<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 1-4350
ROYAL OAK MINES INC.
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA 98-0160821
- ------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o Royal Oak Mines (USA) Inc.
5501 Lakeview Drive
Kirkland, Washington
U.S.A. 98033
- ------------------------------------- -----------------------------------
(Address of principal executive offices) (Postal/Zip Code)
(425) 822-8992
- -------------------------------------
Registrant's telephone number,
including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common shares outstanding as of August 7, 1998 was 150,865,079, including
1,924,816 shares which are owned by a wholly owned subsidiary of the Company and
which may not be voted and are not considered outstanding for earnings per share
calculations.
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<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION 3
Item 1. Consolidated Financial Statements of Royal Oak Mines
Inc. and Subsidiaries (All statements are unaudited
except for the December 31, 1997 Consolidated Balance
Sheet, which has been audited.)
Consolidated Balance Sheets - June 30, 1998 and
December 31, 1997 4
Consolidated Statements of Income - Three and Six
Months Ended June 30, 1998 and 1997 5
Consolidated Statements of Cash Flow - Three and Six
Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II - OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
</TABLE>
In this Report, unless otherwise indicated, all dollar amounts are expressed in
Canadian dollars.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
All tabular amounts are in thousands of Canadian dollars, except as indicated.
3
<PAGE>
Royal Oak Mines Inc.
Consolidated Balance Sheets
(unaudited - Cdn$ 000's)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
(audited)
--------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 16,423 $ 568
Marketable securities 560 9,875
Receivables 8,891 30,923
Inventories (Note 4) 15,447 21,120
Prepaid expenses 4,933 3,967
--------- ---------
Total Current Assets 46,254 66,453
Property, Plant and Equipment, net 787,740 730,314
Long-Term Investments 12,424 12,145
Reclamation and Other Deposits 14,346 14,332
Deferred Charges and Other Assets (Note 5) 43,112 20,142
--------- ---------
TOTAL ASSETS $903,876 $ 843,386
--------- ---------
--------- ---------
LIABILITIES
Current Liabilities
Accounts payable $ 31,277 $ 123,586
Accrued payroll costs 3,087 2,599
Deferred revenue 12,865 20,085
Obligation under commodity contracts (Note 6) 19,203 --
Capital leases 5,588 4,531
Taxes payable 1,207 1,723
Long-term debt interest payable 11,437 10,326
Accrued unrealized loss on derivatives 2,454 21,327
Other current liabilities 7,682 9,135
--------- ---------
Total Current Liabilities 94,800 193,312
Deferred Revenue 14,515 23,330
Other Liabilities (Note 6) 63,272 57,427
Long-Term Debt (Note 7) 426,764 250,338
Deferred Income Taxes 2,532 2,532
Minority Interest in Subsidiary Companies 22 69
--------- ---------
TOTAL LIABILITIES 601,905 527,008
--------- ---------
SHAREHOLDERS' EQUITY
Share Capital (Note 8)
Authorized - unlimited
Outstanding - 148,940,263 (Dec. 31,
1997 - 138,940,263) 397,375 379,040
Deficit (95,404) (62,662)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 301,971 316,378
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 903,876 $ 843,386
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
4
<PAGE>
Royal Oak Mines Inc.
Consolidated Statements of Income (Loss)
(unaudited - Cdn$ 000's except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE $22,621 $58,872 $ 45,050 $106,846
-------- -------- -------- --------
EXPENSES
Operating 17,016 50,930 35,247 93,908
Care and maintenance 974 76 2,311 150
Royalties and marketing 312 447 603 871
Administrative and corporate 2,214 3,544 4,460 6,196
Depreciation and amortization 6,711 5,925 10,715 11,478
Reclamation 584 1,246 1,168 2,376
Exploration and other 472 1,319 919 2,666
Provision for loss on foreign currency and
commodity contracts 11,390 7,250 3,496 10,258
-------- -------- -------- --------
Total operating expenses 39,673 70,737 58,919 127,903
-------- -------- -------- --------
OPERATING LOSS (17,052) (11,865) (13,869) (21,057)
OTHER INCOME (EXPENSE)
Interest and other income (expense), net (847) 314 (855) 2,027
Interest expense (346) (69) (643) (187)
Long-term debt interest (10,400) (6,503) (18,608) (12,847)
Interest capitalized 9,977 5,544 18,185 9,964
Foreign currency translation loss on long-term debt (964) 490 (1,256) (2,048)
Write-off of financing costs (15,011) -- (15,011) --
Write-down of mine assets -- (39,700) -- (39,700)
-------- -------- -------- --------
LOSS BEFORE UNDERNOTED (34,643) (51,789) (32,057) (63,848)
Income and mining taxes - current (421) (313) (841) (639)
Income and mining taxes - deferred -- -- -- 4,221
Minority interest 16 (5) 47 31
Equity in income of associated companies 46 18 109 33
-------- -------- -------- --------
NET LOSS (35,002) (52,089) (32,742) (60,202)
RETAINED EARNINGS (DEFICIT)- BEGINNING OF PERIOD (60,402) 64,440 (62,662) 72,553
-------- -------- -------- --------
RETAINED EARNINGS (DEFICIT) - END OF PERIOD ($95,404) $12,351 $ (95,404) $ 12,351
-------- -------- -------- --------
-------- -------- -------- --------
LOSS PER SHARE $ (0.25) $ (0.38) $ (0.24) $ (0.43)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common shares outstanding (000's) 138,940 138,884 138,940 138,864
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
5
<PAGE>
Royal Oak Mines Inc.
Consolidated Statements of Cash Flow
(unaudited - Cdn$ 000's)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss for the period $ (35,002) $ (52,089) $ (32,742) $ (60,202)
Items not affecting cash:
Depreciation and amortization 6,711 5,925 10,715 11,478
Amortization of deferred finance costs 684 233 1,109 472
Reclamation 584 1,246 1,168 2,376
Deferred income tax -- -- -- (4,221)
Provision for unrealized loss on foreign currency and
commodity contracts 13,575 7,357 7,036 9,875
Foreign currency translation on senior subordinated notes 964 (490) 1,256 2,048
Write-down of mine assets -- 39,700 -- 39,700
Write-off of deferred finance costs 15,011 -- 15,011 --
Deferred charges and other (46) 223 (142) 91
---------- ---------- ---------- ----------
Cash flow 2,481 2,105 3,411 1,617
Net change in other operating items (Note 9) (45,965) (7,713) (82,162) (73,476)
---------- ---------- ---------- ----------
Net cash used in operating activities (43,484) (5,608) (78,751) (71,859)
---------- ---------- ---------- ----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of share capital 18,335 65 18,335 177
Capital lease obligation (473) (249) (947) (527)
Issue of long-term debt 169,050 -- 233,109 --
Retirement of long-term debt (64,232) -- (64,232) --
Issue costs of long-term debt (25,775) -- (31,341) --
Deferred credits and other -- (18) -- (18)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities 96,905 (202) 154,924 (368)
---------- ---------- ---------- ----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Increase in long-term investments -- (17,846) -- (17,846)
Proceeds from asset sales 8,606 -- 12,873 --
Investment in other capital assets, net (43,700) (63,248) (80,146) (109,523)
B. C. Government assistance -- 47,822 -- 78,787
Investment in exploration and non-producing properties, net (540) (2,377) (814) (4,068)
Change in other assets (1,427) (48) (1,546) (635)
---------- ---------- ---------- ----------
Net cash used in investing activities (37,061) (35,697) (69,633) (53,285)
---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND MARKETABLE
SECURITIES DURING THE PERIOD 16,360 (41,507) 6,540 (125,512)
CASH AND MARKETABLE SECURITIES AT BEGINNING OF PERIOD 623 114,351 10,443 198,356
---------- ---------- ---------- ----------
CASH AND MARKETABLE SECURITIES AT END OF PERIOD $ 16,983 $ 72,844 $ 16,983 $ 72,844
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,716 $ 69 $ 16,726 $ 13,386
Income taxes $ -- $ 25 $ -- $ 65
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(tabular amounts in thousands of Canadian dollars unless otherwise stated)
1. GOING CONCERN
These financial statements have been prepared on the basis of accounting
principles applicable to a "going concern", which assume that the Company will
continue in operation for at least one year and will be able to realize its
assets and discharge its liabilities in the normal course of operations.
Several conditions and events cast substantial doubt about the Company's ability
to continue as a "going concern". The company has experienced a liquidity
problem, has a working capital deficiency as at June 30, 1998 and incurred
substantial losses in the first six months of 1998 and in 1997. In addition,
the Company recently completed a substantial capital project, the construction
of its Kemess Mine. Furthermore, substantial payments will be required to
settle liabilities arising from the closure of certain commodity and currency
contracts.
In June, 1998 the Company completed the placement of US$120 million Senior
Secured Notes to Trilon Financial Corporation and Northgate Exploration
Limited. This brings the Company's aggregate outstanding long term secured
debt at June 30, 1998 to approximately US$315 million (Cdn$464 million) based
on the exchange rate as of June 30, 1998. Such amount does not include
capital leases of approximately $23 million. Such secured indebtedness and
capital leases in the aggregate represent 61.7% of the total capitalization
of the company.
The Company's future viability is dependent upon its ability to bring the Kemess
Mine into an efficient operating state, maintain satisfactory credit
relationships with its suppliers and achieve and maintain profitable operations.
Successful operations in the future are also dependent upon various external
factors, the most significant of which are the prices of the commodities it
produces, gold and copper, and the $US/$Cdn exchange rate.
Based upon current commodity prices, exchange rates and forecast production
levels, management expects to have sufficient cash to meet interest payments and
other obligations arising during the balance of 1998. However, at such price
levels the Company's ability to meet interest payments and scheduled principal
repayments of secured indebtedness occurring after 1998 will depend upon the
Company's ability to maintain its costs of production at or below current
levels, the performance of the Company's operating mines at or above forecast
production, and its ability to refinance principal repayments as they fall due.
Under the terms of the agreements which govern the Company's currently existing
secured indebtedness, a default under any of such agreements may lead to a cross
default under all of such agreements, with the result that, if there is a
default under any such agreements, all long-term secured debt together with
interest accrued but unpaid thereon may thereupon become due and payable.
These financial statements do not reflect adjustments that would be necessary if
the Company were unable to continue as a "going concern". While management
believes that the actions already taken or planned, as described above, will
mitigate the adverse conditions and events which raise doubts about the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then substantial
adjustments would be necessary to the carrying values of assets and liabilities,
the reported revenues and expenses, and the balance sheet classifications used.
2. INTERIM FINANCIAL STATEMENTS ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("Canadian GAAP") which, in the case of Royal Oak Mines Inc. (the "Company"),
differ in certain material respects from United States generally accepted
accounting principles ("U.S. GAAP"), as described in Note 10. Also, such
statements do not include all of the disclosures required by generally accepted
accounting principles for annual statements. In the opinion of management all
adjustments considered necessary for fair presentation have been included in
these statements. Operating results for the three and six months ended June 30,
1998, are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1998. For further information, see the Company's
Consolidated Financial Statements, including the accounting policies and notes
thereto, included in the Annual Report on Form 10-K for the year ended December
31, 1997.
7
<PAGE>
The calculations of net earnings per share are based upon the weighted average
number of common shares of the Company outstanding during each period (except as
set forth in Note 8(a)). When outstanding convertible instruments materially
dilute earnings per share, fully diluted earnings per share are disclosed.
3. PRESENTATION
Certain amounts for 1997 have been reclassified to conform with the current
year's presentation.
4. INVENTORIES
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
---------- -----------
<S> <C> <C>
--
Bullion and copper concentrate in process $ 5,913 $ 6,751
Stores and operating supplies 9,534 14,369
-------- --------
Inventories $ 15,447 $ 21,120
-------- --------
-------- --------
</TABLE>
5. DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------- -----------
<S> <C> <C>
Deferred finance costs on long-term debt $40,502 $ 9,041
Amortization of deferred finance costs (17,371) (1,251)
Deferred foreign exchange loss on long-term foreign debt 18,207 10,658
Amortization of foreign exchange loss on long-term foreign debt (1,277) (364)
Other assets 3,051 2,058
------- -------
$43,112 $20,142
------- -------
------- -------
</TABLE>
6. OTHER LIABILITIES
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
-------- -----------
<S> <C> <C>
Provision for loss on foreign currency contracts $ -- $12,497
Accrued reclamation and provision for closure costs 25,827 24,682
Capital leases 17,831 19,835
Obligation under commodity contracts 19,203 --
Other 411 413
------- -------
$63,272 $57,427
------- -------
------- -------
</TABLE>
DERIVATIVE INDEBTEDNESS
The Company entered into a number of agreements with Bankers Trust Company
("Bankers"), Macquarie Bank Limited ("Macquarie"), and The Bank of Nova Scotia
("BNS") (collectively, the "Hedging Parties") each dated June 22, 1998. As of
June 30, 1998, the Company was indebted to Bankers and BNS, pursuant to
repayment agreements (the "Repayment Agreements"), in the aggregate amount of
approximately US$25 million, including accrued interest. The Company agreed to
pay to Bankers and BNS
8
<PAGE>
US$500,000 and US$100,000, respectively, on December 1, 1998 and agreed to
pay the balance, together with interest at the rate of 12% per annum, in
twelve monthly payments commencing in January 1999.
The Company also entered into an agreement with Macquarie (the "Macquarie
Agreement"), pursuant to which the Company agreed to secure the payment of
certain present and future indebtedness under hedging contracts between the
Company and Macquarie to the extent that any such indebtedness becomes due.
In connection with the Repayment Agreements and the Macquarie Agreement, the
Company entered into a trust indenture (the "Hedging Indenture") dated as of
June 22, 1998 with Montreal Trust Company of Canada (the "Hedging Trustee"),
pursuant to which the Company and certain subsidiaries granted, and may in the
future grant, security in the assets, property and undertaking of the Company
and such subsidiaries to the Hedging Trustee up to a maximum amount of US$50
million for the benefit of the Hedging Parties and, subject to certain
conditions, other providers of credit in respect to hedging and related
activities of the Company. The security constituted by the Hedging Indenture
ranks junior in priority to the security held by the Debentureholders. The
Hedging Indenture provides for the issuance and pledging of three bonds (the
"Bonds") by the Company in favor of the Hedging Parties as security for the
indebtedness owed, and, in the case of Macquarie, certain indebtedness which may
become owing by the Company, to the Hedging Parties. The Bonds issued to
Bankers, BNS, and Macquarie, each dated June 22, 1998, are in the principal
amounts of US$21 million, US$5 million and US$15 million, respectively. The
Company may in the future issue bonds under the Hedging Indenture to secure any
future indebtedness under agreements which may be entered into by the Company in
respect to hedging and related activities of the Company, subject to the maximum
amount specified above.
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
-------- -----------
<S> <C> <C>
Secured Long-Term Debt
US$80 million Series A Senior Secured Debentures $117,728 $ --
US$35 million Series B Senior Secured Debentures 51,506 --
US$175 million Secured 12.75% Senior Subordinated Notes 257,530 250,338
--------- --------
$426,764 $250,338
--------- --------
--------- --------
</TABLE>
SENIOR SECURED DEBENTURES (SERIES A AND B)
The Company entered into a securities purchase agreement with Trilon Financial
Corporation ("Trilon") on April 17, 1998 providing for the issuance by the
Company to Trilon and Northgate Exploration Limited of senior secured debentures
in the aggregate principal amount of US$120 million (the "Senior Debentures").
The initial draw-down of US$115 million under the Senior Debentures occurred on
June 24, 1998 and the balance may be drawn down, subject to certain conditions
being fulfilled, on or before August 15, 1998. The Senior Debentures mature
June 22, 2000 and bear interest at a rate of 30 day LIBOR plus 6% per annum.
Interest payments commenced July 31, 1998 and are payable monthly thereafter.
The Company issued the Senior Debentures for the following purposes: (i) to
repurchase and retire the senior secured debentures issued by the Company in
January 1998 in the principal amounts of $19.5 million and US$30.7 million and
pay accrued interest thereon; (ii) to pay the Company's past due accounts
payable attributable to construction of the Kemess Mine; and (iii) to provide
the Company with working capital.
The Senior Debentures are secured by a first fixed and floating charge on all of
the present and after acquired property and assets of the Company and certain of
its subsidiaries, subject to mutually agreed permitted encumbrances and are
redeemable, in whole or in part, in aggregate minimum amounts of US$5 million at
any time at 101% of the principal amount being repaid plus interest and all
other amounts owing thereon. Under the terms of the Senior Debentures, the
holders of the Senior Debentures (the "Debentureholders") can require the
Company to transfer ownership of the Kemess South Mine to a wholly-owned
subsidiary of the Company. The Company received a formal request from the
Debentureholders in early July 1998 requiring the transfer of the Kemess South
Mine to a wholly-owned subsidiary of the Company. The Company has identified
certain potentially adverse tax consequences which may arise from such a
transfer. Consequently, the Company has asked the Debentureholders to
reconsider their request and discussions between the Company and the
Debentureholders are continuing.
9
<PAGE>
The fees payable by the Company to the Debentureholders consist of the
following:
1. a non-refundable up-front fee of US$2,400,000, which was paid on closing;
2. a non-refundable fee equal to 2% of the outstanding principal and accrued
interest payable to the Debentureholders which exceeds the following
threshold levels as at the following dates, being, (a) US$80 million on
February 15, 1999, and (b) US$50 million on October 15, 1999; and
3. a royalty payable to Trilon of up to a maximum of 1.62% (the "Royalty") of
the gross revenues of the Kemess South Mine to be accrued but unpaid for
two years and thereafter payable quarterly. The accrued Royalty will bear
compound interest at the three-month LIBOR rate plus 1% per annum. The
Royalty is to be prorated in the event that the Senior Debentures are
redeemed prior to maturity based on the amount redeemed and the timing of
such redemption. The Company may acquire the Royalty on June 22, 2003 at
the then fair market value, payable in cash on such closing.
SUBORDINATED NOTES
In order to obtain the required consent to the issuance of the Senior
Debentures, the Company and the holders (the "Noteholders") of the Company's
US$175 million senior subordinated notes due 2006 (the "Notes") agreed to
certain amendments and supplements to the Indenture dated as of August 12, 1996
among the Company, Kemess Mines Inc. and Mellon Bank, F.S.B., as trustee, as
amended by the First Supplemental Indenture dated as of December 31, 1997 and
the Second Supplemental Indenture dated as of January 31, 1998 between the
Company and Chase Manhattan Trust Company, National Association ("Chase"), as
successor trustee to Mellon Bank, F.S.B. (as so supplemented and amended, the
"Indenture"). The Indenture was amended and supplemented by:
1) the Third Supplemental Indenture dated as of May 19, 1998 which reduces the
length of time required to set a record date for determining the
Noteholders who are entitled to consent to any amendment or supplement of
the Indenture or any waiver pursuant thereto from 30 days to 3 days prior
to the first solicitation of such consent;
2) the Fourth Supplemental Indenture dated as of June 22, 1998 which has the
effect of: (a) increasing the interest rate payable on the Notes by 175
basis points to 12.75% per annum effective May 30, 1998; (b) increasing the
limits on aggregate Permitted Indebtedness (as defined in the Indenture) to
US$120 million (to permit the issuance of the Senior Debentures) and, to
the extent the Senior Debentures are repaid, establishing a working capital
facility; (c) allowing the transfer in the future of the Kemess South Mine
to a new wholly-owned Subsidiary (as defined in the Indenture); (d)
allowing such Subsidiary to guarantee repayment of certain Senior
Indebtedness (as defined in the Indenture) and the Notes; (e) providing for
the granting of collateral security by the Company and its subsidiaries to
secure the Notes; and (f) allowing the Company to redeem the Notes at a
purchase price of 105.5% of the principal amount of the Notes plus all
accrued and unpaid interest at any time before August 15, 2001; and
3) the Fifth Supplemental Indenture dated as of June 22, 1998 which provides
that in the event of certain bankruptcy or other similar proceedings in
which the Debentureholders and the Noteholders may be placed in the same
class of creditors, Noteholders who consent to the Fifth Supplemental
Indenture have agreed for the benefit of themselves and their assignees to:
(a) take all steps reasonably within their control or power to place the
Noteholders in a different class of creditors than the Debentureholders;
and (b) assign to the Debentureholders their voting rights in any such
proceedings to enable the Debentureholders to vote against and defeat any
restructuring plan presented to any class of creditors which includes both
the Debentureholders and the Noteholders.
Pursuant to the Fourth Supplemental Indenture the Company and certain of its
subsidiaries granted, and may in the future grant, security in favor of Chase,
as trustee, and CIBC Mellon Trust Company ("CIBC Mellon"), as collateral agent,
in the assets, properties and undertaking of the Company and such subsidiaries
to secure repayment of principal and interest owing on the Notes and all other
present and future amounts owing under the Indenture. The Fourth Supplemental
Indenture included an Inter-Creditor Agreement between, among others, the
Debentureholders, Chase, as trustee, and CIBC Mellon, as collateral agent,
pursuant to which the security of the Debentureholders was confirmed as having
priority over and ranking senior to the security held by Chase and CIBC Mellon
on behalf of the Noteholders. Pursuant to the Fourth Supplemental Indenture,
Chase, as trustee, and CIBC Mellon, as collateral agent, acknowledged to the
Company, the Hedging Trustee and the Hedging Parties that the security
constituted by the Hedging Indenture ranks in priority to the security held by
Chase and CIBC Mellon on behalf of the Noteholders.
Noteholders who executed consents to the Third, Fourth and Fifth Supplemental
Indentures were entitled to receive, pro rata based on the percentage of
principal amount of Notes held, a consent fee equal to an aggregate of 10
million Common Shares of the Company on a private placement basis at a deemed
issue price of US$1.125 per common share. The Third and Fourth Supplemental
Indentures are binding on all Noteholders while the Fifth Supplemental Indenture
is binding only on the Noteholders who provided their consent to such
supplemental indenture. Approximately 99% of Noteholders consented to the Fifth
Supplemental Indenture.
10
<PAGE>
8. SHARE CAPITAL
(a) Changes in capital
<TABLE>
<CAPTION>
Number of
shares Amount
----------- --------
<S> <C> <C>
Balance, December 31, 1996 140,770,079 $387,667
Issued for share purchase options 65,000 176
----------- --------
Balance, June 30, 1997 issued and outstanding 140,835,079 387,843
Company shares held by Witteck Development Inc. (1,924,816) (8,854)
----------- --------
Balance, June 30, 1997 for financial reporting purposes 138,910,263 $378,989
----------- --------
----------- --------
Balance, December 31, 1997 140,865,079 $387,894
Issued for bondholder consent 10,000,000 13,000
Special Warrants (see note 8(b) -- 5,335
----------- --------
Balance, June 30, 1998 issued and outstanding 150,865,079 406,229
Company shares held by Witteck Development Inc. (1,924,816) (8,854)
----------- --------
Balance, June 30, 1998 for financial reporting purposes 148,940,263 $397,375
----------- --------
----------- --------
</TABLE>
(b) Special Warrants
On June 24, 1998, the Company issued and sold to certain investors by way of
private placement an aggregate of 4,103,663 Special Warrants convertible into an
aggregate of 4,103,663 Common Shares for aggregate consideration of
$5,334,761.90. The Special Warrants were sold pursuant to prospectus exemptions
under applicable legislation. The 4,103,663 Special Warrants were issued to
certain creditors of the Company in full payment and satisfaction of an
aggregate $5,334,761.90 of indebtedness (the "Indebtedness") of the Company in
favor of such creditors. The Indebtedness related principally to overdue
accounts payable in connection with the construction of the Kemess South Mine.
The Special Warrants were issued under the terms of a trust indenture (the
"Warrant Indenture") dated as of June 24, 1998 between the Company and Montreal
Trust Company of Canada, as trustee (the "Trustee"). Each Special Warrant
entitles the holder thereof to acquire one Common Share, without payment of
additional consideration, prior to 2:00 p.m. (Vancouver time) on the earlier of
(i) the sixth business day after a receipt for the Prospectus is issued by the
securities regulatory authority in each of Alberta, British Columbia,
Newfoundland and Ontario; and (ii) December 31, 1998 (the "Expiry Date"). Any
Special Warrants which remain unexercised at the Expiry Date will be
automatically exercised on the Expiry Date. If the securities regulatory
authority in each of Alberta, British Columbia, Newfoundland and Ontario has not
issued a receipt for this prospectus on or before 2:00 p.m. (Vancouver time) on
September 21, 1998, the holders of Special Warrants shall be entitled to deliver
their Special Warrants certificates to the Trustee, and to receive 1.1 Common
Shares, without payment of additional consideration, for each Special Warrant
held.
11
<PAGE>
9. NET CHANGE IN OTHER OPERATING ITEMS
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
----------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Receivables $ 5,403 $ (16,086) $ 22,032 $ (49,452)
Inventories 757 10,680 5,673 (10,441)
Prepaid expenses (410) 4,449 (966) (1,833)
Accounts payable, accrued payroll and
other current liabilities (39,541) (10,091) (92,350) (7,817)
Deferred revenue (11,818) (1,661) (16,035) (2,845)
Income and other taxes payable (356) 338 (516) 922
Long-term reclamation reclassified
to current period -- 4,658 -- (2,010)
--------- --------- --------- ---------
Net change in other operating items $ (45,965) $ (7,713) $ (82,162) $ (73,476)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
10. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Reconciliation of net income in accordance with Canadian GAAP to net income in
accordance with U.S. GAAP is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) in accordance with Canadian GAAP $(35,002) $(52,089) $(32,742) $(60,202)
Adjustments
Depreciation and amortization (4,985) 3,133 (9,214) 2,355
Foreign currency translation loss on long-
term debt (11,107) -- (6,636) --
-------- -------- -------- --------
Net income in accordance with U.S. GAAP $(51,094) $(48,956) $(48,592) $(57,847)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share in accordance with U.S. GAAP:
Basic earnings (loss) $ (0.37) $ (0.35) $ (0.35) $ (0.42)
Diluted earnings (loss) $ (0.37) $ (0.35) $ (0.35) $ (0.42)
</TABLE>
The effects on the balance sheets of the Company at June 30, prepared in
accordance with U.S. GAAP, are:
<TABLE>
<CAPTION>
June 30 June 30
--------- ---------
1998 1997
--------- ---------
<S> <C> <C>
Increase (decrease):
Property, plant and equipment $(11,417) $ 7,077
Prepaid expenses (pension asset) $ (1,175) $ (552)
Long-term investment in equity securities -- $(17,701)
Deferred charges $(16,930) --
Deferred income taxes $ 19,377 $ 19,377
Provision for unrealized loss on long-term -- $(17,701)
investments (contra-equity account)
Retained earnings $(48,899) $(12,852)
</TABLE>
12
<PAGE>
During the year, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. This statement requires
the reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. The
Company has no material comprehensive income.
Under U.S. GAAP, depreciation and amortization are calculated on the
unit-of-production method based upon proven and probable reserves, whereas
under Canadian GAAP, total mineral inventory may be used in the calculations.
Under U.S. GAAP, foreign exchange gains and losses arising from the
translation of long-term foreign debt are recognized in income in the period
when exchange rates change, whereas under Canadian GAAP, such foreign
exchange gains and losses are deferred and amortized on a pro rata basis over
the remaining life of the debt.
Statement of Financial Accounting Standards No. 109 requires that a deferred
tax liability be recognized for differences between the assigned values and
the tax bases of the assets and liabilities recognized in a business
combination involving a purchase of stock. Canadian GAAP does not require
similar recognition. Accordingly, during the three months ended March 31,
1998, a difference between U.S. GAAP and Canadian GAAP arose for the deferred
tax liabilities associated with the excess of the assigned values and the tax
bases of assets acquired in the acquisition of Geddes Resources Limited and
Consolidated Professor Mines Limited. The effect of these differences is to
increase property, plant and equipment and deferred income taxes by $21.0
million as of June 30, 1998.
Statement of Financial Accounting Standards No. 115 (SFAS 115), Accounting
for Certain Investments in Debt and Equity Securities, requires that
marketable securities be put into one of two categories: trading securities
(securities which are bought and held principally for the purpose of selling
them in the near term) or available-for-sale securities (investments not
classified as trading securities). SFAS 115 requires that unrealized gains
and losses on available-for-sale securities should be excluded from earnings
and reported as a net amount in a separate component of shareholders= equity
until realized. Canadian GAAP requires no recognition or reporting of
unrealized losses unless the loss is considered permanent.
The Company implemented SFAS No. 128, "Earnings per Share," effective for its
December 31, 1997 financial statements. Accordingly, earnings per share data
have been restated for all periods presented. This standard requires the
presentation of both basic and diluted earnings per share amounts. Basic
earnings per share is calculated by dividing net income attributable to
common shareholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed similarly, but also gives
effect to the impact convertible securities, such as common stock options and
warrants, if dilutive, would have on net income and average common shares
outstanding if converted at the beginning of the year.
13
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------- ----------------------
COMPUTATIONS OF EARNINGS PER COMMON SHARE June 30 June 30 June 30 June 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC INCOME (LOSS) PER SHARE ACCORDING TO U.S. GAAP
Net income (loss) in accordance with U.S. GAAP $(51,094) $(48,956) $(48,592) $(57,847)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares outstanding (000's) 138,940 138,884 138,940 138,864
-------- -------- -------- --------
-------- -------- -------- --------
Basic income (loss) per share $ (0.37) $ (0.35) $ (0.35) $ (0.42)
-------- -------- -------- --------
-------- -------- -------- --------
DILUTED INCOME (LOSS) PER SHARE ACCORDING TO U.S. GAAP
Net income (loss) in accordance with U.S. GAAP $(51,094) $(48,956) $(48,592) $(57,847)
-------- -------- -------- --------
-------- -------- -------- --------
Shares
Weighted average number of shares outstanding (000's) 138,940 138,884 138,940 138,864
Assuming exercise of stock options reduced by the number of shares
which could have been purchased with the proceeds from exercise
of such options -- -- 49 --
-------- -------- -------- --------
Weighted average number of shares outstanding (000's), as adjusted 138,940 138,884 138,989 138,864
-------- -------- -------- --------
-------- -------- -------- --------
Diluted income (loss) per share $ (0.37) $ (0.35) $ (0.35) $ (0.42)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
All options and warrants outstanding at June 1998 and March and June 1997 were
considered antidilutive due to the net losses.
11. SHAREHOLDER RIGHTS PLAN
On February 10, 1998, the Board of Directors adopted, subject to regulatory and
shareholder approvals, a Shareholder Rights Plan (the "Rights Plan"), the terms
of which are set forth in a Shareholder Rights Plan Agreement dated as of
February 25, 1998 between the Company and Montreal Trust Company of Canada (the
"Rights Plan Agreement"). Under the Rights Plan, a right to purchase one of the
Company's common shares (the "Right") was issued for each outstanding common
share to the Company's shareholders of record on February 25, 1998. The Rights
expire in 2002 and initially are not separate from the Company's common shares
nor are they represented by separate certificates. However, should a triggering
event occur, as defined in the Rights Plan Agreement (including the acquisition
by a single entity of 20% or more of the Company's common shares), a holder of a
Right (other than the acquiror of 20% or more of the Company's common shares)
becomes entitled to purchase one share of the Company's common shares for each
Right at a 50% discount to the market price. Under the Rights Plan Agreement,
purchases of common shares that are made pursuant to certain permitted bids, as
defined in the Rights Plan Agreement, do not constitute a triggering event.
Subject to certain terms and conditions specified in the Rights Plan Agreement,
the Rights may be redeemed by the Company for a price of $0.0001 per Right. The
Rights Plan was approved by the Shareholders at the annual meeting held June 26,
1998.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
REVENUE
Consolidated revenues for the three-month and six-month periods ended June
30, 1998 were $22.6 million and $45.1 million, respectively. Revenues in the
second quarter of 1998 were 62% below the $58.9 million of revenues reported
for the three-month period ended June 30, 1997 and 58% below the $106.8
million of revenues reported for the six-month period ended June 30, 1997.
Declines in revenue were attributed to lower gold production resulting from
the late 1997 closure of the Hope Brook and Colomac mines and lower realized
gold prices.
Gold production was 45,732 and 91,289 ounces for the three-month and six-month
periods ended June 30, 1998, respectively. 1998 gold production was 56% below
the 104,845 ounces produced for the three-month period ended June 30, 1997 and
52% below the 189,925 ounces produced for the six month period ended June 30,
1997. The September 1997 closure of the Hope Brook Mine and December 1997
closure of the Colomac Mine were the main factors contributing to the decline in
gold production.
Gold production for the ongoing mines Pamour/Nighthawk and Giant was 45,732
and 91,289 ounces for the three-month and six-month periods ended June 30,
1998. This compares to 49,288 and 97,287 ounces produced during the same
periods in 1997. Gold production at the ongoing operations during 1998
declined 7% or 3,556 ounces and 6% or 5,998 ounces from corresponding gold
production in the same three- and six-month periods of 1997. The decline in
production at the Giant Mine was due to modification in the mine plan
resulting from declining gold prices.
The Company commenced limited production at the Kemess Mine on May 19, 1998 when
ore was conveyed to line "A", one of two parallel circuits in the concentrator.
On June 14, 1998 line "B" was commissioned. As of June 30, 1998 all proceeds
from sale of concentrates during the commissioning period have been credited
against Kemess capital costs.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Ore milled (tons) 433,631 1,603,901 867,119 2,866,479
Average mill fees grade (oz/ton) 0.129 0.076 0.131 0.077
Gold production (ounces)
Northwest Territories - Giant Mine 21,424 22,981 43,814 45,829
- Colomac Mine - 32,387 - 62,267
Ontario Division - Pamour/Nighthawk 24,308 26,307 47,475 51,458
Newfoundland - Hope Brook Mine - 23,170 - 30,371
Total gold ounces produced 45,732 104,845 91,289 189,925
Average spot gold price (US$/oz) 300 343 297 347
Average realized price (US$/oz) 342 406 343 405
Average cash cost (US$/oz) 257 351 268 358
</TABLE>
EXPENSES
Operating expenses for the three months and six months ended June 30, 1998 were
$17.0 million or US $257 per ounce, and $35.2 million, or US$268 per ounce,
respectively. This compares to $50.9 million, or US$351 per ounce, and $93.9
million, or US$358 per ounce, for the three months and six months ended June 30,
1997, respectively. The decrease in consolidated operating costs was mainly
attributed to the closure of the high cost Colomac and Hope Brook mines, lower
production volumes at ongoing operations, and the implementation of a cost
reduction program, which reduced manpower and minimized discretionary spending.
US dollar cash costs per ounce were also favorably impacted by the continued
weakening of the Canadian dollar in relation to the US dollar.
NORTHWEST TERRITORIES DIVISION
GIANT MINE
Gold production for the three-month period ended June 30, 1998 was 21,424 ounces
or 7% lower than the 22,981 ounces produced during the same period of 1997.
Lower gold production was largely due to modification in the mine plan
resulting from declining gold prices. Mill
15
<PAGE>
throughput of 84,431 tons (1997- 97,564 tons) was 13% lower than production
in the same period a year ago. Mill head grade improved by 9% to 0.290 opt
gold (1997 - 0.265 opt). Gold recovery decreased 1% to 87.28 % (1997 -
88.38%). Cash costs of US$282 per ounce were 11% below the US$317 per ounce
cash cost reported for the three-month period ended June 30, 1997.
Mining operations for the six-month period ended June 30, 1998 produced 43,814
ounces of gold (1997 - 45,829 ounces) or 4% fewer ounces than those produced in
the same period in 1997. Mill throughput of 178,475 tons (1997 - 192,906 tons)
was 7% lower than that reported for the same period a year ago. Head grades of
0.283 opt gold (1997 - 0.265 opt) improved 5%. Gold recovery declined 1% to
86.40% (1997 - 87.53%). Cash costs of US$283 per ounce were 12% below the
US$321 incurred during the six-month period ended June 30, 1997.
ONTARIO DIVISION
PAMOUR/NIGHTHAWK MINES
Gold production for the three-month period ended June 30, 1998 of 24,308 ounces
(1997 - 26,307) was 8% lower than that reported for the same period a year ago.
Lower production was primarily related to a lower recovery rate of 77.02% (1997
- - 87.14%), which was 12% lower than that of the same period a year ago.
Offsetting the lower recovery rates were improvements in head grade and lower
operating cash costs. Second quarter 1998 head grades of 0.090 opt gold (1997 -
0.087 opt) showed an improvement of 3% from the same period in 1997. Cash costs
per ounce of US$235 per ounce (1997 - US$316) were 26% lower than that reported
for the same period in 1997.
For the first six months of 1998, gold production was 47,475 ounces (1997 -
51,458 ounces), a decrease of 8% from production reported for the same period a
year ago. Lower gold production was attributed to the lower recovery rate of
75.60% (1997 - 86.50%), a decrease of 13% from first half 1997 recovery rates.
Lower gold production volumes associated with recovery rates were, however,
partially offset by higher head grades and increased mill throughput. Head
grades of 0.091 opt gold (1997 - 0.088 opt) showed an improvement of 3% and mill
throughput of 688,644 tons (1997 - 677,889 tons) increased 2% over results
reported for the same period of 1997. Operating cash costs for this period of
US$255 per ounce decreased 21% from the same period 1997 cash cost of US$323,
evidencing the effects of the cost reduction efforts and the effects of a weaker
Canadian dollar in relation to the US dollar.
OTHER EXPENSES
Care and maintenance expenditures for the three months and six months ended
June 30, 1998 were $1.0 million and $2.3 million, respectively. Care and
maintenance costs were up $0.9 million and $2.2 million from the amounts
incurred in the three months and six months ended June 30, 1997,
respectively. Higher care and maintenance costs were attributed to the
shutdown Colomac and Hope Brook properties and the suspended Matachewan
project. On a year to date basis, $1.0 million has been incurred at Colomac
and $0.6 million at Hope Brook.
Royalties and marketing costs for the three months and six months ended June 30,
1998 were $0.3 and $0.6 million, respectively. This compares to $0.4 and $0.9
million reported for the same periods in 1997. Decreases in marketing costs
were related to the closure of the Colomac and Hope Brook mines. The Ontario
Division was the only property subject to royalty payments during the six-month
periods ended June 30, 1997 and 1998. Royalty payments for the first six months
of 1997 and 1998 were unchanged with the impacts of lower gold prices being
offset by slightly higher ore production.
Administrative costs and corporate costs were $2.2 million and $4.5 million
for the three months and six months ended June 30, 1998, respectively. These
costs represent a cost reduction of 38% or $1.3 million from the $3.5 million
incurred during the three-month period ended June 30, 1997, and a 28%, or
$1.7 million decrease from the $6.2 million incurred for the six-month period
ended June 30, 1997. Decreases in costs were primarily associated with the
employment of fewer personnel in the corporate office.
Depreciation and amortization for the three months and six months ended June 30,
1998 was $6.7 million and $10.7 million, respectively. This compares to $5.9
million and $11.5 million for the same periods a year ago. The changes between
periods reflect a 13% increase and a 7% decrease for the three months and six
months ended June 30, 1997, respectively. Decreases in depreciation and
amortization were primarily related to the 1997 closure of the Hope Brook and
Colomac mines. Lower costs were, however, partially offset by the 1997 year-end
downward revision of ore reserve estimates due to lower gold prices, resulting
in adjustments to depreciation and amortization.
Reclamation costs decreased 53% to $0.6 million and 51% to $1.2 million during
the three months and six months ended June 30, 1998 from $1.2 million and $2.4
million in the corresponding periods in 1997. The closure of the Hope Brook and
Colomac mines in 1997 and slightly lower ore production at the ongoing
operations contributed to the significant decline in costs. Cost declines were
partially offset by the lower ore reserve estimates which slightly increased per
unit cost accruals.
Exploration and other costs declined 64% to $0.5 million and 66% to $0.9 million
for the second quarter and six months ended June
16
<PAGE>
30, 1998, respectively, compared to the $1.3 million and $2.7 million
incurred during the same period a year ago, respectively. Management's
decision to limit exploration and other discretionary costs was based upon
the cash requirements for the start-up of the Kemess Mine and continued low
gold prices.
The Company enters into foreign currency and commodity contracts to minimize
exposure to adverse fluctuations in Canadian dollar exchange rates associated
with US dollar sales of gold and copper and commodity prices. A weakening of
the Canadian dollar relative to the US dollar resulted in a currency loss
provision of $11.4 million during the second quarter 1998, which more than
offset a first quarter 1998 loss recovery of $7.9 million bringing the loss for
the six-month period ended June 30, 1998 to $3.5 million. This compares to
provisions for currency losses of $7.3 million and $10.3 million for the same
three- and six-month periods a year ago. The Canadian/US foreign currency
exchange rate at December 31, 1997 was 1.431 or 3% lower than the exchange rate
of 1.472 at June 30, 1998. The December 31, 1997 spot gold price of US$290 per
ounce increased 2% to the June 30, 1998 spot gold price of US$296 per ounce. In
June of 1998 a significant portion of the outstanding hedge positions were
closed out (see Note 6 to the Consolidated Financial Statements).
The Company incurred interest on long-term debt of $10.4 million and $18.6
million during the three months and six months ended June 30, 1998,
respectively. This compares to $6.5 million and $12.8 million incurred during
the same periods a year ago, respectively. Increases in interest expense are
mainly attributed to the January 1998 issuance of Senior Secured Debentures in
the principal amounts of $19.5 million and US$30.7 million and the June 1998
issuance of US$115.0 million of Senior Secured Debentures to Trilon Financial
Corporation ("Trilon") and Northgate Exploration Limited ("Northgate") see Note
7 to the Consolidated Financial Statements). Proceeds from the June 1998
issuance of Senior Secured Debentures was used in part to retire the Senior
Secured Debentures issued in January of 1998. All but $0.4 million of the 1998
interest expense incurred has been capitalized against projects under
construction, mainly the Kemess project.
Generally accepted accounting principles (GAAP) promulgate the write-down of
unamortized deferred finance costs on retirement of debt. Accordingly, deferred
financing costs associated with the Senior Secured Debentures retired in June of
1998, as well as legal, advisory and other costs associated with the $115.0
million Trilon financing were written off at June 30, 1998. This resulted in a
charge to income of $15.0 million.
A write-down of $39.7 million was taken in the three-month period ended June 30,
1997 to reflect the permanent impairment of Colomac Assets. No write-down of
this nature has occurred in 1998.
NET INCOME (LOSS)
The Company incurred a net loss of $35.0 million and $32.7 million for the
three months and six months ended June 30, 1998, respectively. This compares
with a net loss of $52.1 million and $60.2 million for the three and six months
ended June 30, 1997, respectively. The loss for the quarter and first six
months of 1998 was primarily the result of lower realized gold prices, lower
gold production and the write-off of deferred finance costs on retirement of
debt. Improvements over 1997 financial results was attributed to cost reduction
efforts, closure of the high cost Colomac and Hope Brook mines and the 1997
$39.7 million write-down of Colomac Mine assets.
LIQUIDITY AND CAPITAL RESOURCES
The progressive decline in the gold price during 1997, which continued through
the second quarter of 1998 (from US$366 to approximately US$285 per ounce), has
adversely affected the Company's operating cash flow and its ability to meet its
cash obligations over the last eighteen months. Commencing in 1997 and
continuing through 1998, the Company has implemented a number of measures to
conserve its cash resources, including closure of two high-cost mines (Colomac
and Hope Brook); cost reductions at its active operations and corporate office;
indefinite postponement of development projects; and other actions designed to
improve cash flow at its active operations.
On April 17, 1998 the Company entered into a securities purchase agreement with
Trilon providing for the issuance by the Company to Trilon and Northgate of
senior secured debentures in the aggregate principal amount of US$120 million.
The initial draw down of US$115 million occurred on June 24, 1998 and the
balance may be drawn down, subject to certain conditions being fulfilled, on or
before August 15, 1998 (see Note 7 to the Consolidated Financial Statements).
Due to the delay in closing this transaction, which occurred at a critical time
during the last few months of construction of the Kemess South Mine, the Company
was unable to meet certain payment commitments it had made to its key
contractors. This resulted in a delay to the construction schedule at Kemess
whereby the mine commenced production on May 19, 1998 instead of the original
scheduled date of April 1. The financial impact of these delays on cash flow
was exacerbated by a cost overrun on the Kemess South
17
<PAGE>
project.
The final cost of the Kemess South Mine is expected to be approximately $480
million, which is an increase of approximately 11.6% over the previously
announced cost estimate of $430 million. The increase is attributed to a number
of unforeseen construction-related factors, the most significant of which
related to additional costs for the tailings dam construction and the tailings
pipeline system. These additional costs accounted for approximately one-half of
the cost overrun. The design of the tailings dam was substantially altered due
to geotechnical considerations related to bedrock and soil conditions. At the
Company's request, the tailings pipeline design was changed to increase the
number of tailings lines from one to two, in order to decrease the operating
risk, adding additional costs to the previous estimates. In the dam and
pipeline areas, the previously estimated budgets had not adequately allowed for
the added difficulties in the handling of materials, nor for the control of
sediments resulting from the earthworks program, nor for the substantial
increase in the volumes of materials to be moved as a consequence of redesign.
Additional costs were incurred in power line clearing, government-assessed
stumpage costs, project expenses associated with increased costs resulting
primarily from staff requirements, site accommodations, travel, freight and
fuel. The remaining overrun amounts were associated with redesign requirements
during the mechanical, piping, and electrical stage of the project construction,
and bulk construction material quantity reconciliations.
The result of the financings and other sources and applications of funds on the
Company's liquidity was to reduce the working capital deficiency from $126.9
million at December 31, 1997 to $104.8 million at March 31, 1998 and to $48.5
million at June 30, 1998. The current ratio at each date was 0.34 to 1, 0.25 to
1 and 0.49 to 1, respectively. The working capital deficiency resulted
primarily from the use of cash to construct the Kemess South project and from
accounts payable to equipment suppliers and contractors working on the project.
As of June 30, 1998 the total of the Company's cash, cash equivalents and
marketable securities increased to $17.0 million, from $0.6 million at March 31,
1998 and from $10.4 million at the end of 1997.
OPERATING ACTIVITIES
In the second quarter of 1998, cash flow before net changes in other operating
items was $2.5 million compared with $2.1 million in the same period of 1997.
In the six month period ended June 30, 1998 cash flow before net changes in
other operating items was $3.4 million compared with $1.6 million in the same
period a year earlier. The increase in cash flow reflected improved operations
at the Giant and Pamour/Nighthawk mines. Declines in the Company's average
realized gold price were more than offset by reductions in unit cash costs.
