Resources Corporation 1801 Park 270 Drive Suite 300 St. Louis, Missouri 63146 Dear Sirs: Pincock, Allen & Holt, a mining consulting firm based in Lakewood, Colorado, hereby consents to the incorporation by reference the reserve statement entitled "The Doe Run Resources Corporation--Reserve Audit--Mineable Reserves as of March 31, 1998" and all references to our firm included in or made part of The Doe Run Resources Corporation's Registration Statement on Form S-4. Sincerely, PINCOCK, ALLEN & HOLT /s/ Gregory F. Chlumsky Gregory F. Chlumsky Manager, Process Engineering EX-23.5 12 EXHIBIT 23.5 EXHIBIT 23.5 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Amendment No. 1 to Form S-4 (File No. 333-52285) of our report dated July 28, 1998, on our audits of the financial statements of the Missouri Lead Division. We also consent to the reference to our firm under the caption "Experts". PricewaterhouseCoopers LLP New York, New York July 28, 1998 -----END PRIVACY-ENHANCED MESSAGE-----