Unit cash costs for the Giant and Pamour/Nighthawk mines for the six-month
period ended June 30, 1998 declined 17% to US$268 per ounce from US$322 per
ounce incurred during the same period in 1997.
Net changes to cash used in other operating items amounted to $46.0 million in
the second quarter of 1998 and $7.7 million in the same period a year earlier.
These changes mainly reflect reductions in accounts payable on the Kemess South
project. The Company reported net cash used in operating activities of $43.5
million and $5.6 million in the respective quarters of 1998 and 1997.
FINANCING ACTIVITIES
Net cash provided by financing activities was $96.9 million in the second
quarter of 1998 compared with net cash used in financing activities of $0.2
million in the second quarter of 1997.
In the six month period ended June 30, 1998 net cash provided by financing
activities was $154.9 million compared with $0.4 million used in the same
period of 1997.
As noted above and more fully described in Note 7 to the Consolidated Financial
Statements, the principal source of capital was provided by the US$120 million
Senior Secured Debenture financing. In the three months ended June 30, 1998 the
Company issued 10 million common shares to the subordinated noteholders as
consideration for their consent to the Senior Secured Debenture financing.
These shares were issued on closing of the US$120 million Senior Secured
Debenture financing and recorded for book purposes at the closing price of the
common shares on The Toronto Stock Exchange as of that date.
On June 24, 1998 the Company issued and sold to certain investors an aggregate
amount of 4,103,663 Special Warrants convertible into an aggregate amount of
4,103,663 common shares for aggregate consideration of approximately $5.3
million (see Note 8(b) to the Consolidated Financial Statements). The Special
Warrants were issued to certain creditors of the Company in full payment and
satisfaction of indebtedness related principally to overdue accounts payable in
connection with the construction of the Kemess South Mine.
18
<PAGE>
INVESTING ACTIVITIES
In the second quarter of 1998, net cash used in investing activities was $37.1
million compared with $35.7 million in the same period of 1997. In the period
this year, capital expenditures amounted to $43.7 million. In the second
quarter of 1997, capital expenditures amounted to $63.2 million and were offset
by $47.8 million received as assistance from the B.C. government for
construction of the Kemess project. Long-term investments decreased by $17.8
million in the period.
In the first half of 1998, net cash used in investing activities was $69.6
million compared with $53.3 million in the same six-month period of 1997.
Capital expenditures in the first half this year were $80.1 million. In the
same period of 1997, capital expenditures of $109.5 million were partly off-set
by B.C. government assistance of $78.8 million.
Investing activities were mainly associated with costs to complete construction
of the Kemess South Mine. The development of the Kemess South Mine has been
facilitated by up to $166 million of compensation, economic assistance and
investment from the British Columbia provincial government. To date, the
Company has received approximately $154 million from the British Columbia
provincial government. The Company and the British Columbia provincial
government have agreed on the terms of payment for the remaining $12 million.
The British Columbia provincial government has agreed to pay the Company $8.1
million in a lump sum payment on August 15, 1998 rather than to pay $12 million
over a 12-year period.
With construction of the Kemess South Mine complete, the Company anticipates
that investments in capital assets for the next several quarters will be limited
to sustaining capital at its active operations.
OUTLOOK
As a result of the Company's tight liquidity and the terms of the most recent
financing, the Company may be restricted in its ability to expand its hedging
activities. This may limit the Company's ability to effectively hedge
production and realize gold and copper prices significantly above spot prices.
Historically, the Company has been one of the industry leaders, averaging US$20
to US$40 per ounce over spot prices for its gold sales. Should spot prices for
gold and copper continue at the current levels, the Company will be required to
examine the carrying value of all its assets to determine recoverability of its
investments.
The Company's future viability is dependent upon its ability to bring the Kemess
South Mine into an efficient operating state, maintain satisfactory credit
relationships with its suppliers and achieve and maintain profitable operations.
Successful operations in the future are also dependent upon various external
factors, the most significant of which are the prices of the commodities it
produces, gold and copper, and the US$/Cdn$ exchange rate.
Based upon current commodity prices, exchange rates and forecast production
levels, management expects to have sufficient cash to meet interest payments and
other obligations arising during the balance of 1998. However, at such price
levels the Company's ability to meet interest payments and scheduled principal
payments of secured indebtedness occurring after 1998 will depend upon the
Company's ability to maintain its costs of production at or below current
levels, the performance of the Company's operating mines at or above forecast
production, and its ability to refinance principal repayments as they fall due.
The Company is continuing to work with its investment bankers and advisors in
seeking a long-term re-financing alternative.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
With the exception of historical statements, the matters discussed in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on numerous variables and assumptions that are inherently uncertain and
could cause actual results to be materially more or less favorable than
projected, including without limitation general economic and competitive
conditions and other factors. Among such factors are those related to
volatility in the price of gold, copper and other commodities, changes in
interest and foreign exchange rates, government regulation and agency action,
competing land claims, the accuracy of estimates of ore reserves and mineral
inventory, environmental costs and risks, unanticipated processing, access,
transportation of supplies, water availability or other problems, other factors
relating to the Company's ability successfully to complete development projects
within projected capital budgets or to carry on mining operations within
projected operating budgets and the risk factors listed from time to time in the
Company's filings with the Securities and Exchange Commission, including without
limitation the Company's Annual Report on Form 10-K for the year ended December
31, 1997, Part I:, Item 7, Risks and Uncertainties.
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
FULLOWKA ET AL V. ROYAL OAK MINES INC. ET AL, (September 1994; served July
1995), begun by widows and dependents of nine miners killed during the 1992
strike at the Giant Mine in the Supreme Court of the NWT as action no. CV
05408 alleging, INTER ALIA, negligence on the part of the Company and two
named directors/officers (along with 23 other named defendants). Roger
Warren, a member of the Union, was charged and subsequently convicted of
causing the deaths by explosion. The claim against the Company and all
named defendants but one totals approximately $10.8 million plus taxes,
interest and costs. The claim against the two directors/officers and all
defendants, excluding the Company, totals approximately $33.65 million plus
taxes, interest and costs. The Company has denied any negligence on its
part. Pleadings and productions are complete; pretrial discovery has
recently commenced and is scheduled to continue through the summer of 1998.
A second action (action no. CV 06964) has been commenced recently by the
widows against the "John Does" in the original action; two of whom have
served notices of third-party claims against, INTER ALIA, the Company and
the two directors/officers aforesaid. Defendants have moved the court to
strike the second action as being untimely. The Northwest Territories
Workers' Compensation Board has rendered a decision that the immunity
provisions of the Workers' Compensation Act do not apply to one of the
named directors/officers, and application has been made for judicial review
of this decision.
TSAY KEY DENE AND TAKLA INDIAN BANDS V. KEMESS MINES INC. ET AL, (February
1997), begun in the Supreme Court of British Columbia as action no. 97
0723 seeking injunctive relief and an order setting aside the Certificate
of Approval, License of Occupation and Permits to Cut for the Kemess South
Mine and its power line for, amongst other causes, alleged failure on the
part of the British Columbia government to adequately consult with the
Bands before granting the documents in issue and the alleged bias on the
part of the Government related to the Heads of Agreement entered into
between the British Columbia Government and the Company in August 1995 in,
INTER ALIA, settlement of the Windy Craggy compensation claim. Interim and
interlocutory injunction applications were denied by two separate judges of
the British Columbia Supreme Court and have not been appealed by
plaintiffs. Hearing on the merits of plaintiffs' claims was scheduled to
commence in September 1997 but was adjourned at the plaintiffs' request to
accommodate a court-supervised mediation process between the British
Columbia government and the plaintiffs, which began in August 1997,
continued into December 1997 and was adjourned in January 1998 upon the
withdrawal by one of the plaintiffs following pronouncement of the
DELGAMUUKW decision by the Supreme Court of Canada. In May 1998, the
Takla Indian Band discontinued the proceeding against the Defendants. Also
in May 1998, the other plaintiff, the Tsay Keh Dene, and the Provincial
Government agreed to mediation, and the scheduled proceedings will be
adjourned pending results of the mediation.
ROYAL OAK MINES INC. V. TERCON CONTRACTORS LTD. (arbitration January 1998
and heard March-May 1998, ongoing) TERCON CONTRACTORS LTD. V. ROYAL OAK
MINES INC. (builders lien proceeding) (May 1998) ROYAL OAK MINES INC. V.
TERCON CONTRACTORS INC. (BCSC May 1998) claiming damages for breach of
contract of approximately $6.8 million, including interest and legal costs,
for failure to pay for equipment used to perform a contract at the Kemess
South Mine. On March 20, 1998, the arbitrator entered an award finding
against the Company generally and directed that the parties attempt to
agree as to actual amounts owing, absent which agreement the arbitrator
would retain jurisdiction over the matter for the purpose of determining
the amount of a final monetary award against the Company. On May 5, 1998,
the arbitrator made a partial award in the amount of $6,453,105.28. A
court order that the award could be enforced as a judgement was made on May
7, 1998. On May 13, 1998, Tercon obtained a writ of seizure and sale of
the Kemess South Mine lease and claims. The Company challenged the same
and on June 4, 1998, the court ordered the return of the mine lease and
claims, stayed any execution against the same under this proceeding and
under the builders lien proceeding commenced by Tercon. The court ordered
the Company to pay $3,500,000 to Tercon from the proceeds of the Trilon
financing (which amount has been paid) and invited the Company to make
application for payment terms as to the balance before October 15, 1998.
In addition, in May 1998, Royal Oak commenced proceedings against Tercon
for misrepresentation in connection with the subject contracts. This
proceeding is in very early stages. Tercon is also proceeding with its
builders lien action which is scheduled to be heard August 14, 1998 in
Vancouver.
Builders' Liens and Claims
The Company has also received notice of and is in the process of responding
to builders' liens filed against the Kemess South Mine and/or claims
arising out of work performed at the Kemess South Mine by various
contractors. The stated amount of the asserted liens filed against the
Kemess South project, not including the amounts owing to contractors who
have not filed liens, was approximately $14.6 million as of August 7, 1998.
These include a proceeding by Golden Hill Ventures Ltd. for $6.15 million
plus holdback, commenced September 1997.
20
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company's Annual and Special Meeting of Shareholders was held on
June 26, 1998.
(c) Seven proposals were submitted for shareholder approval, all of which
were passed with the following voting results:
1. The proposal to fix the number of directors at five and to
authorize the Board of Directors to determine the number of
directors serving on the Board of Directors was approved with
101,795,297 votes for, 1,942,313 votes against, and 753,731
votes abstaining, not voted or spoiled.
2. All five of the Company's directors were re-elected to serve
until the next annual meeting of shareholders, based on the
votes as tabulated below:
<TABLE>
<CAPTION>
Votes abstained,
Votes not voted or
Nominee Votes for withheld spoiled
--------------------------- ----------- --------- -----------------
<S> <C> <C> <C>
Margaret K. Witte 102,659,981 148,888 1,682,472
Ross F. Burns 102,716,463 92,406 1,682,472
William J.V. Sheridan 102,671,153 137,716 1,682,472
J. Conrad Lavigne 102,616,393 192,476 1,682,472
George W. Oughtred 102,699,656 109,213 1,682,472
</TABLE>
3. The reappointment of Arthur Andersen & Co., Chartered Accountants, as
independent auditors and to authorize the directors to fix their
remuneration was approved with 101,659,033 votes for, 612,996 votes
against, 48,232 votes withheld and 2,171,080 votes abstaining, not
voted or spoiled.
4. The proposal to confirm the adoption of the shareholder rights plan
was approved with 40,020,406 votes for, 8,105,421 votes against and
56,365,514 votes abstaining, not voted or spoiled.
5. The proposal to approve stock options previously granted to senior
officers and directors of the Company, to purchase, in aggregate, up
to 1,810,000 Common Shares of the Company was approved with 29,335,017
votes for, 18,400,512 votes against and 56,755,812 votes abstaining,
not voted or spoiled.
6. The proposal to approve the repricing to $1.10 per share of stock
options previously granted to senior officers, directors and employees
of the Company was approved with 26,406,799 votes for, 21,372,597
votes against and 56,711,945 votes abstaining, not voted or spoiled.
7. The proposal to approve stock options previously granted to senior
officers of the Company to purchase, in aggregate, up to 300,000
Common Shares of the Company at a price of $1.55 per share was
approved with 32,341,586 votes for, 15,452,855 votes against and
56,696,900 votes abstaining, not voted or spoiled.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K.
A report on Form 8-K was filed on April 7, 1998, regarding a press
release from Royal Oak Mines Inc., announcing the Exploration
Program for 1998.
A report on Form 8-K was filed on May 12, 1998, regarding a press
release from Royal Oak Mines Inc., announcing first quarter 1998
results of operations.
A report on Form 8-K was filed on May 15, 1998, regarding a press
release from Royal Oak Mines Inc., announcing the agreement for
consents with the majority of holders of its US$175 million Senior
Subordinated Notes.
21
<PAGE>
A report on Form 8-K was filed on June 16, 1998, regarding a press
release from Royal Oak Mines Inc., announcing the company is not a
delinquent filer of annual financial statements.
A report on Form 8-K was filed on June 24, 1998, regarding a press
release from Royal Oak Mines Inc., announcing the closing of senior
secured financing.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROYAL OAK MINES INC.
Date: August 14, 1998 By /s/ Margaret K. Witte
------------------------------
Margaret K. Witte
President and Chief
Executive Officer
Date: August 14, 1998 By /s/ James H. Wood
---------------------------
James H. Wood
Chief Financial Officer
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of Filing
- ------- ----------------
<C> <S> <C>
4.1 Third Supplemental Indenture, dated as of May 19, 1998,
by and among the Company, and Chase Manhattan Trust
Company, National Association, the successor to Mellon Filed herewith
Bank, F.S.B., as Trustee.
4.2 Fourth Supplemental Indenture, dated as of June 22, 1998,
by and among the Company, and Chase Manhattan Trust
Company, National Association, the successor to Mellon Filed herewith
Bank, F.S.B., as Trustee.
4.3 Fifth Supplemental Indenture, dated as of June 22, 1998,
by and among the Company, and Chase Manhattan Trust
Company, National Association, the successor to Mellon
Bank, F.S.B., as Trustee. Filed herewith
4.4 Securities Purchase Agreement, dated as of April 17,
1998, between the Company and Trilon Financial
Corporation. Filed herewith
4.5 Securities Purchase First Amending Agreement, dated as of
May 15, 1998, between the Company and Trilon Financial
Corporation. Filed herewith
4.6 Securities Purchase Second Amending Agreement, dated as
of June 22, 1998, between the Company and Trilon
Financial Corporation. Filed herewith
4.7 Senior Secured Debenture - Series A, in the principal
amount of US$85,000,000 dated as of June 22, 1998. Filed herewith
4.8 Senior Secured Debenture - Series B, in the principal
amount of US$35,000,000 dated as of June 22, 1998. Filed herewith
4.9 Trust Indenture Providing for the Issue of US$50 million
15% Demand Bonds, dated as of June 22, 1998, among and
between the Company, and Montreal Trust Company of
Canada, as Trustee. Filed herewith
27. Financial Data Schedule Filed herewith
</TABLE>
<PAGE>
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE, dated and effective as of May 19, 1998, by
and between Royal Oak Mines Inc., a corporation amalgamated under the laws of
Ontario, Canada (the "Company"), and Chase Manhattan Trust Company, National
Association, the successor to Mellon Bank, F.S.B., as Trustee (the "Trustee"),
amending the Indenture (hereinafter defined).
Royal Oak Mines Inc. issued an aggregate principal amount of $175,000,000
of 11% Senior Subordinated Notes due 2006 and Series B 11% Senior Subordinated
Notes due 2006 (collectively, the "Notes") pursuant to an Indenture (the
"Original Indenture"), dated as of August 12, 1996 (as amended and supplemented
by the First Supplemental Indenture dated and effective as of December 31, 1997
and the Second Supplemental Indenture dated and effective as of January 31,
1998, (collectively with the Original Indenture, the "Indenture")), by and among
Royal Oak Mines Inc., the Trustee and Kemess Mines Inc. ("Kemess"). Kemess was
a Guarantor as defined in and for the purposes of the Indenture. On December
29, 1997, Royal Oak Mines Inc. and Kemess amalgamated under the laws of Ontario,
Canada and the surviving entity of such amalgamation is the Company.
Section 9.02 of the Indenture provides that the Company, when authorized by
a resolution of the board of directors of the Company, and the Trustee, together
with the written consent of the Holders (as defined in the Indenture) of at
least a majority in aggregate principal amount of
<PAGE>
the outstanding Notes, may amend the Indenture as provided in Section 9.02.
The Company has designated a record date of April 15, 1998 (the "Record
Date") for the purpose of obtaining such consent to this Third Supplemental
Indenture and the Holders of a majority in aggregate principal amount of the
Notes as of the Record Date have provided their written consent, and have not
revoked such consent, to the amendment to the Indenture contained in this
Third Supplemental Indenture, and the other conditions precedent in the
Indenture to the execution hereof have been satisfied. Pursuant to section
9.05 of the Indenture, once the amendment to the Indenture contained in this
Third Supplemental Indenture becomes effective, it will bind every Holder of
Notes.
Each party hereto agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Notes:
1. The second paragraph of section 9.05 of the Indenture is hereby amended by
replacing the number "30" referred to therein with the number "3".
2. The Indenture is hereby amended in every respect to the extent necessary to
give effect to all sections of this Third Supplemental Indenture and
conform the Indenture thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental
Indenture to be duly executed and effective all as of the date first written
above.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
-----------------------------
Name: James H. Wood
Title: C.F.O.
<PAGE>
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
By: /s/ Roy Davis
----------------------------
Name: Roy Davis
Title: Vice President
<PAGE>
FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE, dated and effective as of June 22, 1998, by
and between Royal Oak Mines Inc., a corporation amalgamated under the laws of
Ontario, Canada (the "Company"), and Chase Manhattan Trust Company, National
Association, the successor to Mellon Bank, F.S.B., as Trustee (the "Trustee").
RECITALS OF ROYAL OAK MINES INC.
Royal Oak Mines Inc. issued an aggregate principal amount of $175 million
of 11% Senior Subordinated Notes due 2006 and Series B 11% Senior Subordinated
Notes due 2006 (collectively, the "Notes") pursuant to an Indenture, dated as of
August 12, 1996 (as amended and supplemented by the First Supplemental Indenture
dated and effective as of December 31, 1997, and the Second Supplemental
Indenture dated and effective as of January 31, 1998, and the Third Supplemental
Indenture dated and effective as of May 19, 1998) (as so amended and
supplemented, the "Indenture"), by and among Royal Oak Mines Inc., the Trustee
and Kemess Mines Inc. ("Kemess"). Kemess was a Guarantor as defined in and for
the purposes of the Indenture. On December 29, 1997, Royal Oak Mines Inc. and
Kemess amalgamated under the laws of Ontario, Canada and the surviving entity of
such amalgamation is the Company. Unless otherwise defined herein, terms with
initial capitals shall have the meanings ascribed thereto in the Indenture.
Section 9.02 of the Indenture provides that the Indenture may be amended or
supplemented by the Company and the Trustee when authorized by a resolution of
the board of directors of the Company and consented to in writing by the holders
of at least a majority in principal amount of the outstanding Notes. The holders
of a majority in aggregate principal amount of the outstanding Notes have
provided their written consent to the amendments and supplements contained in
this Fourth Supplemental Indenture. Pursuant to Sections 9.02 and 9.05 of the
Indenture, upon the effective date (determined in accordance with the Indenture)
of the amendments and supplements to the Indenture contained in this Fourth
Supplemental Indenture, the Indenture as supplemented and amended by the Fourth
Supplemental Indenture will bind every Holder.
AGREEMENT
Each party hereto agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the holders of the Notes:
1. The second preamble paragraph to the Indenture is hereby amended by
deleting the words "Series B 11% Senior Subordinated Notes due 2006" (the
"Exchange Notes") and substituting therefor in the preamble to the
Indenture the words "Series B Secured 12.75% Senior Subordinated Notes due
2006".
2. The title to each of the Exchange Notes is hereby changed to "Secured
12.75% Senior Subordinated Notes due 2006". Each issued and outstanding
Note and the form of Notes
<PAGE>
-2-
annexed to the Indenture as Exhibit B are hereby amended accordingly.
The Exchange Notes are the only Notes outstanding under the Indenture.
3. The interest rate payable on the Notes shall increase by 175 basis points
to 12.75% per annum effective on and after May 30, 1998. Each issued and
outstanding Note and the form of Notes annexed to the Indenture as Exhibit
B are hereby amended accordingly. No exchange of the Notes is necessary to
effect the amendments of the Notes hereunder.
4. Section 1.01 is hereby amended by deleting in their entirety the
definitions of "Asset Sale", "Bankruptcy Law", "Commodity Agreement",
"Custodian" "Kemess South" and "Senior Secured Debentures" contained in
that section and by inserting in alphabetical order in Section 1.01 the
following definitions:
"Acceptance Notice" has the meaning attributed thereto in Section 5.1 of
the Inter-Creditor Agreement."
"Amalgamation" has the meaning attributed thereto in Section 5.01."
"APM" means Arctic Precious Metals, Inc., a Nevada corporation."
"Applicable Law" means, in respect of any Person, property, transaction or
event, all applicable laws, statutes, rules, by-laws and regulations, and
all applicable official written directives, orders, judgements and decrees
of Governmental Bodies."
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer by the Company or by any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction)
to any Person other than to the Company or to a direct or indirect wholly
owned Restricted Subsidiary of the Company of (i) any Capital Stock of any
Restricted Subsidiary of the Company or (ii) any other property or assets
of the Company or of any Restricted Subsidiary of the Company, other than
with respect to this clause (ii) any disposition of mineral products in the
ordinary course of business.
"Bankruptcy Law" means the United States Federal Bankruptcy Code of 1978,
as amended from time to time, state or foreign law for the relief of
debtors and any other applicable insolvency or other similar laws of any
jurisdiction including, without limitation, any law of any jurisdiction
permitting a debtor to obtain a stay or a compromise of the claims of its
creditors against it or any laws of any jurisdiction permitting a creditor
or officer of the court to enforce rights or remedies against the property,
assets and undertaking of a debtor by contract or at law, including,
without limitation, a court ordered or contractual appointment of a
Custodian."
"Beneficial Holders" has the meaning attributed thereto in Section 6.12."
<PAGE>
-3-
"Collateral" means the property, assets and undertaking of the Company
(other than the Excluded Assets) and its Restricted Subsidiaries charged or
in which the Trustee or the Collateral Agent is granted a Lien pursuant to
the Security Documents and all replacements, substitutions and additions
thereto and all income, gains and distributions thereon and proceeds
thereof, of whatsoever nature and kind."
"Collateral Agent" means initially CIBC-Mellon Trust Company, a Canadian
trust company, chartered under the LOAN AND TRUST COMPANIES ACT (Canada)
its successors and assigns, and any other Person appointed from time to
time as collateral agent hereunder, provided, that for the purposes of the
Inter-Creditor Agreement, the Trustee may be required to therein act as the
"U.S. Collateral Agent" to the extent it holds Collateral and in such
capacity shall be considered a "Collateral Agent" hereunder."
"Commodity Agreement" of any Person means any option or futures contract or
similar agreement or arrangement and all payments which become due and
payable upon termination thereof or of any transaction thereunder and
includes any contract for the sale of copper concentrate."
"Company Purchase Offer" has the meaning attributed thereto in Section
4A.06."
"Consents" means the form of Consent To Fourth and Fifth Supplemental
Indentures, Inter-Creditor Agreement, Security Documents and Waiver
requested of the Holders in connection with the transactions contemplated
in the Fourth Supplemental Indenture, the Fifth Supplemental Indenture and
the Letter Agreement (as defined herein)."
"Custodian" means any receiver, manager, receiver/manager, interim
receiver, agent, liquidator, trustee, assignee or similar person or
representative under any Bankruptcy Law and whether appointed by a court or
otherwise."
"Eligible Holders" and "Eligible Holder" has the meanings attributed
thereto in Section 6.12."
"Excluded Assets" means the Windy Craggy Property."
"Existing Hedging Indebtedness" means the present and future debts,
liabilities and obligations of the Company or its affiliates to Bankers
Trust Company, The Bank of Nova Scotia and Macquarie Bank Limited and their
respective affiliates, successors or assigns pursuant to or in any way
related to Commodity Agreements, Interest Swap Obligations, Foreign
Exchange Obligations or Currency Agreements, whether matured or unmatured,
originally entered into by the Company or its affiliates on or prior to the
date hereof (in this definition "Contracts"), and the present and future
debts, liabilities and obligations of the Company or its affiliates to
Bankers Trust Company, The Bank of Nova Scotia and Macquarie Bank Limited
or their respective affiliates, successors and assigns pursuant to or in
any way related to instruments or agreement entered into after the date
hereof, where such instruments or agreements are entered into to replace,
amend, extend the
<PAGE>
-4-
maturity of or rollover Contracts (including such as previously replaced,
amended, extended or rolled over), or otherwise to extend or reschedule
payments due thereunder."
"Final Deposit Time" has the meaning attributed thereto in Section 6.13."
"Fourth Supplemental Closing Date" means the date on which the Trustee
receives an Officer's Certificate certifying that all of the following have
occurred, subject to any applicable escrow conditions: (i) the closing of
the issuance and sale of the Senior Secured Debentures; (ii) the execution,
delivery and registration or filing of the Security Documents and execution
and delivery of the Inter-Creditor Agreement as each is contemplated in
this Fourth Supplemental Indenture; and (iii) the completion of the
issuance of shares and payments contemplated in paragraphs 1 and 8 of the
letter agreement, dated May 15, 1998 (the "Letter Agreement"), between the
Company and the Proposing Noteholders (as defined in the said letter
agreement)."
"Governmental Body" means any government, parliament, legislature, or any
regulatory, authority, agency, commission or board of any government,
parliament or legislature, or any court or (without limitation to the
foregoing) any other law, regulation or rule-making entity (including,
without limitation, any central bank, fiscal or monetary authority or
authority regulating banks), having jurisdiction in the relevant
circumstances, or any Person acting under the authority of any of the
foregoing (including, without limitation, any arbitrator)."
"Hazardous Substance" includes but is not limited to any contaminants,
pollutants, dangerous substances, liquid wastes, industrial wastes, toxic
substances, hazardous wastes, hazardous materials of whatsoever nature or
kind or any other hazardous substance within the meaning of any Applicable
Law including without limitation the HAZARDOUS PRODUCTS ACT (Canada), the
CANADIAN ENVIRONMENTAL PROTECTION ACT (Canada), the ENVIRONMENTAL
PROTECTION ACT (Ontario) and the WASTE MANAGEMENT ACT (B.C.)."
"In Agreed Form" means, with respect to any document to be delivered by the
Company or any Restricted Subsidiary to the Trustee under or pursuant to
this Fourth Supplemental Indenture, the receipt by the Trustee of an
Officer's Certificate and Opinion of Counsel, upon each of which the
Trustee may conclusively rely, to the effect that: (i) such document is in
substantially the same form and substance as any comparable document
previously delivered or to be delivered contemporaneously by the Company or
such Restricted Subsidiary to the Senior Debentureholders (other than as it
pertains to the priority of a Lien), such document is authorized or
permitted by the Indenture and that the form and substance of such document
complies with all of the terms of this Indenture; or (ii) if no such
comparable document has or is to be delivered by the Company or such
Restricted Subsidiary to the Senior Debentureholders, the form and
substance of such document is authorized or permitted by this Indenture and
the form and substance of such document complies with all of the terms of
this Indenture."
<PAGE>
-5-
"Initial Deposit Time" has the meaning attributed thereto in Section 6.13."
"Inter-Creditor Agreement" means the inter-creditor agreement incorporated
herein by reference, to be dated and effective as of the Fourth
Supplemental Closing Date among Trilon, Northgate Exploration Limited, the
Trustee, the Collateral Agent, APM and the Company, which agreement shall
be in the form annexed as Exhibit E hereto, as amended or supplemented from
time to time in accordance with this Indenture."
"Kemess Mine" means the Kemess North Property and Kemess South Mine."
"Kemess Newco" means the wholly owned Restricted Subsidiary of the Company
into which, at the request of the Senior Debentureholders, the Company will
transfer ownership of the Kemess Mine and related assets."
"Kemess Newco Guarantee and Assumption" means the guarantee and assumption
agreement to be given by Kemess Newco, in compliance with Sections 4.20 and
4.21 of the Indenture and In Agreed Form, to the Trustee for the benefit of
the Holders of the Notes, of the Company's obligations under the
Indenture."
"Kemess Newco Liens" means the present and future fixed and floating Liens
to be granted by Kemess Newco to the Trustee or the Collateral Agent in all
of its property, assets and undertaking, including the Kemess Mine and
related assets, which Lien will be In Agreed Form and will secure the
payment and performance by Kemess Newco of its obligations under the Kemess
Newco Guarantee and Assumption."
"Kemess North Property" means all present and future property, assets and
undertaking comprising or relating to what is generally referred to as the
Kemess North property in British Columbia, Canada, including, without
limitation all mineral claims and leases referred to in Exhibit F hereto,
all buildings, equipment, fixtures and other property and assets owned or
leased by the Company (or in which the Company otherwise has an interest)
situated or used at the Kemess North Property site, all operations,
exploration and other activities carried on at such site and all permits,
authorizations, licenses and similar approvals relating thereto."
"Kemess South Mine" means all present and future property, assets and
undertaking comprising or relating to what is generally referred to as the
Kemess South property in British Columbia, Canada, including, without
limitation, all mineral claims and leases referred to in Exhibit G hereto,
all buildings, equipment, fixtures and other property and assets owned or
leased by the Company (or in which the Company otherwise has an interest)
situated or used at the Kemess South Mine site, all operations, exploration
and other activities carried on at such site and all permits,
authorizations, licenses and similar approvals relating thereto."
"Kemess South Resources Limited Partnership" means the limited partnership
by that name formed under the laws of the Province of British Columbia, and
its successors and assigns."
<PAGE>
-6-
"Nighthawk Lake Mine" means the property covering approximately 11,726 acres
representing 254 claims in both Cody and Macklem Townships, Ontario, with most
of the property held outright by the Company as staked mineral claims and the
remaining property held through various agreements and subsidiary companies."
"Noteholder Liens" means the present and future Liens held by the Trustee, or a
Collateral Agent, to secure payment and performance of the obligations of the
Company and its Restricted Subsidiaries under the Indenture, the Notes and the
Security Documents."
"Pamour Mine" means the property (exclusive of the Hoyle properties) located in
Whitney Township approximately 15 miles east of Timmins, Ontario which consists
of 38 patented mining claims and one license of occupation covering
approximately 1,531 acres of mining and surface rights."
"Purchase Event" has the meaning attributed thereto in Section 5.1 of the
Inter-Creditor Agreement."
"Purchase Event Price" has the meaning attributed thereto in Section 6.13."
"Purchase Event Record Date" means the Business Day following the date on which
the Trustee publishes a notice on Bloomberg in accordance with Section 4.06(f)."
"Royalty Agreement" means an agreement between the Company and Trilon to be
dated and effective as of the Fourth Supplemental Closing Date, as such royalty
agreement is amended or supplemented from time to time."
"Royalty Debenture" means the debenture granted by the Company to Trilon to
secure the Obligations of the Company under the Royalty Agreement, as amended or
supplemented from time to time."
"Royalty Interest" means a royalty interest in gross revenues of the Kemess Mine
granted by the Company to Trilon in accordance with the Royalty Agreement."
"Sale and Leaseback Transaction" means, in respect of any Person, any direct or
indirect sale, issuance, conveyance, transfer, lease, assignment or other
transfer of any property or assets of such Person to any other Person following
which such other Person leases back to such Person such property or assets."
"Securities Purchase Agreement" means an agreement between the Company and
Trilon made the 17th day of April, 1998, as amended or supplemented from time to
time."
"Security Documents" means, collectively, the agreements, instruments and
documents delivered from time to time to the Trustee or any Collateral Agent by
the Company, Kemess Newco and APM, and any other Restricted Subsidiary, for the
purpose of creating, perfecting, preserving or protecting the Liens in favor of
the Trustee or the
<PAGE>
-7-
Collateral Agent for the benefit of the Holders, which secure the payment and
performance by the Company and its Restricted Subsidiaries of their respective
obligations under the Indenture and the Notes and such Security Documents and
including any guarantees thereof. The Security Documents as of the date hereof
are described in Exhibit H hereto.
"Senior Debentureholders" means the holders from time to time of the Senior
Secured Debentures."
"Senior Debentures Security" means the present or future Permitted Liens held by
the Senior Debenture holders to secure the obligations of the Company under or
in respect of the Senior Secured Debentures, the Documents (as defined in the
Senior Secured Debentures) and the Securities Purchase Agreement and including
any guarantees thereof."
"Senior Secured Debentures" means the Series A Senior Secured Debenture and the
Series B Senior Secured Debenture in the aggregate principal amount not to
exceed US$120 million to be issued to Trilon and Northgate Exploration Limited,
pursuant to the terms of the Securities Purchase Agreement and includes without
limitation (i) any amendment or supplement thereto from time to time and (ii)
each Refinancing thereof from time to time with Trilon, Northgate Exploration
Limited or any other Persons."
"Senior Secured Parties" means collectively the holders of Permitted Liens
described in clauses (i), (ii), (iii), (vii), (xii) and (xiii) of the definition
of Permitted Liens on the property, assets or undertaking of the Company or any
Restricted Subsidiary, including, without limitation, Kemess Newco and their
respective successors and assigns."
"Subscribing Eligible Holder" has the meaning attributed thereto in Section
6.13."
"Trilon" means Trilon Financial Corporation, its successors and assigns."
"Windy Craggy Property" means the mineral claims in and around Windy Craggy
Mountain in the Tatshenshini/Alesk region of northwestern British Columbia."
"Working Capital Facility" means (i) a working capital facility in a principal
amount not to exceed US$45 million or (ii) a working capital facility in excess
of US$45 million, provided that the lenders thereof execute and deliver an
inter-creditor agreement In Agreed Form in favor of the Trustee and any
Collateral Agent that provides to the Holders at least the same rights and
benefits as set out in Section 5.1 of the Inter-Creditor Agreement, as amended
or supplemented from time to time, and in respect of which the Trustee has
received, at the expense of the Company, a favorable opinion from an Independent
Financial Advisor that the working capital facility is on conventional market
terms, in each case in compliance with Section 4.12 of this Indenture, and any
Refinancing thereof from time to time."
<PAGE>
-8-
5. The definitions of "Foreign Exchange Contracts", "Currency Agreements" and
"Interest Swap Obligations" in Section 1.01 are hereby amended by deleting
the period and adding the following words, at the end of each of those
definitions:
"and all payments which become due and payable upon termination
thereof or of any transaction thereunder."
6. Clause (vii) of the definition of "Indebtedness" in Section 1.01 is hereby
deleted and replaced by the following:
"(vii) comprising net liabilities under Interest Swap Obligations,
Foreign Exchange Obligations, Currency Agreements and Commodity
Agreements;"
7. The definition of "Mining Related Assets Investment" in Section 1.01 is
hereby amended by adding the following words, at the end of the definition:
"and including payment of accounts payable incurred in connection
with the making of any such Investment or capital expenditures."
8. The definition of "Permitted Liens" in Section 1.01 is hereby deleted in
its entirety and replaced with the following:
"Permitted Liens" means:
(i) Liens on the property, assets or undertaking of the Company or of a
Restricted Subsidiary that, in each case, secure Senior Indebtedness
of the Company or such Restricted Subsidiary permitted under
paragraph (b) of section 4.12;
(ii) Liens on the property, assets or undertaking of the Company or of a
Restricted Subsidiary that, in each case, secure Indebtedness
permitted under clause (v) of the definition of Permitted
Indebtedness contained in section 4.12;
(iii) Liens on the property, assets or undertaking of the Company or of a
Restricted Subsidiary that, in each case, secure Indebtedness
permitted under clause (vii) of the definition of Permitted
Indebtedness contained in section 4.12;
(iv) Liens securing Indebtedness of a Person existing at the time that
such Person is merged into or consolidated with the Company or
Restricted Subsidiary, provided that such Liens were in existence
prior to the completion of such merger or consolidation and do not
extend to any assets other than those of such Person;
<PAGE>
-9-
(v) Liens on property acquired by the Company or a Restricted
Subsidiary, provided that such Liens were in existence prior to
the contemplation of such acquisition and do not extend to
any other property;
(vi) Liens on the property, assets or undertaking of the Company that,
in each case, secure the royalty payments to be made by the
Company or a Restricted Subsidiary to Kemess South Resources
Limited Partnership or, upon dissolution to the partners
thereof, in respect of copper extracted and processed from
the Kemess South property;
(vii) (a) Liens on the property, assets or undertaking of the Company or
a Restricted Subsidiary that secure Indebtedness of not more than
US$60 million in aggregate principal amount at any time under
Existing Hedging Indebtedness, Currency Agreements, Interest Swap
Obligations, Foreign Exchange Obligations and Commodity
Agreements; and (b) Liens on the property, assets or undertaking
of the Company that, in each case, secure Capitalized Lease
Obligations or Purchase Money Obligations, in each case to the
extent that such Indebtedness is Permitted Indebtedness under
this Indenture;
(viii) (a) Liens in favor of the Company or any direct or indirect
wholly owned Restricted Subsidiary; and (b) Liens to secure
Indebtedness permitted under clause (xiv) of the definition of
Permitted Indebtedness;
(ix) Liens incurred, or pledges and deposits in connection with,
workers' compensation, unemployment insurance and other social
security benefits, and leases, appeal bonds and other obligations
of like nature incurred by the Company or any Restricted
Subsidiary in the ordinary course of business;
(x) Liens imposed by law, including, without limitation, mechanics',
carriers' warehousemen's, materialmen's, suppliers' and vendors'
Liens, incurred by the Company or any Restricted Subsidiary in
the ordinary course of business;
(xi) Liens for AD VALOREM, income or property taxes or assessments and
similar charges which either are not delinquent or are being
contested in good faith by appropriate proceedings for which the
Company has set aside on its books reserves to the extent
required by GAAP;
(xii) Liens on the property, assets or undertaking of the Company that,
in each case, secure the Obligations of the Company under the
Royalty Agreement, including pursuant to the Royalty Debenture;
(xiii) Liens on the property, assets or undertaking of any Restricted
Subsidiary, including, without limitation, Kemess Newco, that
secure Indebtedness
<PAGE>
-10-
under guarantees or assumptions of Indebtedness described in
clause (xiii) of the definition of "Permitted Indebtedness"
contained in Section 4.12, provided that in respect of
Indebtedness referred to in clauses (ii), (iii) and (iv) of the
definition of "Permitted Indebtedness" as referred to in clause
(xiii), such Liens shall be permitted only to the extent they
comply with the provisions of clause (vii)(a) of the definition
of "Permitted Lien";
(xiv) Liens granted by the Company and its Restricted Subsidiaries to
the Trustee or any Collateral Agent pursuant to the terms hereof,
provided that in respect of Indebtedness referred to in clauses
(ii), (iii) and (iv) of the definition of "Permitted
Indebtedness" as referred to in clause (xiv), such Liens shall be
permitted only to the extent that they, in the aggregate, secured
Indebtedness of not more than US$60 million under the guarantees
described in such clause (xiv);
(xv) rights reserved to or vested in any government or governmental
body by the terms of any lease, licence, franchise, grant or
permit, or by any statutory provision, to terminate the same, to
take action which results in an expropriation, to designate a
purchase of any property subject thereto or to require annual or
other payments as a condition to the continuance thereof;
(xvi) zoning restrictions, easements, rights of way, leases or other
similar encumbrances or privileges in respect of real property
which in the aggregate do not materially impair the use of such
property by the Company or any Restricted Subsidiary in the
operation of its business;
(xvii) security given by the Company or a Restricted Subsidiary to a
public utility or any governmental body, when required by such
utility or governmental body in connection with the operations of
the Company or such Restricted Subsidiary in the ordinary course
of its business, which singly or in the aggregate do not
materially detract from the value of the asset concerned or
materially impair its use in the operation of the business of the
Company or such Restricted Subsidiary;
(xviii) the reservation in any original grants from any Governmental Body
of any land or interest therein and statutory exceptions to
title; and
(xix) title defects or irregularities which are of a minor nature and
which do not materially detract from the value of the assets of
the Company or its Restricted Subsidiaries encumbered thereby.
9. The definition of "Refinancing Indebtedness" in Section 1.01 of the
Indenture is hereby amended by deleting the words in brackets in the
third and fourth lines and substituting therefor the following words:
"(other than pursuant to clauses (v), (vi), (vii), (viii), (ix),
(xii), (xiii) or (xiv) of the definition of "Permitted
Indebtedness")."
10. Section 4.06 is hereby amended by adding the following at the end of clause
4.06(a):
<PAGE>
-11-
"The Officer's Certificate delivered pursuant to this Section
4.06(a) shall be accompanied by an Opinion of Counsel (i) stating
that, in the opinion of such counsel, subject to customary
exclusions and exceptions reasonably acceptable to the Trustee,
either (A) all such action has been taken with respect to the
recording, registering, filing, rerecording and refiling of the
Indenture, all supplemental indentures, the Security Documents,
financing statements, continuation statements and all other
instruments of further assurance as is necessary to maintain the
Noteholder Liens and the Kemess Newco Liens and reciting the
details of such action or referring to prior Opinions of Counsel in
which such details are given, and stating that all financing
statements and continuation statements have been executed and filed
and such other actions taken that are necessary fully to preserve
and protect the rights of the Holders and the Trustee hereunder and
under the Security Documents, or (B) no such action is necessary to
maintain the Noteholder Liens and the Kemess Newco Liens, if any,
and (ii) stating what, if any, action of the foregoing character is
necessary during the one-year period commencing April 1 in the then
current calendar year to so maintain the Noteholder Liens and the
Kemess Newco Liens during such period."
Section 4.06 is further amended by adding the following clauses thereto:
"(e) On the written request, from time to time, of Holders of at
least a majority in aggregate principal amount of the outstanding
Notes, the Company shall deliver to those Holders making such
request such financial information, reports or other materials as
the Company delivers to the Senior Debentureholders or is required
to deliver to the Senior Debentureholders pursuant to the terms
thereof. Notwithstanding the foregoing, the Company shall not be
required to provide any such information which is confidential and
not otherwise generally available to the holders of the common
shares of the Company.
(f) The Company shall deliver to the Trustee a true and complete
copy of any notice that it receives from the Senior Debentureholders
which constitutes a Purchase Event and the Company shall notify the
Trustee in writing of the occurrence of any event which constitutes a
Purchase Event or of any event which with the giving of notice or
passage of time will constitute a Purchase Event, whether or not the
Company receives notice thereof from the Senior Debentureholders, in
each case immediately (but in any event within one Business Day) after
the Company obtains notice or actual knowledge thereof. Upon the
earlier of the Company receiving such notice or becoming aware of such
circumstances the Company shall no later than within one Business Day
issue a press release that: (i) states that a Purchase Event has
occurred or with the giving of notice or passage of time
<PAGE>
-12-
will occur; (ii) provides a description of the Purchase Event;
(iii) contains a statement that upon the occurrence of a Purchase
Event, Eligible Holders have the right for a limited period of time
to buy the Senior Secured Debentures and the Senior Debentures
Security; (iv) states the time period within which a purchase must
be effected under the Inter-Creditor Agreement in respect of the
subject Purchase Event; and (v) provides notice that a conference
call concerning the Purchase Event will be convened by the Company
within no later than two Business Days of the date of the press
release and the details for participation in such conference call
shall. The press release will be disseminated on those wire
services and publications customarily used by the Company to
disseminate financial information and information concerning
material events. At the expense of the Company, the Trustee shall
mail a copy of any notice received by it pursuant to this Section
4.06(f) or pursuant to Section 5.1 of the Inter-Creditor Agreement
to each Holder within one Business Day (5 Business Days if the
Notes are no longer held in book-entry form by the Depositary)
after the Trustee's receipt thereof, by first class mail to such
Holder's address as set forth in the Registrar's books and the
Trustee shall, as soon as practicable but in no event later than
three Business Days of the earlier of its receipt of any such
notice or the date a Trust Officer obtains actual knowledge of the
occurrence of a Purchase Event, publish an announcement in the form
prescribed in Exhibit I on the Bloomberg wire service. The Trustee
shall have no further or other duty under this Section 4.06(f) and
shall not be liable to any Person for the accuracy, content,
adequacy or delivery to any Person of such notice, or for any
action taken thereupon by any Person."
11. Section 4.11 of the Indenture is amended by inserting the words "(other
than the transfer of the Kemess Mine and related assets by the Company
to Kemess Newco in accordance with the terms of the Indenture)" after
the words "$15 million" in line 20 therein.
12. The definition of "Permitted Indebtedness" in section 4.12 of the
Indenture is hereby deleted and replaced in its entirety with the
following:
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes, this Indenture, any Guarantee, the
Security Documents and the Kemess Newco Guarantee and Assumption;
(ii) Existing Hedging Indebtedness;
(iii) Indebtedness in respect of Commodity Agreements of the Company
and Restricted Subsidiaries provided however that in entering
into such Commodity Agreements after the Fourth Supplemental
Closing Date the Company and the Restricted Subsidiaries are
in compliance with Section 4.22 of this Indenture and
provided, further, that such Commodity
<PAGE>
-13-
Agreements (other than those involving the sale of copper
concentrate to the extent the following is not relevant to such
copper concentrate agreements) are entered into to reduce the
exposure of the Company and its Restricted Subsidiaries to
fluctuations in the prices of commodities;
(iv) Indebtedness under Interest Swap Obligations, Foreign Exchange
Obligations and Currency Agreements of the Company and the
Restricted Subsidiaries; provided, however, that such Interest
Swap Obligations, Foreign Exchange Obligations and Currency
Agreements are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest or
exchange rates on Indebtedness Incurred in accordance with
this Indenture to the extent the notional principal amount of
such Interest Swap Obligation, Foreign Exchange Obligation or
Currency Agreements does not exceed the principal amount of
the Indebtedness to which such Obligation relates; and
provided, further, that the Company may enter into Foreign
Exchange Obligations and Currency Agreements to protect the
Company and its Restricted Subsidiaries from fluctuations in
exchange rates related to the operating costs of the Company
and its Restricted Subsidiaries, in each case consistent with
past practice of the Company;
(v) Indebtedness under the Working Capital Facility to the extent
that, as of any date, the aggregate of the principal amount of
such Indebtedness and the principal amounts outstanding under
the Senior Secured Debentures does not at such date exceed
US$120 million and provided, however that from and after the
date of the Company's request to the Trustee for the release
contemplated by Section 4A.12, the aggregate amount of
Indebtedness that, at any time, is "Permitted Indebtedness"
under this clause (v) shall not exceed US$45 million less the
aggregate principal amount outstanding under the Senior
Secured Debentures."
(vi) Capitalized Lease Obligations and Purchase Money Obligations
of the Company or any Restricted Subsidiary not to exceed,
calculated using foreign exchange rates on date of Incurrence,
US$25 million in aggregate principal outstanding at any one
time;
(vii) Indebtedness under or in relation to the Senior Secured
Debentures in aggregate principal amounts not to exceed, as of
any date, US$120 million, together with all interest, fees,
and other amounts payable under or in respect of the Senior
Secured Debentures and the Senior Debentures Security,
provided that, if the aggregate principal amount of, under or
in respect of the Senior Secured Debentures (excluding
interest, fees and other amounts payable under or in respect
of the Senior Secured Debentures and the Senior Debentures
Security) is equal to or less than US$45 million at any time,
and if at such time, the Trustee is required to release and
discharge the Noteholder Liens following compliance by the
Company with and in accordance with Section 4A.12, the
aggregate principal amount of, under or in respect of the
Senior Secured Debentures that, at any time, is "Permitted
Indebtedness" under this clause (vii) shall not exceed US$45
million together with all interest, fees and other
<PAGE>
-14-
amounts payable under or in respect of the Senior Secured
Debentures and the Senior Debentures Security;
(viii) Indebtedness of a direct or indirect Restricted Subsidiary of
the Company to the Company or to a direct or indirect wholly
owned Restricted Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a direct or indirect
wholly owned Restricted Subsidiary of the Company in each case
subject to no Lien held by a Person other than the Company,
any direct or indirect wholly owned Restricted Subsidiary of
the Company, any of the Senior Secured Parties or the Trustee
or any Collateral Agent, in each case for benefit of the
Noteholders; provided that if as of any date any Person other
than the Company, any direct or indirect wholly owned
Restricted Subsidiary of the Company, any of the Senior
Secured Parties or the Trustee or any Collateral Agent, in
each case for the benefit of the Noteholders owns or holds any
such indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the Incurrence of
Indebtedness not constituting Permitted Indebtedness by the
issuer of such Indebtedness;
(ix) Indebtedness of the Company to a direct or indirect wholly
owned Restricted Subsidiary of the Company for so long as such
Indebtedness is held by a direct or indirect wholly owned
Restricted Subsidiary of the Company in each case subject to
no Lien; provided that (a) any Indebtedness of the Company to
any direct or indirect Restricted Subsidiary of the Company is
unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under this Indenture and the
Notes, and (b) if as of any date any Person other than a
direct or indirect wholly owned Restricted Subsidiary of the
Company owns or holds any such Indebtedness or any Person
holds a Lien in respect of such Indebtedness, such date shall
be deemed the Incurrence of Indebtedness not constituting
Permitted Indebtedness under this clause (ix) by the issuer of
such Indebtedness;
(x) Guarantees by Restricted Subsidiaries of the Company of
Indebtedness of the Company (other than Permitted
Indebtedness) Incurred on or after the Issue Date; provided
that such Indebtedness was Incurred in compliance with this
Section 4.12;
(xi) subject to Section 4A.16, Refinancing Indebtedness;
(xii) Indebtedness of the Company or any Restricted Subsidiary
(including, without limitation, Kemess Newco), when and if
incurred, under or in relation to the Royalty Agreement and
the Royalty Debenture;
(xiii) notwithstanding clause (x) of this definition of Permitted
Indebtedness, guarantees or assumptions by Restricted
Subsidiaries (including, without limitation, Kemess Newco) of
Indebtedness and Obligations permitted under clauses (i),
(ii), (iii), (iv), (v), (vi), (vii) and (xii) of this
definition of Permitted Indebtedness; and
<PAGE>
-15-
(xiv) guarantees by the Company of Indebtedness and Obligations of
or assumed by Kemess Newco of Indebtedness permitted under
clauses (i), (ii), (iii), (iv), (v), (vi), (vii) and (xii) of
this definition of Permitted Indebtedness."
13. Section 4.13 of the Indenture is hereby amended by: (a) deleting the word
"or" at the end of clause (7); (b) inserting an "or" at the end of clause
(8); and (c) adding the following after clause (8):
"(9) the Senior Secured Debentures to the extent such Senior
Secured Debentures or related documents restrict payment or
distributions of any kind from any Restricted Subsidiary,
including without limitation, Kemess Newco, to the Company or
other Restricted Subsidiary without the prior written consent
of the Senior Debentureholders after the occurrence and during
the continuance of a "Default" or "Event of Default" (as
defined in the Senior Secured Debentures provided that no
Restricted Subsidiary, including Kemess Newco, shall be
affected by a Payment Restriction under or by reason of the
Senior Secured Debentures unless such Restricted Subsidiary
has and continues to be jointly and severally liable as a
Guarantor for the performance by the Company of its
obligations under the Notes, the Indenture and the Security
Documents and such Restricted Subsidiary has granted Liens to
the Trustee or any Collateral Agent for the benefit of the
Holders to secure such obligations."
14. Section 4.16 of the Indenture is hereby amended by: (i) deleting the
introductory paragraph and paragraph (a) thereof; (ii) adding the
following new introductory paragraph and paragraphs (a), (a.1) and (a.2);
(iii) adding an "s" to the first use of the word "paragraph" in paragraph
(b); (iv) deleting the "(a)" after the first use of the word "paragraphs"
as amended as aforesaid in paragraph (b); (v) adding "(a)(iii), (a)(iv) and
(a)(v)" after the word "paragraphs" as amended as aforesaid; and (vi)
inserting the word "Investment" after the words "Mining Related Assets" in
the 14th line of paragraph (b):
The Company shall not and shall not permit any of its
Restricted Subsidiaries to, consummate any Asset Sale,
including without limitation, an Asset Sale of the Kemess
South Mine or any undivided interest therein, without the
prior written consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes.
Notwithstanding the foregoing, so long as no Default, Event of
Default or Purchase Event has occurred or would occur as a
result, the Company and its Restricted Subsidiaries may effect
Asset Sales, free and clear of the Noteholder Liens and the
Kemess Newco Liens, on the following terms:
(a) The Asset Sale of:
(i) any machinery, equipment, other personal property or other
similar property that has become worn out, obsolete, or
unserviceable, which property, if Collateral, shall be replaced
with or substituted for with machinery, equipment or other property
not
<PAGE>
-16-
necessarily of the same character but being of at least equal value
and utility to the Company and its Restricted Subsidiaries as the
property so disposed of, which replacement property shall, without
further action, become subject to the Noteholder Liens and the Kemess
Newco Liens;
(ii) or abandonment of any personal property the use of which is
no longer necessary or desirable in or material to the conduct of
the business of the Company and its Restricted Subsidiaries and the
maintenance of their respective earnings;
(iii) any real property or any interest therein which is
undeveloped and held by the Company or a Restricted Subsidiary for
exploration purposes and is not material to the conduct of the
business of the Company and its Restricted Subsidiaries (and for
greater certainty, not real property comprising the Kemess South
Mine) provided that: (A) the Asset Sale is at a price at least
equal to fair market value; (B) to the extent that the proceeds
of sale are Cash or Cash Equivalents, the Net Cash Proceeds are
applied in accordance with Section 4.16(b) hereof within 180 days
of receipt thereof by the Company or a Restricted Subsidiary, as
applicable, and if in accordance with Section 4.16(b) the Net
Cash Proceeds are applied to or invested in Mining Related Asset
Investments and the assets and properties sold were Collateral,
the properties and assets acquired as a result of the Mining
Related Assets Investment shall, upon such investment being made,
be subject to the Noteholder Liens and the Kemess Newco Liens,
without further action, and if, to the extent that, the proceeds
of such Asset Sale are not Cash or Cash Equivalents, the non-cash
consideration shall, upon the closing of such Asset Sale, be
subject to the Noteholder Liens and the Kemess Newco Liens
without further action;
<PAGE>
-17-
(iv) any assets and properties of the Company or a Restricted
Subsidiary, other than assets described in clauses (i), (ii), and (iii)
above, and other than assets which comprise or are in any way material
to the Kemess South Mine or the Capital Stock of Kemess Newco for so
long as the Capital Stock of Kemess Newco is subject to the Noteholder
Liens, provided that (A) the Asset Sale is at a price at least equal
to fair market value; (B) at least 85% of the consideration received
therefrom by the Company or a Restricted Subsidiary is in the form of
Cash or Cash Equivalents; (C) the Net Cash Proceeds are applied in
accordance with Section 4.16(b) hereof, within 180 days of receipt
thereof by the Company or a Restricted Subsidiary, as applicable;
(D) if in accordance with Section 4.16(b) the Net Cash Proceeds are
applied to or invested in Mining Related Asset Investments and the
assets and properties sold were Collateral, the properties and assets
acquired as a result of the Mining Related Assets Investment shall,
upon such investment being made, be subject to the Noteholder Liens
and the Kemess Newco Liens, without further action; and (E) the amount
of Net Cash Proceeds that may be applied in accordance with this clause
(iv) shall not exceed US$15 million in any calendar year;
(v) any assets and properties of the Company or a Restricted
Subsidiary, other than assets described in clauses (i), (ii) and (iii)
above, and other than assets which comprise or are in any way material
to the Kemess South Mine or the Capital Stock of Kemess Newco for so
long as the Capital Stock of Kemess Newco is subject to the Noteholder
Liens, provided that (A) the Asset Sale is at a price at least equal
to fair market value; (B) at least 85% of the consideration therefrom
received by the Company or a Restricted Subsidiary is in the form of
Cash or Cash Equivalents; (C) Net Cash Proceeds are applied to repay
any Senior Indebtedness secured by the assets involved in such
disposition or, if there is no such secured Senior Indebtedness,
to repay Senior Indebtedness in each case within 180 days of receipt
thereof by the Company or a Restricted Subsidiary, as applicable;
(D) to the extent that there are any Net Cash Proceeds remaining
after such application of proceeds to Senior Indebtedness or, to the
extent that any such Senior Indebtedness so reduced is re-borrowed,
such remaining Net Cash Proceeds or amounts re-borrowed from time to
time shall be applied in accordance with Section 4.16(b) within the
aforesaid 180 days of receipt in the case of such remaining Net Cash
Proceeds or within 30 days of receipt in the case of money re-
borrowed; and (E) if in accordance with Section 4.16(b) the Net Cash
Proceeds are applied to or invested in Mining Related Asset
Investments and the assets and properties sold were Collateral,
the properties and assets acquired as a result of the Mining
Related Assets Investment, shall upon such investment being made,
be subject to the Noteholder Liens and the Kemess Newco Liens,
without further action;
<PAGE>
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(a.1) Nothing in this Section 4.16 shall limit or prohibit the Company
or a Restricted Subsidiary, in the ordinary course of their
respective businesses from; (A) selling inventory; (B)
collecting, liquidating, selling, factoring or otherwise
disposing of, accounts receivable or notes receivable; or (C)
making cash payments (including scheduled repayments of
Indebtedness permitted to be incurred under this Indenture) that
are not otherwise prohibited by this Indenture, all free and
clear of the Noteholder Liens and the Kemess Newco Liens;
(a.2) The Trustee shall provide all such releases and discharges of
the Noteholder Liens and the Kemess Newco Liens as the Company
may request, at the Company's sole cost and expense, to give
effect to the foregoing provided that each such request is
accompanied by (I) an Officers' Certificate attesting that:
(1) the assets to be sold hereunder do not comprise and are
not in any way material to the Kemess South Mine; (2) the
assets to be sold hereunder come within the description of the
assets permitted to be sold in clauses (i), (ii) or (iii)
above; (3) with respect to clause (iii) above, the conditions
set out in paragraph (A) therein have been satisfied; (4) with
respect to clause (iv) above, the conditions set out in
paragraphs (A), (B) and (E) therein have been satisfied; (5)
with respect to clause (v) above, the conditions set out in
paragraphs (A) and (B) therein have been satisfied; as
applicable; and (II) if required by TIA Section 314(d) in the
case of any Asset Sales described above, a certificate or
opinion, which complies with the requirements of TIA Section
314(d), of an engineer, appraiser or other expert as to the
fair market value of the property subject to the Asset Sale or
the property acquired as a result of the Mining Related Asset
Investment. The Trustee, in confirming that the requirements
of this Section 4.16 and TIA Section 314(d) have been
satisfied, shall be fully protected in relying upon such
Officers' Certificates and expert's certificates or opinions,
as applicable. The Liens provided for herein shall be subject
to the provisions of Section 4A.14 hereof."
15. Section 4.20 of the Indenture is hereby amended by deleting the ";" and all
of the language that follows the ";" in clause (iii) thereof and by adding
a "." in place of the ";" so deleted.
16. Sections 4.21 and 4.22 of the Indenture are deleted in their entirety and
the following sections are added at the end of Article 4:
"SECTION 4.21 KEMESS NEWCO GUARANTEE AND ASSUMPTION
The Company is hereby permitted to transfer the Kemess Mine to Kemess
Newco provided that contemporaneously with such transfer the Trustee
receives:
(i) the Kemess Newco Guarantee and Assumption which evidences Kemess
Newco's assumption and agreement to observe and perform all the
covenants and obligations of the Company under this Indenture;
<PAGE>
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(ii) the Kemess Newco Liens;
(iii) a fixed and specific Lien In Agreed Form in any debt, equity or
other consideration issued by Kemess Newco to the Company upon
the transfer of the Kemess Mine to Kemess Newco;
(iv) an Opinion of Counsel as to the enforceability of the Kemess
Newco Guarantee and Assumption and the Kemess Newco Liens,
subject to customary exclusions and exceptions; and
(v) an Officers' Certificate and an Opinion of Counsel, each stating
that such transfer as described in this Indenture will, upon
giving effect to such transfer, comply with the applicable
provisions of the Indenture.
SECTION 4.22 COMMODITY AGREEMENTS
Except in connection with Existing Hedging Indebtedness, the Company
shall not, and it shall not permit any Restricted Subsidiary, to enter
into any Commodity Agreement, pursuant to which the Company or a
Restricted Subsidiary has sold puts on gold, silver, copper or any other
precious metals without simultaneously writing calls for a corresponding
quantity of the same metal (and effectively creating a hedge) or enter
into any other transaction which has the effect of creating a net long
position on gold, silver, copper or any other precious metals produced
by the Company or a Restricted Subsidiary."
SECTION 4.23 INSURANCE
The Company shall, and shall cause each Restricted Subsidiary to:
(i) keep its properties and assets insured and maintain public liability
insurance in accordance with Section 4.05 (b);
(ii) provide the Trustee with certificates for all insurance policies,
with proof of loss payable as required in subparagraph (iii) below,
annually at the same time that the Company delivers its Officer's
Certificates under section 4.06 (a); and
(iii) provide that any loss under all such insurance policies (other than
policies in respect of third party liability and business
interruption insurance) in excess of Cdn. $500,000 shall be payable
to the Trustee subject only to any prior rights which may be held in
such proceeds by the holders of Permitted Liens, provided that if a
Default or Event of Default has not occurred, the Company or such
Restricted Subsidiary shall be entitled to receive such loss payment
directly if the entire amount thereof is:
(a) used to repair or replace the lost or damaged property in
question if the lost or damaged property relates to the
Kemess Mine; or
(b) if the lost or damaged property does not in any way relate
to the Kemess Mine either (x) used to repair or replace the
lost or
<PAGE>
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damaged property in question or (y) after applying such loss
payment or a portion thereof to the reasonable costs of any
required remediation of the lost or damaged property, used
and distributed as the proceeds of an "Asset Sale"
pursuant to and in accordance with Section 4.16 hereof; and
(c) the Company or such Restricted Subsidiary delivers to the
Trustee an Officer's Certificate attesting to the matters
described in (a) or (b) above, as applicable.
The Trustee shall provide all such releases and discharges from the
Noteholder Liens and the Kemess Newco Liens of any proceeds or loss
payment under insurance policies as the Company may request, at the
Company's sole cost and expense, provided that each such request is
accompanied by (i) the aforesaid Officers' Certificate attesting to
the matters described in clauses (a) and (b) above and (ii) if
required by TIA Section 314(d), a certificate or opinion, which
complies with the requirements of TIA Section 314(d), of an engineer,
appraiser or other expert as to the fair value of any property
replacing any such lost or damaged property. The Trustee, in
confirming that the requirements of this Section 4.23 and TIA
Section 314(d) have been satisfied, shall be fully protected in
relying upon such Officers' Certificate and expert's certificate
or opinion, as applicable. The Trustee shall have no duty to
examine, review or maintain copies of any policies of insurance
required hereunder.
SECTION 4.24 ROYALTY INTEREST AMENDMENT
The Company shall not, without the prior consent of the Holders of a
majority in aggregate principal amount of the outstanding Notes,
amend the Royalty Agreement so as to increase the Initial Royalty
Rate (as defined therein) or amend Section 2.2 and 7.2(c) thereof.
SECTION 4.25 ENVIRONMENTAL MATTERS
(i) The Company shall maintain, and shall cause each of its
Subsidiaries to maintain, a system to assure and monitor continued
compliance with all Applicable Laws relating to the environment,
which system shall include periodic reviews of such compliance.
(ii) The Company shall indemnify the Trustee and the Collateral
Agent and their respective officers, directors, employees, agents
and shareholders, and shall hold each of them harmless from and
against any and all losses, liabilities, damages, costs, expenses
and claims (including legal fees and expenses of its counsel and agents)
suffered or incurred by such party in respect of (a) any violation by the
Company or any Subsidiary of Applicable Law related to the environment
including the assertion of any Lien thereunder, (b) the presence of
any Hazardous Substance affecting the Collateral or any property adjacent
thereto or (c) the release of any Hazardous Substance by the Company or any
Subsidiary into the environment, provided that the foregoing indemnity
shall not apply in connection with any negligence, willful misconduct or
violation of any Applicable
<PAGE>
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Law relating to the environment affecting the Collateral by the Trustee,
the Collateral Agent or their respective agents after taking possession of
the Collateral. The Company's obligations and indemnification under this
section shall survive the satisfaction and release of the Security
Documents and the repayment of the principal, interest and all other monies
payable under this Indenture and the Notes. The Trustee shall hold the
benefit of this indemnity in trust for those indemnified parties who are
not parties to this Indenture.
17. The following Article is to be inserted into the Indenture after Article 4,
which Article shall read in its entirety as follows:
"ARTICLE 4A - SECURITY
SECTION 4A.01 - SECURITY
As security for the due and punctual payment and performance of all of its
obligations to the Noteholders under and in respect of this Indenture and
the Notes, the Company shall execute and deliver to the Trustee or the
Collateral Agent in each case for the benefit of the Holders of the Notes,
valid and enforceable Liens against all present and after acquired
property, assets and undertaking of the Company, except the Excluded
Assets, all In Agreed Form, including without limitation, the following:
(i) a security debenture by the Company creating a fixed and floating
Lien on all of the Company's present and after acquired property,
assets and undertaking including, without limitation, fixed and
specific Liens on all property, assets and undertaking comprising
Kemess Mine;
(ii) a general security agreement by the Company creating a Lien on all
of the Company's present and after acquired property, assets and
undertaking;
(iii) a limited guarantee by APM of the obligations of the Company to
the Noteholders;
(iv) a general security agreement by APM creating a Lien on all of
APM's present and after acquired property, assets and undertaking;
(v) assignments of the Company's interests in all material mining
claims, concessions and leases in any way relating to the Kemess
Mine;
(vi) an assignment by the Company of its rights and interests in the
Kemess South Resources Limited Partnership;
(vii) if, and to the extent required by the Senior Debentureholders, an
assignment (and where required, consents to such assignment) by
the Company of its rights and interests in all Kemess Mine
construction contracts;
(viii) if, and to the extent required by the Senior Debentureholders an
assignment (and, where required, consent to such assignment) by
the
<PAGE>
-22-
Company of its rights and interest in those agreements of the
Company which are material to the Kemess Mine and which have not
been fully performed by the parties thereto, including without
limitation, agreements which relate to construction underway or
proposed at Kemess Mine and including, without limitation,
royalty refining and shipping agreements;
(ix) pledges of all the shares in the capital of APM held by the
Company; and
(x) such other agreements and documents as may be necessary or
desirable to grant to the Trustee or the Collateral Agent valid
and enforceable Liens on all of the property, assets and
undertaking of the Company other than the Excluded Assets.
Notwithstanding anything to the contrary contained in the foregoing, the
Company shall not be obligated to register the Liens against any real
property or mineral claims consisting of: (a) the Pamour Mine, the
Nighthawk Lake Mine and the mines generally known as Giant, HopeBrook
and Colomac; and (b) the Company's currently existing exploration
properties not in any way related to the Kemess Mine. The Company shall
register Liens against the Pamour Mine and the Nighthawk Lake Mine in
favor of the Trustee or the Collateral Agent should the Company at some
subsequent time grant Liens against (either or both) such mines to the
Senior Debentureholders. The Company shall insure that all of the
Security Documents are executed and delivered in accordance with this
Section 4A.01 such that the Liens created thereby are perfected in all
jurisdictions and at all times required to maintain such perfection by
the Trustee or the Collateral Agent for the benefit of the Noteholders.
SECTION 4A.02 - EFFECT OF LIENS
The Trustee or the Collateral Agent shall have and hold the Security
Documents and the Collateral and all rights hereby and thereby conferred
unto the Trustee and the Collateral Agent, and their respective
successors and assigns forever, but in trust, nevertheless, for the
equal benefit and security of the Holders of all Notes without any
preference or priority between them and with the powers and authorities
and subject to the terms and conditions set forth in this Indenture, the
Inter-Creditor Agreement and in the Security Documents. The Company
hereby represents and warrants that the Company has executed and
delivered, filed and recorded and will execute and deliver, file and
record, all instruments and documents, and has done and will do all such
acts and other things, at the Company's expense, as are necessary to
subject the Collateral to the Noteholder Liens and the Kemess Newco
Liens, as applicable. The Company will execute and deliver, file and
record all instruments and do all acts and other things as may be
reasonably necessary or advisable to perfect, maintain and protect the
Noteholder Liens and the Kemess Newco Liens, as applicable. The Company
shall furnish to the Trustee and the Collateral Agent, promptly after
the execution and delivery of the Security Documents and promptly after
the execution and delivery of any amendment hereto or thereto or any
other instrument of further assurance, an Opinion of Counsel stating
that, in the opinion of such counsel, subject to customary exclusions
and exceptions reasonably acceptable to the Trustee, either (i) the
Security Documents, any such amendment and all other instruments of
further assurance have been properly recorded, registered and
<PAGE>
-23-
filed and all such other action has been taken to the extent necessary
to make effective the Liens intended to be created by the Security
Documents, and reciting the details of such action or referring to prior
Opinions of Counsel in which such details are given, or (ii) no such
action is necessary to make the Liens intended to be created by the
Security Documents effective.
SECTION 4A.03 - EXCEPTION AS TO THE LAST DAY OF ANY LEASES.
The mortgages, pledges and charges created under the Security Documents
shall not extend or apply to the last day of the term of any lease,
whether oral or written, or any agreement therefor, now held or
hereafter acquired by the Company or Restricted Subsidiary as tenant,
but should such mortgage, pledge and charge become enforceable and the
Trustee or the Collateral Agent determines or becomes bound to enforce
the same, the Company or Restricted Subsidiary shall thereafter stand
possessed of such last day and shall hold it in trust to assign the same
to any person who may acquire such term or the part thereof hereby
mortgaged, pledged or charged in the course of any enforcement of such
mortgage, pledge and charge or any realization of the subject matter
thereof.
SECTION 4A.04 - EFFECTIVE DATE OF SECURITY.
The Liens created under the Security Documents shall be effective upon
the date of the execution of the Security Documents.
SECTION 4A.05 - DISCHARGE OF SECURITY.
The Trustee and the Collateral Agent shall at the request and the
expense of the Company, release and discharge this Indenture and the
security created pursuant to the Security Documents (unless such
security has otherwise been released and discharged pursuant to the
terms hereof) and execute and deliver such instruments as it is advised
by an Opinion of Counsel are requisite for that purpose and to release
the Company from its covenants herein contained (other than provisions
related to the compensation and indemnification of the Trustee) upon the
discharge of the Indenture in accordance with the provisions of Article
Eight.
SECTION 4A.06 - PURCHASE OFFER
In the event that the Company, at any time before August 15, 2001, makes
an all cash offer to purchase (the "Company Purchase Offer") all of the
outstanding Notes at a purchase price not less than 105.5% of the
principal amount thereof plus all accrued and unpaid interest, if any,
to the date of purchase, and less than all of the outstanding Notes are
tendered in response to the Company Purchase Offer, the Company shall
complete the purchase of those Notes that are so tendered (which Company
Purchase Offer must be completed no later than 60 days after being made
by the Company) and, upon completion of the Company Purchase Offer, the
Company shall deliver to the Trustee an Officers' Certificate and an
Opinion of Counsel confirming such completion and the Trustee shall
<PAGE>
-24-
release all of the property, assets and undertaking of the Company and
its Restricted Subsidiaries from the Noteholder Liens and the Kemess
Newco Liens. The Trustee shall provide all such releases and discharges
of the Noteholder Liens and the Kemess Newco Liens as the Company may
request, at the Company's sole cost and expense. Following the
completion of the Company Purchase Offer, interest on amounts
outstanding under the remaining Notes shall accrue at the rate of 11 %
per annum (subject to any default rate as set out in the Indenture) and
shall be paid in accordance with the terms hereof. In making a Company
Purchase Offer, the Company shall comply with all tender offer rules
applicable under state and Federal Securities laws in the United States
of America, including, but not limited to, Section 14(e) under the
EXCHANGE ACT and Rule 14e-1 thereunder, to the extent applicable to such
Company Purchase Offer. A Company Purchase Offer shall be conducted at
the expense of the Company in accordance with the redemption procedure
set out in Article 3. Any such Company Purchase Offer shall include a
summary of the provisions of this Section 4A.06, including, without
limitation, a description of the consequences of any Holder's failure to
tender such Holder's Notes.
SECTION 4A.07 CONFLICTS.
Except with respect to Section 13.01, if a conflict or inconsistency
exists between a provision of this Indenture and a provision of the
Security Documents, the provision of this Indenture shall prevail.
Except with respect to Section 13.01 and except as between the Company,
the Holders, the Trustee and the Collateral Agent with respect to the
entitlements, protections and immunities of the Trustee contained in
Section 6.10 and Article Seven of the Indenture, if a conflict or
inconsistency exists between a provision of this Indenture or any of the
Security Documents and a provision of the Inter-Creditor Agreement, then
the provisions of the Inter-Creditor Agreement shall prevail.
Notwithstanding any provision of the Indenture, the Inter-Creditor
Agreement or the Security Documents, the provisions of Section 10.13 of
the Indenture shall remain in full force and effect.
SECTION 4A.08 CO-OPERATE.
Upon the occurrence and during the continuance of an Event of Default
and if the Trustee shall have determined or become bound to enforce the
Liens, the Company and any Restricted Subsidiaries shall from time to
time execute and do all such acts and things as the Trustee or any
Collateral Agent may, acting reasonably, require to facilitate the
realization of the Collateral or any part thereof, whether under this
Indenture or the Security Documents or by judicial proceedings, and to
give any notices and directions which the Trustee or any Collateral
Agent may, acting reasonably, consider expedient.
SECTION 4A.09 NO MERGER
The Security Documents shall not merge in any other security. No
judgment obtained by the Trustee shall in any way affect the provisions
of this Indenture or any of the Security Documents. For greater
certainty, no judgment obtained by the Trustee shall in any way affect
the obligation of the Company to pay principal, fees and interest at the
rates, times and in the manner provided in this Indenture
<PAGE>
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and the Notes and to compensate and indemnify the Trustee, including,
without limitation, each Collateral Agent as provided in this Indenture.
SECTION 4A.10 ADDITIONAL SECURITY
The Company hereby covenants and agrees to execute and deliver or cause
to be executed and delivered to or for benefit of the Trustee and the
Collateral Agent such additional Security Documents In Agreed Form as
the Company or any Restricted Subsidiary grants to the Senior
Debentureholders from time to time.
SECTION 4A.11 FURTHER ASSURANCES -SECURITY
From time to time the Company shall, at the expense of the Company, take
or cause to be taken such action (including, without limitation, the
provision of information and access to property) and execute and deliver
or cause to be executed and delivered to the Trustee or the Collateral
Agent, such agreements, convenances, deeds and other documents and
instruments as the Trustee, at the written request of the Holders of a
majority in principal amount of the outstanding Notes, shall reasonably
request in furtherance of granting to the Trustee or the Collateral
Agent valid and enforceable Liens on all of the Company's present and
after acquired property, assets and undertaking to which they are
entitled hereunder and the Company shall, at the expense of the Company,
register, file or record the same (or a notice or financing statement in
respect thereof) in all offices and in all jurisdictions where such
registration, filing or recording is necessary or advisable to
constitute, perfect and maintain such Liens; provided however that any
such Liens shall be In Agreed Form and shall be subject and subordinate
to present and future Permitted Liens in such property, assets and
undertaking held by the Senior Secured Parties. The Company shall renew
and amend such recordings, filings or registrations from time to time as
and when required to keep them in full force and effect. The Company
shall from time to time, if and when required to do so by the Trustee
upon the request of the Holders of a majority in principal amount of the
outstanding Notes and on the Fourth Supplemental Closing Date, furnish
the Trustee with an Opinion of Counsel as to compliance with the
provisions of Section 4A.02 and this Section 4A.11. The Trustee or the
Collateral Agent is hereby authorized to enter into such further and
other documents as may reasonably be required to permit perfection of
the Liens in the Collateral granted by this Indenture or the Security
Documents or to permit registration of instruments of further assurance
or collateral mortgages.
SECTION 4A.12 - PARTIAL DISCHARGES
Provided that (i) there shall have been no Default or Event of Default
that has occurred and is continuing; and (ii) the Company delivers to
the Trustee an Officers' Certificate to which are attached (A) a
confirmation in writing from the Senior Debentureholders that the
aggregate principal amount then outstanding under the Senior Secured
Debentures at such time (other than interest, fees and other amounts
payable under or in respect of the Senior Secured Debentures and the
Senior Debentures Security) is equal to or less than U.S.$45 million;
and (B) a confirmation in writing from the lenders under the Working
Capital Facility
<PAGE>
-26-
confirming the maximum amount available thereunder and the actual
Indebtedness of the Company thereunder at such time and such Officers'
Certificate certifies that the aggregate principal amount of the
Indebtedness of the Company under the Senior Secured Debentures, as
permanently reduced, and the greater of the maximum amount available
under in respect of the Working Capital Facility and the actual
Indebtedness of the Company under or in respect of the Working Capital
Facility do not in aggregate and on a permanent basis exceed U.S.$45
million, the Trustee shall, upon written request and at the expense of
the Company, release and discharge the Noteholders' Liens from the
assets and properties of the Company and its Restricted Subsidiaries,
other than the Kemess South Mine. The Trustee, in confirming that the
requirements of this Section 4A.12 (including, without limitation, the
absence of a continuing Default or Event of Default) have been
satisfied, shall be entitled to receive and shall be fully protected in
relying upon an Officers' Certificate and an Opinion of Counsel.
SECTION 4A.13 PRIORITY.
Subject to Sections 4A.14 and 4A.15, any reference to Permitted Liens
contained in this Indenture or the Security Documents in and of itself
shall not expressly or by implication result in any Permitted Liens
ranking ahead of the charges or security interests created pursuant to
this Indenture or the Security Documents.
SECTION 4A.14 - PRIORITY OF LIENS
Notwithstanding the time of granting of Permitted Liens, or the time of
registering, filing or recording the same (or a notice or financing
statement in respect thereof) the Permitted Liens and beneficial rights
of each of the Senior Secured Parties in the assets, properties and
undertaking of the Company and its Restricted Subsidiaries and the
proceeds thereof shall be senior and prior to the Noteholder Liens,
Kemess Newco Liens and beneficial rights of the Trustee, the Collateral
Agent and any Noteholder therein; and (ii) the Noteholder Liens, Kemess
Newco Liens and beneficial rights of the Trustee, the Collateral Agent
and any Noteholder in the assets, properties and undertaking of the
Company and its Restricted Subsidiaries shall be and are hereby
subordinated and postponed to the Liens and beneficial rights of each of
the Senior Secured Parties therein.
Each Holder of Notes, by its acceptance of them, authorizes and
expressly directs the Trustee and the Collateral Agent on its behalf to
take such action as may be necessary or appropriate to effectuate, as
between the Senior Secured Parties and the Holders of Notes, the
aforesaid subordination and postponement of the Noteholder Liens, Kemess
Newco Liens and beneficial rights of the Trustee, the Collateral Agent
and any Noteholder therein, and appoints each of the Trustee and the
Collateral Agent its attorney-in-fact for such purposes.
SECTION 4A.15 CONFIRMATION OF SUBORDINATION ON BEHALF OF HOLDERS
Notwithstanding the generality of Section 4A.14, the Trustee and the
Collateral Agent are hereby authorized and directed to execute and
deliver to the Company, APM, the Collateral Agent, the Senior
Debentureholders and the holders of the
<PAGE>
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Royalty Interest, the Inter-Creditor Agreement and the Security
Documents. The terms and provisions contained in the Inter-Creditor
Agreement shall constitute, and are hereby expressly made, a part of
this Indenture as if fully set forth herein. To the extent applicable,
the Company and the Trustee, by their execution and delivery of the
Fourth Supplemental Indenture, expressly agree to such terms and
provisions and to be bound thereby; provided, that the Trustee and the
Collateral Agent have executed and delivered the Inter-Creditor
Agreement and the Security Documents in reliance upon Officers'
Certificates and Opinions of Counsel and at the direction of Holders
contained in the Consents. Any appointment of a successor Trustee or a
Collateral Agent from and after the date hereof shall include the
express agreement of such successor, Trustee or Collateral Agent to be
bound by the terms and provisions of the Inter-Creditor Agreement and
the Security Documents. The Trustee or the Collateral Agent shall, from
time to time, at the written request of the Company, confirm in writing
to the Company, APM, the Collateral Agent, the Senior Debentureholders
and the holders of the Royalty Interest, that the Trustee's or the
Collateral Agent's rights and remedies in respect of the Noteholder
Liens and the Kemess Newco Liens are subordinated and postponed in the
manner described in the Inter-Creditor Agreement to Liens provided for
in the Royalty Debenture and the Senior Debentures Security until such
time as all of the Obligations of the Company and its Restricted
Subsidiaries secured by the Senior Debentures Security and the Royalty
Debenture are satisfied in full.
SECTION 4A.16 REPLACEMENT INTER-CREDITOR AGREEMENT
In the event of any Refinancing of the Senior Secured Debentures,
including under a Working Capital Facility, the Trustee, the Collateral
Agent, the Company, Kemess Newco, APM and the Collateral Agent shall, at
the expense of the Company enter into a new inter-creditor agreement In
Agreed Form that provides to the Holders at least the same rights and
benefits as set out in Article 5 of the Inter-Creditor Agreement or, at
the expense and at the request of the Company, enter into a new
inter-creditor agreement In Agreed Form with the Company and the holders
of the Refinanced Senior Secured Debentures on substantially the same
terms and conditions as the Inter-Creditor Agreement, including, without
limitation, at least the same rights and benefits as set out in Article
5 thereof, and shall deliver such subordinations and postponements of
the registered Noteholder Liens and Kemess Newco Liens as may be
necessary or desirable to effect the subordinations and postponements as
described in such new inter-creditor agreement, provided that the
Trustee shall not be required to enter into any new inter-creditor
agreement which affects its rights, protections or immunities under this
Indenture or otherwise.
4A.17 ACKNOWLEDGEMENT
For greater certainty, the entering into by any person who is a secured
creditor of the Company of an agreement by which such person
acknowledges the priority of the security for the Royalty Agreement and
the Senior Secured Debentures, agrees not to exercise remedies with
respect to its collateral for a period of time and acknowledges the
priority of remedies with respect to the Royalty Security (as defined in
the Inter-Creditor Agreement) and the Senior Debentures Security does
<PAGE>
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not cause the amounts owing to such person to be subordinate in the
right of payment to any other Indebtedness.
18. Section 5.01 is hereby amended by inserting:
(a) after the word "merge" in the second line the following:
"(including, without limitation, an amalgamation under the BUSINESS
CORPORATIONS ACT (Ontario) or comparable legislation in any other
jurisdiction in Canada (including pursuant to federal legislation)
or similar legislation in any other jurisdiction (an
"Amalgamation"))"; and
(b) after the words "the Company" in each of the 10th line of the first
paragraph, the 10th last line of the first paragraph and the 4th
last line of the last paragraph the following words: "(or in the
case of an Amalgamation, the amalgamated corporation)".
19. Section 6.01 of the Indenture is hereby amended by deleting clause 6
thereof and replacing it with the following:
"(6) The company or any of its Restricted Subsidiaries pursuant to
or within the meaning of any Bankruptcy Law: (a) commences a
voluntary case including, without limitation, the filing of a
proposal or notice of intention to file a proposal under the
BANKRUPTCY AND INSOLVENCY ACT (Canada) (the "BIA"), as amended from
time to time, or commences proceedings under the COMPANIES
CREDITORS' ARRANGEMENT ACT (Canada) (the "CCAA"), as amended from
time to time; (b) consents to the entry of an order for relief
against in an involuntary case; (c) consents to the appointment of
a Custodian of it or for all or substantially all of its property
or a Custodian of it or for all or substantially all of its
property is appointed by a Person other than a court of competent
jurisdiction and such appointment remains unstayed and in effect
for five consecutive days; (d) makes a general assignment for the
benefit of its creditors; or (e) admits in writing its inability to
pay its debts as they become due."
20. The first paragraph of Section 6.03 of the Indenture is hereby amended
by adding at the conclusion of the paragraph the words "including,
without limitation, the enforcement of the Liens and realization of the
Collateral under the Security Documents, subject to the Inter-Creditor
Agreement."
21. Section 6.05 of the Indenture is hereby deleted and the following
substituted therefor:
"Subject to Section 2.09, the Holders of at least a majority in
aggregate principal amount of the outstanding Notes, may direct the
time, method and place of conducting any proceeding for any remedy
available to the Trustee or the Collateral Agent or exercising any
trust or power conferred on either of them, including without
limitation, any remedies provided for in Section 6.03 and
<PAGE>
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upon receiving security or indemnity from such Holders satisfactory
to the Trustee and the Collateral Agent against all costs, expenses
and liabilities to be incurred, the Trustee or the Collateral
Agent, without in any way limiting its rights or remedies pursuant
to this Indenture or under the Security Documents shall exercise
one or more of the powers of enforcement available to it at law, in
equity or by contract including under the terms of this Indenture
or the Security Documents. Subject to Section 7.01, however, the
Trustee or the Collateral Agent may refuse to follow any direction
that the Trustee or the Collateral Agent reasonably believes
conflicts with any laws, this Indenture or the Inter-Creditor
Agreement, that the Trustee or the Collateral Agent determines may
be unduly prejudicial to the rights of another Noteholder, or that
may involve the Trustee or the Collateral Agent in personal
liability; provided that the Trustee or Collateral Agent may take
any other action deemed proper by the Trustee or the Collateral
Agent which is not inconsistent with such direction. Furthermore
the Trustee and the Collateral Agent shall have the right if
directed by those Holders of at least a majority in aggregate
principal amount of the outstanding Notes to take private action or
to take judicial proceedings instead of such private proceeding."
22. Section 6.10 of the Indenture is hereby amended as follows: (1) by
deleting the reference to "this Article Six" in the second line and
substituting "this Article Six or Article 4A hereof or any of the
Security Documents; and by inserting the words "or the Collateral Agent"
after the word "Trustee" in the preamble and the "First" and "Second"
paragraphs thereof.
23. Section 6.11 of the Indenture is hereby amended by adding the words "or
the Collateral Agent" after the word "Trustee" each time it appears in
that section other than the second time in which case the words "or as
Collateral Agent" shall be inserted.
24. Article 6 of the Indenture is hereby amended by adding section 6.12 as
follows:
6.12 PURCHASE OF SENIOR SECURED DEBENTURES
The Holders and the holders of a beneficial interest in the Notes (the
"Beneficial Holders") as at the Purchase Event Record Date (collectively
the "Eligible Holders" and individually an "Eligible Holder) shall each,
on a non-duplicative basis, have a one time right on the occurrence of a
Purchase Event to, on a pro rata basis (which right may be taken by
those Eligible Holders who wish to do so to the extent other Eligible
Holders do not participate), purchase all, but no less than all, of the
Senior Secured Debentures and the Senior Debentures Security. The
Inter-Creditor Agreement sets out the circumstances and periods of time
within which such rights may be exercised and in which they expire, the
basis of the calculation of the purchase price to be paid for the Senior
Secured Debentures and the Senior Debentures Security (the "Purchase
Event Price"). To exercise the purchase right, Holders must comply with
the procedures set out in the Inter-Creditor Agreement and in Section
6.13 hereof. It is hereby acknowledged that the Senior Debentureholders
shall have no liability or obligation to any Person in respect of the
foregoing other than to sell and deliver
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the Senior Secured Debentures and the Senior Debentures Security in
accordance with the terms of, and subject to compliance by the Agent (as
hereinafter defined) of the terms of, the Inter-Creditor Agreement;
provided, that the Agent shall have no duty hereunder to comply with the
terms of the Inter-Creditor Agreement except in accordance with Section
6.13 hereof.
6.13 PURCHASE EVENT PROCEDURE
(a) As soon as practicable but in no event later than the day of
publication by the Trustee of the notice on Bloomberg (the
"Publication") described in Section 4.06(f) hereof, Chase Manhattan
Trust Company, National Association or its successor hereunder, acting
solely in its capacity as agent hereunder and not in its capacity as
Trustee or in any other fiduciary capacity (the "Agent"), shall request
from the Senior Debentureholders, in accordance with the Inter-Creditor
Agreement, the Purchase Event Price as of such day (the "Initial
Purchase Event Price"). The Agent may conclusively rely on any such
information and any additional information provided to the Agent by the
Senior Debentureholders for all purposes hereunder. The Agent shall not
be required to furnish such information to any Person other than an
Eligible Holder who has provided the certificate described in Section
6.13(b).
(b) Each Eligible Holder who elects to purchase at least its respective
pro rata share of the Senior Secured Debentures and the Senior
Debentures Security (collectively, the "Senior Position") shall deliver
to the Agent, no later than 4:30 p.m. on the third day following the
Publication, each of the following: (i) a certificate, with signature
guarantee, of the Eligible Holder or a duly qualified officer of the
Eligible Holder, upon which certificate the Agent may conclusively rely,
which certifies (1) that such holder is an Eligible Holder; (2) the
principal amount of the Notes held by such Eligible Holder; (3) that
such Eligible Holder elects to purchase at least such Eligible Holder's
pro rata share of the Senior Position, and, if applicable, that such
Eligible Holder may elect to purchase additional unsubscribed shares of
such Senior Position, if available for purchase; (4) that the Eligible
Holder irrevocably directs the Agent to deliver the Acceptance Notice
(as defined in the Inter-Creditor Agreement) and to purchase the Senior
Position on the earliest date on which all of the conditions to purchase
hereunder have been satisfied, if such date is on or prior to the
expiration date (the "Final Closing Date") of the right to purchase
under the Inter-Creditor Agreement, for and on behalf of all Subscribing
Holders (defined hereinafter) with immediately available funds provided
by such Subscribing Holders, but with no duty by the Agent to advance
funds to make such purchase, on the terms and subject to the conditions
of the Inter-Creditor Agreement and this Section 6.13; (5) an agreement
to irrevocably deliver such Eligible Holder's pro rata share of the
Initial Purchase Event Price to the Agent by federal funds transfer
within one day of such Eligible Holders receipt of notice, from the
Agent or otherwise, of the Initial Purchase Event Price (but in no event
later than the Initial Deposit Time (defined hereinafter)), which notice
the Agent shall provide to such Eligible Holder by facsimile no later
than the second day following receipt of such Eligible Holder's fully
conforming certificate (but only if the Agent has received notice of the
Initial Purchase Event Price from the Senior Debentureholders);
provided, that in lieu of the procedure in this clause (5), such
Eligible Holder may fulfill this condition.
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by irrevocably depositing, on the date of delivery of the certificate and
for the account of the Agent, a federal funds transfer of at least its pro
rata share of the Initial Purchase Event Price; (6) such Eligible Holder's
agreement to pay on a pro rata basis with the other Eligible Holders the
reasonable legal fees and expenses, if any, of the Agent hereunder, as and
when incurred, and to indemnify and hold the Agent harmless hereunder for
any expenses, claims, liabilities, outlays, fees, taxes and any other
disbursements or costs incurred in connection herewith (collectively with
such legal fees and expenses, "Costs"), unless any such Cost is adjudicated
to have resulted from the gross negligence or wilful misconduct of the
Agent; (7) wire transfer and facsimile communication instructions for such
Eligible Holder (which the Agent shall use for all purposes hereunder); and
(8) an acknowledgement that the Transfer Documents (as hereinafter defined)
and the Agent Transfer Documents (as hereinafter defined) must be delivered
to the Agent not later than 3 Business Days before any Closing (as
hereinafter defined). Each Eligible Holder who has complied with all of the
above requirements (a "Subscribing Holder"), including without limitation,
delivery of any executed agreement required under clause (4) above and any
deposit of funds required under clause (5) above, no later than 4:30 p.m.
on the fifth day after the Publication (the "Initial Deposit Time"), but no
other Holder or Eligible Holder, shall be entitled to subscribe for any
unsubscribed portion of the Purchase Event Price (the "Unsubscribed
Portion").
(c) The Agent shall request, on such fifth day, from the Senior
Debentureholders, the Purchase Event Price calculated as of the sixth day
after the Publication (the "Revised Purchase Event Price"). The Agent shall
provide, if and when received from the Senior Debentureholders, any such
information, together with the amount of the estimated Unsubscribed Portion
calculated as of the Initial Deposit Time which amount is equal to the
difference between the funds on deposit and the Revised Purchase Event
Price (if available, and otherwise the Initial Purchase Event Price) to
each Subscribing Holder within one day following receipt of notice of the
Revised Purchase Event Price, but in the absence of receipt of such notice,
shall provide the amount of such estimated Unsubscribed Portion to
Subscribing Holders no later than the second day following the Initial
Deposit Time.
Any Subscribing Holder, or group of Subscribing Holders, may subscribe for
all or a portion of the Unsubscribed Portion by depositing immediately
available funds with the Agent, together with an accounting therefor
satisfactory to the Agent, no later than 4:30 p.m. on the eighth day after
the Publication (the "Final Deposit Time"). Such Subscribing Holders will
cooperate with the Agent in providing such accounting. Such deposit(s)
shall be calculated by the Subscribing Holders on a pro rata basis or on
any basis on which the Subscribing Holders may agree, time being of the
essence.
(d) No later than the fourth day preceding the Final Closing Date, the
Agent shall request from the Senior Debentureholders revised information
concerning the Purchase Event Price, and upon any receipt thereof, the
Agent shall provide such information, together with confirmation of the
amount on deposit with the Agent and available to effect the purchase, to
the Subscribing Holders (the latter information being provided no later
than 4:30 p.m. on the third day preceding the
<PAGE>
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Final Closing Date). If any Purchase Event Price received from the Senior
Debentureholders is an estimate, the Agent shall so advise the Subscribing
Holders. The Agent shall have no further duty to initiate communication
with Subscribing Holders; however, Subscribing Holders may deposit
additional immediately available funds with the Agent, together with an
accounting therefor, on any basis on which Subscribing Holders may agree,
no later than 12:00 p.m. on the day preceding the Final Closing Date. The
Agent shall have no duty under Section 6.13(b), (c) or (d) hereof to verify
the sufficiency of, assist with or confirm calculation of any deposits made
by Subscribing Holders hereunder.
(e) To the extent the Agent is fully funded to pay the Purchase Event
Price, as such Purchase Event Price is confirmed to the Agent as of the
earlier of the first day on which all conditions hereunder have been
satisfied and the Final Closing Date, whichever is operative, and, if at
least three Business Days prior to the Closing (as hereinafter defined),
the Agent has received from or on behalf of Subscribing Holders (but
with no obligations on the Agent to prepare any such documentation),
documentation satisfactory to the Agent, in its sole judgment, to
accomplish the purchase, including without limitation documents of
assignment and transfer from the Senior Debentureholders to the Agent
fully complying with the Inter-Creditor Agreement (the "Transfer
Documents") and documents of assignment and transfer from the Agent to
the Subscribing Holders (the "Agent Transfer Documents") fully complying
with the provisions of this Section 6.13 (each of which are specific
conditions precedent hereunder to the exercise of the purchase right by
the Agent and all of which shall be prepared by or on behalf of and at
the expense of the Subscribing Holders), the Agent shall purchase the
Senior Position by delivering the Acceptance Notice and a certified
check drawn on the Agent or an affiliate of the Agent to or upon the
order of the Senior Debentureholders, but only upon contemporaneous
delivery of fully executed Transfer Documents from the Senior
Debentureholders (the "Closing") and with no duty by the Agent to
advance any funds; provided, that the Agent shall have no responsibility
or liability whatsoever to any Person for the content, adequacy,
validity, sufficiency, condition of title or priority of any of such
documentation or of any collateral. Upon payment of the Agent's Costs,
the Agent shall promptly execute and deliver the Agent Transfer
Documents to the Subscribing Holders and shall return any unexpended
funds to the Subscribing Holders entitled thereto, based solely on the
accounting and instructions for payment provided by such Subscribing
Holders and thereupon the Agent shall be fully discharged hereunder.
(f) To the extent the Agent is not fully funded to pay the Purchase
Event Price by 12:00 p.m. on the Final Closing Date, based on the latest
information received from the Senior Debentureholders or the other
conditions precedent to Closing hereunder have not been satisfied, the
Agent shall not deliver the Acceptance Notice and shall not purchase the
Senior Position and the right to purchase under the Inter-Creditor
Agreement shall expire. The Agent shall incur no liability for a failed
purchase unless adjudicated to have resulted from its gross negligence
or wilful misconduct. In that case and upon payment of the Agent's Costs
to the satisfaction of the Agent, the Agent shall return all funds on
deposit with the Agent to the Subscribing Holders entitled thereto,
based on the accounting and payment
<PAGE>
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instructions provided to the Agent by such Holders and thereupon shall
be fully discharged hereunder.
(g) Notwithstanding anything to the contrary contained herein, the duty
to compensate, reimburse and indemnify the Agent under this Section 6.13
shall be an obligation of the Company; provided, that the Agent may pay
or reimburse itself from funds on deposit with it and, to the extent
such funds are insufficient and payment arrangements satisfactory to the
Agent have not been made, the Agent may refuse to deliver the Acceptance
Notice and purchase the Senior Position and shall incur no liability to
any Person for having done so. If at any time prior to the Closing or if
at any time after the purchase of the Senior Position is completed but
prior to the delivery of the Agent Transfer Documents, any controversy
or dispute arises among any Holders, including without limitation any
Eligible Holders, or between the Senior Debentureholders and the Agent
and/or any Holders with respect to any matter whatsoever contemplated in
this Section 6.13, the Agent shall not be required to determine the same
or do any other act or thing, but shall instead interplead any funds
deposited with it and/or any Agent Transfer Documents held by it in a
court of competent jurisdiction. Each Holder, including without
limitation each Eligible Holder, shall be bound by any determination of
such court and the Agent shall incur no liability whatsoever to any
Person for, and shall be held harmless from by the Subscribing Holders,
any failure to complete the purchase or deliver the Agent Transfer
Documents.
(h) All times expressed herein shall be New York times. Any reference to
a day or date that does not fall on a Business Day shall be deemed a
reference to the next succeeding Business Day as defined in the
Inter-Creditor Agreement.
(i) The Trustee shall have no obligation or liability whatsoever to any
Person with respect to the foregoing other than its duties under Section
4.06 with respect to the Publication. The Trustee shall not be deemed to
have notice of any Purchase Event in the absence of actual notice
thereof.
(j) The Agent Transfer Documents shall provide only that the Agent
represents and warrants in favor of the Subscribing Holders as at the
Closing Date that the Senior Position has not been sold, assigned or
encumbered by the Agent. The Agent shall not provide any other or
additional representations, warranties or covenants, expressed or
implied and the Senior Position shall be purchased by the Subscribing
Holders on a (i) non-recourse; (ii) "as is, where is" basis, other than
as aforesaid.
(k) Whether or not a Purchase Event has occurred hereunder, the Agent
shall have only those duties as are expressly set out in this Section
6.13 and nothing herein shall be construed to impose any other or
further duties; it being recognized that the services of the Agent are
necessary only to comply with the Inter-Creditor Agreement in order to
facilitate the purchase; provided, that in furtherance and not in
limitation of the foregoing, the Agent shall have no duty whatsoever to
incur liability, financial or otherwise, to any Person, to advance any
funds or to otherwise act or refrain from acting if, in the sole
judgment of the Agent, any such act or failure to act would cause the
Agent to incur risk or liability. Notwithstanding anything to the
contrary contained herein, any
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agreement to indemnify the Agent on the terms and conditions herein
shall include, without limitation, indemnification for any Cost imposed
on the Agent under the Inter-Creditor Agreement.
(l) In performing its duties as aforesaid, the Agent is acting as an
agent for the Holders and Beneficial Holders and is not acting in its
capacity as Trustee or fiduciary hereunder. In furtherance and not in
limitation of any provision of this Section 6.13, neither the Trustee
nor the Agent shall have any responsibility for or duty to determine (i)
the identity or eligibility of any Person as a Holder, Beneficial
Holder, or Eligible Holder, (ii) the irrevocable nature of any deposit
hereunder, (iii) the amount of the Purchase Event Price or (iv) the
effectiveness under the Inter-Creditor Agreement of any Acceptance
Notice or delivery of payment thereunder, or (v) the adequacy of
consideration, or lack thereof, to the Holders for the Purchase Event
Price. Neither the Trustee nor the Agent shall have any duty or
responsibility to any Person with respect to the disclosure of any
information concerning the Senior Secured Debentures and the Senior
Debentures Security to any Holder or Beneficial Holder.
(m) In no event shall the Agent be liable to any Person for special,
indirect or consequential damages of any nature whatsoever.
(n) The Subscribing Holders who in the aggregate are entitled to buy at
least 51% of the Senior Position based on their pro rata share of
subscriptions held by the Agent as at the Initial Deposit Date may, without
notice, but with the consent of the Trustee and the Agent, in their sole
discretion, amend the foregoing timetable and procedures so as to give
effect to the delivery of an Acceptance Notice in accordance with the terms
of the Inter-Creditor Agreement.
25. Section 7.05 of the Indenture is hereby deleted and the following
substituted therefore:
"If a Default or an Event of Default occurs and is continuing, the
Trustee shall mail to each Noteholder notice of the uncured
Default or Event of Default within 30 days after the later of the
date such Default, or Event of Default occurs or the date on which
the Trustee shall have received written notice of such Default or
Event of Default from the Company or any of the Holders, unless a
Trust Officer has actual knowledge of any such event, in which
case, such notice shall be given within 30 days of such actual
knowledge being obtained. Except in the case of a Default or an
Event of Default in payment of principal of, or interest on, any
Note, including an accelerated payment and the failure to make
payment on the Change of Control Payment Date pursuant to a Change
of Control Offer or on the Proceeds Purchase Date pursuant to a Net
Proceeds Offer and, except in the case of a failure to comply with
Article V hereof, a Default or Event of Default that also is a
Purchase Event, the Trustee may withhold the notice if and so long
as its Board of Directors, the executive committee of its Board of
Directors or a committee of its directors and/or Trust Officers in
good faith determines that withholding the notice is in the
interest of the Noteholders."
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26. (a) Section 7.07 of the Indenture is hereby amended and supplemented by
adding the following new paragraphs before the penultimate paragraph
thereof as follows:
"In furtherance and not in limitation of anything provided in this
Section 7.07 or otherwise in the Indenture, the Company shall pay
reasonable compensation, in accordance with this Section 7.07, to
the Trustee and its agents, together with the fees and expenses of
counsel to the Trustee or any agent, for their services under or in
connection with the Inter-Creditor Agreement (including for
purposes of this Section 7.07, any other or successor
inter-creditor agreements hereunder) and any Security Document. The
Company shall indemnify, in accordance with this Section 7.07, the
Trustee and its agents and employees, stockholders, directors and
officers for, and hold them harmless against, any and all claims,
damages, demands, expenses, liabilities, charges and taxes of any
character or nature whatsoever relating to this Indenture, the
Notes, such Inter-Creditor Agreement or the Security Documents; the
administration of the Trustee's or any agent's duties hereunder or
under the Inter-Creditor Agreement or the Security Documents; the
condition, occupancy, use, possession, conduct or management of or
any work done in or about any of the assets or property of the
Company or the planning, design, construction, rehabilitation or
improvement of any such assets or property, subject only in each
case to the exception in the second paragraph of this Section 7.07
for actions caused by the negligence, bad faith or willful
misconduct of the Trustee or any agent; or for any untrue statement
or alleged untrue statement of any material fact or omission or
alleged omission to state a material fact necessary to make the
statements made in any statement, information or material furnished
by or on behalf of the Company to the Trustee or any other Person,
including without limitation, to any Holder of the Notes or in
connection with any information included in any solicitation of
consents of Holders to any amendment, supplement or waiver of or in
connection with this Indenture, the Inter-Creditor Agreement or the
Security Documents. The Company and the Holders hereby acknowledge
the Trustee, its agents, employees, stockholders, directors and
officers have not participated in the preparation or dissemination
of any such statement, information, material or solicitation. The
Trustee makes no representation or warranty, express or implied, as
to the title, value, design, compliance with specifications of
legal requirements, quality, durability, operation, condition,
merchantability or fitness for any particular purpose for any of
the property, assets or undertakings of the Company now or
hereafter subject to any Security Document. In no event shall the
Trustee be liable for incidental, indirect, special or
consequential damages to any Person in connection with or arising
from the existence or use of any such property, assets or
undertakings; and
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(b) References to the "Trustee" in Section 7.07 shall include the
Trustee's agents and any Collateral Agent and the penultimate
paragraph of Section 7.07 is amended to add "including without
limitation pursuant to the Security Documents", after the word
"Trustee" in the third line thereof.
27. Article 7 of the Indenture is hereby amended by adding at the end
thereof the following section, which shall read in its entirety as follows:
"SECTION 7.12 CO-COLLATERAL TRUSTEE, SEPARATE COLLATERAL TRUSTEE,
COLLATERAL AGENTS
(1) If at any time or times it shall be necessary or prudent in order
to conform to any law of any jurisdiction in which any of the
Collateral shall be located, or to avoid any violation of law or
the imposition on the Trustee of taxes by such jurisdiction not
otherwise imposed on the Trustee, or the Company or the Trustee
shall be advised by an Opinion of Counsel, that it is necessary or
prudent in the interest of the Noteholders or the Holders of a
majority in principal amount of the outstanding Notes shall, in
writing, so request the Trustee, or the Trustee shall deem it
desirable for its own protection in the performance of its duties
hereunder or under any Security Document, then the Company shall
appoint a Collateral Agent and the Company, and any Guarantor and,
if necessary, the Trustee shall execute and deliver all
instruments and agreements necessary or proper to constitute
another bank or trust company, or one or more Persons approved by
the Company to act as Collateral Agent, co-collateral trustee or
co-collateral trustees of all of or any of the Collateral under
this Indenture or under any of the Security Documents, jointly
with the Trustee originally named herein or therein or any
successor Trustee, or to act as separate collateral Trustee or
Collateral Agent of any of the Collateral or to act as co-trustee
hereunder. If the Company or Guarantor has not joined in the
execution of such instruments and agreements within 10 days after
it receives a written request from the Trustee to do so or if a
Default or Event of Default exists, the Trustee may act under the
foregoing provisions of this Section 7.12 (1) without the
concurrence of the Company or Guarantor and execute and deliver
such instruments and agreements on behalf of the Company or such
Guarantor. The Company and any Guarantor hereby appoints the
Trustee as its agent and attorney-in-fact in either of such
contingencies. The Company has appointed the initial Collateral
Agent and has agreed to compensate and indemnify such Collateral
Agent in accordance with Section 7.07.
(2) Every separate Collateral Agent and collateral trustee and every
co-collateral trustee, other than any successor Trustee appointed
pursuant to Section 7.08 of this Indenture, shall, to the extent
permitted by law, be appointed and act and be such, subject to the
following provisions and conditions:
(a) all rights, powers, duties and obligations conferred upon the
Trustee in respect of the custody, control and management of
moneys, papers, or securities shall be exercised solely
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by the Trustee or any Collateral Agent appointed in accordance
with this Section 7.12;
(b) all rights, powers, duties and obligations conferred or imposed
upon the Trustee hereunder and under the relevant Security
Documents shall be conferred or imposed and exercised or
performed by the Trustee and such Collateral Agent, separate
collateral trustee or separate collateral trustees or
co-collateral trustee or co-collateral trustees, jointly, as
shall be provided in the instrument appointing such Collateral
Agent, separate collateral trustee or separate collateral
trustees or co-collateral trustee or co-collateral trustees,
except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed, the
Trustee shall be incompetent or unqualified to perform such act
or acts, or unless the performance of such act or acts would
result in the imposition of any tax on the Trustee which would
not be imposed absent such joint act or acts, in which event such
rights, powers, duties and obligations shall be exercised and
performed by such Collateral Agent, separate collateral trustee
or co-collateral trustees;
(c) no power given hereby or by the relevant Security Documents
to, or which it is provided herein or therein may be exercised
by, any such Collateral Agent, co-collateral trustee or
co-collateral trustees or separate collateral trustee or
separate collateral trustees, shall be exercised hereunder or
thereunder by such Collateral Agent, co-collateral trustee or
co-collateral trustees except jointly with, or with the
consent in writing of, the Trustee, anything contained herein
to the contrary notwithstanding;
(d) no collateral trustee (including, without limitation, the
Trustee) or Collateral Agent hereunder shall be personally
liable by reason of any act or omissions of any other
collateral trustee or Collateral Agent hereunder;
(e) the Trustee, at any time by an instrument in writing, may
accept the resignation of or remove any such Collateral Agent,
separate collateral trustee or co-collateral trustees or
co-trustee and, in that case by an instrument in writing, may
appoint a successor to such Collateral Agent, separate
collateral trustee or co-collateral trustees, as the case may
be, anything contained herein to the contrary notwithstanding.
If the Company or any Guarantor has not joined in the
execution of any such instrument within 10 days after it
receives a written request from the Trustee to do so, or if a
Default or Event of Default then exists, the Trustee shall
have the power to accept the resignation of
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or remove any such Collateral Agent, separate collateral
trustee or co-collateral trustees and to appoint a successor
without the concurrence of the Company or any Guarantor. The
Company and any Guarantor hereby appoint the Trustee its agent
and attorney-in-fact to act for it in such connection in such
contingency. If the Trustee shall have appointed a Collateral
Agent, separate collateral trustee, collateral trustees or
co-collateral trustee or co-collateral trustees or co-trustee
as above provided, the Trustee may at any time, by an
instrument in writing, accept the resignation of or remove any
such Collateral Agent, separate collateral trustee,
co-collateral trustees or co-trustee and the successor to any
such Collateral Agent, separate collateral trustee,
co-collateral trustees or co-trustee shall be appointed by the
Trustee alone pursuant to this Subsection 7.12(e); and
(f) The Trustee shall have no duty to compensate or indemnify any
Collateral Agent, separate collateral trustee, co-collateral
trustee or co-trustee appointed hereunder. The Trustee shall
not be liable or responsible for any Collateral Agent
appointed by it with due care hereunder.
"SECTION 7.13 COSTS OF ENFORCEMENT
Each of the Company and its Restricted Subsidiaries shall reimburse the
Trustee and the Collateral Agent or, if applicable the Holders, on
demand for all costs of realization (which for the purposes hereof shall
include any loans or advances made by the Trustee, Collateral Trustee or
a Holder to a Custodian) and other costs and expenses (including legal
fees and expenses) incurred by the Trustee and the Collateral Agent or,
if applicable the Holders or a Custodian in connection with the
realization, disposition of, retention, protection or collection of any
of the Collateral and the protection, preservation, or enforcement of
the rights, remedies and powers of the Trustee and the Collateral Agent
or, if applicable the Holders, or any Custodian. All amounts for which
the Company or any Restricted Subsidiary is required under this Section
7.13, Section 7.07 or otherwise under this Indenture to reimburse or pay
to the Trustee and the Collateral Agent or, if applicable the Holders or
any Custodian shall, from the date of disbursement until the date of
payment, be deemed to be an Obligation under this Indenture that is
secured under the Security Documents and shall bear interest at the
highest rate per annurn charged hereunder on any of the Obligations
under this Indenture. Nothing herein shall affect, impair or limit the
Trustee's and any Collateral Agent's rights under Section 6.10 or
Section 7.07.
28. Section 9.01 of the Indenture is hereby amended by inserting a comma
after word "Indenture" wherever it appears therein and thereafter adding
the words "Security Documents, the Inter-Creditor Agreement".
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29. Section 9.02 of the Indenture is hereby amended by inserting a comma
after the word "Indenture" wherever it appears therein and, in each
case, thereafter adding the words "Security Documents, the
Inter-Creditor Agreement".
30. Article 11 of the Indenture is hereby amended by deleting in its
entirety section 11.04 thereof.
31. Section 11.06 shall be amended
(i) by adding at the end of the first sentence of clause (a) thereof the
following:
"provided however that the Company or such other Guarantor, as
applicable, shall confirm (i) that it is and continues to be bound
by and shall covenant and agree to perform the obligations of the
Guarantor in respect of the Indenture and the Notes; (ii) that the
property, assets and undertaking so conveyed to the Company or such
other Guarantor, as applicable, are subject to the Noteholder Liens
or the Kemess Newco Liens, as applicable, which Liens remain in
full force and effect and secure the said Obligations of such other
Guarantor and the Company; and (iii) such other Guarantor or the
Company, as applicable, shall grant to the Trustee or the
Collateral Agent a Lien in all of its property, assets and
undertaking, including the assets transferred as aforesaid, which
Lien will be In Agreed Form and will secure the payment and
performance by such other Guarantor or the Company, of its
obligations in respect of the Indenture and the Notes."
(ii) and by inserting after the word "property" and before the "," at
the end of subparagraph (b) (ii) the following:
"and such corporation shall acknowledge and confirm that the
property, assets and undertaking of the Guarantor that it has
assumed are subject to the Noteholders Liens and the Kemess Newco
Liens, as applicable, which Liens are and continue to be
enforceable as security for the obligations of the Company under
the Indenture and the Notes and such successor corporation shall
grant to the Trustee or the Collateral Agent a Lien on all of its
property, assets and undertaking, which Lien will be In Agreed Form
and will secure the payment and performance by such successor
corporation of such assumed obligations."
32. The Indenture is hereby amended by adding thereto Exhibits E through I in
the forms annexed to this Fourth Supplemental Indenture.
33. The Indenture is hereby amended and supplemented in every respect to the
extent necessary to give effect to all sections of this Fourth Supplemental
Indenture and conform the Indenture thereto.
<PAGE>
-40-
34. The Fourth Supplemental Indenture is entered into, and the amendments and
supplements contained herein are made, pursuant to the provisions of
Sections 9.02 and 9.05 of the Indenture with the written consent of the
Holders of a majority of the principal amount of Notes outstanding under
the Indenture. On or prior to the Fourth Supplemental Closing Date, the
Company shall deliver to the Trustee an Officer's Certificate and an
Opinion of Counsel pursuant to Section 7.02 of the Indenture, in each
case stating the matters required to be stated therein pursuant to
Sections 9.07, 13.04 and 13.05 of the Indenture and to the effect that
all conditions precedent to be performed by the Company provided for in
the Indenture relating to this Fourth Supplemental Indenture have been
complied with including, without limitation, the closing of each of the
transactions described in the definition of "Fourth Supplemental Closing
Date" and including such other matters as are requested by the Trustee;
whereupon this Fourth Supplemental Indenture, including as a part
thereof, the Inter-Creditor Agreement (with the exception of Section 3.5
which shall bind only the Holders of Notes that execute Consents with
respect thereto), shall be binding upon each Holder of Notes.
35. The Company hereby represents and warrants that:
(a) The execution, delivery and performance by the Company of this
Fourth Supplemental Indenture, the Inter-Creditor Agreement and the
Security Documents have been duly authorized by all necessary
corporate action on the part of the Company; and this Fourth
Supplemental Indenture, the Inter-Creditor Agreement and the
Security Documents have been duly executed and delivered by the
Company and constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability now or hereafter in effect relating to or affecting
creditors' rights and to general equity principles.
(b) The execution, delivery and performance by the Company of this
Fourth Supplemental Indenture, the Inter-Creditor Agreement and the
Security Documents do not and will not (i) conflict with or result
in a breach of the terms, conditions or provisions of, (ii)
constitute a default under, (iii) give any Person the right to
accelerate any obligation under, or (iv) result in a violation of,
(x) the constituent documents of the Company, (y) any law, statute,
rule, regulation, instrument, order, judgment or decree to which
the Company is subject, including without limitation, any federal
or state securities laws or comparable laws of any Governmental
Body or (z) any agreement, note, mortgage, indenture, arrangement
or other obligation to which the Company is a party or by which it
is bound.
(c) On or prior to the Fourth Supplemental Closing Date, the Company
shall deliver to the Trustee, for the benefit of the Holders of the
Notes, an Opinion of Counsel, stating the matters required to be
stated in an Opinion of Counsel pursuant to Section 13.05 of the
Indenture together with all such other matters as the Trustee and
the Proposing Noteholders (as defined in the Letter Agreement) may
reasonably require in connection with the execution and delivery of
the Fourth Supplemental Indenture, the Inter-Creditor Agreement and
the Security Documents and in paragraph
<PAGE>
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one of the Letter Agreement and to the effect set forth in
paragraph 34 hereof and Section 4A.11 of the Indenture and in
subsections (a) and (b) above (and in giving such opinion, Counsel
may rely on an Officer's Certificate as to the matters set forth in
clause (z) of subsection (b) above) and to the effect that the
Indenture, this Fourth Supplemental Indenture and the
Inter-Creditor Agreement comply with the TIA (as defined in the
Indenture) as in effect on the date thereof.
(d) The Company is not, and will not as a result of entering into the
Inter-Creditor Agreement, the Royalty Debenture, the Senior Secured
Debentures, any inter-creditor agreement in respect of Existing
Hedge Indebtedness and the Permitted Liens described in clause
(vii)(a) of the definition of Permitted Liens, be in default of its
covenants under Section 4.14 of the Indenture.
36. For purposes of this Fourth Supplemental Indenture, the Company hereby
affirms its duty to indemnify and hold the Trustee harmless pursuant to
Section 7.07 of the Indenture. Nothing herein shall be read or
interpreted to limit or otherwise adversely affect the Trustee's or the
Collateral Agent's rights, protections and immunities under the
Indenture, as amended and supplemented from time to time. In furtherance
and not in limitation of any provision of this Indenture, the Trustee,
the Collateral Agent, their agents, employees, stockholders, directors,
officers and attorneys make no representations or warranties and shall
not be responsible for any recital, statement, representation or
warranty, which shall in all cases be taken as the recitals, statements,
representations and warranties of the Company, in this Fourth
Supplemental Indenture, in any Note (other than the Trustee's
authentication thereof), any solicitation or consents by the Company of
Holders to this Fourth Supplemental Indenture, the Inter-Creditor
Agreement (except as otherwise expressly provided in the Inter-Creditor
Agreement) or the Security Documents, or for any disclosure materials
provided to any Person in connection therewith or in connection with the
incurrence of any Indebtedness or for the compliance by the Company
with any of the provisions of the Indenture, including without
limitation, Section 4.07 of the Indenture, or with any federal or state
securities laws or any comparable laws of any Governing Body, or for the
validity, sufficiency, effectiveness, adequacy or priority, as
applicable, of this Fourth Supplemental Indenture, the Inter-Creditor
Agreement (except, as otherwise expressly provided in Section 8.1 of the
Inter-Creditor Agreement) or the Security Documents and the security
granted or purported to be granted thereunder or any other instrument
involved in this transaction, or for the validity of the execution by
the Company of any such documents, instruments or agreements. The
Company hereby affirms its duty to indemnify and hold the Trustee, the
Collateral Agent, their agents, employees, stockholders, directors and
officers harmless pursuant to Section 7.07 of the indenture, as amended
and supplemented in paragraph 26 hereof.
37. The Holders, by their Consents to this Fourth Supplemental Indenture, the
Inter-Creditor Agreement and the Security Documents, hereby instruct the
Trustee to waive any and all existing Defaults and Events of Default,
known or unknown to the Trustee, under the Indenture and authorize the
Trustee to exercise the standard of care in entering into this Fourth
Supplemental Indenture as described in Section 7.01 (b) (but not 7.01
(a)) of the indenture. The Holders further hereby acknowledge and
confirm that the Trustee has made no statements, representations or
warranties to any Holder in connection with the
<PAGE>
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solicitation of such Holders' Consents, that the Trustee has relied
hereunder upon the authorization and directions of the Holders contained
herein and in their Consents and upon Officer's Certificates and
Opinions of Counsel delivered to the Trustee, that the Proposing
Noteholders have entered into the Letter Agreement directly with the
Company, that the Holders who have consented have had the opportunity to
request such information from the Company and other sources as they have
considered material to such consent and have been, or have had the
opportunity to have been, represented by counsel and/or financial
advisors in negotiating the terms of this Fourth Supplemental Indenture,
the Inter-Creditor Agreement and the Security Documents, and that it is
not the intention of such Holders that the Trustee or Collateral Agent
shall incur financial or other risk or liability as a result of entering
into this Fourth Supplemental Indenture, the Inter-Creditor Agreement or
the Security Documents at the request and direction of such Holders. In
furtherance and not in limitation hereof, the terms of Article Seven of
the Indenture, as amended hereby, are hereby affirmed with respect to the
Indenture, the Inter-Creditor Agreement and the Security Documents. The
Trustee and the Collateral Agent shall have no duty or responsibility to
any Person under the Letter Agreement or under the Consents.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Supplemental
Indenture to be duly executed and effective, all as of the date first written
above.
ROYAL OAK MINES INC.
By: /S/ James H. Wood
-------------------------------------
Name: JAMES H. WOOD
Title: C.F.O.
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
By: /S/ Cheryl McDonald
-------------------------------------
Name: CHERYL MCDONALD
Title: AUTHORIZED SIGNATORY
<PAGE>
FIFTH SUPPLEMENTAL INDENTURE
FIFTH SUPPLEMENTAL INDENTURE, dated and effective as of June 22, 1998, by
and between Royal Oak Mines Inc., a corporation amalgamated under the laws of
Ontario, Canada (the "Company"), and Chase Manhattan Trust Company, National
Association, the successor to Mellon Bank, F.S.B., as Trustee (the "Trustee").
RECITALS OF ROYAL OAK MINES INC.
Royal Oak Mines Inc. issued an aggregate principal amount of $175 million
of 11% Senior Subordinated Notes due 2006 and Series B 11% Senior Subordinated
Notes due 2006 (collectively, the "Notes") pursuant to an Indenture, dated as of
August 12, 1996 (as amended and supplemented by the First Supplemental Indenture
dated and effective as of December 31, 1997, the Second Supplemental Indenture
dated and effective as of January 31, 1998, the Third Supplemental Indenture
dated and effective as of May 19, 1998 and the Fourth Supplemental Indenture
dated and effective as of the date hereof (as so amended and supplemented, the
"Indenture"), by and among Royal Oak Mines Inc., the Trustee and Kemess Mines
Inc. ("Kemess"). Kemess was a Guarantor as defined in and for the purposes of
the Indenture. On December 29, 1997, Royal Oak Mines Inc. and Kemess
amalgamated under the laws of Ontario, Canada and the surviving entity of such
amalgamation is the Company. Unless otherwise defined herein, terms with
initial capitals shall have the meanings ascribed thereto in the Indenture.
Section 9.02 of the Indenture provides that the Indenture may be amended or
supplemented by the Company and the Trustee, when authorized by a resolution of
the board of directors of the Company and consented to in writing by the Holders
of at least a majority in aggregate principal amount of the outstanding Notes.
The Holders of a majority in aggregate principal amount of the outstanding Notes
have provided their written consent to the amendments and supplements to the
Indenture contained in this Fifth Supplemental Indenture, and the other
conditions precedent in the Indenture to the execution hereof have been
satisfied. Pursuant to Sections 9.02 and 9.05 of the Indenture, upon the
effective date (determined in accordance with the Indenture), which effective
date is June 22, 1998, of the amendments and supplements to the Indenture and
the agreements contained in this Fifth Supplemental Indenture, such amendments
and supplements and agreements will bind only each Holder of a Note who has
consented to this Fifth Supplemental Indenture and every subsequent Holder of a
Note or a portion of a Note that evidences the same debt as the consenting
Holder's Note.
AGREEMENT
Each party hereto agrees as follows for the benefit of the other party and
for the equal and ratable benefit of each Holder of a Note who has consented to
the amendments and supplements to the Indenture and the agreements contained in
this Fifth Supplemental Indenture and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note:
<PAGE>
-2-
1. Section 1.01 of the Indenture is hereby amended by inserting in
alphabetical order in Section 1.01 the following definition:
"Consenting Holder of Notes" means a Holder of a Note, including for
purposes of the Fifth Supplemental Indenture, each holder of a
beneficial interest therein, who has given a Consent to the amendments
and supplements to the Indenture and the agreements contained in the
Fifth Supplemental Indenture and every subsequent Holder of a Note or
a portion of a Note, including the holders of beneficial interests
therein, that evidences the same debt as such consenting Holder's
Note, and "Consenting Holders of Notes" means each and every
Consenting Holder of Notes collectively.
2. The last sentence of Section 10.11 of the Indenture is hereby deleted and
replaced by the following:
Nothing herein contained shall be deemed to authorize the Trustee or
the holders of Senior Indebtedness or their Representative to
authorize or consent to or accept or adopt on behalf of any holder any
plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof. Nothing
herein contained shall be deemed to authorize the Trustee or the
holders of Senior Indebtedness or their Representative to vote in
respect of the claim of any Holder in any such proceeding except as
hereinafter provided:
(a) As long as any Obligations of the Company under the
Senior Secured Debentures are outstanding, in the event of any
proceedings under any Bankruptcy Law or any other applicable law
relating to bankruptcy, insolvency, receivership or reorganization or
relief of debtors including without limitation any such proceedings
under the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), the
BANKRUPTCY AND INSOLVENCY ACT (Canada) or any other applicable
bankruptcy or insolvency legislation (a "Restructuring Proceeding"),
each Consenting Holder of Notes will do all things and take all steps
reasonably within its control or power to cause the Holders of Notes
to be placed in a different class of creditors than the Senior
Debentureholders in a Restructuring Proceeding where the members of
such class are entitled to vote in connection with such Restructuring
Proceeding ("a "Creditor Class"). None of the Trustee, the Collateral
Agent or any Consenting Holder of Notes will take any steps or bring
or participate in any proceedings whereby they assert that the Holders
of Notes should be placed in the same Creditor Class as the Senior
Debentureholders and, if notwithstanding the foregoing, a proposal or
other plan of compromise, arrangement or reorganization (a "Proposed
Plan") is submitted for acceptance or rejection to the creditors of
the Company, and the Proposed Plan places the claims of the Holders
of Notes in the same Creditor Class as the Senior Debentureholders, or
if a court determines that the Holders of Notes are to be placed in
the same Creditor Class as the Senior Debentureholders, then in each
<PAGE>
-3-
such case each Consenting Holder of Notes shall and hereby allows the
Senior Debentureholders to vote, and hereby assigns to and in favor of
the Senior Debentureholders for the purpose of permitting the Senior
Debentureholders to vote against and defeat any such Proposed Plan
made to any Creditor Class of the Company of which the Senior
Debentureholders and the Holders of the Notes are members, that
portion of the Company's Obligations under this Indenture and the
Notes and corresponding votes in respect thereof to which the
Consenting Holders of Notes are otherwise entitled in such
Restructuring Proceedings equal to the lesser of (i) all of the
Company's Obligations under this Indenture and the Notes held by the
Consenting Holders of Notes and the corresponding votes in respect
thereof; and (ii) that amount of the Company's Obligations under this
Indenture and the Notes held by the Consenting Holders of Notes and
the corresponding votes in respect thereof which, when aggregated with
the votes to which the Senior Debentureholders are entitled, will
permit the Senior Debentureholders to vote against and defeat such
Proposed Plan in such Restructuring Proceedings.
(b) Each of the Consenting Holders of Notes hereby appoints
each director or officer for the time being of a Senior
Debentureholder as attorney-in-fact to do all such acts and things,
including to execute and deliver for and in the name of the Consenting
Holders of Notes, all documents and instruments, to give effect to the
grant of the right to vote and the assignment of the Company's
Obligations under this Indenture and the Notes and the corresponding
votes in respect thereof by or on behalf of the Consenting Holders of
Notes to the Senior Debentureholders provided for in Section 10.11(a)
above, with full power of substitution in the premises, and the
Consenting Holders of Notes agree to ratify and confirm all acts of
the said attorney lawfully done in the premises pursuant to the powers
of attorney granted pursuant hereto. The powers of attorney granted
hereby are powers coupled with an interest, and shall continue
notwithstanding the insolvency, bankruptcy, dissolution or liquidation
of any Consenting Holder of Notes, or other event by which any such
party granting such power of attorney ceases to exist or to have
capacity.
(c) It is acknowledged and agreed that (i) the assignment
provided for in Section 10.11(a) above is for voting purposes only in
the context of a Restructuring Proceeding and (except as provided in
Section 10.11(c)(v)) the assignment shall not otherwise affect any
rights and entitlements of the Consenting Holders of Notes, (ii) any
voting rights so assigned shall be deemed to be assigned back to the
Consenting Holders of Notes immediately upon the termination of the
circumstances (which includes for greater certainty following the
final determination of any appeal therefrom) in which the Senior
Debentureholders require such votes to vote against and defeat a
Proposed Plan in a Restructuring Proceeding, (iii) the voting rights
so assigned to the Senior Debentureholders shall only be exercised to
allow the Senior Debentureholders to vote against and defeat a
Proposed Plan in a Restructuring Proceeding, (iv) the assignment of
voting rights of the Consenting Holders of Notes to the Senior
<PAGE>
-4-
Debentureholders provided for herein shall not affect the entitlement
of such Consenting Holders of Notes to receive any and all
consideration payable or paid or distributions made on the Notes as
calculated without regard to such assignment, (v) other than the loss
of the right of the Consenting Holders of Notes, if any, to cause a
Proposed Plan to be approved by the members of a Creditor Class of
which the Consenting Holders of Notes and the Senior Debentureholders
are, or but for this Section 10.11 would be, members, nothing in this
Section 10.11 shall prejudice any other right or entitlement of the
Consenting Holders of Notes in their capacity as creditors of the
Company to the treatment to which they would otherwise be entitled in
a Restructuring Proceedings, and (vi) the provisions of this Section
10.11 shall not apply to the Holders of Notes who are not Consenting
Holders of Notes.
(d) Notwithstanding anything to the contrary contained
herein, the rights under the Indenture of Holders who have not
consented to the Fifth Supplemental Indenture shall remain unaffected
hereby.
3. Section 6.09 of the Indenture is hereby amended by inserting, in the last
sentence thereof, after the words "or the rights of any Holder thereof, or"
the words ", except as described in Sections 10.11 and 12.11,".
4. The last sentence of Section 12.11 of the Indenture is hereby deleted and
replaced by the following:
Nothing herein contained shall be deemed to authorize the Trustee or
the holders of Guarantor Senior Indebtedness or their Representative
to authorize or consent to or accept or adopt on behalf of any holder
any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof. Nothing
herein contained shall be deemed to authorize the Trustee or the
holders of Guarantor Senior Indebtedness or their Representative to
vote in respect of the claim of any Holder in any such proceeding
except as hereinafter provided:
(a) As long as any Obligations of the Guarantor under the
Senior Secured Debentures are outstanding, in the event of any
proceedings under any Bankruptcy Law or any other applicable law
relating to bankruptcy, insolvency, receivership or reorganization or
relief of debtors including without limitation any such proceedings
under the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), the
BANKRUPTCY AND INSOLVENCY ACT (Canada) or any other applicable
bankruptcy or insolvency legislation (a "Restructuring Proceeding"),
each Consenting Holder of Notes will do all things and take all steps
reasonably within its control or power to cause the Holders of Notes
to be placed in a different class of creditors than the Senior
Debentureholders in a Restructuring Proceeding where the members of
such class are entitled to vote in connection with such Restructuring
Proceeding ("a "Creditor Class"). None of the Trustee, the
<PAGE>
-5-
Collateral Agent or any Consenting Holder of Notes will take any steps
or bring or participate in any proceedings whereby they assert that
the Holders of Notes should be placed in the same Creditor Class as
the Senior Debentureholders and, if notwithstanding the foregoing, a
proposal or other plan of compromise, arrangement or reorganization (a
"Proposed Plan") is submitted for acceptance or rejection to the
creditors of the Guarantor, and the Proposed Plan places the claims
of the Holders of Notes in the same Creditor Class as the Senior
Debentureholders, or if a court determines that the Holders of Notes
are to be placed in the same Creditor Class as the Senior
Debentureholders, then in each such case each Consenting Holder of
Notes shall and hereby allows the Senior Debentureholders to vote, and
hereby assigns to and in favor of the Senior Debentureholders for the
purpose of permitting the Senior Debentureholders to vote against and
defeat any such Proposed Plan made to any Creditor Class of the
Guarantor of which the Senior Debentureholders and the Holders of the
Notes are members, that portion of the Guarantor's Obligations under
its Guarantee of this Indenture and the Notes and corresponding votes
in respect thereof to which the Consenting Holders of Notes are
otherwise entitled in such Restructuring Proceedings equal to the
lesser of (i) all of the Guarantor's Obligations under its Guarantee
of this Indenture and the Notes held by the Consenting Holders of
Notes and the corresponding votes in respect thereof; and (ii) that
amount of the Guarantor's Obligations under its Guarantee of this
Indenture and the Notes held by the Consenting Holders of Notes and
the corresponding votes in respect thereof which, when aggregated with
the votes to which the Senior Debentureholders are entitled, will
permit the Senior Debentureholders to vote against and defeat such
Proposed Plan in such Restructuring Proceedings.
(b) Each of the Consenting Holders of Notes hereby appoints
each director or officer for the time being of a Senior
Debentureholder as attorney-in-fact to do all such acts and things,
including to execute and deliver for and in the name of the Consenting
Holders of Notes, all documents and instruments, to give effect to the
grant of the right to vote and the assignment of the Guarantor's
Obligations under its Guarantee of this Indenture and the Notes and
the corresponding votes in respect thereof by or on behalf of the
Consenting Holders of Notes to the Senior Debentureholders provided
for in Section 12.11(a) above, with full power of substitution in the
premises, and the Consenting Holders of Notes agree to ratify and
confirm all acts of the said attorney lawfully done in the premises
pursuant to the powers of attorney granted pursuant hereto. The
powers of attorney granted hereby are powers coupled with an interest,
and shall continue notwithstanding the insolvency, bankruptcy,
dissolution or liquidation of any Consenting Holder of Notes, or other
event by which any such party granting such power of attorney ceases
to exist or to have capacity.
(c) It is acknowledged and agreed that (i) the assignment
provided for in Section 12.11(a) above is for voting purposes only in
the context of a Restructuring Proceeding and (except as provided in
Section 12.11(c)(v)) the
<PAGE>
-6-
assignment shall not otherwise affect any rights and entitlements
of the Consenting Holders of Notes, (ii) any voting rights so assigned
shall be deemed to be assigned back to the Consenting Holders of Notes
immediately upon the termination of the circumstances (which includes
for greater certainty following the final determination of any appeal
therefrom) in which the Senior Debentureholders require such votes to
vote against and defeat a Proposed Plan in a Restructuring Proceeding,
(iii) the voting rights so assigned to the Senior Debentureholders
shall only be exercised to allow the Senior Debentureholders to vote
against and defeat a Proposed Plan in a Restructuring Proceeding, (iv)
the assignment of voting rights of the Consenting Holders of Notes to
the Senior Debentureholders provided for herein shall not affect the
entitlement of such Consenting Holders of Notes to receive any and all
consideration payable or paid or distributions made on the Notes as
calculated without regard to such assignment, (v) other than the loss
of the right of the Consenting Holders of Notes, if any, to cause a
Proposed Plan to be approved by the members of a Creditor Class of
which the Consenting Holders of Notes and the Senior Debentureholders
are, or but for this Section 12.11 would be, members, nothing in this
Section 12.11 shall prejudice any other right or entitlement of the
Consenting Holders of Notes in their capacity as creditors of the
Guarantor to the treatment to which they would otherwise be entitled
in a Restructuring Proceedings, and (vi) the provisions of this
Section 12.11 shall not apply to the Holders of Notes who are not
Consenting Holders of Notes.
(d) Notwithstanding anything to the contrary contained
herein, the rights under the Indenture of Holders who have not
consented to the Fifth Supplemental Indenture shall remain unaffected
hereby.
5. Each Consenting Holder of Notes authorizes, directs and ratifies the
inclusion of the provisions of paragraphs 2 and 4 hereof, or words of like
effect and substance, into the Inter-Creditor Agreement and agrees to be
subject to and bound by all of the provisions of the Inter-Creditor
Agreement as if an original signatory thereto.
By its execution and delivery of the Consents to the Trustee, each
Consenting Holder of Notes agrees with the Senior Debentureholders that the
provisions of this Fifth Supplemental Indenture constitute legal, valid and
binding obligations of the Consenting Holder of Notes in favour of the
Senior Debentureholders which are enforceable by the Senior
Debentureholders against each Consenting Holder of Notes in accordance with
their terms. The Senior Debentureholders may rely upon the statements,
acknowledgements, covenants and agreements of each Consenting Holder of
Notes made or given pursuant to this Fifth Supplemental Indenture and may
pursue and enforce any and all remedies resulting from any non-compliance
therewith or breach thereof notwithstanding that the Senior
Debentureholders are not signatories to this Fifth Supplemental Indenture.
The Consenting Holders of Notes, by their consents to this Fifth
Supplemental Indenture, hereby acknowledge and confirm for the benefit of
the Senior Debentureholders the provisions of Section 3.5(A) of the
Inter-Creditor Agreement. The
<PAGE>
-7-
provisions of this Fifth Supplemental Indenture shall be binding on a
Person only for so long as such Person is a Holder or Beneficial
Holder of the Notes and once the Note or part of the Note is
transferred to a subsequent Holder or Beneficial Holder, such prior
Holder or Beneficial Holder shall no longer be liable other than for
its non-compliance with or breach of the provisions of the Fifth
Supplemental Indenture committed while it was a Holder or Beneficial
Holder thereof. Notwithstanding anything to the contrary contained
herein, the Trustee shall have no duty to the Senior Debentureholders
or their successors and assigns to enforce or perform any obligations
of the Consenting Holders of Notes under the provisions of this Fifth
Supplemental Indenture or under Section 3.5 of the Inter-Creditor
Agreement.
6. The Indenture is hereby amended in every respect to the extent necessary to
give effect to all sections of this Fifth Supplemental Indenture and
conform the Indenture thereto.
7. The Fifth Supplemental Indenture is entered into, and the amendments and
supplements contained herein are made, pursuant to the provisions of
Section 9.02 and 9.05 of the Indenture with the written consent of the
Holders of a majority of the principal amount of Notes outstanding under
the Indenture. On or prior to the Fourth Supplemental Closing Date (as
defined in the Indenture) the Company shall deliver to the Trustee an
Officer's Certificate and an Opinion of Counsel pursuant to Section 7.02 of
the Indenture, in each case stating the matters required to be stated
therein pursuant to Sections 9.07, 13.04 and 13.05 of the Indenture and to
the effect that all conditions precedent to be performed by the Company
provided for in the Indenture relating to this Fifth Supplemental Indenture
have been complied with including, without limitation, the closing of each
of the transactions described in the definition of "Fourth Supplemental
Closing Date" in the Indenture and including such other matters as the
Trustee may reasonably require; whereupon, pursuant to Section 9.02 and
9.05 of the Indenture, this Fifth Supplemental shall be binding only upon
each Holder of a Note who has consented to the amendments and supplements
to the Indenture and the agreements contained in this Fifth Supplemental
Indenture and every subsequent Holder of a Note or a portion of a Note that
evidences the same debt as the consenting Holder's Note.
8. The Company hereby represents and warrants that:
(a) The execution, delivery and performance by the Company of this Fifth
Supplemental Indenture have been duly authorized by all necessary
corporate action on the part of the Company; and this Fifth
Supplemental Indenture has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability now or
hereinafter in effect relating to or affecting creditors' rights and
to general equity principles.
<PAGE>
-8-
(b) The execution, delivery and performance by the Company of this Fifth
Supplemental Indenture does not and will not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii)
constitute a default under, (iii) give any Person the right to
accelerate any obligation under, or (iv) result in a violation of, (x)
the constituent documents of the Company, (y) any law, statute, rule,
regulation, instrument, order, judgment or decree to which the Company
is subject, including without limitation, any federal or state
securities laws or comparable laws of any Governmental Body or (z) any
agreement, note, mortgage, indenture, arrangement or other obligation
to which the Company is a party or by which it is bound.
(c) On or prior to the Fourth Supplemental Closing Date, the Company shall
deliver to the Trustee, for the benefit of the Holders of the Notes,
an Opinion of Counsel, stating the matters required to be stated in an
Opinion of Counsel pursuant to Section 13.05 of the Indenture and to
the effect set forth in subsections (a) and (b) above (and in giving
such opinion, Counsel may rely on an Officer's Certificate as to the
matters set forth in clause (z) of subsection (b) above) and to the
effect that the Indenture and this Fifth Supplemental Indenture
(including provisions hereof included in the Inter-Creditor Agreement)
comply with the TIA (as defined in the Indenture) as in effect on the
date hereof.
9. For the purposes of this Fifth Supplemental Indenture, the Company hereby
affirms its duty to indemnify and hold the Trustee harmless pursuant to
Section 7.07 of the Indenture. Nothing herein shall be read or interpreted
to limit or otherwise adversely affect the Trustee's rights, protections
and immunities under the Indenture, as amended and supplemented from time
to time. In furtherance and not in limitation of any provision of this
Indenture, the Trustee, the Collateral Agent, their agents, employees,
stockholders, directors, officers and attorneys make no representations or
warranties and shall not be responsible for any recital, statement,
representation or warranty (which shall in all cases be taken as recitals,
statements, representations and warranties of the Company or the Consenting
Holders of Notes, as applicable), in this Fifth Supplemental Indenture or
the Inter-Creditor Agreement (except as otherwise expressly provided in the
Inter-Creditor Agreement), any solicitation of consents by the Company of
Holders to this Fifth Supplemental Indenture or the Inter-Creditor
Agreement, or for any disclosure materials provided to any Person in
connection therewith or in connection with the incurrence of any
Indebtedness or for the compliance by the Company with any of the
provisions of the Indenture, including without limitation, section 4.07 of
the Indenture, or with any federal or state securities laws or any
comparable laws of any Governmental Body, or for the validity, sufficiency,
effectiveness, adequacy or priority, as applicable, of this Fifth
Supplemental Indenture, the Inter-Creditor Agreement (except as otherwise
expressly provided in Section 8.1 of the Inter-Creditor Agreement) and the
security granted or purported to be granted thereunder or any other
instrument involved in this transaction, or for the validity of the
execution by the Company of any such documents, instruments or agreements.
The Company hereby affirms its duty to indemnity and hold
<PAGE>
-9-
the Trustee, the Collateral Agent and their agents, employees,
stockholders, directors and officers harmless pursuant to Section 7.07
of the Indenture.
10. The Holders, by their consents to this Fifth Supplemental Indenture, hereby
authorize the Trustee to exercise the standard of care in entering into
this Fifth Supplemental Indenture as described in Section 7.01(b) (but not
7.01(a)) of the Indenture and hereby acknowledge and confirm that the
Trustee has made no statements, representations or warranties to any Holder
in connection with the solicitation of such Holder's consent, that the
Trustee has relied hereunder upon the authorization and directions of the
Holders contained herein and in their consents and upon Officer's
Certificates and Opinions of Counsel delivered to the Trustee, that the
Holders who have consented have had the opportunity to request such
information from the Company and other sources as they have considered
material to such consent and have been, or have had the opportunity to have
been, represented by counsel and/or financial advisors in negotiating the
terms of this Fifth Supplemental Indenture and the Inter-Creditor
Agreement, and that it is not the intention of such Holders that the
Trustee shall incur financial or other risk or liability as a result of
entering into this Fifth Supplemental Indenture or the Inter-Creditor
Agreement at the request and direction of the Holders. In furtherance and
not in limitation hereof, the terms of Article Seven of the Indenture are
hereby affirmed with respect to the Indenture and the Inter-Creditor
Agreement. The Trustee shall have no duty or responsibility to any Persons
under the Consents given by any Holder in respect of this Fifth
Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental
Indenture to be duly executed and effective all as of the date first written
above.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
----------------------------
Name: James H. Wood
Title: C.F.O.
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, AS TRUSTEE
By: /s/ Cheryl McDonald
----------------------------
Name: Cheryl McDonald
Title: Authorized Signatory
<PAGE>
SECURITIES PURCHASE AGREEMENT
BETWEEN:
ROYAL OAK MINES INC.,
- and -
AGENT
made the 17th day of April, 1998
<PAGE>
T A B L E O F C O N T E N T S
<TABLE>
<S> <C>
1 - DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Monetary References. . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.4 Use of Singular and Plural . . . . . . . . . . . . . . . . . . . . . . 9
1.5 Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . . . . 9
1.6 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.7 Generally Accepted Accounting Principles . . . . . . . . . . . . . . . 10
1.8 Interpretation Not Affected by Headings. . . . . . . . . . . . . . . . 10
1.9 Computation of Time Periods. . . . . . . . . . . . . . . . . . . . . . 10
1.10 Day Not A Business Day . . . . . . . . . . . . . . . . . . . . . . . . 10
2 - TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 Issuance of Debentures to the Lenders. . . . . . . . . . . . . . . . . 11
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 Representations and Warranties by the Corporation. . . . . . . . . . . 13
3.2 Survival Representations and Warranties by the Corporation . . . . . . 26
4 - CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.1 Conditions to the Obligations of the Agent re: the Initial
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.2 Conditions to the Obligations of the Agent re: Additional
Purchase Price Payments. . . . . . . . . . . . . . . . . . . . . . . . 31
4.3 Waiver or Termination by the Agent . . . . . . . . . . . . . . . . . . 33
5 - CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.1 Closing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.2 Documents to be Delivered. . . . . . . . . . . . . . . . . . . . . . . 33
6 - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
<S> <C>
6.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.6 Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 38
6.10 Reliance and Non-Merger. . . . . . . . . . . . . . . . . . . . . . . . 38
6.11 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.12 Time of the Essence. . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.14 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.15 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS AGREEMENT is made the 17th day of April, 1998
BETWEEN:
ROYAL OAK MINES INC., a corporation
amalgamated under the laws of the Province
of Ontario
(the "Corporation")
- and -
AGENT, as defined herein
WHEREAS the Corporation carries on business, inter alia, as an owner and
operator of the Kemess South Mine (as hereinafter defined);
AND WHEREAS the Agent has agreed to cause the Lenders (as hereinafter
defined) to subscribe for and purchase from the Corporation, and the Corporation
has agreed to issue to the Lenders, senior secured debentures of the Corporation
in the aggregate principal amount of One Hundred and Twenty Million United
States Dollars (U.S.$120,000,000) upon and subject to the terms and conditions
hereinafter set out;
AND WHEREAS the indebtedness of the Corporation to the Lenders under the
Debentures (as hereinafter defined) is being incurred by the Corporation in
connection with the construction, development and operation of the Kemess South
Mine;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
mutual covenants hereinafter contained, the parties hereto agree as follows:
<PAGE>
ARTICLE 1 - DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this Agreement, unless the subject matter or context is inconsistent
therewith, the following terms and expressions will have the following meanings:
(a) "Additional Purchase Price Payment" and "Additional Purchase
Price" have the meanings given to such terms, respectively, in Section
2.2(b) hereof;
(b) "Agent" means Trilon Financial Corporation;
(c) "Aggregate Additional Purchase Price" means U.S.$30,000,000;
(d) "Agreement" means this Securities Purchase Agreement made the
17th day of April, 1998 between the Corporation and the Agent, including
all schedules hereto, as it may be amended, modified, restated or
supplemented from time to time;
(e) "APM" means Arctic Precious Metals, Inc., a company incorporated
under the laws of Nevada;
(f) "Associate" has the meaning ascribed thereto in the BUSINESS
CORPORATIONS ACT (Ontario) and shall include any entity which is an
Associate of an Associate, and so on;
(g) "Audited Financial Statements" means the audited consolidated
financial statements of the Corporation as at and for the 12 month
fiscal period ended December 31, 1997, consisting of a balance sheet, an
income statement and a statement of changes in financial position,
together with the notes thereto, copies of which have been provided to
the Agent;
(h) "Business Day" means any day other than Saturday, Sunday or any
statutory holiday in Toronto, Canada;
2
<PAGE>
(i) "Change of Control of the Corporation" has the same meaning as is
given to that term in the Debentures;
(j) "Closing Date" means April 30th, 1998 or such other date as the
Agent and the Corporation may agree upon as the Closing Date;
(k) "Closing Time" means 3:00 p.m. (Toronto time) on the Closing Date
or such other time as the Agent and the Corporation may agree upon as
the Closing Time;
(l) "Common Shares" means the common shares in the capital of the
Corporation;
(m) "Consent" has the meaning as is given to that term in Section
3.1(g) hereof;
(n) "Copperstone Property" has the same meaning as is given to that
term in the Debentures;
(o) "Corporation" means Royal Oak Mines Inc., and includes any
predecessors or successors of the Corporation;
(p) "Debentures" mean the Series A Senior Secured Debentures ("Series
A Debentures") of the Corporation in the aggregate principal amount of
U.S.$85,000,000 and the Series B Secured Debentures ("Series B
Debentures") of the Corporation in the aggregate principal amount of
U.S.$35,000,000 to be issued to the Lenders pursuant to Section 2.1,
which debentures are in the forms attached as SCHEDULE A-1 AND A-2
respectively to this Agreement;
(q) "Debt" has the same meaning as is given to that term in the
Debentures;
3
<PAGE>
(r) "Default" has the same meaning as is given to that term in the
Debentures;
(s) "Disclosed Defaults" has the meaning given to such term in
Section 3.1(f) hereof;
(t) "Documents" has the same meaning as is given to that term in the
Debentures but includes this Agreement, the Royalty Agreement and the
Royalty Debenture;
(u) "Event of Default" has the same meaning as is given to that term
in the Debentures;
(v) "Existing Encumbrances" has the same meaning as is given to that
term in the Debentures;
(w) "Excluded Assets" means the Windy Craggy Property;
(x) "generally accepted accounting principles" means the accounting
principles so described and promulgated by the Canadian Institute of
Chartered Accountants which are applicable as at the date on which any
calculation made hereunder is to be effective or as at the date of any
financial statements referred to herein, as the case may be;
(y) "Glencore Agreement" means the letter agreement dated November 5,
1997 between the Corporation and Glencore Ltd. relating to the sale by
the Corporation of copper concentrate;
(z) "Governmental Body" has the same meaning as is given to that term
in the Debentures;
(aa) "Initial Purchase Price" has the meaning given to such term in
Section 2.2(a) hereof;
4
<PAGE>
(bb) "Intellectual Property" means all trade marks, trade names,
patents, patent applications, copyrights, trade secrets, logos,
processes, computer systems and application software which are owned or
used by, or which relate to the business of, the Corporation or the
Subsidiaries;
(cc) "Interim Financial Statements" means the unaudited consolidated
financial statements of the Corporation as at and for the 2 month period
ended February 28, 1998 consisting of a balance sheet, an income
statement and a statement of changes in financial position together with
any notes thereto, a copy of which has been provided to the Agent;
(dd) "Kemess Mine" means the Kemess North Property and the Kemess
South Mine;
(ee) "Kemess North Property" means all present and future property and
assets comprising or relating to what is generally referred to as the
Kemess North Property in British Columbia, Canada including, without
limitation, all mineral claims and leases referred to in SCHEDULE B-1
hereto, all buildings, equipment, fixtures and other property and assets
owned or leased by the Corporation (or in which the Corporation
otherwise has an interest) situated or used at the Kemess North Property
site, all operations, exploration and other activities carried on at
such site and all permits, authorizations, licenses and similar
approvals relating thereto;
(ff) "Kemess South Mine" means all present and future property and
assets comprising or relating to what is generally referred to as the
Kemess South Mine property in British Columbia, Canada including,
without limitation, all mineral claims and leases referred to in
SCHEDULE B-2 hereto, all buildings, equipment, fixtures and other
property and assets owned or leased by the Corporation (or in which the
Corporation otherwise has an interest) situated or used at the Kemess
South Mine site, all operations, exploration and other activities
carried on at such site and all permits, authorizations, licenses and
similar approvals relating thereto;
(gg) "Kemess Mine Production Date" has the same meaning as is given to
that term in the Debentures;
5
<PAGE>
(hh) "Knowledge" of a party means the best knowledge of the senior
management of that party (which in the case of the Corporation
specifically includes but is not limited to the Kemess Mine Project
Manager, the Kemess Mine Project Director and the Kemess Mine Manager of
Project Accounting, after having made all reasonable inquiries;
(ii) "Lenders" means such Person or Persons who purchase the
Debentures at the Closing Time or from time to time thereafter;
(jj) "Lien" has the same meaning as is given to that term in the
Debentures;
(kk) "Material Authorizations" has the same meaning as is given to
that term in the Debentures;
(ll) "Material Contracts" has the meaning given to that term in
Section 3.1(x) hereof;
(mm) "Material Subsidiaries" means APM and all Subsidiaries each of
which has total assets exceeding a fair market value of Can.$2,000,000;
(nn) "Materiality Threshold" means that the representation, warranty,
covenant or other obligation in question shall apply only to subject
matter which individually or in the aggregate is or should reasonably be
expected, as determined by the Agent and the Lenders, acting reasonably,
to be material to:
(i) the business, property or affairs of the Corporation
taken as a whole;
(ii) the construction, ownership or operation of the Kemess
Mine or the requirement that the Kemess Mine Production Date
occur on or before December 31, 1998;
6
<PAGE>
(iii) the Lenders, in their capacity as secured creditors of
the Corporation under the Documents; or
(iv) the Agent in its capacity as a party to the Royalty
Agreement and the Royalty Debenture;
(oo) "Mikwam Property" has the same meaning as is given to that term
in the Debentures;
(pp) "Mortgaged Property" has the same meaning as is given to that
term in the Debentures;
(qq) "Payment Certificate" has the meaning given to that term in
Section 4.2(c) hereof;
(rr) "Payment Date" has the meaning given to that term in
Section 2.2(b) hereof;
(ss) "Permitted Encumbrances" has the same meaning as is given to that
term in the Debentures;
(tt) "Permitted Hedging Indebtedness" has the same meaning as is given
to that term in the Debentures;
(uu) "Person" has the same meaning as is given to that term in the
Debentures;
(vv) "Proceeds Conditions" means the conditions precedent in favour of
the Agent that (i) the Kemess South Mine has produced concentrate over
the immediately preceding 30 day period, and is able to sustain and
maintain such production thereafter, of not less than 7500 short tons of
concentrate yielding mineral content that is acceptable to Glencore Ltd.
pursuant to the Glencore Agreement (without giving effect to any
amendments thereof), (ii) at such time the Kemess South Mine accounts
payable of the Corporation do not exceed
7
<PAGE>
U.S.$15,000,000 and (iii) at such time the Kemess South Mine accounts
payable of the Corporation are not overdue in accordance with their
respective terms;
(ww) "Proposed Leaseback Assets" has the same meaning as is given to
that term in the Debentures;
(xx) "Purchase Price" means (i) the Initial Purchase Price plus (ii)
the aggregate of the Additional Purchase Price Payments, if any;
(yy) "Reorganization Undertaking" has the meaning given to that term
in Section 4.1(1) hereof;
(zz) "Royalty Agreement" means the royalty agreement relating to the
Kemess South Mine, between the Agent and the Corporation in the form
attached as SCHEDULE C to this Agreement;
(aaa) "Royalty Debenture" means the debenture in favour of the Agent
which, inter alia, secures the Corporation's obligations to the Agent
pursuant to the Royalty Agreement in form and substance satisfactory to
the Agent;
(bbb) "Sale" has the same meaning as is given to that term in the
Debentures;
(ccc) "Security" has the same meaning as is given to that term in the
Debentures;
(ddd) "Security Documents" has the same meaning as is given to that
term in the Debentures;
(eee) "Senior Secured Debenture Facility" means the senior secured
debenture facility in the original principal amount of Can.$19,500,000
and U.S.$30,700,000 provided to the Corporation by DDJ Canadian High
Yield Fund, Goldman, Sachs & Co. and Mellon Bank;
8
<PAGE>
(fff) "Series A Debentures" and "Series B Debentures" have the meanings
ascribed thereto in Section 1.1(p) hereof;
(ggg) "Subordinated Notes" means the outstanding 11% Series B Senior
Subordinated Notes of the Corporation due 2006 in the aggregate
principal amount of U.S.$175,000,000;
(hhh) "Subordinated Note Trust Indenture" means the Trust Indenture
dated as of August 12, 1996 among the Corporation, Kemess Mines Inc. and
Mellon Bank, F.S.B. relating to the Subordinated Notes, as amended by
(i) the First Supplemental Indenture dated and effective as of
December 31, 1997 by and between the Corporation and Chase Manhattan
Trust Company, National Association, the successor to Mellon Bank,
F.S.B. as Trustee, (ii) the Second Supplemental Indenture dated and
effective as of January 31, 1998 by and between the Corporation and
Chase Manhattan Trust Company, National Association, as Trustee and,
(iii) such other amendments as may be required in connection with the
transaction contemplated by this Agreement and the other Documents;
(iii) "Subsidiaries" means all of the corporations listed on SCHEDULE E
and any other corporations or limited liability companies which are or
hereafter become directly or indirectly controlled by the Corporation
and for the purposes of this definition the Corporation shall be deemed
to control a corporation if the Corporation beneficially owns, directly
or indirectly, shares to which are attached more than 50% of the voting
rights ordinarily exercisable at meetings of shareholders of such
corporation and/or 50% or more of the issued and outstanding fully
participating shares of such corporation and the Corporation shall be
deemed to own beneficially shares beneficially owned by a corporation
controlled by it, and so on indefinitely, and the Corporation shall be
deemed to control a limited liability company where it owns more than
50% of the equity interests in such limited liability company;
(jjj) "Taxes" means all taxes of any kind or nature whatsoever
including, without limitation, income taxes, sales or value-added taxes,
levies, stamp taxes, royalties, duties, and all fees, deductions,
compulsory loans and withholdings imposed, levied, collected, withheld
or assessed as of the date hereof or at any time in the future, by any
governmental authority of or within Canada or any other jurisdiction
whatsoever having power to tax, together
9
<PAGE>
with penalties, fines, additions to tax and interest thereon; and
(kkk) "Windy Craggy Property" means the mineral claims in and around
Windy Craggy mountain in the Tatshenshini/Alsek region of northwestern
British Columbia, more particularly described in SCHEDULE F hereto.
1.2 MONETARY REFERENCES
Any reference in this Agreement to "Canadian dollars" or "Can. $" or
similar terms shall be deemed to be a reference to lawful money of Canada and
any reference in this Agreement to "United States of America dollars", "United
States dollars" or "U.S. $" or similar terms shall be deemed to be a reference
to lawful money of the United States of America. If no such references are made
with respect to any particular sum or obligation, the sum or obligation in
question shall be deemed to refer to lawful money of Canada.
1.3 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein. The
Corporation submits to the jurisdiction of the courts of Ontario to determine
all issues whether at law or in equity, arising from this Agreement.
1.4 USE OF SINGULAR AND PLURAL
Words importing the singular include the plural and vice versa and words
importing gender include all genders.
1.5 INVALIDITY OF PROVISIONS
Each of the provisions contained in this Agreement is distinct and
severable and a declaration of invalidity, illegality or unenforceability of any
such provision or part thereof by a court of competent jurisdiction shall not
affect the validity or enforceability of any other provision hereof or thereof.
Without limiting the generality of the foregoing, if any amounts on account of
fees or otherwise payable by the Corporation to the Agent hereunder exceed the
maximum amount recoverable under applicable law, the amounts so payable
hereunder shall be reduced to the maximum amount recoverable under applicable
law.
10
<PAGE>
1.6 REFERENCES
Except as otherwise specifically provided, reference in this Agreement
to any contract, agreement or any other instrument shall be deemed to include
references to the same as varied, amended, supplemented or replaced from time to
time and reference in this Agreement to any enactment, including without
limitation any statute, law, by-law, regulation, ordinance or order, shall be
deemed to include references to such enactment as re-enacted, amended or
extended from time to time.
1.7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Unless otherwise specifically provided herein, all accounting terms
shall be applied and construed in accordance with generally accepted accounting
principles consistently applied.
1.8 INTERPRETATION NOT AFFECTED BY HEADINGS
The division of this Agreement into articles, sections, paragraphs,
subsections and clauses and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement. The terms "this Agreement", "hereof", "herein", "hereunder" and
similar expressions refer to this Agreement and the schedules hereto and not to
any particular article, section, paragraph, clause or other portion hereof and
include any agreement or instrument supplementary or ancillary hereto.
1.9 COMPUTATION OF TIME PERIODS
In this Agreement, in the computation of periods of time from a
specified date to a later specified date, unless otherwise expressly stated, the
word "from" means "from and including", and the words "to" and "until" each mean
"to but excluding".
1.10 DAY NOT A BUSINESS DAY
In the event that any day on or before which any action is required to
be taken hereunder is not a Business Day, then such action shall be required to
be taken at or before the requisite time on the next succeeding day that is a
Business Day.
11
<PAGE>
ARTICLE 2 - TRANSACTIONS
2.1 ISSUANCE OF DEBENTURES TO THE LENDERS
On the terms and subject to the conditions hereof, at the Closing Time
the Agent will cause the Lenders to purchase from the Corporation and the
Corporation will issue and sell to the Lenders, the Series A Debentures and the
Series B Debentures substantially in the form attached hereto as SCHEDULES A-1
AND A-2 respectively.
2.2 PURCHASE PRICE
(a) Subject to compliance with the conditions precedent set forth in
Section 4.1 hereof and the terms hereof, on the Closing Date, the Agent
shall cause the Lenders to deliver to the Corporation, on account of the
purchase price for the Debentures, certified cheques, bank drafts or
wire transfers in an amount equal to U.S.$90,000,000 (the "Initial
Purchase Price") less any unpaid fees and expenses payable by the
Corporation to the Lenders or the Agent pursuant to Section 2.3 hereof.
The Corporation hereby irrevocably directs the Lenders to pay such fees
and expenses to the Agent or the Lenders, as the case may be, on its
behalf. The Initial Purchase Price shall be allocated first to the
Series B Debentures and second, to the Series A Debentures.
(b) The Additional Purchase Price shall be paid as hereinafter set
forth. Subject to compliance with the conditions precedent set forth in
Section 4.2 hereof and the terms hereof, on the 5th Business Day
following the Corporation providing to the Agent a notice in writing
requesting an Additional Purchase Price Payment, which notice shall set
out the amount thereof, the Agent shall cause the applicable Lenders to
deliver to the Corporation a certified cheque, bank draft or wire
transfer in the amount set forth in such notice (the amount of each such
payment made by the Lenders under this Section 2.2(b) being referred to
as an "Additional Purchase Price Payment" and the date of each payment
to be made hereunder being referred to as a "Payment Date"). The
aggregate of all Additional Purchase Price Payments hereunder shall be
the "Additional Purchase Price". Each Additional Purchase Price Payment
shall be in a minimum amount equal to the lesser of (i) U.S.$10,000,000
(and in denominations in excess thereof in multiples of U.S.$100,000.00)
and (ii) the unpaid portion of the Aggregate Additional Purchase Price.
The Corporation hereby irrevocably directs the Lenders to deduct from
any Additional Purchase Price Payment payable to the Corporation the
amount of any unpaid fees and expenses payable by the Corporation to the
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Lenders or the Agent pursuant to Section 2.3 hereof and hereby directs
the Lenders to pay such fees and expenses to the Agent or the Lenders,
as the case may be, on its behalf. Notwithstanding anything to the
contrary contained in this Agreement or any of the Documents, neither
the Agent nor the Lenders shall have any obligation to make any
Additional Purchase Price Payments if any of the conditions precedent
set forth in Section 4.2 hereof shall not have been satisfied within the
time limited therefor. For greater certainty, neither the Agent nor the
Lenders will have any obligation to make any Additional Purchase Price
Payments on or after August 15, 1998, or which in the aggregate will
exceed the Agregate Additional Purchase Price.
2.3 FEES AND EXPENSES
(a) The Corporation acknowledges that the Agent and Lenders have
earned a non-refundable fee of U.S.$2,400,000 (which is payable as to
U.S.$1,200,000 to the Agent, as to U.S.$840,000.00 to the Lenders
purchasing Series A Debentures on a pro rata basis, and as to
U.S.$360,000.00 to the Lenders purchasing Series B Debentures on a pro
rata basis, which the Corporation will pay on the Closing Date. The
Corporation acknowledges and agrees that it will be responsible for and
will pay such fee whether or not the transactions hereunder are
completed and even if it is the Agent who terminates its obligations
under this Agreement pursuant to Section 4.3 hereof, unless such
termination is as a result of the Agent expressly terminating its
obligations hereunder solely pursuant to and in reliance on
Section 4.1(n) hereof, in which event the fee provided for in this
Section 2.3(a) shall be reduced to U.S.$100,000 which shall thereupon be
payable upon demand by the Corporation to the Agent. Any fee payable by
the Corporation to the Agent under this Section 2.3(a) may be made by
the Lenders paying the amount of such fees out of the Initial Purchase
Price in accordance with Section 2.2(a) hereof;
(b) The Corporation acknowledges and agrees that on the Closing Date,
the Agent will have earned and the Corporation will pay to the Agent an
additional fee, by executing and delivering to the Agent the Royalty
Agreement; and
(c) The Corporation acknowledges and agrees that in addition to the
fees payable pursuant to Section 2.3(a) and (b) hereof, it will be
responsible for and will pay or reimburse each of the Agent and the
Lenders forthwith on demand for all reasonable fees, expenses and other
out-of-pocket expenses paid or incurred by each of the Agent and the
Lenders, its representatives and
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consultants relating to their investigation of the Corporation, the
Subsidiaries and their respective businesses, the negotiation,
preparation and review of this Agreement and the other Documents and all
other matters pertaining to the transactions hereby contemplated,
including, without limitation, all reasonable fees, expenses and other
out-of-pocket expenses paid or incurred by each of the Agent and the
Lenders for legal advice and services in connection with such
transactions. The Corporation acknowledges and agrees that it will be
responsible for and will pay all such reasonable fees, expenses and
other out-of-pocket expenses whether or not the transactions hereunder
are completed and even if it is the Agent who terminates this Agreement
pursuant to Section 4.3 hereof. The Agent acknowledges receipt of the
sum of U.S.$100,000 and Can.$100,000 on account of the Corporation's
obligation under this Section 2.3(c).
2.4 USE OF PROCEEDS
The Corporation hereby covenants, agrees, represents and warrants with
and to the Agent and the Lenders that the Corporation will use the proceeds
from the issuance and sale of Debentures to the Lenders:
(a) to repay all amounts outstanding under the Senior Secured Debenture
Facility;
(b) to repay those Kemess South Mine accounts payable of the Corporation
listed in SCHEDULE G; and
(c) to fund capital and non-capital expenses of the Corporation in
connection with the construction, development and operation of the
Kemess South Mine.
In addition to the foregoing, and until the occurrence of a Default or Event of
Default hereunder:
(d) the Corporation may use such proceeds for general corporate purposes in
an amount not to exceed the aggregate of U.S.$20,000,000; and
(e) to the extent that the amounts referred to in Section 2.4(d) hereof are
insufficient to satisfy the general corporate purposes of the
Corporation, and provided that the Proceeds Conditions have then been
and remain satisfied, the Corporation may then use such proceeds for
general corporate purposes.
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ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES BY THE CORPORATION
The Corporation hereby represents and warrants to the Agent and to the
Lenders as follows and acknowledges that each of the Agent and the Lenders is
relying on such representations and warranties in connection with its entering
into this Agreement, the Lenders's purchase of the Debentures pursuant to this
Agreement, and in entering into the other transactions contemplated by this
Agreement:
(a) INCORPORATION AND STATUS OF THE CORPORATION. The Corporation is
the successor corporation resulting from the amalgamation on December
29, 1997 of the former Royal Oak Mines Inc. and Kemess Mines Inc., is
duly amalgamated and organized under the laws of its jurisdiction of
incorporation, is in good standing in each jurisdiction where, by reason
of its business or assets, it is required to be qualified or licensed
and has, subject to the Materiality Threshold, all powers, licenses,
franchises and permits required to own its assets and carry on its
business as the same is presently carried on.
(b) POWER AND CAPACITY. The Corporation has the corporate power to
enter into each of this Agreement and the other Documents and to do all
acts and things as are required or contemplated hereunder or thereunder
to be done, observed and performed by it.
(c) DUE AUTHORIZATION, NO CONTRAVENTION. The entering into and the
performance by the Corporation of this Agreement, the other Documents
and the transactions contemplated herein and therein (i) have been duly
authorized by all necessary corporate action on the part of the
Corporation and (ii) do not and will not contravene, violate, breach or
result in any default under the articles, by-laws, constating documents
or other organizational documents of the Corporation, or, other than the
Senior Secured Debenture Facility and the Subordinated Note Trust
Indenture, any agreement to which the Corporation is a party or, subject
to the Materiality Threshold, any term or provision of any regulatory
license or permit or any order of any court, governmental authority or
regulatory body or any law or regulation of any jurisdiction in which
the Corporation carries on its business.
(d) BINDING AGREEMENT. This Agreement and the other Documents have
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been duly executed and delivered by the Corporation and constitute
legal, valid and binding obligations enforceable against the Corporation
in accordance with their terms, subject only to the availability of
equitable remedies and the effect of bankruptcy, insolvency and similar
laws affecting the rights of creditors generally.
(e) NO PROCEEDINGS. As of the date of execution of this Agreement,
except as is disclosed in SCHEDULE H and subject to the Materiality
Threshold there is no litigation, arbitration or administrative
proceedings, actions, suits or investigations outstanding, pending or,
to the Knowledge of the Corporation, threatened against the Corporation
or any of its properties. None of the transactions contemplated hereby
or by the other Documents have been enjoined by any Governmental Body
and no suit or other proceeding challenging the transactions
contemplated hereby or by the other Documents has been instituted or, to
the Knowledge of the Corporation, threatened, and no investigative
demand on the Corporation or any Subsidiary related to such transactions
has been made by any Governmental Body and no Governmental Body or
Person has, to the Knowledge of the Corporation, threatened to take any
such action.
(f) COMPLIANCE WITH APPLICABLE DOCUMENTS AND LAWS. Except as may be
expressly set out in SCHEDULE I (the "Disclosed Defaults") (which
Disclosed Defaults, other than amounts owed to the holders of those
Existing Encumbrances set out in Part I of SCHEDULE C1 to the
Debentures, will have been remedied on or before the Closing Date), the
Corporation is not in violation of, or in default under (and there does
not exist any event or condition which, after notice or lapse of time or
both, would constitute such a default under), any term of its articles,
by-laws, constating documents or other organizational documents, or,
subject to the Materiality Threshold, under any term of any agreement,
instrument, judgment, decree, order, statute, injunction, governmental
regulation, rule or ordinance (including, without limitation, those
relating to zoning, city planning or similar matters) applicable to the
Corporation, or to which the Corporation is bound or which may otherwise
be applicable to any property of the Corporation.
(g) NO CONSENTS REQUIRED. Except as may be expressly set out in
SCHEDULE J hereto (the "Consents") there are no consents, permits,
approvals, confirmations and acknowledgements required in order for the
Corporation to carry out the transactions contemplated hereby and by the
Documents, provided that the granting of fixed and specific Liens or
assignments which the
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Lenders may request following the Closing Date pursuant to its right to
do so under the Documents may require consents or approval of other
Persons so as not to constitute events of default under any agreements
with such Persons.
(h) SHARES. SCHEDULE E sets out the name and jurisdiction of
incorporation, continuance or amalgamation of the Corporation and each
Subsidiary, and SCHEDULE K accurately describes the respective
authorized and issued share capital as of the date hereof of the
Corporation and each Material Subsidiary. Other than as disclosed in
Section 3.1(i) hereof, there are no shareholders' agreements, pooling
agreements, voting trusts or other similar agreements with respect to
the ownership or voting of any of the shares of the Corporation or of
Material Subsidiaries or pursuant to which any person may have any right
or claim in connection with any existing or past equity interest in the
Corporation or such Material Subsidiaries.
(i) NO OBLIGATION TO ISSUE SHARES. Except for (i) agreements,
options, warrants, rights and conversion or other rights granted to
current or former directors and employees of the Corporation in respect
of which no more than 10 million Common Shares of the Corporation may be
acquired, (ii) agreements to issue to the Corporation shares of APM
(which shares when issued will be subject to the Security and all share
certificates in respect thereof will, at the request of the Lenders, be
delivered to the Lenders), and (iii) special warrants and common shares
which may be issued by the Corporation to its creditors, in lieu of
partial payment to such creditors, and to other Persons, there are no
agreements, options, warrants, rights of conversion or other rights
pursuant to which the Corporation or any of the Subsidiaries is or may
become obligated to issue any shares or any securities convertible into,
or exchangeable for, shares.
(j) FINANCIAL STATEMENTS. The Audited Financial Statements and the
Interim Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied (subject
to usual year-end adjustments in the case of the Interim Financial
Statements) and fairly present the financial position of the Corporation
and the Subsidiaries and the results of their operations at the times
and for the periods indicated. The Corporation and each of the
Subsidiaries has no outstanding liabilities, contingent or otherwise,
other than those disclosed in the Audited Financial Statements and the
Interim Financial Statements and other than trade or business
obligations subsequently incurred in the ordinary course of business,
which such trade and business obligations are currently in good standing
in accordance with their respective terms, other than as set forth in
SCHEDULE L.
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(k) PERMITS, COMPLIANCE WITH LAWS. This section 4.1(k) shall be
subject to the Materiality Threshold. The Corporation has all licences,
permits, approvals and franchises that it requires, or is required to
have, to own its properties and assets and to carry on its business as
presently conducted including, without limitation, in respect of the
construction and development of the Kemess South Mine. All such
licences, permits, approvals and franchises are in good standing and,
except as is disclosed in item 11 of SCHEDULE H, no actions,
proceedings, investigations or other steps of any kind are in process,
pending, to the Knowledge of the Corporation threatened, or reasonably
foreseeable which might result in any such licence, permit, approval or
franchise being terminated, revoked, withdrawn, suspended or otherwise
made unavailable to the Corporation for any period of time. The
Corporation has applications pending for all additional licences,
permits, approvals and franchises necessary or desirable for the
commencement of mining operations at the Kemess Mine in the manner and
to the full extent contemplated in plans and projections disclosed to
the Lenders (a list of which additional licenses are attached hereto as
SCHEDULE M) and has no reason to believe that any or all such additional
licences, permits, approvals and franchises will not be granted to
prevent, impair or interfere with the Kemess Mine Production Date
occurring on or before December 31, 1998. Except as is disclosed in
item 11 of SCHEDULE H, the Corporation is conducting its business in
compliance with all applicable laws, regulations, by-laws and ordinances
of each jurisdiction in which its business is carried on, including
without limitation all laws, regulations, by-laws and ordinances
relating to mining concessions.
(l) NO RESTRICTIONS. Except as may be provided for in agreements
between the Province of British Columbia and the Corporation respecting
economic assistance, copies of which have been provided to the Agent,
the Corporation is not a party to or bound by any agreement which would
restrict or limit its right to carry on any business or activity or to
solicit business from any Person or in any geographical area or
otherwise to conduct the business of the Corporation. The Corporation
is not subject to any legislation or any judgment, order or requirement
of any court or governmental authority which is not of general
application to persons carrying on a business similar to the business of
the Corporation.
(m) LIMITATION ON PAYMENT RESTRICTIONS. Except for restrictions
contained herein, in the Senior Secured Debenture Facility and in the
Subordinated Note Trust Indenture, neither the Corporation nor any
Subsidiary is subject to any
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consensual restriction on its ability (a) to pay dividends or make any
other distributions on its equity securities to, or pay any indebtedness
owing to, or repurchase or redeem any equity securities from, the
holders of such equity securities, the Corporation or any other
Subsidiary, (b) to make any loans or advances to the Corporation or any
other Subsidiary, or (c) to transfer any of its property or assets to
the Corporation or any other Subsidiary.
(n) NO MATERIAL ADVERSE CHANGES, DAMAGE OR ACCIDENTS. Since March 1,
1998, the Corporation has operated its business diligently and only in
the ordinary course of business and except for the Disclosed Defaults,
there has not been any material adverse change in the condition
(financial or otherwise), assets, liabilities, affairs, business or
operations of the Corporation, any substantial loss of or damage to the
assets of the Corporation, or any accident (subject to the Materiality
Threshold) relating to the mines, properties or mining operations of the
Corporation in which any employee of the Corporation was injured. For
greater certainty, since March 1, 1998 the Corporation has not:
(i) incurred any liabilities other than in the ordinary
course of business consistent with past practice;
(ii) sold, encumbered, assigned or transferred any assets or
properties of the Corporation, other than for fair market value,
to purchasers at arms length to the Corporation and in the
ordinary course of business consistent with past practice;
(iii) created, incurred, assumed or guaranteed any Debt except
in the ordinary course of business consistent with past practice
or subjected any of its assets to any Lien except for Existing
Encumbrances;
(iv) changed or amended its governing documents in any
respect;
(v) declared, set aside, paid or made any distributions in
cash or property on its equity securities including its Common
Shares;
(vi) directly or indirectly redeemed, purchased or otherwise
acquired any of its equity securities;
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(vii) other than the resignations of John May, Nancy Deshaw and
Scott Lampe, suffered any resignation or termination of
employment of any key officers or directors or become aware of
any impending resignation or termination of employment of any
such key officers or directors;
(viii) except in the ordinary course of its business, or as
disclosed in writing to the Agent prior to the date hereof,
materially increased the compensation payable or to become
payable to any of its officers or directors or materially
increased any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made for or with any such officers
or directors;
(ix) materially changed its accounting methods, principles or
practices; or
(x) entered into any agreement or commitment to do any of the
things described in this section.
(o) NO WORK ORDERS. Except as is disclosed in item 11 of SCHEDULE H
and subject to the Materiality Threshold, no work orders, directions or
notices have been issued pursuant to any applicable law relating to the
business of the Corporation or any part of the Mortgaged Property or
relating to or pursuant to any environmental matters affecting the
foregoing and the Corporation has not received any notification from any
Governmental Body that any work, repairs, construction or capital
expenditures are required to be made in respect of the Mortgaged
Property or any part thereof as a condition of continued compliance with
any applicable law or any Material Authorizations issued thereunder.
(p) NO DEFAULT. Subject to the Materiality Threshold, the
Corporation is not in default or breach under any material commitment or
obligation under the terms and conditions relating to any Material
Authorizations and there exists no state of facts which, after notice or
the passage of time or both, would constitute such a default or breach
and there are no proceedings in progress, pending or, to the Knowledge
of the Corporation, threatened which may result in the revocation,
cancellation, suspension, non-grant or any adverse
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modification of any Material Authorization except as is disclosed in
item 11 of SCHEDULE H. The Corporation has obtained all Material
Authorizations necessary or desirable to carry on all activities
currently and previously carried on at the Kemess Mine.
(q) NON-ARM'S LENGTH TRANSACTIONS. Except as is described in
employment agreements and correspondence delivered to the Agent prior to
the date hereof, the Corporation is not a party to any contract,
commitment or transaction (including by way of loan) with any officer,
director or shareholder of the Corporation, any of the Subsidiaries, or
any of their respective affiliates or associates, other than as
disclosed in the Audited Financial Statements and the Interim Financial
Statements and other than employment contracts in the ordinary course of
business.
(r) TAX MATTERS.
(i) The Corporation has prepared and filed on a timely basis
with all appropriate Governmental Bodies all returns with respect
to Taxes and other documents that it is required to file in
respect of any Taxes for all fiscal periods ending on or prior to
the Closing Date and all such returns or other documents are
correct and complete in all material respects;
(ii) The Corporation has paid in full all Taxes due on or
before the Closing Date and, in the case of Taxes accruing on or
before the Closing Date that are not due on or before the Closing
Date, the Corporation will have made adequate provision in its
books and records and financial statements for such payment; and
the Corporation does not have any liability for Taxes other than
those provided for in the Audited Financial Statements and the
Interim Financial Statements and those arising subsequently in
the ordinary course of the operation of its business;
(iii) The Corporation has withheld from each payment made to
any of its present or former employees, officers, directors and
to all persons who are non-residents of the applicable
jurisdictions all amounts required pursuant to Applicable Law to
be withheld or remitted and will continue to do so until the
Closing Date and furthermore has remitted such amounts within the
applicable periods to the appropriate Governmental Body; the
Corporation has remitted all Canada Pension Plan
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contributions, unemployment insurance premiums, employer health
taxes and other Taxes payable by it in respect of its employees
and has or will have remitted such amounts to the appropriate
Governmental Body within the time required under the applicable
legislation; and the Corporation has charged, collected and
remitted on a timely basis all Taxes as required under applicable
legislation on any sale, supply, or delivery whatsoever, made by
the Corporation;
(iv) Except for a disputed assessment of fuel taxes payable by
the Corporation to the government of Canada in the approximate
amount of Can.$100,000, there are no reassessments of the
Corporation with respect to Taxes that have been issued and are
outstanding; no Governmental Body has challenged, disputed or
questioned the Corporation in respect of Taxes or in respect of
any returns, filings or other reports filed under any statute
providing for Taxes; the Corporation has not received any
indication from any Governmental Body that an assessment or a
reassessment in respect of the Corporation is proposed; and the
Corporation has not executed or filed any agreement extending the
period for assessment, reassessment or collection of any Taxes.
(s) NO ENCUMBRANCES. Each of the Corporation and APM owns and has
good and marketable title, free and clear of all Liens except Existing
Encumbrances, to all assets used in connection with its business
including, without limitation, all assets reflected on the balance sheet
included in the Audited Financial Statements and the Interim Financial
Statements or acquired by it after the date of such balance sheet except
for changes in such assets in the ordinary course of business subsequent
to that date. All material operating facilities, equipment and other
material items of tangible property and assets owned by the Corporation
are in good operating condition and repair, subject to normal wear and
maintenance and having regard to their respective ages, are usable in
the regular and ordinary course of business and conform to all
Applicable Laws relating to their construction, use and operation,
except where such failure, individually or in the aggregate, would not
have a material adverse effect on the Corporation. The Corporation's
annual report on Form 10-K for the fiscal year ended December 31, 1997
filed with the United States Securities And Exchange Commission pursuant
to the Securities Exchange Act of 1934, as amended contains a complete
and accurate description of all material property and assets owned by
the Corporation except that since the date of such annual report, the
Proposed Leaseback Assets have been sold and leased back by the
Corporation pursuant to an operating lease. SCHEDULE
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N contains a complete and accurate description of all material
property and assets owned by the Corporation relating to the Kemess
Mine. Subject to the Materiality Threshold, all equipment or other
tangible assets or property situated on the premises of the
Corporation, or necessary to the operation of the business of the
Corporation, which is leased under a capital lease or under a
material operating lease is listed in SCHEDULE O. Subject to the
Materiality Threshold, the Corporation is in compliance with all
terms of agreements and arrangements governing the leased items
listed in SCHEDULE O.
(t) MATERIAL INDEBTEDNESS. SCHEDULE P contains a list of all
material indebtedness of the Corporation in excess of Can$1,000,000 and
the identity of the Persons to whom it is owed. The accounts payable of
the Corporation listed in SCHEDULE G relate only to the construction,
development and operation of the Kemess South Mine.
(u) SECURITY DOCUMENTS
(i) At the Closing Time, the Security Documents and the other
Documents (other than this Agreement, the Royalty Agreement and
the Royalty Debenture) will create a valid and enforceable
security interest and Lien upon the Mortgaged Property securing
the payment and satisfaction of all obligations of the
Corporation and APM to the Lenders. At the Closing Time, such
security interests will be perfected security interests subject
to no prior Liens or Liens ranking senior in priority to the
Liens in favour of the Lenders, except for such Liens in favour
of the Agent pursuant to the Royalty Agreement and the Royalty
Debenture and except for such Liens relating to or securing Debt
of the Corporation not in excess of Can.$10,000,000 as may be
held by holders of those Existing Encumbrances set out in Part 1
of SCHEDULE C1 to the Debentures.
(ii) At the Closing Time, the Royalty Agreement and the
Royalty Debenture will create a valid and enforceable security
interest and Lien upon the Kemess South Mine securing the payment
and satisfactions of all obligations thereunder of the
Corporation to the Agent. At the Closing Time, such security
interests will be perfected security interests subject to no
prior Liens or Liens ranking senior in priority to the Liens in
favour of the Agent, except for such Liens relating to or
securing Debt of the Corporation not in excess of Can.$10,000,000
as may be held by holders of those Existing Encumbrances set out
in Part 1 of SCHEDULE C1 to the Debentures.
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(v) EMPLOYMENT MATTERS. Except as is disclosed in SCHEDULE Q, the
Corporation is not a party to or is not bound by any:
(i) written contract or commitment for the employment of any
employee or officer providing for an annual salary (including
benefits) of in excess of Can.$200,000 or a payment on
termination of in excess of six months salary and benefits;
(ii) oral contract or commitment for the employment of any
employee or officer, except for contracts of indefinite hire
terminable by the Corporation without cause on reasonable notice;
(iii) in the case of the Kemess Mine only, contract with or
commitment to any trade union, council of trade unions, employee
bargaining agent or affiliated bargaining agent (collectively
called "labour representatives") and the Corporation has not
conducted negotiations with respect to any such future contracts
or commitments; no labour representatives hold bargaining rights
with respect to any employees of the Corporation relating to the
Kemess Mine; no labour representatives have applied to have the
Corporation declared a related employer pursuant to the
applicable labour legislation; and, to the Knowledge of the
Corporation, there are no current or threatened attempts to
organize or establish any trade union or employee association
with respect to the Kemess Mine project provided, however, that
the Corporation anticipates that steps may be taken by its
employees to unionize and negotiate collective bargaining
agreements for the Kemess Mine at some time in the future; or
(iv) except as is disclosed in financial information made
available to the Agent prior to the date hereof and subject to
the Materiality Threshold, bonus, pension, multi-employer, profit
sharing, deferred compensation, retirement, disability, health
insurance or similar benefit plan, with respect to any of its
employees or others (including without limitation any agreements
in respect of employee share ownership plans), other than Canada
Pension Plan, the Ontario Health Insurance Plan and other similar
health plans established and administered by any other
governmental authority or workers' compensation insurance
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provided pursuant to statute.
Subject to the Materiality Threshold, there is no work stoppage or other
concerted action, grievance or dispute existing or, to the Knowledge of
the Corporation, threatened against the Corporation, and there is no
material complaint, grievance, claim, work order or investigation that
has been filed, made, commenced or, to the Knowledge of the Corporation,
threatened against the Corporation pursuant to any human rights,
occupational health and safety, workers compensation, employment
standards or pay equity legislation or any similar legislation of any
jurisdiction in which the Corporation carries on its business.
(w) INTELLECTUAL PROPERTY. The Corporation owns and has good and
marketable title, free and clear of all Liens except Existing
Encumbrances, to the Intellectual Property. The conduct of the business
of, and the use of the Intellectual Property by the Corporation does not
infringe, and the Corporation has not received any notice, complaint,
threat or claim alleging infringement of, any patent, trade mark, trade
name, copyright, industrial design, trade secret or other propriety
right of any other Person. To the Knowledge of the Corporation, the
Intellectual Property which is not owned by the Corporation is being
used with the consent of, and in accordance with the consent or licence
from, the rightful owner thereof. The Corporation has taken all
necessary steps to establish, preserve and protect its rights in the
Intellectual Property which is material to the Corporation.
(x) MATERIAL CONTRACTS. SCHEDULE R contains a complete list of all
agreements of the Corporation which are material to the Kemess Mine and
which have not yet been fully performed by the parties thereto,
including without limitation agreements which relate to construction
underway or proposed at the Kemess Mine and including, without
limitation, royalty, refining and shipping agreements (the "Material
Contracts"). Subject to the Materiality Threshold, and other than the
Disclosed Defaults (which Disclosed Defaults, other than amounts owed to
those holders of the Existing Encumbrances set out in Part I of SCHEDULE
C1 to the Debentures, will have been remedied on or before the Closing
Date), each of the Material Contracts is in full force and effect
without amendment, and there has been no default under any of them, or
under any other material commitment or obligation, by the Corporation
or, to the Knowledge of the Corporation, any other party, nor has any
event occurred that, with the giving of notice, lapse of time or any
other condition subsequent, would constitute a default under or would
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otherwise allow the termination of any Material Contract.
(y) MINING CONCESSIONS. SCHEDULES B-1 AND B-2 contains a complete
and accurate list of all material mining claims, concessions and leases
in which the Corporation has an interest relating in any way to the
Kemess Mine, including, without limitation, all mining claims,
concessions and leases in respect of which the Corporation has any
obligation to contribute funds or make payments, other than fees or
taxes payable in the ordinary course under the regulations governing
such claims, concessions or leases. The Corporation is the absolute
beneficial owner of, and has good and marketable title to, such mining
claims, concessions and leases in accordance with governing laws and
regulations, free of all Liens except for such rights as may be held by
Kemess South Resources Limited Partnership as disclosed in item (a) of
Part II of SCHEDULE C1 to the Debenture, by the Lenders under the Senior
Secured Debenture Facility and by the holders of the Existing
Encumbrances.
(z) PRICING, HEDGING PROTECTION. Subject to the Materiality
Threshold, SCHEDULE S contains a complete and accurate list and
description of all hedging or related arrangements to which the
Corporation is a party or by which it is bound including, without
limitation, forward sale contracts, options, interest rate swap
agreements, currency swap agreements, derivative agreements and similar
arrangements. None of the hedging or related arrangements entered into
by the Corporation provides for the granting of (i) any Lien against the
property, assets and undertaking of the Corporation other than the
Permitted Encumbrances described in Section (b) of the definition
thereof, or (ii) production advances or any other disposition of any
property, assets or undertaking of the Corporation in consideration for
advance or accelerated payment or other manner of prepayment or payment
not contemporaneous with delivery other than for the sales of up to
U.S.$10,000,000 of copper concentrate pursuant to the Glencore
Agreement.
(aa) ENVIRONMENTAL MATTERS. Except as is disclosed in item 11 of
SCHEDULE H regarding the sediment concerns at the Kemess South Mine and
subject to the Materiality Threshold, the Corporation is not in
violation of any applicable federal, provincial, state, municipal or
local laws, regulations, orders, governmental decrees or ordinances with
respect to environmental, health or safety matters (collectively,
"Environmental Laws") and no actions, proceedings, investigations or
other steps of any kind are in process, pending, to its Knowledge
threatened, or reasonably foreseeable with respect to any such existing
or past violation or alleged violation or other liability whatsoever
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on the part of the Corporation under Environmental Laws. For greater
certainty, subject to the same qualifications and without limiting the
generality of the foregoing:
(i) the Corporation has carried on its business and at all
times has received, handled, used, stored, treated, shipped and
disposed at all times of all contaminants in compliance with all
Environmental Laws;
(ii) there have been no releases, deposits or discharges, in
violation of Environmental Laws, of any hazardous or toxic
substances, materials, pollutants, contaminants or wastes into
the earth, air or into any river, stream, lake or other body of
water or into any municipal or other sewer or drain water
systems;
(iii) no orders, directions or notices have been issued
pursuant to any Environmental Laws relating to the business or
assets of the Corporation; and
(iv) the Corporation has not failed to report to the proper
Governmental Body the occurrence of any event which is required
to be so reported by any Environmental Laws.
(bb) PLACES OF BUSINESS. The registered office of the Corporation is
situated at BCE Place, P.O. Box 747, Suite 2500, 181 Bay Street,
Toronto, Ontario, Canada M5J 2T7, and the chief executive office of the
Corporation is situated at 5501 Lakeview Drive, Kirkland, Washington,
U.S.A. 98033.
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(cc) ALL MATERIAL INFORMATION SUPPLIED. The Corporation has provided
to the Agent all material information relating to the financial
condition, business and prospects of the Corporation and all information
provided to the Agent is true, accurate and complete in all material
respects and omits no material fact necessary to make such information
not misleading provided, however, that the Corporation is not
representing and warranting that the financial and operating projections
made by it will accurately correspond to actual future results
notwithstanding that they are based on the best information currently
available to the Corporation. For greater certainty, all documents
provided to the Agent in the course of investigating, negotiating and
preparing the Documents and the property, assets and affairs of the
Corporation are complete and, subject to the proviso in the immediately
preceding sentence, accurate in every respect and copies of all such
documents provided to the Agent conform in every respect to the
originals thereof.
(dd) DEBENTURE COVENANTS. No event or circumstance has occurred or
exists which is inconsistent with the covenants and agreements of the
Corporation set out in the Debentures or which would, immediately or
with the passage of time or giving of notice or taking of any other
prerequisite step, constitute a Default or Event of Default thereunder.
(ee) SUBORDINATED NOTES. Other than the Disclosed Defaults, the
Corporation is in compliance with all terms and conditions and
agreements applicable to the Subordinated Notes, and the Corporation
will after giving effect to the transactions contemplated by this
Agreement and the other Documents, be in compliance with all terms and
conditions and agreements applicable to the Subordinated Notes. The
indebtedness under the Debentures, the Royalty Agreement and the Royalty
Debenture will fully constitute "Permitted Indebtedness" and the
Security and the Royalty Debenture will in each and every respect
constitute "Permitted Liens" under the Subordinated Note Trust
Indenture. The Corporation has delivered to the Agent complete and
accurate copies of all agreements and documents relating to the
Subordinated Notes including, without limitation, the Subordinated Note
Trust Indenture. The Subordinated Notes will be at the Closing Date and
thereafter remain in accordance with their terms, fully subordinated and
postponed to the obligations of the Corporation to the Agent and the
Lenders under the Documents, which obligations constitute "Senior
Indebtedness" under the Subordinated Note Trust Indenture.
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(ff) SUBSIDIARIES OF THE CORPORATION. SCHEDULE E contains a list of
all of the Subsidiaries of the Corporation, including the jurisdiction
of incorporation, continuance and amalgamation for each such Subsidiary.
(gg) PROVINCIAL ECONOMIC ASSISTANCE. The Province of British Columbia
has unconditionally and irrevocably advanced to the Corporation
approximately, Can.$154,000,000 of the previously committed economic
assistance, compensation and investment. All such economic assistance,
compensation and investment is completely and accurately described in
SCHEDULE T and the Agent has been provided with true, complete and
accurate copies of all agreements and other documents relating thereto.
Except for annual payments of Can.$1,000,000 for each of the 12
successive years commencing in 1999, as identified in SCHEDULE T, there
are no further outstanding commitments of economic assistance,
compensation or investment which remain to be completed and there are no
commitments, agreements or arrangements with any Governmental Body which
would be breached or otherwise adversely impacted by the transactions
contemplated by the Documents or which could in any way preclude,
hinder, prejudice or delay the exercise of the Lenders's or Agent's
rights and remedies hereunder and thereunder.
(hh) WINDY CRAGGY PROPERTY. The inability of the Corporation to incur
expenditures on and maintain in good standing the Windy Craggy Property
will not result in: (i) any diminution in the amounts of payments from
the government of British Columbia pursuant to the agreement of June 27,
1997; (ii) revocation of any permits issued by the government of British
Columbia in connection with the Kemess Mine; or (iii) any material
adverse effect on the ability of the Corporation to conduct mining
operations at, and to maintain good title to, the Kemess Mine; and the
Windy Craggy Property does not include or in any way comprise to the
property and assets comprising the Kemess Mine.
3.2 SURVIVAL REPRESENTATIONS AND WARRANTIES BY THE CORPORATION
The representations and warranties made by the Corporation pursuant to
Section 3.1 hereof will survive the closing of the issuance of the Debentures
and the other transactions provided for herein and, notwithstanding such closing
or any investigation made by or on behalf of the Agent or the Lenders or any
other person or any knowledge of the Agent or the Lenders or any other person,
shall continue in full force and effect for the benefit of the Agent and the
Lenders.
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ARTICLE 4 - CONDITIONS
4.1 CONDITIONS TO THE OBLIGATIONS OF THE AGENT RE: THE INITIAL PURCHASE
PRICE
Notwithstanding anything herein contained, the obligation of the Agent
to complete the transactions provided for herein and to cause the Lenders to pay
the Initial Purchase Price will be subject to the fulfilment of the following
conditions at or prior to the Closing Time, and the Corporation covenants to use
its best efforts to ensure that such conditions are fulfilled.
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF
COVENANTS. The representations and warranties of the Corporation
contained herein or in any other Document shall be true and accurate at
the Closing Time. In addition, the Corporation shall have complied with
all covenants and agreements herein agreed to be performed or caused to
be performed by it at or prior to the Closing Time. At the Closing
Time, the Corporation shall have delivered to each of the Agent and the
Lenders certificates in form acceptable to each of the Agent and the
Lenders confirming the facts with respect to each of the representations
and warranties, confirming that all such covenants and agreements have
been performed and confirming that all conditions set forth in this
Section 4.1 have been satisfied or waived.
(b) DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default
shall have occurred and be continuing nor shall there be any Default or
Event of Default which will or will likely occur as a result of the
transactions contemplated by this Agreement or the Documents.
(c) CONSENTS. The Consents and all other consents, permits,
agreements, confirmations and acknowledgements, determined by the Agent
to be required or necessary to be obtained in order to effectively
complete the transactions contemplated herein, shall have been obtained.
(d) LEGAL OPINIONS. The Agent and the Lenders shall have received
such legal opinions all in the form and content, and from counsel
satisfactory to the Agent and the Lenders regarding the validity,
enforceability and priority of the Documents and the Liens created
thereby and regarding such other matters as the Agent and the Lenders
may require to evidence compliance with the terms of the Documents and
shall have also received any other legal opinions
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contemplated by the Debentures.
(e) SECURITY DOCUMENTS. The Lenders shall have received duly
executed and delivered originals of the Security Documents and evidence
satisfactory to the Agent and the Lenders of the Corporation's
compliance with the provisions of Article 3 of the Debentures.
(f) PAYMENT OF FEES. The Corporation shall have executed and
delivered to the Agent the Royalty Agreement and the Royalty Debenture
which shall have been registered against the Kemess South Mine and in
all public registries where such registration is necessary or desirable
to perfect the security interest granted in favour of the Agent, senior
in priority to all Liens except for such Liens as may be held by holders
of those Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the
Debenture, and the Corporation shall have paid to the Agent and the
Lenders all fees and expenses referred to in Section 2.3, and shall have
unconditionally waived and released, in form and content satisfactory to
the Agent, any right to contest the reasonableness of such agreement,
fees and expenses or otherwise challenge the entitlement of the Agent
thereto. Notwithstanding such payment, the Corporation will remain
liable for any other fees and expenses referred to in Section 2.3 hereof
which relate to the transactions hereunder but which have not been
invoiced to, paid or incurred by the Agent or the Lenders as of the
Closing Date.
(g) SUBORDINATED NOTES. The Corporation shall have delivered to the
Agent and the Lenders complete and accurate copies of all documents
relating to the Subordinated Notes. The Agent and the Lenders shall
each have received evidence satisfactory to it that the Corporation is
in compliance with all terms and conditions of the Subordinated Notes
and that all necessary actions, steps and documents have been taken and
obtained to ensure that all transactions contemplated by this Agreement
and the other Documents (including, without limitation, the Royalty
Agreement and the Reorganization Undertaking) do not breach or
contravene any such terms or conditions, and have been consented to by
the holders of the Subordinated Notes. Each of the Agent and the
Lenders shall also have received evidence satisfactory to it that the
obligations of the Corporation in respect of the Subordinated Notes are
fully subordinated and postponed to its obligations to the Agent and the
Lenders under the Documents.
(h) SENIOR SECURED DEBENTURE FACILITY. The Corporation shall have
delivered to the Agent and the Lenders complete and unconditional
releases,
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reconveyances and discharges from the lenders pursuant to the
Senior Secured Debenture Facility of all indebtedness, liabilities and
obligations owed by the Corporation or any Subsidiaries to such lenders
and any and all Liens granted by the Corporation or any of its
Subsidiaries to secure any such indebtedness, liabilities or obligations
in exchange for payment to such lenders of an amount not to exceed the
aggregate of the principal sum of Can.$19,500,000 and U.S.$30,700,000,
interest thereon pursuant to and in accordance with the Senior Secured
Debenture Facility and a prepayment amount not to exceed 1% of the
principal amount being repaid to such lenders.
(i) PERFECTION OF SECURITY. All steps necessary or desirable
(including without limitation, the registration of the security
interests created by the Security Documents in all public registries
where such registration is necessary or desirable to perfect the
security interest granted in favour of the Agent and the Lenders) shall
have been taken to constitute the Liens under the Security as valid,
enforceable and prior ranking to all other Liens, claims and interests
in the Mortgaged Property except for such Liens relating to or securing
Debt of the Corporation not in excess of Can.$10,000,000 as may be held
by holders of those Existing Encumbrances set out in Part 1 of SCHEDULE
C1 to the Debentures.
(j) GOVERNMENT CONSENTS. The Agent and the Lenders shall have
received consents and acknowledgements of various agencies and
departments of the governments of British Columbia and Canada
substantially in the form attached as SCHEDULE V.
(k) RECEIPT OF CLOSING DOCUMENTATION. All documentation relating to
the due authorization and completion of the issuance of the Debentures
provided for herein and the due execution and delivery of all the
Documents, and all actions and proceedings taken on or prior to Closing
Time in connection with the performance by the Corporation of its
obligations hereunder shall be satisfactory to the Agent and the
Lenders, and the Agent and the Lenders shall have each received copies
of all such documentation or other evidence as it may reasonably request
in order to establish the consummation of the transactions contemplated
hereby and the taking of all corporate proceedings in connection
therewith in compliance with these conditions, in form and substance
satisfactory to the Agent and the Lenders.
(l) UNDERTAKING. The Corporation shall have executed and delivered
to each
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of the Agent and the Lenders:
(i) an undertaking (the "Reorganization Undertaking") in form
and substance satisfactory to the Agent and the Lenders to
forthwith, following receipt of written notice from the Agent,
cause the Kemess Mine and all Material Contracts to be
transferred to and assumed by a newly incorporated wholly-owned
Subsidiary of the Corporation ("Kemess Newco"), cause Kemess
Newco to assume and guarantee to the Lenders and the Agent all of
the Corporation's obligations, liabilities and indebtedness under
or pursuant to the Documents, pledge to the Lenders all of the
Corporation's shares in the capital of Kemess Newco, provide to
the Lenders and the Agent such additional security, agreements
and assurances as each may reasonably request to ensure that the
Liens in favour of the Lenders and the Agent on such assets are
valid, enforceable and prior ranking to all other Liens, claims
and interests in such assets except for such Liens relating to or
securing Debt of the Corporation not in excess of Can.$10,000,000
as may be held by holders of those Existing Encumbrances set out
in Part I of SCHEDULE C1 to the Debentures, and obtain and
deliver all legal opinions, consents and authorizations required
in connection with the foregoing. Such undertaking shall include
a covenant that, for so long as any Event of Default exists under
any of the Debentures, no payments or distributions will be made
from Kemess Newco to the Corporation or any of its Associates
except with the consent of the Lenders; and
(ii) such other undertakings as it may reasonably request
regarding the taking of actions and delivery of documents
following the Closing Time necessary or desirable to give effect
to the terms and conditions of this Agreement and the other
Documents.
(m) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the financial condition, business and prospects of the
Corporation and of the Kemess Mine.
(n) DUE DILIGENCE. The Agent shall have been satisfied in its
absolute discretion with its due diligence review of the Corporation and
its prospects including, without limitation, in connection with the
Kemess Mine.
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(o) TIME FRAME. All of the conditions set out in this Section 4.1
shall have been satisfied, each in accordance with the provisions of
this Agreement, on or prior to April 30, 1998.
(p) LENDERS INTER-CREDITOR AGREEMENT. The Lenders, the Corporation
and APM shall have entered into an inter-creditor agreement in form and
substance satisfactory to the Lenders.
(q) PERMITTED HEDGING CREDITOR AGREEMENTS. The Lenders, the Agent
and the Corporation shall have entered into (i) an inter-creditor
agreement with each of the holders of Permitted Hedging Indebtedness if
and to the extent such holder has been granted the Permitted
Encumbrances described in Section (b) of the definition thereof at or
prior to the Closing Time, in form and substance satisfactory to the
Lenders; and (ii) an agreement with each of the holders of Permitted
Hedging Indebtedness pursuant to which such holders will agree to deal
with such indebtedness and with any defaults of the Corporation in form
and substance satisfactory to the Lenders.
4.2 CONDITIONS TO THE OBLIGATIONS OF THE AGENT RE: ADDITIONAL PURCHASE PRICE
PAYMENTS
Notwithstanding anything herein contained, the obligation of the Agent
to cause the Lenders to make Additional Purchase Price Payments to the
Corporation will be subject to the fulfilment of the following conditions at or
prior to the Payment Date applicable thereto and the Corporation covenants to
use its best efforts to ensure that such conditions are fulfilled.
(a) SATISFACTION OF CONDITIONS SET OUT IN SECTION 4.1. All of the
conditions set out in Section 4.1 (other than the conditions set out in
Section 4.1(n) and (o)) shall have been satisfied and shall remain
satisfied, provided that the defined terms "Closing Time" or "Closing
Date" used in any such conditions in Section 4.1 shall for the purposes
of this Section 4.2(a) be amended to read "Payment Date".
(b) DEFAULT OR EVENT OF DEFAULT. No Default or Event of Default
shall have occurred and be continuing nor shall there be any Default or
Event of Default which will or will likely occur as a result of the
transactions contemplated by this Agreement or the Documents or the
payment of the Additional Purchase Price Payments.
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(c) PAYMENT CERTIFICATE. The Agent and the Lenders shall have
received two Business Days prior to the Payment Date a certificate (a
"Payment Certificate") dated as of the applicable Payment Date, in form
and substance satisfactory to the Agent and the Lenders:
(i) certifying either: (1) that there have been no amendments
or changes to the articles and by-laws of the Corporation since
the later of the Closing Date and the date of the last Payment
Certificate, or (2) that attached thereto are true and correct
copies of all amendments and/or changes to the articles and
by-laws of the Corporation;
(ii) certifying either: (1) that the most recently delivered
certificate setting forth the names of the directors and officers
of the Corporation, including sample signatures of such directors
and officers of the Corporation who have executed any of the
Documents, is in full force and effect, unamended, or (2) that
attached thereto is an amended certificate setting forth the
names of the directors and officers of the Corporation including
sample signatures of such directors and officers who are
authorized to execute any Documents;
(iii) confirming the truth, accuracy and compliance of and with
Sections 4.2(a) and 4.2(b) hereof and, to the extent there is any
non-compliance and/or untruth, specifying such non-compliance
and/or untruth;
(iv) setting forth the proposed use of the proceeds of the
Additional Purchase Price Payment and specifically tying such
payment to the cash flow statements delivered to the Lenders
pursuant to the Debentures; and
(v) certifying that the Initial Purchase Price and any
previous Additional Purchase Price Payments were used in
accordance with and for the purposes set forth in this Agreement,
the Debentures and any previously delivered Payment Certificates.
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(d) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the financial condition, business and prospects of the
Corporation and of the Kemess Mine.
(e) USE OF ADDITIONAL PURCHASE PRICE PAYMENT. The proposed use of
the Additional Purchase Price Payment is in accordance with the
provisions of this Agreement, the Debentures and the cash flow statement
delivered to the Lenders pursuant to the Debentures.
(f) SECURITY. The Lenders shall be satisfied that upon and after
making the Additional Purchase Price Payment the Liens under the
Security are and will remain valid and enforceable and will rank senior
in priority to all other Liens, claims and interests in the Mortgaged
Property securing repayment of the Purchase Price for the Debentures,
except for such Liens relating to or securing Debt of the Corporation
not in excess of Can.$10,000,000 as may be held by holders of those
Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the
Debentures;
(g) TIME FRAME. All of the conditions set out in this Section 4.2
shall have been satisfied, each in accordance with the provisions of
this Agreement, on or prior to August 15, 1998.
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4.3 WAIVER OR TERMINATION BY THE AGENT
Each of the conditions contained in Section 4.1 and Section 4.2 hereof
are inserted for the exclusive benefit of the Agent and may be waived in whole
or in part by the Agent at any time. The Corporation acknowledges that the
waiver by the Agent of any condition or any part of any condition shall
constitute a waiver only of such condition or such part of such condition, as
the case may be, and shall not constitute a waiver of any covenant, agreement,
representation or warranty made by the Corporation herein that corresponds or is
related to such condition or such part of such condition, as the case may be.
If any of the conditions contained in Section 4.1 hereof are not fulfilled or
complied with as herein provided, the Agent may, at or prior to the Closing Time
at its option, be released from any and all of its obligations, covenants,
agreements and liabilities pursuant to this Agreement by notice in writing to
the Corporation and in such event the Agent shall be released from all of its
obligations, covenants, agreements and liabilities hereunder and, unless the
condition or conditions which have not been fulfilled are reasonably capable of
being fulfilled or caused to be fulfilled by the Corporation, then the
Corporation shall also be released from all obligations hereunder, except that
the Corporation will remain liable for the payment of all fees and expenses
referred to in Sections 2.3(a) and (c) hereof. If any of the conditions
contained in Section 4.2 hereof are not fulfilled or complied with as herein
provided, the Agent and the Lenders shall be released from any and all of their
obligations, covenants, agreements and liabilities pursuant to this Agreement
including the obligation of the Agent to cause the Lenders to make any
Additional Purchase Price Payments.
ARTICLE 5 - CLOSING
5.1 CLOSING ARRANGEMENTS
Subject to the terms and conditions hereof, the transactions
contemplated herein shall be closed at the Closing Time at the offices of
Goodman and Carr or at such other place or places as may be mutually agreed upon
by the Corporation and the Agent.
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5.2 DOCUMENTS TO BE DELIVERED
At or before the Closing Time, the Corporation shall execute, or cause
to be executed, and shall deliver, or cause to be delivered, to the Agent and
the Lenders all payments, documents, instruments and things which are to be
delivered by the Corporation pursuant to the provisions of this Agreement,
including the Debentures, and the Agent shall execute, or cause to be executed,
and shall deliver, or cause to be delivered, to the Corporation all payments and
all documents, instruments and things which the Agent is to deliver or to cause
to be delivered pursuant to the provisions of this Agreement.
ARTICLE 6 - GENERAL PROVISIONS
6.1 FURTHER ASSURANCES
Each of the Corporation and the Agent hereby covenants and agrees that
at any time and from time to time after the Closing Date it will, upon the
request of the other, do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged and delivered all such further acts, deeds, assignments,
transfers, conveyances and assurances as may be required for the better carrying
out and performance of all the terms of this Agreement including, without
limitation, such further and other security interests as the Agent or the
Lenders may request.
6.2 REMEDIES CUMULATIVE
The rights and remedies of the parties under this Agreement are
cumulative and in addition to and not in substitution for any rights or remedies
provided by law. Any single or partial exercise by any party hereto of any
right or remedy for default or breach of any term, covenant or condition of this
Agreement does not waive, alter, affect or prejudice any other right or remedy
to which such party may be lawfully entitled for the same default or breach.
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6.3 INDEMNIFICATION
The Corporation covenants and agrees that it will indemnify and hold
harmless each of the Agent and the Lenders and its members, managers,
shareholders, partners, officers, directors, employees, affiliates, consultants
and agents and their respective successors and assigns, from and after the date
of this Agreement, against any and all losses, damages, assessments, fines,
penalties, adjustments, liabilities, claims, deficiencies, costs, expenses
(including specifically, but without limitation, reasonable legal fees and
expenses and expenditures) with respect to any misrepresentation, breach of
warranty, or nonfulfillment of any agreement or covenant on the part of the
Corporation pursuant to the terms of this Agreement or any other Document or any
misrepresentation in or omission from any schedule, list, certificate, or other
instrument furnished or to be furnished by the Corporation to the Agent or the
Lenders pursuant to the terms of this Agreement or any other Document or with
respect to all actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses incident to any of the foregoing or in connection with the
enforcement of rights hereunder or thereunder, regardless of whether, in the
case of a breach of a representation or a warranty, the Agent or the Lenders
relied on the truth of such representation or warranty or had any knowledge of
any breach thereof.
6.4 NOTICES
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be given by facsimile or other means of
electronic communication or by delivery as hereafter provided. Any such notice
or other communication, if sent by facsimile or other means of electronic
communication, shall be deemed to have been received on the Business Day
following the sending, or, if delivered by hand, shall be deemed to have been
received at the time it is delivered to the applicable address noted below
either to the individual designated below or to an individual at such address
having apparent authority to accept deliveries on behalf of the addressee.
Notice of change of address shall also be governed by this section. Notices and
other communications shall be addressed as follows:
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(a) if to the Corporation:
Royal Oak Mines Inc.
c/o Arctic Precious Metals, Inc.
Royal Oak Mines (U.S.A.) Inc.
5501 Lakeview Drive
Kirkland, Washington
U.S.A. 98033
Attention: President
Facsimile Number: (425) 822-3349
with a copy to:
Lang Michener
BCE Place, Box 747
2500 - 181 Bay Street
Toronto, Ontario
Attention: William Sheridan and David Thring
Facsimile Number: (416) 365-1719
(b) if to the Agent:
Trilon Financial Corporation
BCE Place
181 Bay Street
Suite 4420, P.O. Box 771
Toronto, Ontario
M5J 2T3
Attention: Sam Pollock
Facsimile Number: (416) 365-9642
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with a copy to:
Goodman and Carr
Suite 2300
200 King Street West
Toronto, Ontario
M5H 3W5
Attention: Jeffrey Blidner and Lorne Segal
Facsimile No.: (416) 595-0567
6.5 COUNTERPARTS
This Agreement may be executed in several counterparts, each of which so
executed shall be deemed to be an original, and such counterparts together shall
constitute but one and the same instrument.
6.6 ANNOUNCEMENTS
No announcement with respect to this Agreement, including any disclosure
of the identity of the Agent or the Lenders, will be made by any party hereto
without the prior approval of the other party. The foregoing will not apply to
any announcement by any party required in order to comply with laws pertaining
to timely disclosure, provided that such party consults with the other parties
before making any such announcement. The Corporation acknowledges and confirms
its rights and obligations under the Confidentiality Agreement entered into
between it and an affiliate of the Agent on February 19, 1998. The Agent
confirms that it is bound by and is subject to all of the obligations and
entitled to all of the rights of such affiliate under such Confidentiality
Agreement provided that such Confidentiality Agreement is hereby amended to the
extent necessary to enable and permit the Agent to use and disclose any and all
information and documentation in its possession regarding the property, assets
and affairs of the Corporation and the Subsidiaries (i) to any of the Lenders
and (ii) for the purpose of assessing, receiving advice on, exercising,
enforcing or prosecuting its rights and remedies under the Documents or
representing in any proceedings its interests in respect thereof except that,
prior to the occurrence of a Default, the Agent may not publicly disclose
material non-public information and documentation provided to it by the
Corporation regarding hedging arrangements.
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6.7 ASSIGNMENT
The rights and obligations of the Corporation hereunder shall not be
assignable. Each of the Agent and the Lenders may, at its discretion, assign
its rights and obligations hereunder or under any of the Documents at any time
(including, without limitation, by the grant or conveyance of participation in
its interests hereunder). For greater certainty and without limitation, each of
the Lenders may assign its rights in respect of any portion of the Corporation's
obligations under the Debentures, and corresponding rights under the other
Documents and/or the Agent may assign its rights in respect of any portion of
the Corporation's obligations under this Agreement, the Royalty Agreement, and
corresponding rights under the other Documents, and in such event the
Corporation will at the assignor's request execute new documentation, including
new Documents, to and in favour of the assignee substantially in the same form
and content as the assigned documentation, including the Documents. Each of the
Agent and the Lenders may provide to any proposed assignee or participant such
information concerning the financial position and the operations of the
Corporation and its Subsidiaries as, in its opinion, may be relevant or useful
in connection with this Agreement or any other Document or any portion thereof
proposed to be acquired by such assignee or participant. Notwithstanding
anything else in this section 6.7, if no Default or Event of Default has
occurred, neither the Agent nor the Lenders may assign this Agreement or the
Documents to any corporation whose principal business is the exploration for or
mining of precious and base metals (other than such Persons in which the Agent
or the Lenders or their respective Associates or affiliates has a direct or
indirect interest which Persons may be an assignee of this Agreement or the
Documents). Following a Default or an Event of Default, there shall be no
restrictions on the Agent's or the Lenders' ability to assign this Agreement or
any of the Documents.
6.8 RIGHT OF FIRST OPPORTUNITY TO REFINANCE
If the Corporation determines, at any time within a period of three
years from the date hereof, to refinance the principal amount outstanding
pursuant to the Debentures through the issuance or incurring of any indebtedness
in any manner (other than the issuance or incurring of any indebtedness that is
convertible to or exchangeable for equity of the Corporation), the Corporation
shall offer to the Agent the first right of opportunity to arrange such
financing as is required to refinance the principal amount outstanding pursuant
to the Debentures, on market terms.
42
<PAGE>
6.9 SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted assigns. Subject
to the last sentence of Section 6.10, nothing herein, express or implied, is
intended to confer upon any person, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
6.10 RELIANCE AND NON-MERGER
All covenants, agreements, representations and warranties of the
Corporation made herein or in any other Document or in any certificate or other
document signed by any of its directors or officers and delivered by or on
behalf of any of them pursuant hereto or thereto are material, shall be deemed
to have been relied upon by the Agent and the Lenders notwithstanding any
investigation heretofore or hereafter made by the Agent or the Lenders, or their
respective counsel or any employee or other representative of the Agent or the
Lenders and shall survive the execution and delivery of this Agreement and the
other Documents until the Corporation shall have satisfied and performed all of
its obligations hereunder and thereunder. Notwithstanding anything to the
contrary herein contained, the Lenders may rely upon all of the representations,
warranties, agreements, covenants and indemnities given by or on behalf of the
Corporation pursuant to this Agreement and upon all of the conditions in favour
of the Agent in this Agreement and may pursue and enforce any and all remedies
resulting from any non-compliance therewith or breach thereof notwithstanding
that the Lenders are not a party to this Agreement. Nothing contained in this
Agreement shall operate to subordinate the Security provided in favour of the
Lenders or the Agent to or in favour of any Permitted Encumbrances or other
Liens, or to postpone any of the obligations owing by the Corporation to the
Lenders or the Agent to any of the obligations, indebtedness or liabilities owed
by the Corporation to the holders of the Permitted Encumbrances or other Liens.
6.11 JUDGMENT CURRENCY
If for the purpose of obtaining judgment in any court, it is necessary
to convert an amount due under this Agreement or any other of the Documents or
under any instrument delivered thereunder from a currency in which it is due
(the "Original Currency") into another currency (the "Second Currency") the
parties hereto agree, to the fullest extent permitted by law, that the rate of
exchange used shall be that at which, in accordance with normal banking
procedures, the Agent could purchase the
43
<PAGE>
Original Currency with the Second Currency on the date two Business Days
preceding that on which judgment is given. The obligation of the Corporation
in respect of any Original Currency due from it to the Agent or the Lenders
under this Agreement or any other Documents or under any instrument delivered
thereunder shall, notwithstanding any judgment in the Second Currency, be
discharged by a payment made to the Agent or the Lenders entitled thereto on
account thereof in the Second Currency only to the extent that, on the
Business Day following receipt of such payment in the Second Currency, the
Agent may, in accordance with normal banking procedures, purchase the
Original Currency with the amount of the Second Currency so paid; and if the
amount of the Original Currency which may be so purchased is less than the
amount originally due in the Original Currency, the Corporation agrees as a
separate and independent obligation and notwithstanding any such payment or
judgment to indemnify the Agent and the Lenders against such deficiency.
6.12 TIME OF THE ESSENCE
Time shall be of the essence of this Agreement.
6.13 ENTIRE AGREEMENT
This Agreement, the schedules referred to herein, and the other
Documents constitute the entire agreement between the parties hereto pertaining
to the matters therein set forth and supersede all prior agreements,
representations, warranties, statements, promises, information, arrangements and
understandings, whether oral or written, express or implied, with respect to the
subject matter thereof. Neither party hereto shall be bound or charged with any
oral or written agreements, representations, warranties, statements, promises,
information, arrangements or understandings not specifically set forth in this
Agreement or the schedules or the other Documents. The parties hereto further
acknowledge and agree that, in entering into this Agreement and in delivering
the schedules and the other Documents, they have not in any way relied, and will
not in any way rely, upon any oral or written agreements, representations,
warranties, statements, promises, information, arrangements or understandings,
express or implied, not specifically referenced or set forth in this Agreement
or in such schedules or other Documents.
44
<PAGE>
6.14 WAIVER
Any party hereto which is entitled to the benefits of this Agreement
may, and has the right to, waive any term or condition hereof at any time on or
prior to the Closing Time; provided, however, that such waiver shall be
evidenced by written instrument duly executed on behalf of such party and that
no waiver of any provision shall constitute a waiver of any other provision and
that no waiver will constitute a continuing waiver unless otherwise expressly
provided.
6.15 AMENDMENTS
No modification or amendment to this Agreement may be made unless agreed
to by the parties hereto in writing.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under seal as of the day and year first above written.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
-------------------------------
Name: James H. Wood
Title: Chief Financial Officer
TRILON FINANCIAL CORPORATION
By: /s/ Sam Pollock
-------------------------------
Name: Sam Pollock
Managing Partner
By: /s/ Bruce Robertson
-------------------------------
Name: Bruce Robertson
Vice President
45
<PAGE>
SECURITIES PURCHASE FIRST AMENDING AGREEMENT
THIS AGREEMENT is made this 15th day of May, 1998
BETWEEN:
ROYAL OAK MINES INC., a corporation amalgamated
under the laws of the Province of Ontario
(the "Corporation")
- and -
TRILON FINANCIAL CORPORATION,
(the "Agent")
WHEREAS the Corporation and the Agent entered into a Securities Purchase
Agreement dated as of the 17th day of April, 1998 (the "Agreement);
AND WHEREAS capitalized terms not otherwise defined herein shall have
the meanings given them respectively in the Agreement;
AND WHEREAS pursuant to the Agreement, the Closing Date was April 30th,
1998 or such other date as the Agent and the Corporation may agree upon as
the Closing Date;
AND WHEREAS the Corporation has requested that the Agent agree to extend
the Closing Date to May 28, 1998, and the Agent has agreed to extend the
Closing Date to May 28, 1998;
AND WHEREAS pursuant to Section 2.3(a) of the Agreement, the Corporation
acknowledged and agreed, among other things, that the Agent and the Lenders
earned a non-refundable fee of U.S.$2,400,000 (which is payable as to
U.S.$1,200,000 to the Agent, as to U.S.$840,000.00 to the Lenders purchasing
Series A Debentures on a pro rata basis, and as to U.S.$360,000.00 to the
Lenders purchasing Series B Debentures on a pro rata basis, which fee was
payable in full on April 30, 1998;
<PAGE>
AND WHEREAS the Corporation has agreed to pay interest to the Agent and
the Lenders at the Interest Rate (as defined in the Debentures) on the
U.S.$2,400,000 fee payable pursuant to Section 2.3(a) of the Agreement from
and after April 30, 1998, on the terms and conditions hereinafter set out;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
mutual covenants hereinafter contained, the Agent agreeing to extend the
Closing Date as aforesaid, the payment by each party hereto to the other
party hereto of the sum of Can. $10 and other good and valuable
consideration, the receipt and sufficiency of which being hereby
acknowledged, the parties hereto agree as follows:
1. Section 1.1(j) of the Agreement is hereby deleted and replaced with the
following:
"(j) "Closing Date" means May 28, 1998 or such other date as the Agent
and the Corporation may agree upon as the Closing Date;"
2. Section 2.3(a) of the Agreement is hereby deleted and replaced with the
following:
"2.3(a)(i) The Corporation acknowledges that the Agent and Lenders
have earned a non-refundable fee of U.S.$2,400,000 (which is payable as
to U.S.$1,200,000 to the Agent, as to U.S.$840,000.00 to the Lenders
purchasing Series A Debentures on a pro rata basis) and as to
U.S.$360,000 to the Lenders purchasing Series B Debentures on a pro rata
basis, which was due and payable on April 30, 1998. The Corporation
acknowledges and agrees that it is responsible for and will pay such fee
on the earlier of the Closing Date or the date of demand by the Agent
(provided that if the Agent makes such demand prior to the Closing Date,
the entire fee shall be paid directly to the Agent and not to the
Lenders), and even if it is the Agent who subsequently terminates its
obligations under this Agreement pursuant to Section 4.3 hereof;
provided that if such termination is as a result of the Agent expressly
terminating its obligations hereunder solely pursuant to and in reliance
on Section 4.1(n) hereof, the fee provided for in this Section 2.3(a)(i)
shall be reduced to U.S.$100,000 which shall thereupon be payable upon
demand by the Corporation to the Agent. Any fee payable by the
Corporation to the Agent under this Section 2.3(a)(i) may, at the option
of the Agent and the Lenders, be made by the Lenders paying the amount
of such fees out of the Initial Purchase Price in accordance with
Section 2.2(a) hereof."
2
<PAGE>
3. The following is hereby added to the Agreement as new Section 2.3(a)(ii):
"2.3(a)(ii) The Corporation shall pay interest to the Agent at the
Interest Rate (as defined in the Debentures) from and after April 30,
1998 and before and after judgment, on the outstanding principal amount
of the U.S.$2,400,000 fee payable pursuant to Section 2.3(a)(ii),
calculated and compounded daily, which interest shall be payable by the
Corporation to the Agent on the earlier of the Closing Date or the date
of demand by the Agent. The Corporation shall pay such interest on
demand without deduction or set-off, by wire transfer of immediately
available funds to such account and address of the Agent as may be
provided by the Agent from time to time."
4. Section 4.1(o) of the Agreement is hereby deleted and replaced with the
following:
"(o) TIME FRAME. All of the conditions set out in this Section 4.1
shall have been satisfied, each in accordance with the provisions of
this Agreement, on or prior to May 28, 1998."
5. The Corporation hereby acknowledges that (i) the fee payable by the
Corporation pursuant to Section 2.3(a)(ii) of the Agreement became due and
payable in full to the Agent on April 30, 1998, (ii) such fee bears interest
at the rate and upon the terms and conditions provided for in Section
2.3(a)(ii) of the Agreement, (iii) such interest is payable on the earlier of
the Closing Date or the date of demand by the Agent, and (iv) except as
herein provided, neither the Agent nor the Lenders have waived or extended
the time for payment of such fee or interest thereon.
6 This agreement may be executed in several counterparts, each of which so
executed shall be deemed to be an original, and such counterparts together
shall constitute but one and the same instrument.
7. This agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Subject to the last sentence of Section 6.10 of the Agreement, nothing
herein, express or implied, is intended to confer upon any person, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this agreement.
8. Time shall be of the essence of this agreement.
3
<PAGE>
9. Subject to the provisions hereof, the parties hereto hereby ratify and
confirm the provisions of the Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement
under seal as of the day and year first above written.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
------------------------------
Name: James H. Wood
Title: Chief Financial Officer
TRILON FINANCIAL CORPORATION
By: /s/ Sam Pollock
------------------------------
Name: Sam Pollock
Managing Partner
By:
------------------------------
Name:
4
<PAGE>
SECURITIES PURCHASE SECOND AMENDING AGREEMENT
THIS AGREEMENT is made as of the 22nd day of June, 1998
BETWEEN:
ROYAL OAK MINES INC., a corporation
amalgamated under the laws of the Province
of Ontario
(the "Corporation")
- and -
TRILON FINANCIAL CORPORATION,
(the "Agent")
WHEREAS the Corporation and the Agent entered into a Securities Purchase
Agreement dated as of the 17th day of April, 1998, which agreement was
amended by a Securities Purchase Amending Agreement made the 15th day of May,
1998 (collectively, the "Agreement);
AND WHEREAS capitalized terms not otherwise defined herein shall have
the meanings given them respectively in the Agreement;
AND WHEREAS pursuant to the Agreement, the Closing Date was May 28, 1998
or such other date as the Agent and the Corporation may agree upon as the
Closing Date;
AND WHEREAS the Corporation has requested that the Agent agree to extend
the Closing Date to June 23rd, 1998, and the Agent has agreed to extend the
Closing Date to June 23rd, 1998, subject to the other terms and conditions
hereinafter set out;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
mutual covenants hereinafter contained, the Agent agreeing to extend the
Closing Date as aforesaid and other good and valuable consideration, the
receipt and sufficiency of which being hereby acknowledged, the parties
hereto agree as follows:
<PAGE>
1. Section 1.1(c) of the Agreement is hereby deleted in its entirety and is
replaced with the following:
"(c) "Aggregate Available Purchase Price" means the difference if any
between U.S.$120,000,000 and the amount of the Initial Purchase Price;"
2. Section 1.1(j) of the Agreement is hereby deleted in its entirety and is
replaced with the following:
"(j) "Closing Date" means June 23, 1998 or such other date as the
Agent and the Corporation may agree upon as the Closing Date;"
3. Section 1.1(bg) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(bg) "Subordinated Notes" means the outstanding Secured 12.75% Senior
Subordinated Notes due 2006 in the aggregate principal amount of
U.S.$175,000,000;"
4. Section 1.1(bh) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(bh) "Subordinated Note Trust Indenture" means the Trust Indenture
dated as of August 12, 1996 among the Corporation, Kemess Mines Inc. and
Mellon Bank, F.S.B. relating to the Subordinated Notes, as amended by
(i) the First Supplemental Indenture dated and effective as of December
31, 1997, (ii) the Second Supplemental Indenture dated and effective as
of January 31, 1998, (iii) the Third Supplemental Indenture dated and
effective as of May 19, 1998, (iv) the Fourth Supplemental Indenture
dated and effective the date hereof, and (v) the Fifth Supplemental
Indenture dated and effective the date hereof, each by and between the
Corporation and Chase Manhattan Trust Company, National Association, the
successor to Mellon Bank, F.S.B. as Trustee;"
5. The following is added to Agreement as new Section 1.1(bl):
"(bl) "Bank Working Capital Facility" means a working capital facility
provided to the Corporation by the Bank of Nova Scotia pursuant to a
credit agreement dated February 15, 1996 as amended by agreements dated
August 5, 1996 and May 30, 1997 in a maximum principal amount not to
exceed Can. $1,900,000 pursuant to which the Bank of Nova Scotia has
outstanding letters of credit on behalf of the Corporation and in
respect of which the
2
<PAGE>
Corporation has provided to the Bank of Nova Scotia cash collateral as
security therefor in the approximate amount of Can. $2,012,126 as at May
19, 1998 plus interest thereon."
6. Section 2.2(a) of the Agreement is hereby amended to delete reference
therein to "U.S.$90,000,000" and to replace this reference with
"US$115,000,000".
7. The first sentence of Section 2.2(b) of the Agreement is hereby deleted
in its entirety and is replaced with the following:
"(b) Subject to Section 2.2(c) hereof and Section 2.2(d) hereof, the
Additional Purchase Price shall be paid as hereinafter set forth."
8. Section 2.2(b) of the Agreement is hereby amended to delete any
reference therein to "Aggregate Additional Purchase Price" and to replace
each such reference with "Aggregate Available Purchase Price".
9. The following is added to the Agreement as new Section 2.2(c):
"(c) The Corporation shall not at any time be entitled to and shall
not request an Additional Purchase Price Payment, and neither the
Lenders nor the Agent shall have any obligation to the Corporation or
otherwise to make an Additional Purchase Price Payment if at such time
or if as a result of the proposed Additional Purchase Price Payment the
Aggregate Available Purchase Price is or would be U.S.$5,000,000 or less
and if at such time Trilon Bancorp Inc. is the owner of the Proposed
Leaseback Assets. If Trilon Bancorp Inc. is not the owner of the
Proposed Leaseback Assets as a result of a sale thereof, the provisions
of this Section 2.2(c) shall thereafter no longer apply."
10. The following is added to the Agreement as new Section 2.2(d):
"(d) The Corporation shall not at any time be entitled to and shall
not request an Additional Purchase Price Payment, and neither the
Lenders nor the Agent shall have any obligation to the Corporation or
otherwise to make an Additional Purchase Price Payment if at such time
or if as a result of the proposed Additional Purchase Price Payment the
Aggregate Available Purchase Price is or would be U.S.$2,000,000 or less
unless at such time the Agent and the Lenders are satisfied in their
absolute discretion that, the Corporation has no outstanding obligations
or liabilities to the Bank of Nova Scotia pursuant to or in connection
with the Bank Working Capital Facility including any reimbursement or
indemnification obligations that constitute, or could constitute with
the passage of time, the giving of notice or the occurrence of a
default, "Permitted Indebtedness" as defined in and pursuant to clause
(v) of
3
<PAGE>
the definition of "Permitted Indebtedness" in the Subordinated Note
Trust Indenture. For the purposes of this Section 2.2(d), the
Corporation will be deemed to have outstanding obligations or
liabilities to the Bank of Nova Scotia pursuant to or in connection with
the Bank Working Capital Facility that constitutes Permitted
Indebtedness pursuant to clause (v) of the definition of "Permitted
Indebtedness" in the Subordinated Note Trust Indenture until such time
that the Corporation has delivered to the Agent and the Lenders either
(i) an irrevocable confirmation in writing from the Bank of Nova Scotia
or (ii) an opinion of counsel acceptable to the Agent and the Lenders in
their absolute and unfettered discretion, that in each case, the
Corporation's obligations and liabilities to the Bank of Nova Scotia
pursuant to or in connection with the Bank Working Capital Facility have
been paid in full and that the Corporation has outstanding no
obligations or liabilities to the Bank of Nova Scotia that constitute
Permitted Indebtedness pursuant to clause (v) of the definition of
"Permitted Indebtedness" in the Subordinated NoteTrust Indenture."
11. The following is added to the Agreement as new Section 2.3(d):
"(d) The Corporation will pay to the Lenders on the Closing Date a fee
equal to 2% of the amount by which the Permitted Encumbrances set out in Part
I of SCHEDULE C1 of the Debentures exceeds Can.$10,000,000 at the Closing
Time (the "Lien Fee"); provided that no Default or Event of Default has
occurred and is continuing and provided further that the Permitted
Encumbrances set out in Part I of SCHEDULE C1 of the Debentures have been
permanently reduced by the Corporation to Can.$10,000,000 or less as at
December 31, 1998, (and the Corporation shall have provided to the Lenders
information and particulars to this effect satisfactory to the Lenders) the
Lenders shall refund to the Corporation on January 15, 1999 an amount equal
to 1/2 of the Lien Fee without any interest thereon. The Lien Fee shall be
paid by the Corporation as to 70.8% thereof to the Lenders purchasing Series
A Debentures and as to 29.2% thereof to the Lenders purchasing Series B
Debentures."
12. Section 3.1(i) of the Agreement is hereby deleted in its entirety and is
replaced with the following:
"(i) NO OBLIGATION TO ISSUE SHARES. Except for (i) agreements,
options, warrants, rights and conversion or other rights granted to
current or former directors and employees of the Corporation in respect
of which no more than 10 million Common Shares of the Corporation may be
acquired, (ii) agreements to issue to the Corporation shares of APM
(which shares when issued will be subject to the Security and all share
certificates in respect thereof will, at the request of the Lenders, be
delivered to the Lenders), (iii) special warrants and common shares
which may be issued by the Corporation to its creditors, in lieu
4
<PAGE>
of partial payment to such creditors, and to other Persons, and (iv)
10,000,000 common shares being issued to the consenting holders of the
Subordinated Notes, there are no agreements, options, warrants, rights
of conversion or other rights pursuant to which the Corporation or any
of the Subsidiaries is or may become obligated to issue any shares or
any securities convertible into, or exchangeable for, shares."
13. Section 3.1(m) of the Agreement is hereby deleted in its entirety and is
replaced with the following:
"(m) LIMITATION ON PAYMENT RESTRICTIONS. Except for restrictions
contained herein, in the Senior Secured Debenture Facility and in the
Subordinated Note Trust Indenture, and restrictions in favour of the
holders of the Permitted Hedging Indebtedness to the extent such
restrictions herein and in the Subordinated Note Trust Indenture have
been agreed to and adopted by the Corporation and such holders, neither
the Corporation nor any Subsidiary is subject to any consensual
restriction on its ability (a) to pay dividends or make any other
distributions on its equity securities to, or pay any indebtedness owing
to, or repurchase or redeem any equity securities from, the holders of
such equity securities, the Corporation or any other Subsidiary, (b) to
make any loans or advances to the Corporation or any other Subsidiary,
or (c) to transfer any of its property or assets to the Corporation or
any other Subsidiary."
14. Section 3.1(s) of the Agreement is hereby amended to delete reference
therein to the "annual report on Form 10-K for the fiscal year ended December
31, 1997" and to replace this reference with the "quarterly report on Form
10-Q for the fiscal quarter ended March 31, 1998 and to delete reference
therein to the "annual report" and to replace this reference with the
"quarterly report".
15. Section 3.1(u)(i) of the Agreement is hereby amended to delete reference
therein to "Can.$10,000,000" and to replace this reference with
"Can.$15,000,000".
16. Section 3.1(u)(ii) of the Agreement is hereby amended to delete
reference therein to "Can.$10,000,000" and to replace this reference with
"Can.$15,000,000".
17. Section 3.1(ae) of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"(ae) SUBORDINATED NOTES. Other than the Disclosed Defaults, the
Corporation is in compliance with all terms and conditions and
agreements applicable to the
5
<PAGE>
Subordinated Notes, and the Corporation will after giving effect to the
transactions contemplated by this Agreement and the other Documents, be
in compliance with all terms and conditions and agreements applicable to
the Subordinated Notes. The indebtedness under the Debentures, the
Royalty Agreement and the Royalty Debenture will fully constitute
"Permitted Indebtedness" and the Security and the Royalty Debenture will
in each and every respect constitute "Permitted Liens" under the
Subordinated Note Trust Indenture. The indebtedness under the
Debentures and the amounts if any from time to time outstanding on
account of the Royalty Agreement will constitute "Senior Indebtedness"
under the Subordinated Note Indenture. The indebtedness under the
Debentures will constitute "Designated Senior Indebtedness" under the
Subordinated Note Indenture. The indebtedness of any Subsidiary under
or on account of the Debentures will constitute "Guarantor Senior
Indebtedness" under the Subordinated Note Indenture. The Lenders will
be entitled to the benefit of and can rely on the provisions of the
Subordinated Note Indenture relating to "Senior Indebtedness",
"Designated Senior Indebtedness" and "Guarantor Senior Indebtedness" and
the holder of the royalty pursuant to the Royalty Agreement will be
entitled to the benefit of and will be entitled to rely on the
provisions of the Subordinated Note Indenture relating to "Senior
Indebtedness" to the extent of the amounts if any from time to time
outstanding on account of the Royalty Agreement. Each of the Lenders
and the holder of the royalty pursuant to the Royalty Agreement, to the
extent of the amounts if any from time to time outstanding on account of
the Royalty Agreement, will be entitled to enforce such provisions as
are applicable to it directly against the Corporation and any other
Subsidiary. The Corporation has delivered to the Agent coplete and
accurate copies of all agreements and documents relating to the
Subordinated Notes including, without limitation, the Subordinated Note
Trust Indenture. The Subordinated Notes will be at the Closing Date and
thereafter remain in accordance with their terms, fully subordinated and
postponed to the obligations of the Corporation to the Agent and the
Lenders under the Documents."
18. The following is added to the Agreement as new Section 3.1(ai):
"3.1 (ai) SCHEDULE W lists particulars, including bank, branch address,
account type and account number, of each bank account maintained by the
Corporation and by each of the Subsidiaries."
19. Section 4.1(i) of the Agreement is hereby amended to delete reference
therein to "Can.$10,000,000" and to replace this reference with
"Can.$15,000,000".
20. Section 4.1(l)(i) of the Agreement is hereby amended to delete reference
therein to "Can.$10,000,000" and to replace this reference with
6
<PAGE>
"Can.$15,000,000".
21. Section 4.1(o) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(o) TIME FRAME. All of the conditions set out in this Section 4.1
shall have been satisfied, each in accordance with the provisions of
this Agreement, on or prior to June 23, 1998."
22. The following is added to the Agreement as new Section 4.1(r):
"(r) SUBORDINATED NOTEHOLDERS INTER-CREDITOR AGREEMENT. The Lenders,
the Agent and the Corporation shall have entered into an inter-creditor
agreement with Chase Manhattan Trust Company, National Association as
trustee under the Subordinated Note Indenture and with any collateral
agent appointed by it if and to the extent they have been granted the
Permitted Encumbrances described in Section (l) of the definition
thereof at or prior to the Closing Time, in form and substance
satisfactory to the Lenders, including provisions that notwithstanding
the granting of such security the consenting holders of the Subordinated
Notes will take reasonable steps to ensure that they are placed in a
separate class of creditors than the Lenders in any insolvency
proceedings relating to the Corporation and if notwithstanding the
foregoing they are placed in the same class of creditors they will
assign their votes to the Lenders so as to permit the Lenders to vote
against and defeat any restructuring plan in such insolvency
proceedings."
23. Section 4.2(f) of the Agreement is hereby deleted in its entirety and is
replaced with the following:
"(f) SECURITY. The Lenders shall be satisfied that upon and after
making the Additional Purchase Price Payment the Liens under the
Security are and will remain valid and enforceable and will rank senior
in priority to all other Liens, claims and interests in the Mortgaged
Property, except for such Liens relating to or securing Debt of the
Corporation not in excess of Can.$15,000,000 as may be held by holders
of those Existing Encumbrances set out in Part 1 of SCHEDULE C1 to the
Debentures;"
24. The Series A Debenture attached as Schedule A-1 to the Agreement is
hereby deleted in its entirety and is replaced with the Series A Debenture
attached as Schedule A-1 to this agreement.
25. The Series B Debenture attached as Schedule A-2 to the Agreement is
hereby deleted in its entirety and is replaced with the Series B Debenture
attached as
7
<PAGE>
Schedule A-2 to this agreement.
26. The Royalty Agreement attached as Schedule C to the Agreement is hereby
deleted in its entirety and is replaced with the Royalty Agreement attached
as Schedule C to this agreement.
27. This agreement may be executed in several counterparts, each of which so
executed shall be deemed to be an original, and such counterparts together
shall constitute but one and the same instrument.
28. This agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Subject to the last sentence of Section 6.10 of the Agreement, nothing
herein, express or implied, is intended to confer upon any person, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this agreement.
29. Time shall be of the essence of this agreement.
30. Subject to the provisions hereof, the parties hereto hereby ratify and
confirm the provisions of the Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement
under seal as of the day and year first above written.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
--------------------------------
Name: James H. Wood
Title: Chief Financial Officer
TRILON FINANCIAL CORPORATION
By: /s/ Sam Pollock
--------------------------------
Name: Sam Pollock
Managing Partner
By: /s/ Bruce Robertson
--------------------------------
Name: Bruce Robertson
Vice President
8
<PAGE>
ROYAL OAK MINES INC.
- -------------------------------------------------------------------------------
SENIOR SECURED DEBENTURE - SERIES A
- -------------------------------------------------------------------------------
JUNE 22, 1998
File #9801032.TRI - SENR15B.DEB
LWS:wpc
GOODMAN AND CARR
Suite 2300
200 King Street West
Toronto, Ontario
M5H 3W5
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TABLE OF CONTENTS
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ARTICLE NO. DESCRIPTION PAGE NO.
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1 - INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Use of Singular and Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Interpretation Not Affected by Headings, etc.. . . . . . . . . . . . . . . . . . . . 1
1.4 Monetary References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Day Not a Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Debenture to Govern. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Generally Accepted Accounting Principles . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Computation of Time Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 Debentures in Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 - PRINCIPAL AND INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Payment of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Optional Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3 - SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Further Assurances - Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Representations and Warranties by the Corporation. . . . . . . . . . . . . . . . . . 9
4.2 Survival of Representations and Warranties by the Corporation. . . . . . . . . . . . 20
5 - COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 Holder's Right to Decline to Receive Information . . . . . . . . . . . . . . . . . . 27
5.3 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6 - DEFAULT AND ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 Acceleration on Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.3 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.4 Debenture Not Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3 Exchange of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.4 Reliance and Non-Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.5 Amendment, Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.6 No Set-Off by the Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.7 Employment of Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.10 Payment of Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.12 Payment Agreements for Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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ROYAL OAK MINES INC.
(Amalgamated under the laws of Ontario)
SENIOR SECURED DEBENTURE - SERIES A
Royal Oak Mines Inc. (the "Corporation") for value received hereby
acknowledges itself indebted and promises to pay to or to the order of the
Holder on the Final Maturity Date, each as defined herein, or such dates as all
or any part of the principal amount hereof may become due in accordance with the
provisions hereof, the principal sum of EIGHTY-FIVE MILLION UNITED STATES
DOLLARS (U.S. $85,000,000) (or such parts thereof as may become due), on
presentation and surrender of this Debenture (in the case of payment of all of
the principal amount hereof) to the Corporation at its registered office or at
such place as the Corporation may direct, and to pay interest on the principal
amount of this Debenture outstanding from time to time at the rates and times
and in the amounts set forth herein.
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS
In this Debenture, unless otherwise defined in this Debenture, the
terms set out in SCHEDULE A shall have the meanings ascribed to them in that
schedule.
1.2 USE OF SINGULAR AND PLURAL
Words importing the singular include the plural and vice versa and
words importing gender include all genders.
1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this Debenture into Articles, Sections, subsections
and paragraphs and the insertion of headings are for convenience of reference
only and shall not affect the construction or interpretation of this
Debenture.
1.4 MONETARY REFERENCES
Any reference in this Debenture to "Canadian dollars" or "Can. $" or
similar terms shall be deemed to be a reference to lawful money of Canada and
any reference in this Debenture to "United States of America dollars",
"United States dollars" or "U.S. $" or similar terms shall be deemed to be a
reference to lawful money of the United States of America. If no such
references are made with respect to any particular sum or obligation, the sum
or obligation in question shall be deemed to refer to lawful money of Canada.
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1.5 DAY NOT A BUSINESS DAY
In the event that any day on or before which any action is required to
be taken hereunder is not a Business Day, then such action shall be required
to be taken on or before the requisite time on the first Business Day
thereafter.
1.6 INVALIDITY OF PROVISIONS
Each of the provisions contained in this Debenture is distinct and
severable and a declaration of invalidity, illegality or unenforceability of
any such provision or part thereof by a court of competent jurisdiction shall
not affect the validity or enforceability of any other provisions hereof or
thereof. Without limiting the generality of the foregoing, if any amounts on
account of interest or fees or otherwise payable by the Corporation to the
Holder hereunder exceed the maximum amount recoverable under Applicable Law,
the amounts so payable hereunder shall be reduced to the maximum amount
recoverable under Applicable Law.
1.7 REFERENCES
Except as otherwise specifically provided, reference in this Debenture
to any contract, agreement or any other instrument shall be deemed to include
references to the same as varied, amended, supplemented or replaced from time
to time and reference in this Debenture to any enactment, including without
limitation any statute, law, by-law, regulation, ordinance or order, shall be
deemed to include references to such enactment as re-enacted, amended or
extended from time to time.
1.8 DEBENTURE TO GOVERN
If there is any inconsistency between the terms of this Debenture and
the terms of any Security Document, the provisions hereof shall prevail to
the extent of the inconsistency, but the foregoing shall not apply to limit
or restrict in any way the rights and remedies of the Holder under the terms
of the Security Documents after the Liens thereby constituted shall have
become enforceable.
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1.9 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Unless otherwise specifically provided herein, all accounting terms
shall be applied and construed in accordance with Canadian generally accepted
accounting principles consistently applied. For the purpose of determining
compliance with the financial covenants set forth in Section 5.1(t), all
computations shall be calculated on a consolidated basis, where applicable,
and shall be adjusted to eliminate the effect of any discretionary change by
the Corporation in the application of generally accepted accounting
principles since the date of its most recent audited consolidated financial
statements prior to the date hereof.
1.10 COMPUTATION OF TIME PERIODS
In this Debenture, in the computation of periods of time from a
specified date to a later specified date, unless otherwise expressly stated,
the word "from" means "from and including", and the words "to" and "until"
each mean "to but excluding".
1.11 DEBENTURES IN SERIES
The Series A Senior Secured Debentures of the Corporation (the "Series
A Debentures") may be issued to one or more holders. The aggregate principal
amount of Series A Debentures which shall be issued shall be U.S.
$85,000,000. The Corporation shall also issue Series B Senior Secured
Debentures of the Corporation (the "Series B Debentures"), the aggregate
principal amount of which shall be U.S. $35,000,000.
This Debenture and all other Series A Debentures now or hereafter
issued shall be rateably secured by a Lien on the property, assets and
undertaking of the Corporation and shall rank pari passu inter se for payment
(whether such payment is a payment, repayment and/or prepayment and whether
same is voluntary or mandatory) of principal and/or interest hereunder and
all such payments shall be made pro rata to each holder of Series A
Debentures in accordance with the principal amount outstanding under the
debenture held by such holder at the time of such payment.
For as long as a Default or an Event of Default has occurred and is
continuing, all amounts realized pursuant to the enforcement or the exercise
of collection or other remedial action pursuant to or with respect to the
Security for the Series A Debenture or the Security (as defined in the Series
B Debenture) for the Series B Debenture shall be applied first to pay in full
any and all amounts outstanding pursuant to the Series A Debenture, and shall
not be applied to pay any or all amounts outstanding pursuant to the Series B
Debenture unless and until all amounts outstanding pursuant to the
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Series A Debenture have been paid in full.
At all times prior to the occurrence of a Default or an Event of
Default, and at all times after a Default or an Event of Default which has
occurred has been cured, provided that no other Default or Event of Default
has occurred which is continuing, all amounts realized pursuant to the
enforcement or the exercise of collection or other remedial action pursuant
to or with respect to the Security for the Series A Debenture or the Security
(as defined in the Series B Debenture) for the Series B Debenture shall be
applied pro rata in accordance with the relative amounts outstanding under
the Series A Debenture and the Series B Debenture at the time of such payment.
The Holder, by its acceptance of this Debenture, agrees to be bound by
the provisions contained herein.
1.12 REPAYMENT AMOUNT
For the purposes of (i) the repayment and prepayment of the principal
amounts outstanding hereunder, (ii) the payment of interest thereon and (iii)
the payment of fees contemplated in Sections 2.3 and 2.4 hereof, the amount
outstanding hereunder at any time shall be the aggregate of the Initial
Purchase Price paid by the Holder, the Additional Purchase Price paid by the
Holder if any, any and all compounded interest at such time, and such other
fees, expenses and other amounts as may be payable by the Corporation to the
Holder pursuant to the Documents at such time.
1.13 USE OF PROCEEDS
The Corporation hereby covenants, agrees, represents and warrants with
and to the Holder that the Corporation will use the proceeds from the
issuance and sale of Debentures:
(a) to repay all amounts outstanding under the Senior Secured
Debenture Facility (as defined in the Purchase Agreement);
(b) to repay those Kemess South Mine accounts payable of the
Corporation listed in SCHEDULE G;
(c) to fund capital and non-capital expenses of the Corporation in
connection with the construction, development and operation of the
Kemess South Mine.
In addition to the foregoing, and until the occurrence of a Default or
Event of Default hereunder:
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(d) the Corporation may use such proceeds for general corporate
purposes in an amount not to exceed the aggregate of U.S. $20,000,000;
and
(e) to the extent that the amounts referred to in Section 1.13(d)
hereof are insufficient to satisfy the general corporate purposes of
the Corporation, and provided the Proceeds Conditions have then been
and remain satisfied, the Corporation may then use such proceeds for
general corporate purposes.
ARTICLE 2 - PRINCIPAL AND INTEREST
2.1 INTEREST
Interest shall accrue from the date hereof, before and after the
occurrence of an Event of Default, demand, maturity or judgment, on the
outstanding principal amount of this Debenture, and on all overdue costs,
expenses and interest payable hereunder, at the Interest Rate and shall be
calculated and compounded monthly on the first day of each calendar month,
and shall be payable on the first day of the calendar month occurring after
the earlier of (i) July 31, 1998, and (ii) the Kemess Mine Production Date,
and thereafter shall be calculated and compounded monthly and payable monthly
in arrears on the first calendar day of each month in each year (each an
"Interest Payment Date") and on the Maturity Date. Notwithstanding the
foregoing sentence, any accrued or accruing interest hereunder shall become
and shall be immediately due and payable in full in the event that the
principal amount outstanding hereunder has become due and payable.
2.2 PAYMENT OF INTEREST
Except as otherwise provided for herein, as interest on this Debenture
becomes due (except interest payable on the Maturity Date, which shall be
paid upon presentation and surrender of this Debenture for payment), the
Corporation shall pay to the Holder the interest due and payable on each
Interest Payment Date, without deduction or set-off, by wire transfer of
immediately available funds to such account and address of the Holder as may
be provided by the Holder from time to time.
2.3 REPAYMENT
(a) Subject to the terms and conditions of this Debenture including the
provisions of Section 6.2 hereof, the principal amount of this Debenture and
all accrued interest thereon and any other amounts payable hereunder in
connection with this Debenture shall be repaid in full on the date that is
two years from the date hereof (the "Final Maturity Date").
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(b) In addition to any other amounts payable by the Corporation hereunder,
the Corporation shall pay:
(i) on February 15, 1999, a non-refundable fee equal to 2% of the
amount by which the aggregate amount then outstanding under
the Debentures (including principal and accrued interest and
unpaid fees and expenses) exceeds U.S. $80,000,000; and
(ii) On October 15, 1999, a non-refundable fee equal to 2% of the
amount by which the aggregate principal amount then
outstanding under the Debentures (including principal and
accrued interest and unpaid fees and expenses) exceeds U.S.
$50,000,000.
Such fees shall be payable to the holders of the Debentures pro rata and pari
passu, in accordance with the provisions of Section 1.11.
2.4 OPTIONAL PREPAYMENT
Subject to the terms and conditions of this Debenture and provided no
Default or Event of Default has occurred hereunder, under any other Series A
Debentures or under any of the Series B Debentures, the Corporation shall
have the privilege of prepaying from time to time, on any Business Day, all
or any part of the principal amount of this Debenture on payment to the
Holder of the Prepayment Amount provided that:
(a) any such prepayment shall only be made on at least five
Business Days' notice to the Holder, which notice, once given, shall
be irrevocable and binding upon the Corporation;
(b) any such prepayment shall be in an amount of at least U.S.
$5,000,000;
(c) any such prepayment shall be accompanied by payment of all
interest, fees and other amounts accrued in respect of the principal
amount being so prepaid to the date of prepayments as well as all
other amounts due and payable under this Debenture on the date of
prepayment;
(d) each such prepayment shall be in accordance with Section 1.11;
and
(e) no such prepayment will be permitted at any time that the
Permitted Encumbrances set out in Part I of SCHEDULE C1 exceeds
Can.$10,000,000.
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2.5 SUBORDINATED NOTE TRUST INDENTURE
The Corporation hereby designates the Debt payable hereunder by the
Corporation to the Holder as "Designated Senior Indebtedness" pursuant to and
in accordance with the Subordinated Note Trust Indenture.
ARTICLE 3 - SECURITY
3.1 SECURITY
(a) As security for the due and punctual payment of all of its
obligations to the Holder under or in respect of this Debenture and
the other Documents, the Corporation shall execute and deliver to the
Holder, contemporaneous with the delivery of this Debenture to the
Holder, valid and enforceable Liens against all present and
after-acquired property, undertaking and assets of the Corporation
except the Excluded Assets, all in form and substance satisfactory to
the Holder and its Counsel, including without limitation the following:
(i) a security debenture by the Corporation creating a
fixed and floating Lien on all of the Corporation's present
and after-acquired property and assets including, without
limitation, fixed and specific Liens on all property and
assets comprising the Kemess Mine;
(ii) a general security agreement by the Corporation
creating a Lien on all of the Corporation's present and
after-acquired property and assets;
(iii) a limited guarantee by APM of the obligations of the
Corporation to the Holder;
(iv) a general security agreement by APM creating a Lien on
all of APM's present and after-acquired property and assets;
(v) assignments of the Corporation's interests in all
material mining claims, concessions and leases in any way
relating to the Kemess Mine;
(vi) an assignment by the Corporation of its rights and
interest in the Kemess South Resources Limited Partnership;
(vii) if and to the extent required by the Holder, an
assignment (and, where required, consents to such assignment)
by the Corporation of its
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rights and interest in the Kemess Mine Construction Contracts;
(viii) an assignment (and, where required, consent to such
assignment) by the Corporation of its rights and interest in
such of the Material Contracts as the Holder may designate;
(ix) pledges of all of the shares in the capital of APM held
by the Corporation;
(x) a deed of moveable hypothec for use in the province of
Quebec; and
(xi) such other agreements and documents as may, in the sole
discretion of the Holder, be necessary or desirable to grant
to the Holder valid and enforceable Liens on all of the
property, undertaking and assets of the Corporation other than
the Excluded Assets.
Notwithstanding anything to the contrary contained in the foregoing
but subject always to the provisions of Section 5.1(v), the
Corporation shall not be obligated to register the Security against
any real property or mineral claims comprising: (i) the Pamour Mine,
the Nighthawk Lake Mine and the mines generally known as Giant, Hope
Brook and Colomac; and (ii) the Corporation's currently existing
exploration properties not in any way relating to the Kemess Mine.
(b) Contemporaneous with the delivery of the Security Documents
contemplated by Section 3.1(a), the Corporation shall deliver to the
Holder legal opinions in form and content, and from legal counsel,
satisfactory to the Holder regarding the validity, enforceability and
priority of all Liens created by such Security Documents and regarding
such other matters as the Holder may require to evidence compliance
with the terms of this Debenture and the other Documents.
(c) The Corporation shall ensure that all of the Security
Documents are executed and delivered in accordance with this Article 3
and the Liens created thereby are perfected in all jurisdictions and
at all times reasonably required by the Holder.
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3.2 NO MERGER
The Security Documents shall not merge in any other security. No
judgment obtained by the Holder shall in any way affect any of the provisions
of this Debenture or any of the Security Documents. For greater certainty,
no judgment obtained by the Holder shall in any way affect the obligation of
the Corporation to pay principal, fees and interest at the rates, times and
in the manner provided in this Debenture.
3.3 FURTHER ASSURANCES - SECURITY
From time to time following the Closing Date, the Corporation shall at
the expense of the Corporation take such action (including, without
limitation, the provision of information and access to property) and execute
and deliver to the Holder such agreements, conveyances, deeds and other
documents and instruments as the Holder shall reasonably request in
furtherance of granting to the Holder valid and enforceable first priority
Liens on all of the Corporation's present and after acquired property,
undertaking and assets other than the Excluded Assets, and the Corporation
shall at the expense of the Corporation register, file or record the same (or
a notice or financing statement in respect thereof) in all offices where such
registration, filing or recording is, in the opinion of the Holder, necessary
or advisable to constitute, perfect and maintain such Liens in all
jurisdictions reasonably required by the Holder, subject only to Permitted
Encumbrances, provided that (subject always to the provisions of Section
5.1(v)) the Corporation shall not be obligated to register the Security
against any real property or mineral claims comprising: (i) the Pamour Mine,
the Nighthawk Lake Mine and the mines generally known as Giant, Hope Brook
and Colomac; and (ii) the Corporation's currently existing exploration
properties not in any way relating to the Kemess Mine. The Corporation shall
deliver opinions of its Counsel in respect of such matters, in each case
within a reasonable time after the request therefor by the Holder, and in
each case in form and substance reasonably satisfactory to the Holder.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES BY THE CORPORATION
The Corporation hereby represents and warrants to the Holder and so
long as this Debenture remains in effect shall be deemed to continuously
represent and warrant as follows and acknowledges that the Holder is relying
on such representations and warranties in connection with its purchase of the
Debenture:
(a) INCORPORATION AND STATUS OF THE CORPORATION. The Corporation
is the
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successor corporation resulting from the amalgamation on December 29,
1997 of the former Royal Oak Mines Inc. and Kemess Mines Inc., is duly
amalgamated and organized under the laws of its jurisdiction of
incorporation, is in good standing in each jurisdiction where, by
reason of its business or assets, it is required to be qualified or
licensed and has, subject to the Materiality Threshold, all powers,
licenses, franchises and permits required to own its assets and carry
on its business as the same is presently carried on.
(b) POWER AND CAPACITY. The Corporation has the corporate power
to enter into each of this Debenture and the other Documents and to do
all acts and things as are required or contemplated hereunder or
thereunder to be done, observed and performed by it.
(c) DUE AUTHORIZATION, NO CONTRAVENTION. The entering into and
the performance by the Corporation of this Debenture, the other
Documents and the transactions contemplated herein and therein (i)
have been duly authorized by all necessary corporate action on the
part of the Corporation and (ii) do not and will not contravene,
violate, breach or result in any default under the articles, by-laws,
constating documents or other organizational documents of the
Corporation, or any agreement to which the Corporation is a party or,
subject to the Materiality Threshold, any term or provision of any
regulatory license or permit or any order of any court, governmental
authority or regulatory body or any law or regulation of any
jurisdiction in which the Corporation carries on its business.
(d) BINDING AGREEMENT. This Debenture and the other Documents
have been duly executed and delivered by the Corporation and
constitute legal, valid and binding obligations enforceable against
the Corporation in accordance with their terms, subject only to the
availability of equitable remedies and the effect of bankruptcy,
insolvency and similar laws affecting the rights of creditors
generally.
(e) NO PROCEEDINGS. As of the date of execution of this
Debenture, except as is disclosed in SCHEDULE H and subject to the
Materiality Threshold there is no material litigation, arbitration or
administrative proceedings, actions, suits or investigations
outstanding, pending or, to the Knowledge of the Corporation,
threatened against the Corporation or any of its properties. None of
the transactions contemplated hereby or by the other Documents have
been enjoined by any Governmental Body and no suit or other proceeding
challenging the transactions contemplated hereby or by the other
Documents has been instituted or, to the Knowledge of the Corporation,
threatened, and no investigative demand on the Corporation or any
Subsidiary related to such transactions has been made by any
Governmental Body and no Governmental
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Body or Person has, to the Knowledge of the Corporation, threatened to
take any such action.
(f) COMPLIANCE WITH APPLICABLE DOCUMENTS AND LAWS. The
Corporation is not in violation of, or in default under (and there
does not exist any event or condition which, after notice or lapse of
time or both, would constitute such a default under), any term of its
articles, by-laws, constating documents or other organizational
documents, or, subject to the Materiality Threshold and other than
amounts owed to the holders of the Existing Encumbrances, under any
term of any agreement, instrument, judgment, decree, order, statute,
injunction, governmental regulation, rule or ordinance (including,
without limitation, those relating to zoning, city planning or similar
matters) applicable to the Corporation, or to which the Corporation is
bound or which may otherwise be applicable to any property of the
Corporation other than as is disclosed in item 11 of SCHEDULE H.
(g) NO CONSENTS REQUIRED. Except as may be expressly set out in
SCHEDULE J hereto (the "Consents"), there are no consents, permits,
approvals, confirmations and acknowledgements required in order for
the Corporation to carry out the transactions contemplated hereby and
by the Documents, provided that the granting of fixed and specific
Liens or assignments which the Holder may request following the date
hereof pursuant to its right to do so hereunder or under the Documents
may require consents or approval of other Persons so as not to
constitute events of default under any agreements with such Persons.
(h) SHARES. SCHEDULE E sets out the name and jurisdiction of
incorporation, continuance or amalgamation of the Corporation and each
Subsidiary, and SCHEDULE K accurately describes the respective
authorized and issued share capital as of the date hereof of the
Corporation and each Material Subsidiary. Other than as disclosed in
Section 4.1(i) hereof, there are no shareholders' agreements, pooling
agreements, voting trusts or other similar agreements with respect to
the ownership or voting of any of the shares of the Corporation or of
Material Subsidiaries or pursuant to which any person may have any
right or claim in connection with any existing or past equity interest
in the Corporation or such Material Subsidiaries.
(i) NO OBLIGATION TO ISSUE SHARES. Except for (i) agreements,
options, warrants, rights and conversion or other rights granted to
current or former directors and employees of the Corporation in
respect of which no more than 10 million common shares of the
Corporation may be acquired, (ii) agreements to issue to the
Corporation shares of APM (which shares when issued will be subject to
the Security and all share certificates in respect thereof will, at
the
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request of the Holder, be delivered to the Holder), (iii) special
warrants and common shares which may be issued by the Corporation to
its creditors, in lieu of partial payment to such creditors, and to
other Persons, and (iv) 10,000,000 common shares being issued to the
consenting holders of the Subordinated Notes, there are no agreements,
options, warrants, rights of conversion or other rights pursuant to
which the Corporation or any of the Subsidiaries is or may become
obligated to issue any shares or any securities convertible into, or
exchangeable for, shares.
(j) FINANCIAL STATEMENTS. The Audited Financial Statements and
the Interim Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied (subject
to usual year-end adjustments in the case of the Interim Financial
Statements) and fairly present the financial position of the
Corporation and the Subsidiaries and the results of their operations
at the times and for the periods indicated. The Corporation and each
of the Subsidiaries has no outstanding liabilities, contingent or
otherwise, other than those disclosed in the Audited Financial
Statements and the Interim Financial Statements and other than trade
or business obligations subsequently incurred in the ordinary course
of business, which such trade and business obligations are currently
in good standing in accordance with their respective terms, other than
as set forth in SCHEDULE L.
(k) PERMITS, COMPLIANCE WITH LAWS. This section 4.1(k) shall be
subject to the Materiality Threshold. The Corporation has all
licences, permits, approvals and franchises that it requires, or is
required to have, to own its properties and assets and to carry on its
business as presently conducted including, without limitation, in
respect of the construction and development of the Kemess South Mine.
All such licences, permits, approvals and franchises are in good
standing and, except as is disclosed in item 11 of SCHEDULE H, no
actions, proceedings, investigations or other steps of any kind are in
process, pending, to the Knowledge of the Corporation threatened, or
reasonably foreseeable which might result in any such licence, permit,
approval or franchise being terminated, revoked, withdrawn, suspended
or otherwise made unavailable to the Corporation for any period of
time. The Corporation has applications pending for all additional
licences, permits, approvals and franchises necessary or desirable for
the commencement of mining operations at the Kemess Mine in the manner
and to the full extent contemplated in plans and projections disclosed
to the Holder (a list of which additional licenses are attached here
as SCHEDULE M) and has no reason to believe that any or all such
additional licences, permits, approvals and franchises will not be
granted to prevent, impair or interfere with the Kemess Mine
Production Date occurring on or before December 31, 1998. Except as
is disclosed in item 11 of SCHEDULE H, the Corporation is conducting
its business in compliance with all applicable
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laws, regulations, by-laws and ordinances of each jurisdiction in
which its business is carried on, including without limitation all
laws, regulations, by-laws and ordinances relating to mining
concessions.
(l) NO RESTRICTIONS. Except as may be provided for in agreements
between the Province of British Columbia and the Corporation
respecting economic assistance, copies of which have been provided to
the Holder, the Corporation is not a party to or bound by any
agreement which would restrict or limit its right to carry on any
business or activity or to solicit business from any Person or in any
geographical area or otherwise to conduct the business of the
Corporation. The Corporation is not subject to any legislation or any
judgment, order or requirement of any court or governmental authority
which is not of general application to persons carrying on a business
similar to the business of the Corporation.
(m) LIMITATION ON PAYMENT RESTRICTIONS. Except for restrictions
contained herein and in the Subordinated Note Trust Indenture and
restrictions in favour of the holders of the Permitted Hedging
Indebtedness to the extent such restrictions herein and in the
Subordinated Note Trust Indenture have been agreed to and adopted by
the Corporation and such holders, neither the Corporation nor any
Subsidiary is subject to any consensual restriction on its ability (a)
to pay dividends or make any other distributions on its equity
securities to, or pay any indebtedness owing to, or repurchase or
redeem any equity securities from, the holders of such equity
securities, the Corporation or any other Subsidiary, (b) to make any
loans or advances to the Corporation or any other Subsidiary, or (c)
to transfer any of its property or assets to the Corporation or any
other Subsidiary.
(n) NO MATERIAL ADVERSE CHANGES, DAMAGE OR ACCIDENTS. Since June
1, 1998, the Corporation has operated its business diligently and only
in the ordinary course of business and except for the defaults set out
in SCHEDULE I (the "Disclosed Defaults"), (which Disclosed Defaults
have been remedied), and except for the Corporation committing events
of default pursuant to the Subordinated Note Trust Indenture (which
have since been cured), there has not been any material adverse change
in the condition (financial or otherwise), assets, liabilities,
affairs, business or operations of the Corporation, any substantial
loss of or damage to the assets of the Corporation, or any accident
(subject to the Materiality Threshold) relating to the mines,
properties or mining operations of the Corporation in which any
employee of the Corporation was injured. For greater certainty, since
June 1, 1998 the Corporation has not:
(i) incurred any liabilities other than in the ordinary
course of business consistent with past practice;
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(ii) sold, encumbered, assigned or transferred any assets or
properties of the Corporation, other than for fair market value,
to purchasers at arms length to the Corporation and in the
ordinary course of business consistent with past practice;
(iii) created, incurred, assumed or guaranteed any obligations,
liabilities or indebtedness except in the ordinary course of
business consistent with past practice or subjected any of its
assets to any Lien except for Existing Encumbrances;
(iv) changed or amended its governing documents in any
respect;
(v) declared, set aside, paid or made any distributions in
cash or property on its equity securities including its common
shares;
(vi) directly or indirectly redeemed, purchased or otherwise
acquired any of its equity securities;
(vii) other than the resignations of John May, Matthew
Gaasenbeek, Michael Lalonde, Nancy Deshaw and Scott Lampe,
suffered any resignation or termination of employment of any key
officers or directors or become aware of any impending
resignation or termination of employment of any such key officers
or directors;
(viii) except in the ordinary course of its business, or as
disclosed in writing to the Holder prior to the date hereof,
materially increased the compensation payable or to become
payable to any of its officers or directors or materially
increased any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made for or with any such officers
or directors;
(ix) materially changed its accounting methods, principles or
practices; or
(x) entered into any agreement or commitment to do any of the
things described in this section.
(o) NO WORK ORDERS. Except as is disclosed in item 11 of SCHEDULE H
and subject to the Materiality Threshold, no work orders, directions or
notices have been issued pursuant to any applicable law relating to the
business of the Corporation or any part of the Mortgaged Property or
relating to or pursuant to any environmental matters affecting the
foregoing and the Corporation has not
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received any notification from any Governmental Body that any work,
repairs, construction or capital expenditures are required to be made
in respect of the Mortgaged Property or any part thereof as a
condition of continued compliance with any applicable law or any
Material Authorizations issued thereunder.
(p) NO DEFAULT. Subject to the Materiality Threshold, the
Corporation is not in default or breach under any material commitment
or obligation under the terms and conditions relating to any Material
Authorizations and there exists no state of facts which, after notice
or the passage of time or both, would constitute such a default or
breach and there are no proceedings in progress, pending or, to the
Knowledge of the Corporation, threatened which may result in the
revocation, cancellation, suspension, non-grant or any adverse
modification of any Material Authorization except as is disclosed in
item 11 of SCHEDULE H. The Corporation has obtained all Material
Authorizations necessary or desirable to carry on all activities
currently and previously carried on at the Kemess Mine.
(q) NON-ARM'S LENGTH TRANSACTIONS. Except as is described in
employment agreements and correspondence delivered to the Holder prior
to the date hereof, the Corporation is not a party to any contract,
commitment or transaction (including by way of loan) with any officer,
director or shareholder of the Corporation, any of the Subsidiaries, or
any of their respective affiliates or associates, other than as
disclosed in the Audited Financial Statements and the Interim Financial
Statements and other than employment contracts in the ordinary course of
business.
(r) TAX MATTERS.
(i) The Corporation has prepared and filed on a timely basis
with all appropriate Governmental Bodies all returns with respect
to Taxes and other documents that it is required to file in
respect of any Taxes for all fiscal periods ending on or prior to
the date hereof and all such returns or other documents are
correct and complete in all material respects;
(ii) The Corporation has paid in full all Taxes due on or
before the date hereof and, in the case of Taxes accruing on or
before the date hereof that are not due on or before the date
hereof, the Corporation will have made adequate provision in its
books and records and financial statements for such payment; and
the Corporation does not have any liability for Taxes other than
those provided for in the Audited Financial Statements and the
Interim Financial Statements and those arising subsequently in
the ordinary course of the operation of its business;
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(iii) The Corporation has withheld from each payment made to
any of its present or former employees, officers, directors and
to all persons who are non-residents of the applicable
jurisdictions all amounts required pursuant to Applicable Law to
be withheld or remitted and will continue to do so until the
Maturity Date and furthermore has remitted such amounts within
the applicable periods to the appropriate Governmental Body; the
Corporation has remitted all Canada Pension Plan contributions,
unemployment insurance premiums, employer health taxes and other
Taxes payable by it in respect of its employees and has or will
have remitted such amounts to the appropriate Governmental Body
within the time required under the applicable legislation; and
the Corporation has charged, collected and remitted on a timely
basis all Taxes as required under applicable legislation on any
sale, supply, or delivery whatsoever, made by the Corporation;
(iv) Except for a disputed assessment of fuel taxes payable by
the Corporation to the government of Canada in the approximate
amount of Can. $100,000, there are no reassessments of the
Corporation with respect to Taxes that have been issued and are
outstanding; no Governmental Body has challenged, disputed or
questioned the Corporation in respect of Taxes or in respect of
any returns, filings or other reports filed under any statute
providing for Taxes; the Corporation has not received any
indication from any Governmental Body that an assessment or a
reassessment in respect of the Corporation is proposed; and the
Corporation has not executed or filed any agreement extending the
period for assessment, reassessment or collection of any Taxes.
(s) NO ENCUMBRANCES. The Corporation owns and has good and
marketable title, free and clear of all Liens except Existing
Encumbrances, to all assets used in connection with its business
including, without limitation, all assets reflected on the balance sheet
included in the Audited Financial Statements and the Interim Financial
Statements or acquired by it after the date of such balance sheet except
for changes in such assets in the ordinary course of business subsequent
to that date. All material operating facilities, equipment and other
material items of tangible property and assets owned by the Corporation
are in good operating condition and repair, subject to normal wear and
maintenance and having regard to their respective ages, are usable in
the regular and ordinary course of business and conform to all
Applicable Laws relating to their construction, use and operation,
except where such failure, individually or in the aggregate, would not
have a material adverse effect on the Corporation. The Corporation's
quarterly report on Form 10-Q for the
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fiscal quarter ended March 31, 1998 filed with the United States
Securities And Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended, contains a complete and accurate
description of all material property and assets owned by the
Corporation. SCHEDULE N contains a complete and accurate description
of all material property and assets owned by the Corporation
relating to the Kemess Mine. Subject to the Materiality Threshold, all
equipment or other tangible assets or property situated on the premises
of the Corporation, or necessary to the operation of the business of the
Corporation, which is leased under a capital lease or under a material
operating lease is listed in SCHEDULE O. Subject to the Materiality
Threshold, the Corporation is in compliance with all terms of agreements
and arrangements governing the leased items listed in SCHEDULE O.
(t) MATERIAL INDEBTEDNESS. SCHEDULE P contains a list of all
material indebtedness of the Corporation in excess of Can. $1,000,000
and the identity of the Persons to whom it is owed. The accounts
payable of the Corporation listed in SCHEDULE G relate only to the
construction, development and operation of the Kemess South Mine.
(u) SECURITY DOCUMENTS. The Security Documents and the other
Documents create a valid and enforceable security interest and Lien upon
the Mortgaged Property securing the payment and satisfaction of all
obligations of the Corporation and APM to the Holder. Such security
interests are perfected security interests subject to no prior Liens or
Liens ranking senior in priority to the Liens in favour of the Holder,
except for such Liens (i) granted pursuant to the Royalty Debenture, and
(ii) relating to or securing Debt of the Corporation not in excess of
Can. $15,000,000 as may be held by holders of Existing Encumbrances set
out in Part I of SCHEDULE C1.
(v) EMPLOYMENT MATTERS. Except as is disclosed in SCHEDULE Q, the
Corporation is not a party to or is not bound by any:
(i) written contract or commitment for the employment of any
employee or officer providing for an annual salary (including
benefits) of in excess of Can. $200,000 or a payment on
termination of in excess of six months salary and benefits;
(ii) oral contract or commitment for the employment of any
employee or officer, except for contracts of indefinite hire
terminable by the Corporation without cause on reasonable notice;
(iii) in the case of the Kemess Mine only, contract with or
commitment to any trade union, council of trade unions, employee
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bargaining agent or affiliated bargaining agent (collectively
called "labour representatives") and the Corporation has not
conducted negotiations with respect to any such future contracts
or commitments; no labour representatives hold bargaining rights
with respect to any employees of the Corporation relating to the
Kemess Mine; no labour representatives have applied to have the
Corporation declared a related employer pursuant to the
applicable labour legislation; and, to the Knowledge of the
Corporation, there are no current or threatened attempts to
organize or establish any trade union or employee association
with respect to the Kemess Mine project provided, however, that
the Corporation anticipates that steps may be taken by its
employees to unionize and negotiate collective bargaining
agreements for the Kemess Mine at some time in the future; or
(iv) except as is disclosed in financial information made
available to the Holder prior to the date hereof and subject to
the Materiality Threshold, bonus, pension, multi-employer, profit
sharing, deferred compensation, retirement, disability, health
insurance or similar benefit plan, with respect to any of its
employees or others (including without limitation any agreements
in respect of employee share ownership plans), other than Canada
Pension Plan, the Ontario Health Insurance Plan and other similar
health plans established and administered by any other
governmental authority or workers' compensation insurance
provided pursuant to statute.
Subject to the Materiality Threshold, there is no work stoppage or other
concerted action, grievance or dispute existing or, to the Knowledge of
the Corporation, threatened against the Corporation, and there is no
material complaint, grievance, claim, work order or investigation that
has been filed, made, commenced or, to the Knowledge of the Corporation,
threatened against the Corporation pursuant to any human rights,
occupational health and safety, workers compensation, employment
standards or pay equity legislation or any similar legislation of any
jurisdiction in which the Corporation carries on its business.
(w) INTELLECTUAL PROPERTY. The Corporation owns and has good and
marketable title, free and clear of all Liens except Existing
Encumbrances, to the Intellectual Property. The conduct of the business
of, and the use of the Intellectual Property by the Corporation does not
infringe, and the Corporation has not received any notice, complaint,
threat or claim alleging infringement of, any patent, trade mark, trade
name, copyright, industrial design, trade secret or other propriety
right of any other Person. To the Knowledge of the Corporation, the
Intellectual Property which is not owned by the Corporation is
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being used with the consent of, and in accordance with the consent or
licence from, the rightful owner thereof. The Corporation has taken all
necessary steps to establish, preserve and protect its rights in the
Intellectual Property which is material to the Corporation.
(x) MATERIAL CONTRACTS. SCHEDULE R contains a list of all agreements
of the Corporation which are material to the Kemess Mine and which have
not been fully performed by the parties thereto, including, without
limitation, agreements which relate to construction underway or proposed
at the Kemess Mine and including, without limitation, royalty, refining
and shipping agreements (the "Material Contracts"). SCHEDULE Z contains
a list of all material agreements of the Corporation relating to the
construction or development of the Kemess Mine or relating to the supply
of equipment to the Kemess Mine, which agreements have been performed by
the parties thereto but the warranty periods in respect of which have
not yet expired (the "Kemess Mine Construction Contracts"). Subject to
the Materiality Threshold, and other than amounts owed to holders of the
Existing Encumbrances, each of the Material Contracts and the Kemess
Mine Construction Contracts is in full force and effect without
amendment, and there has been no default under any of them, or under any
other material commitment or obligation, by the Corporation or, to the
Knowledge of the Corporation, any other party, nor has any event
occurred that, with the giving of notice, lapse of time or any other
condition subsequent, would constitute a default or would otherwise
allow the termination of any Material Contract or Kemess Mine
Construction Contract.
(y) MINING CONCESSIONS. SCHEDULES B-1 AND B-2 contain a complete and
accurate list of all material mining claims, concessions and leases in
which the Corporation has an interest relating in any way to the Kemess
Mine, including, without limitation, all mining claims, concessions and
leases in respect of which the Corporation has any obligation to
contribute funds or make payments, other than fees or taxes payable in
the ordinary course under the regulations governing such claims,
concessions or leases. The Corporation is the absolute beneficial owner
of, and has good and marketable title to, such mining claims,
concessions and leases in accordance with governing laws and
regulations, free of all Liens except for such rights as may be held by
Kemess South Resources Limited Partnership as disclosed in item (a) of
Part II of SCHEDULE C1 to this Debenture and by the holders of the
Existing Encumbrances.
(z) PRICING, HEDGING PROTECTION. Subject to the Materiality
Threshold, SCHEDULE S contains a complete and accurate list and
description of all hedging or related arrangements to which the
Corporation is a party or by which it is bound including, without
limitation, forward sale contracts, options, interest
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rate swap agreements, currency swap agreements, derivative agreements and
similar arrangements. None of the hedging or related arrangements
entered into by the Corporation provides for the granting of (i) any Lien
against the property, assets and undertaking of the Corporation other
than the Permitted Encumbrances described in Section (b) of the
definition thereof, or (ii) production advances or any other disposition
of any property, assets or undertaking of the Corporation in
consideration for advance or accelerated payment or other manner of
prepayment or payment not contemporaneous with delivery other than for
the sales of up to U.S. $10,000,000 of copper concentrate pursuant to
the Glencore Agreement.
(aa) ENVIRONMENTAL MATTERS. Except as is disclosed in item 11 of
SCHEDULE H regarding the sediment concerns at the Kemess South Mine and
subject to the Materiality Threshold, the Corporation is not in
violation of any applicable federal, provincial, state, municipal or
local laws, regulations, orders, governmental decrees or ordinances with
respect to environmental, health or safety matters (collectively,
"Environmental Laws") and no actions, proceedings, investigations or
other steps of any kind are in process, pending, to its Knowledge
threatened, or reasonably foreseeable with respect to any such existing
or past violation or alleged violation or other liability whatsoever on
the part of the Corporation under Environmental Laws. For greater
certainty, subject to the same qualifications and without limiting the
generality of the foregoing:
(i) the Corporation has carried on its business and at all
times has received, handled, used, stored, treated, shipped and
disposed at all times of all contaminants in compliance with all
Environmental Laws;
(ii) there have been no releases, deposits or discharges, in
violation of Environmental Laws, of any hazardous or toxic
substances, materials, pollutants, contaminants or wastes into
the earth, air or into any river, stream, lake or other body of
water or into any municipal or other sewer or drain water
systems;
(iii) no orders, directions or notices have been issued
pursuant to any Environmental Laws relating to the business or
assets of the Corporation; and
(iv) the Corporation has not failed to report to the proper
Governmental Body the occurrence of any event which is required
to be so reported by any Environmental Laws.
(bb) PLACES OF BUSINESS. The registered office of the Corporation is
situated
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at BCE Place, P.O. Box 747, Suite 2500, 181 Bay Street,
Toronto, Ontario, Canada M5J 2T7, and the chief executive office of the
Corporation is situated at 5501 Lakeview Drive, Kirkland, Washington,
U.S.A. 98033.
(cc) ALL MATERIAL INFORMATION SUPPLIED. The Corporation has provided
to the Holder all material information relating to the financial
condition, business and prospects of the Corporation and all information
provided to the Holder is true, accurate and complete in all material
respects and omits no material fact necessary to make such information
not misleading provided, however, that the Corporation is not
representing and warranting that the financial and operating projections
made by it will accurately correspond to actual future results
notwithstanding that they are based on the best information currently
available to the Corporation. For greater certainty, all documents
provided to the Holder in the course of investigating, negotiating and
preparing the Documents and the property, assets and affairs of the
Corporation are complete and, subject to the proviso in the immediately
preceding sentence, accurate in every respect and copies of all such
documents provided to the Holder conform in every respect to the
originals thereof.
(dd) DEBENTURE COVENANTS. No event or circumstance has occurred or
exists which is inconsistent with the covenants and agreements of the
Corporation set out in this Debenture or which would, immediately or
with the passage of time or giving of notice or taking of any other
prerequisite step, constitute a Default or Event of Default hereunder.
(ee) SUBORDINATED NOTES. The Corporation is, and will after giving
effect to the transactions contemplated by this Debenture and the other
Documents be, in compliance with all terms and conditions and agreements
applicable to the Subordinated Notes. The indebtedness under the
Debenture will fully constitute "Permitted Indebtedness" and the
Security will in every respect constitute "Permitted Liens" under the
Subordinated Note Trust Indenture. The indebtedness under the
Debentures and the amounts if any from time to time outstanding on
account of the Royalty Agreement constitute "Senior Indebtedness" under
the Subordinated Note Indenture. The indebtedness under the Debentures
constitute "Designated Senior Indebtedness" under the Subordinated Note
Indenture. The indebtedness of any Subsidiary under or on account of
the Debentures constitute "Guarantor Senior Indebtedness" under the
Subordinated Note Indenture. The Lender is entitled to the benefit of
and can rely on the provisions of the Subordinated Note Indenture
relating to "Senior Indebtedness", "Designated Senior Indebtedness" and
"Guarantor Senior Indebtedness" and the holder of the royalty pursuant
to the Royalty Agreement is entitled to the benefit of and can rely on
the provisions of the Subordinated Note Indenture relating to "Senior
Indebtedness" to the extent of
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the amounts if any from time to time outstanding on account of the
Royalty Agreement. Each of the Lenders and the holder of the royalty
pursuant to the Royalty Agreement, to the extent of the amounts if any
from time to time outstanding on account of the Royalty Agreement, can
enforce such provisions as are applicable to it directly against the
Corporation and any other Subsidiary. The Corporation has delivered
to the Holder complete and accurate copies of all agreements and
documents relating to the Subordinated Notes including, without
limitation, the Subordinated Note Trust Indenture. The Subordinated
Notes are, in accordance with their terms, fully subordinated and
postponed to the obligations of the Corpoation to the Holder under the
Documents, which obligations constitute "Senior Indebtedness" under
the Subordinated Note Trust Indenture.
(ff) SUBSIDIARIES OF THE CORPORATION. SCHEDULE E contains a list of
all of the Subsidiaries of the Corporation, including the jurisdiction
of incorporation, continuance and amalgamation for each such Subsidiary.
(gg) PROVINCIAL ECONOMIC ASSISTANCE. The Province of British Columbia
has unconditionally and irrevocably advanced to the Corporation
approximately Can. $154,000,000 of the previously committed economic
assistance, compensation and investment. All such economic assistance,
compensation and investment is completely and accurately described in
SCHEDULE T and the Holder has been provided with true, complete and
accurate copies of all agreements and other documents relating thereto.
Except for annual payments of Can. $1,000,000 for each of the 12
successive years commencing in 1999, both as identified in SCHEDULE T,
there are no further outstanding commitments of economic assistance,
compensation or investment which remain to be completed and there are no
commitments, agreements or arrangements with any Governmental Body which
would be breached or otherwise adversely impacted by the transactions
contemplated by the Documents or which could in any way preclude,
hinder, prejudice or delay the exercise of the Holder's rights and
remedies hereunder and thereunder.
(hh) WINDY CRAGGY PROPERTY. The inability of the Corporation to incur
expenditures on and maintain in good standing the Windy Craggy Property
will not result in: (i) any diminution in the amounts of payments from
the government of British Columbia pursuant to the agreement of June 27,
1997; (ii) revocation of any permits issued by the government of British
Columbia in connection with the Kemess Mine; or (iii) any material
adverse effect on the ability of the Corporation to conduct mining
operations at, and to maintain good title to, the Kemess Mine; and the
Windy Craggy Property does not include or in any way comprise the
property and assets comprising the Kemess Mine.
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(ii) BANKS. SCHEDULE T1 lists particulars, including bank, branch
address, account type and account number, of each bank account
maintained by the Corporation and by each of the Subsidiaries.
4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES BY THE CORPORATION
The representations and warranties made by the Corporation pursuant to
Section 4.1 hereof will survive the closing of the issuance of this Debenture
and the other transactions provided for herein and, notwithstanding such closing
or any investigation made by or on behalf of the Holder or any other person or
any knowledge of the Holder or any other person, shall continue in full force
and effect for the benefit of the Holder.
ARTICLE 5 - COVENANTS
5.1 AFFIRMATIVE COVENANTS
So long as the Debenture or any obligation of the Corporation to the
Holder under the Debenture or any other Document remains outstanding, the
Corporation covenants and agrees with the Holder that:
(a) PUNCTUAL PAYMENT AND PERFORMANCE OF DEBENTURE. The Corporation
shall pay or cause to be paid all amounts payable to the Holder
hereunder and under the other Documents on the dates and in the manner
specified therein and the Corporation shall perform and carry out all of
the acts or things to be done by the Corporation as provided in the
Debenture and the other Documents;
(b) CONDUCT OF BUSINESS. The Corporation shall do or cause to be
done all things necessary to maintain its corporate existence in its
present jurisdiction of incorporation and to maintain its corporate
power and capacity to own its properties and assets;
(c) PRESERVATION OF MATERIAL AUTHORIZATIONS. The Corporation and
each Material Subsidiary shall preserve and maintain all Material
Authorizations including, without limitation, all licenses, permits,
approvals and franchises necessary or desirable to carry on mining
operations at the Kemess Mine in the manner and to the full extent
contemplated in plans and projections disclosed to the Holder.
(d) PRESERVATION OF MINING CLAIMS, CONCESSIONS AND LEASES. The
Corporation shall preserve and maintain: (i) all mining claims subject
to the
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Materiality Threshold, and all concessions and leases necessary
or desirable to carry on mining operations at the Kemess Mine in the
manner and to the full extent contemplated in plans and projections
disclosed to the Holder, and (ii) subject to the Materiality Threshold,
all other material mining claims, concessions and leases.
(e) COMPLIANCE WITH APPLICABLE LAW AND CONTRACTS. The Corporation
and each Material Subsidiary shall comply with: (i) the requirements of
all Applicable Laws; (ii) all obligations which, if contravened, could
give rise to a Lien (other than Permitted Encumbrances) over any of its
property; and (iii) all insurance policies and all contracts to which
the Corporation or such Material Subsidiary is a party or by which it or
its properties are bound, non-compliance with which would, singly or in
the aggregate, have a material adverse effect upon the business,
property or financial condition of the Corporation or such Material
Subsidiary or upon its ability to perform its obligations under this
Debenture or any of the other Documents;
(f) INSURANCE. The Corporation and each Material Subsidiary shall:
(i) keep its properties and assets insured with reputable
insurers, in amounts not less than the replacement cost thereof
and against such losses as are insured against by comparable
corporations engaged in comparable businesses or which the Holder
may reasonably require including without limitation, if requested
by the Holder acting reasonably, sudden and accidental pollution
liability insurance;
(ii) maintain public liability insurance in such amounts and
against such risks as is normally carried by comparable
corporations engaged in comparable businesses or which the Holder
may reasonably require;
(iii) provide the Holder with certificates for all insurance
policies; and
(iv) provide that any loss under all such insurance policies
(other than policies in respect of third party liability and
business interruption insurance) in excess of Can. $500,000 shall
be payable to the Holder subject only to any prior rights which
may be specifically held in such proceeds by the holders of
Permitted Encumbrances, provided that if a Default or Event of
Default has not occurred, the Corporation or such Material
Subsidiary shall, provided prior notice thereof shall have been
given to the Holder, be entitled to receive such loss payment
directly if the entire amount thereof is:
(A) used to repair or replace the lost or damaged
property in
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question if the lost or damaged property relates to the
Kemess Mine; or
(B) if the lost or damaged property does not in any
way relate to the Kemess Mine either (x) used to repair
or replace the lost or damaged property in question or
(y) after applying such loss payment or a portion thereof
to the reasonable costs of any required remediation of
the lost or damaged property, used and distributed as the
proceeds of a "Sale" pursuant to and in accordance with
Section 5.3(e) hereof;
(g) ACCOUNTING METHODS AND FINANCIAL RECORDS. The Corporation shall,
and shall cause each of its Subsidiaries to, maintain a system of
accounting which is established and administered in accordance with
generally accepted accounting principles and keep adequate records and
books of account in which accurate and complete entries shall be made in
accordance with such accounting principles reflecting all transactions
required to be reflected by such accounting principles;
(h) MAINTENANCE OF MORTGAGED PROPERTY. The Corporation shall
maintain the Mortgaged Property comprising the Kemess Mine and all other
Mortgaged Property used by the Corporation or a Material Subsidiary from
time to time in good repair, working order and condition (reasonable
wear and tear excepted) and from time to time make or cause to be made
all necessary and appropriate repairs, renewals, replacements, additions
and improvements thereto;
(i) PAYMENT OF TAXES AND CLAIMS. The Corporation and each Material
Subsidiary shall:
(i) pay and discharge all lawful claims for labour, material
and supplies;
(ii) pay and discharge all Taxes payable by it;
(iii) withhold and collect all Taxes required to be withheld
and collected by it and remit such Taxes to the appropriate
Government Body at the time and in the manner required; and
(iv) pay and discharge all obligations incidental to any trust
imposed upon it by statute which, if unpaid, might become a Lien
upon any of the Mortgaged Property;
(j) INSPECTIONS. The Corporation and each Material Subsidiary shall
permit
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the Holder and its authorized employees, representatives and
agents to: (i) visit and inspect its properties during normal business
hours, (ii) inspect and make extracts from and copies of its books and
records, and (iii) discuss with its senior management its businesses,
property, financial condition and prospects, all on a reasonable basis
and frequency;
(k) NOTICE OF LITIGATION AND OTHER MATTERS. The Corporation shall,
as soon as practicable after it shall become aware of the same, give
notice to the Holder of the following events:
(i) the commencement or threat of a material nature of any
action, proceeding, arbitration or investigation against or in
any other way relating adversely to the Corporation or the
Subsidiaries or any of their respective properties, assets or
businesses which, if adversely determined, would singly or when
aggregated with all other such actions, proceedings, arbitrations
and investigations have a material adverse effect on the
business, property or financial condition of the Corporation or
on the ability of the Corporation to perform its obligations
under this Debenture or any of the other Documents;
(ii) any amendment of its articles, by-laws or other
organizational documents;
(iii) any actual or threatened revocation, termination,
modification, amendment, substitution, issuance or other material
event relating to Material Authorizations or to mining claims,
concessions or leases respecting the Kemess Mine and, following
any such event, the Corporation shall at the request of the
Holder use its best efforts to obtain from the appropriate
Governmental Body or other Persons such consents, approvals,
acknowledgements or other documents as the Holder may consider
necessary, acting reasonably, to ensure that the Holder has valid
and enforceable first priority Liens on all such Material
Authorizations, mining claims, concessions or leases and may
avail itself of the rights and privileges of the Corporation
thereunder and assign such rights and privileges should the
Holder enforce its rights and remedies in respect of the Security
and the other Documents;
(iv) any development which has had or will have a material
adverse effect upon its business, property or financial condition
or its ability to perform its obligations under this Debenture or
any of the other Documents or which should reasonably be expected
to be of material interest to the Holder, other than any changes
in the market prices of gold or copper or changes in the Can.
$/U.S.$ currency exchange rate;
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(v) any development which would lead the Corporation to
reasonably believe that the Kemess Mine Production Date will not
be on or before December 31, 1998;
(vi) any Default or Event of Default; and
(vii) any default or event of default, or the occurrence or
non-occurrence of any event which constitutes, or which with the
passage of time or giving of notice or both would constitute, a
material default under any other agreement to which the
Corporation or any Subsidiary is a party or by which they or any
of their properties may be bound which has a material adverse
effect on the business, property or financial condition of the
Corporation or its ability to perform its obligations under this
Debenture or any other Document;
giving in each case the details thereof and specifying the action
proposed to be taken with respect thereto.
(l) QUARTERLY CASHFLOW STATEMENTS. On or prior to the date hereof
and on the 25th day following the end of each calendar quarter
thereafter the Corporation shall deliver to the Holder in form and
substance acceptable to the Holder a cashflow statement on a line item
basis for the ensuing twelve (12) month period, all in such detail as
the Holder may reasonably require.
(m) MONTHLY FINANCIAL STATEMENTS. The Corporation shall, as soon as
practicable and in any event within 25 days after the end of each month,
deliver to the Holder the monthly unaudited consolidated financial
statements of the Corporation for the previous monthly period including
in each case a balance sheet, statement of profit and loss and a
statement of changes in financial position, together with comparative
figures for the corresponding month in the previous Financial Year;
(n) INTERIM FINANCIAL STATEMENTS. The Corporation shall, as soon as
practicable and in any event within 60 days after the end of each of the
first three Financial Quarters of each Financial Year, deliver to the
Holder the interim unaudited consolidated financial statements of the
Corporation and, at the request of the Holder, interim unaudited
unconsolidated financial statements of the Corporation and of the
Subsidiaries, including in each case a balance sheet, statement of
profit and loss and a statement of changes in financial position,
together with comparative figures for the corresponding period in the
previous Financial Year;
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(o) ANNUAL FINANCIAL STATEMENTS. The Corporation shall, as soon as
practicable and in any event within 120 days after the end of each
Financial Year, deliver to the Holder the annual audited consolidated
financial statements of the Corporation and, at the request of the
Holder, annual unaudited unconsolidated financial statements of the
Corporation and of each Subsidiary including in each case a balance
sheet, statement of profit and loss, a statement of changes in financial
position and a statement of retained earnings, together with comparative
figures for the previous Financial Year;
(p) OFFICER'S CERTIFICATE. The Corporation shall deliver to the
Holder, together with the financial statements referred to in Sections
5.1(l), (n) and (o), an officers' certificate certifying (i) that such
financial statements were prepared in accordance with generally accepted
accounting principles (subject to normal year-end adjustments in the
case of interim unaudited financial statements) and fairly present the
financial condition of the Corporation and the other Subsidiaries and
the financial information presented therein for the period and as at the
date thereof, (ii) that no Default or Event of Default has occurred
hereunder or, if any Default or Event of Default has occurred,
specifying the relevant particulars and the period of existence thereof
and the action taken or proposed to be taken by the Corporation with
respect thereto, and (iii) demonstrating in reasonable detail compliance
(or, as the case may be, non-compliance) with the covenants contained in
Section 5.1(t);
(q) PUBLIC AND OTHER INFORMATION. The Corporation shall from time to
time deliver to the Holder copies of all reports, financial statements,
information or proxy circulars and other information or notices sent by
the Corporation (i) to its shareholders at the same time as the
Corporation sends such material to its shareholders, and (ii) pursuant
to the Subordinated Note Trust Indenture at the same time as Corporation
sends such material to the recipient thereof, and (iii) the Corporation
shall deliver to the Holder copies of all press releases, material
change reports and similar disclosures filed by the Corporation with any
securities regulatory authority or stock exchange, provided that, if any
such reports or disclosures under this paragraph (iii) are filed on a
confidential basis, then the Corporation shall not be required to
deliver the same to the Holder until such time as they are no longer
filed on a confidential basis;
(r) CHANGE OF CONTROL. The Corporation shall immediately notify the
Holder in the event of a Change of Control of the Corporation;
(s) OTHER INFORMATION. The Corporation shall furnish to the Holder,
as soon as practicable following a request therefor from the Holder,
such other information as the Holder may reasonably request from time to
time;
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(t) FINANCIAL COVENANTS. The Corporation shall ensure that:
(i) EBITDA shall not be less than:
(A) for the Financial Quarter ending March 31, 1999,
Can. $9,000,000;
(B) for the two Financial Quarters ending June 30,
1999, Can. $18,000,000;
(C) for the three Financial Quarters ending September
30, 1999, Can. $27,000,000; and
(ii) following September 30, 1999, Can. $36,000,000 as at the
end of each Financial Quarter and calculated in each case for the
preceding 12 months;
(u) KEMESS MINE PRODUCTION DATE. The Corporation shall keep the
Holder informed as to the progress of the construction, development and
operation of the Kemess South Mine and when the Kemess Mine Production
Date has occurred and shall deliver to the Holder a certificate
(together with reasonable backup) of a senior officer to that effect;
(v) PAMOUR MINE AND NIGHTHAWK LAKE MINE. The Corporation shall, and
shall cause each Subsidiary, as required to, forthwith following a
request therefor from the Holder and at the expense of the Corporation
deliver to the Holder valid and enforceable first priority Liens against
the Pamour Mine and the Nighthawk Lake Mine all in form and substance
satisfactory to the Holder and its Counsel together with legal opinions
in form and content, and from legal counsel, satisfactory to the Holder
regarding the validity, enforceability and priority of such Liens and
regarding such other matters as the Holder may require to evidence
compliance with the terms of this Debenture; provided that the Holder
may only request such Liens at a time that the aggregate amount then
outstanding under the Debentures (including principal and accrued
interest and unpaid fees and expenses) exceeds U.S.$60,000,000; and
(w) PROPOSED LEASEBACK ASSETS. The Corporation will pay or cause to
be paid all amounts payable to Trilon Bancorp Inc. pursuant to an
equipment lease dated April 6, 1998 between the Corporation and Trilon
Bancorp Inc. (Lease Number L-RY001) on the dates and in the manner
specified therein and the Corporation will comply with, perform and
carry out all of its obligations provided under such equipment lease.
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(x) PERMITTED PAYMENTS SECURITY. The Corporation will provide 10
days prior written notice to the Holder of any proposed Permitted
Payments together with detailed particulars of the Permitted Payments.
The Corporation will provide or cause to be provided to the Holder prior
to or contemporaneous with the making of any such Permitted Payments:
(i) a guarantee from each Subsidiary receiving such Permitted
Payments pursuant to which the Subsidiary guarantees to the
Holder all of the obligations of the Corporation to the Holder;
(ii) such agreements, conveyances, deeds and other documents
and instruments as the Holder shall reasonably request in
furtherance of granting to the Holder valid and enforceable first
priority Liens on all of the present and after acquired property,
undertaking and assets of each Subsidiary receiving such
Permitted Payments and the Corporation shall at the expense of
the Corporation register, file or record the same (or a notice or
financing statement in respect thereof) in all offices where such
registration, filing or recording is, in the opinion of the
Holder, necessary or advisable to constitute, perfect and
maintain such Liens in all jurisdictions reasonably required by
the Holder, subject only to Permitted Encumbrances, provided that
(subject always to the provisions of Section 5.1(v)) the
Corporation shall not be obligated to register the Security
against any real property or mineral claims comprising the Pamour
Mine, the Nighthawk Lake Mine and the mines generally known as
Giant, Hope Brook and Colomac, and the Corporation's currently
existing exploration properties not in any way relating to the
Kemess Mine; and
(iii) legal opinions in form and content, and from legal
counsel, satisfactory to the Holder regarding the validity,
enforceability and priority of all Liens created by such Security
Documents and regarding such other matters as the Holder may
require to evidence compliance with the terms of this Debenture
and the other Documents.
5.2 HOLDER'S RIGHT TO DECLINE TO RECEIVE INFORMATION
Notwithstanding the obligations of the Corporation to provide the
notices, documents and information referred to in Sections 5.1(k), (l), (m),
(n), (o), (p) and (u), the Holder shall be entitled to decline to receive any or
all such notices, documents and information by giving written notice thereof to
the Corporation. In the event the Holder gives any such notice to the
Corporation, the Corporation shall withhold the
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notices, documents and information expressly stated in the written notice of
the Holder for such periods of time and on such terms as the Holder may
direct. The Holder may at any time supplement, revoke or otherwise change
its directions to the Corporation under this Section 5.2 by further written
notice to the Corporation. Nothing in this Section 5.2 or in any written
notice given by the Holder hereunder in any way reduces or otherwise affects
the obligation of the Corporation to provide to the Holder the information
referred to in Sections 5.1(q) and (r).
5.3 NEGATIVE COVENANTS
So long as this Debenture or any obligations of the Corporation under
this Debenture or any other Document remain outstanding, the Corporation
covenants and agrees that without the prior written consent of the Holder
neither the Corporation nor any Material Subsidiary shall:
(a) ENCUMBER PROPERTY. Create, grant, assume or suffer to exist any
Lien upon any of its properties or assets other than Permitted
Encumbrances;
(b) LOANS AND INVESTMENTS. Except for (i) loans by the Corporation
and APM to existing employees not at any time exceeding in the aggregate
U.S. $2,250,000 and loans by the Corporation and APM to new employees
employed after the date hereof not at any time exceeding in the
aggregate U.S. $750,000, (ii) APM Transactions, (iii) payments of up to
Can. $1,500,000 in the aggregate made by the Corporation to purchase
shares in the capital of Asia Minerals Corp. and of Highwood Resources
Ltd., and (iv) Permitted Payments, make any loans to, or acquire or
invest in any securities issued by, any Person other than currently
existing loans by the Corporation to any Subsidiaries of which notice in
writing has been provided to the Holder;
(c) NON-ARM'S LENGTH TRANSACTIONS. Except for (i) loans by the
Corporation and APM to existing employees not at any time exceeding in
the aggregate U.S. $2,250,000 and loans by the Corporation and APM to
new employees employed after the date hereof not at any time exceeding
in the aggregate U.S. $750,000, (ii) APM Transactions, (iii) the
acquisition by the Corporation of the Mikwam Property from Highwood
Resources Ltd. on the terms disclosed to the Holder in writing prior to
the date hereof, (iv) the sale by the Corporation of the Copperstone
Property to a purchaser not dealing at arm's length to the Corporation,
and (v) Permitted Payments, repay any indebtedness or liabilities owed
to, transfer assets to, purchase assets from, lease property to or from,
pay any monies to, guarantee Debt of, provide other financial assistance
to, or otherwise enter into any transaction or agreement to do any of
the foregoing (other than as may be expressly contemplated by the
Documents) with or in respect of any Affiliate (or any corporation
which, after the transaction in
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question becomes effective, would become an Affiliate) or with any
officer, director, employee, shareholder or other related Person of the
Corporation or any Subsidiary, provided that if the Corporation has not
committed an Event of Default, the Corporation may pay ordinary course
compensation to officers, directors and employees consistent with past
practice and additional ordinary course compensation under the
Corporation's head office employee plans, in an aggregate amount not
exceeding U.S.$5,000,000 in any Financial Year.
(d) RESTRICTED DISTRIBUTIONS. Except for APM Transactions and
Permitted Payments, declare, pay or make any dividend or other
distribution on any shares in its capital or purchase, redeem, retire,
cancel or acquire (i) any shares in the capital of the Corporation or
any Subsidiary (except shares acquired upon the conversion thereof into
other shares in its capital), (ii) any option, warrant or other right to
acquire shares in the capital of the Corporation or any Subsidiary, or
(iii) any debt or equity security of the Corporation or any Subsidiary,
provided that the Corporation shall be entitled to declare and pay stock
dividends and to wind-up Witteck Development Inc. and transfer to the
Corporation all the property and assets of Witteck Development Inc.;
(e) DISPOSITION OF ASSETS. Except for Permitted Payments, sell,
lease, consign or otherwise dispose of or agree to sell, lease, consign
or otherwise dispose of, any assets or property. Notwithstanding the
foregoing so long as no Default or Event of Default has occurred or
would occur as a result of any such sale, lease, consignment or other
disposition (collectively a "Sale"):
(i) at any time prior to the Kemess Mine Production Date,
assets of the Corporation, other than assets which comprise or
are in any way material to the Kemess Mine, may be sold by the
Corporation for proceeds equal to their fair market value to
purchasers dealing at arm's length with the Corporation provided
that:
(a) if the proceeds from all such Sales in the
aggregate are equal to or less than Can.
$15,000,000, such proceeds shall be used solely
for prepayments of principal hereunder in
accordance with the provisions of Section 2.4
hereof, regular debt service payments pursuant to
the Subordinated Notes, payment of capital and
non-capital expenses of the Corporation in
connection with the construction, development and
operation of Kemess Mine and/or general corporate
purposes; and
(b) if the proceeds from all such Sales in the
aggregate exceed Can. $15,000,000, such excess
proceeds shall be used
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solely for prepayments of principal hereunder in
accordance with the provisions of Section 2.4
hereof and/or for payment of capital and
non-capital expenses of the Corporation in
connection with the construction, development and
operation of the Kemess Mine;
(ii) at any time following the Kemess Mine Production Date,
provided that EBITDA of the Corporation for the consecutive three
(3) calendar month period immediately prior to the date of such
Sale is Can. $9,000,000 or more, assets of the Corporation, other
than assets which comprise or are in any way material to the
Kemess Mine, may be sold by the Corporation at fair market value
to purchasers dealing at arm's length to the Corporation and the
proceeds of such Sales may be used for general corporate purposes
of the Corporation; and
(iii) at any time, assets of the Corporation which comprise or
were in any way material to the Kemess Mine but which fall below
the Materiality Threshold as a result of them being or becoming
obsolete or redundant, provided that if saleable they are sold or
disposed of by the Corporation for proceeds equal to their fair
market value to purchasers at arm's length with the Corporation
and the proceeds of such Sale are used in connection with the
construction, development and operation of the Kemess Mine.
In addition to the foregoing, and notwithstanding the Security, the
Corporation may without the consent of the Holder at any time prior to
the occurrence of a Default or Event of Default sell:
(iv) the Proposed Leaseback Assets for cash consideration as
part of an operating leaseback agreement or as part of an
agreement comprising an Eligible Capital Lease Obligation and
Purchase Money Security Interest;
(v) the Corporation's interest in the Copperstone Property
to a purchaser not dealing at arm's length to the Corporation for
consideration of shares in or a royalty interest from the
purchaser thereof; and
(vi) the Corporation's interest in the Mikwam Property to a
purchaser not dealing at arm's length to the Corporation for
consideration of shares in or a royalty interest from the
purchaser thereof;
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provided, in such cases, that the transaction is with an arm's length Person (or
to a non-arm's length Person but on arm's-length terms in the case of a Sale of
the Copperstone Property and the Mikwam Property) and on reasonable commercial
terms and that the proceeds of disposition become immediately subject to the
Liens in favour of the Holder created pursuant to the Security Documents. In the
event of any disposition or sale referred to in the immediately preceding
sentence, the Holder will deliver such acknowledgements and discharges of the
Security as the Corporation may reasonably request for the purpose of giving
effect to such sale rights on the part of the Corporation.
(f) DEBT. Create, incur, assume or suffer to exist, contingently or
otherwise, Debt other than Permitted Debt.
(g) REPAYMENT OF DEBT. Pay any principal, interest, fees or any
other amounts in respect of Debt other than Permitted Payments and other
than, if no Default or Event of Default has occurred:
(i) payments of interest on the Subordinated Notes ordinarily
due and payable in accordance with the terms and conditions
contained in the Subordinated Note Trust Indenture; and
(ii) other amounts ordinarily due and payable in respect of
Permitted Debt provided that such payments shall not be
inconsistent with the terms and conditions of applicable
documents provided to the Holder prior to the date hereof.
(h) GUARANTEES. Other than as may constitute Permitted Debt,
guarantee, give financial assistance to or render itself liable in any
manner whatsoever, directly or indirectly, conditionally or otherwise
for any Debt or obligation whatsoever of a third party.
(i) AMALGAMATIONS, ETC. Enter into any transaction (including by way
of reorganization, consolidation, amalgamation, merger, reconstruction,
liquidation, transfer, sale, lease or otherwise) whereby all or any
material portion or significant operating division of the undertaking,
property and assets of the Corporation or a Material Subsidiary would
become the property of any other Person or, in the case of any such
amalgamation, of the continuing corporation resulting therefrom without
the Holder's prior written consent, provided that the Holder will
provide its consent if the Holder, acting reasonably, determines that
such transaction will not impair or prejudice the ability of the
Corporation or the Material Subsidiaries to pay the indebtedness owing
hereunder, to perform its covenants hereunder or impair or prejudice the
Holder's Security.
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(j) CHANGE IN BUSINESS. (i) Enter into any contract, agreement or
commitment out of the ordinary course of its business or (ii) acquire or
establish any business unrelated to the current business of the
Corporation or (iii) make any material change in, or terminate or
suspend (other than in the ordinary course of its operations) any
material part of, the construction, development and operation of the
Kemess South Mine.
(k) PRICING, HEDGING PROTECTION. Enter into any hedging or related
arrangements (including, without limitation, forward sale contracts,
options, currency swap agreements, interest swap agreements, and similar
arrangements) which provide for (i) the granting of any Lien against the
property, assets and undertaking of the Corporation or a Material
Subsidiary other than Permitted Encumbrances or (ii) production advances
or any other disposition of any property, assets or undertaking of the
Corporation or a Material Subsidiary in consideration for advance or
accelerated payment or other manner of prepayment or payment not
contemporaneous with delivery, other than the sales by the Corporation
of not more than U.S. $10,000,000 of copper concentrate pursuant to the
Glencore Agreement.
(l) ENVIRONMENTAL MATTERS
(i) The Corporation shall maintain, and shall cause each of
the Subsidiaries to maintain, a system to assure and monitor
continued compliance with all Applicable Laws relating to the
environment, which system shall include periodic reviews of such
compliance.
(ii) Subject to the Materiality Threshold, if the Corporation
or any Subsidiary (a) receives written notice that any violation
of any Applicable Law relating to the environment may have been
committed or is about to be committed by it, (b) receives written
notice that any administrative or judicial complaint or order has
been filed or is about to be filed against it alleging violations
of any Applicable Law relating to the environment or requiring it
to take any action in connection with the release of Hazardous
Substances into the environment, or (c) receives any written
notice from a Governmental Body or other Person alleging that it
may be liable or responsible for costs associated with a response
to or clean-up of a release of a Hazardous Substance into the
environment or any damages caused thereby, the Corporation or
Subsidiary, as the case may be, shall provide the Holder with a
copy of such notice within ten days of receipt thereof. Subject
to the Materiality Threshold, the Corporation or Subsidiary, as
the case may be, shall also provide to the Holder, as soon as
practicable after it becomes available,
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a copy of any environmental site assessment or audit
report required to be submitted to any Governmental Body.
(iii) The Corporation shall indemnify the Holder and its
officers, directors, employees, agents and shareholders, and
shall hold each of them harmless, from and against any and all
losses, liabilities, damages, costs, expenses and claims
(including legal fees on a solicitor and his own client basis)
suffered or incurred by such party in respect of (a) any
violation by the Corporation or any Subsidiary of Applicable Law
related to the environment including the assertion of any Lien
thereunder, (b) the presence of any Hazardous Substance affecting
the Mortgaged Property or any adjacent real estate, or (c) the
release of any Hazardous Substance by the Corporation or any
Subsidiary into the environment, provided that the foregoing
indemnity shall not apply in connection with any negligence,
willful misconduct or violation of any Applicable Law relating to
the environment affecting the Mortgaged Property by the Holder or
its agents after taking possession of the Mortgaged Property. The
Corporation's obligations and indemnification under this section
shall survive the satisfaction and release of the Security
Documents and the repayment of this Debenture. The Holder shall
hold the benefit of this indemnity in trust for those indemnified
parties who are not parties to this Debenture.
(m) CAPITAL EXPENDITURES. Make or permit any of its Subsidiaries,
on a consolidated basis, to make any Capital Expenditures in any
Financial Year in excess of Can. $12,000,000 if such Capital
Expenditures do not directly relate to the construction, development or
operation of the Kemess South Mine.
(n) BANKING. Open or operate or permit any of its Subsidiaries to
open or operate a bank account anywhere other than in the provinces of
Ontario, British Columbia or Quebec and other than as set out in
SCHEDULE T1.
(o) GRANT OR AMEND SECURITY. Grant or permit any of its Subsidiaries
to grant any Liens to any of the holders of Permitted Encumbrances set
out in Section (b) or Section (l) of the definition thereof other than
in such form and on such property, assets or undertaking of the
Corporation or such Subsidiary that has been previously provided to the
Holder hereunder, or amend or permit any of its Subsidiaries to amend
any of the agreements, instruments or documents which provide Liens to
any of the holders of Permitted Encumbrances set out in Section (b) or
Section (l) of the definition thereof and which have been granted on or
prior to the date hereof.
(p) AMEND SUBORDINATED NOTE TRUST INDENTURE. Amend the Subordinated
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Note Trust Indenture.
(q) BANK WORKING CAPITAL FACILITY. Amend the Bank Working Capital
Facility or increase the principal amount that may from time to time be
outstanding under the Bank Working Capital Facility to an amount in
excess of Can. $1,900,000.
ARTICLE 6 - DEFAULT AND ACCELERATION
6.1 EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an Event
of Default:
(a) if the Corporation defaults in payment of (i) all or any part of
the principal of this Debenture when due, or (ii) all or any part of the
fees provided for in Section 2.3 hereof when due; or
(b) if the Corporation defaults in payment of any interest or any
other amount due hereunder; or
(c) if the Corporation defaults in observing or performing any other
covenant or condition of this Debenture, the Purchase Agreement, the
Security Documents, any other Debentures, or any other Document on its
part to be observed or performed, and, if the default in question is one
which is reasonably capable of being cured or remedied, such default
continues for a period of 20 days after notice has been given to the
Corporation by the Holder specifying such default and requiring the
Corporation to rectify the same or cause to be rectified the same; or
(d) if any representation and warranty made by the Corporation in any
Document is found to be false or incorrect in any material respect; or
(e) if an order is made or an effective resolution is passed for the
winding-up or liquidation of the Corporation, or in the event of any
other dissolution of the Corporation by operation of law; or
(f) if the Corporation defaults after the expiry of any applicable
cure period thereunder in any way in the performance of any obligations
to any holders of (i) Subordinated Notes or (ii) any of the Permitted
Encumbrances referred to in clause (b) of the definition of Permitted
Encumbrances; or if any such holder
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asserts any claim or takes any proceeding against the Corporation and
such claim or proceeding is not being contested in good faith by all
appropriate actions or, if proceedings are commenced against the
Corporation, the rights of such holders are at any time unstayed or
undismissed; or
(g) if the Corporation shall generally not pay its debts as such
debts become due, or shall admit its inability to pay its debts
generally as they become due or otherwise acknowledge its insolvency, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by the Corporation seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding-up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts, or a proposal is made by the Corporation
under any Applicable Law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order
for the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property, including
without limitation any such proceeding under the Companies' Creditors
Arrangement Act (Canada); or the Corporation shall take any action to
consider, approve or authorize any of the actions set forth above; or
(h) if any proceeding shall be instituted against the Corporation
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding-up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its Debts, or a proposal is
made against the Corporation under any Applicable Law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for the appointment of a receiver,
trustee, custodian or other similar official for it or for any
substantial part of its property, including without limitation any such
proceeding under the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), and
such proceeding is at any time not being contested in good faith by all
appropriate proceedings or, if so contested, remains outstanding,
undismissed and unstayed, more than 30 days from the institution of such
proceeding; or
(i) if any execution, distress or other enforcement process, whether
by court order or otherwise, involving indebtedness of the Corporation
individually or in the aggregate in excess of Can. $2,000,000 becomes
enforceable against any property of the Corporation and if such
execution, distress or other enforcement process shall have been
commenced by a creditor before obtaining judgment, such execution,
distress or other enforcement process shall not have been stayed or
vacated within 3 Business Days from the commencement thereof, or if any
judgment or order for the payment of money in excess of Can. $2,000,000
shall be rendered against the Corporation and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment
or order or (ii) there shall be any period during which a stay of
enforcement of
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such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect;
(j) if any event or proceeding is taken with respect to any part of
the Mortgaged Property in any jurisdiction outside Canada which has an
effect equivalent or similar to any of the events described in sections
6.1(e), 6.1(g) or 6.1(h); or
(k) if the Corporation fails to make to any Person when due any
payment (whether at scheduled maturity or by required prepayment,
acceleration, demand or otherwise, but excluding trade payables incurred
in the ordinary course of business which are not overdue by 90 days or
more or are being contested in good faith by all appropriate proceedings
promptly instituted and diligently conducted by the Corporation) in
respect of indebtedness which exceeds individually Can. $3,000,000 or in
the aggregate Can. $7,000,000; or any other event shall occur or
condition shall exist specified in any agreement or instrument relating
to any such indebtedness or liability of the Corporation if the effect
of such event or condition is to accelerate, or to permit the
acceleration of the maturity of such indebtedness or liability of the
Corporation; or any such indebtedness or liability of the Corporation
which is outstanding shall be declared to be due and payable prior to
the stated maturity thereof and in each such case such failure or event
is not remedied within 20 days of such failure or event; or
(l) If the Corporation allows, permits, consents to or becomes
subject to a Change of Control of the Corporation without the prior
written consent of the Holder, provided that it shall not be an Event of
Default hereunder and the Holder will consent to a Change of Control of
the Corporation if prior to such Change of Control of the Corporation
the Holder, acting reasonably, determines that such Change of Control of
the Corporation (i) will not impair or prejudice the ability of the
Corporation to pay any indebtedness owing hereunder or to perform its
covenants hereunder, and (ii) will not impair or prejudice the Holder's
Security; or
(m) if the Kemess Mine Production Date is not on or before December
31, 1998; or
(n) if any Material Subsidiary commits an event of default (after any
applicable cure period) in any agreement with or obligation owing to the
Holder including pursuant to any of the Documents; or
(o) If the Corporation commits a default under or is in breach of the
equipment lease dated April 6, 1998 between the Corporation and Trilon
Bancorp Inc. (Lease Number L-RY001).
6.2 ACCELERATION ON DEFAULT
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Upon the occurrence of an Event of Default, the Holder may, in its
discretion:
(a) declare the principal amount of this Debenture then
outstanding, all accrued and unpaid interest hereunder and any
other moneys payable hereunder to be immediately due and payable
by the Corporation to the Holder; and
(b) realize upon all or any part of the Security constituted
by the Security Documents; and
(c) take such actions and commence such proceedings as may be
contemplated by the Documents or permitted at law or in equity
(whether or not provided for herein or in the Security Documents
or other Documents) at such times and in such manner as the
Holder in its sole discretion may consider expedient;
all without, except as may be required by Applicable Law, any additional notice,
presentment, demand, protest, notice of protest, dishonour or any other action.
6.3 REMEDIES CUMULATIVE
No remedy conferred upon or reserved to the Holder herein or in the
Security Documents or any other Document is intended to be exclusive of any
other remedy, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing by
law or by statute.
6.4 DEBENTURE NOT REQUIRED
All rights of action under the Security Documents or hereunder may be
enforced by the Holder without the possession of this Debenture or the
production thereof on the trial or other proceedings relating thereto.
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ARTICLE 7 - MISCELLANEOUS
7.1 NOTICE
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be given by facsimile or other means of
electronic communication or by delivery as hereafter provided. Any such notice
or other communication, if sent by facsimile or other means of electronic
communication, shall be deemed to have been received on the Business Day
following the sending, or, if delivered by hand, shall be deemed to have been
received at the time it is delivered to the applicable address noted below
either to the individual designated below or to an individual at such address
having apparent authority to accept deliveries on behalf of the addressee.
Notice of change of address shall also be governed by this section. Notices and
other communications shall be addressed as follows:
(a) if to the Corporation: Royal Oak Mines Inc.
c/o Arctic Precious Minerals, Inc.,
d.b.a Royal Oak Mines (U.S.A.) Inc.
5501 Lakeview Drive
Kirkland, Washington
U.S.A. 98033
Attention: President
Facsimile Number: (425) 822-3349
with a copy to: Lang Michener
BCE Place, Box 747
2500 - 181 Bay Street
Toronto, Ontario
M5J 2T7
Attention: William Sheridan and
David Thring
Facsimile No.: (416) 365-1719
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(b) if to the Holder: Northgate Exploration Limited
1 First Canadian Place
Suite 2630, P.O. Box 143
Toronto, Ontario
M5X 1C7
Attention: Terry Lyons
Facsimile Number: (416) 363-2856
with a copy to: Goodman and Carr
Suite 2300
200 King Street West
Toronto, Ontario
M5H 3W5
Attention: Jeffrey Blidner and
Lorne Segal
Facsimile No.: (416) 595-0567
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7.2 ASSIGNMENT
The Corporation may not assign this Debenture. This Debenture and the
Holder's rights hereunder may be assigned at any time by the Holder in whole or
in part (including, without limitation, by the grant or conveyance of
participations in its interests hereunder), together with, at its discretion,
its corresponding rights in any or all of the Security Documents and other
Documents. Upon an assignment pursuant to this section, the Corporation shall,
at the request of the assignee, issue a replacement Debenture registered in the
name of the assignee (and, in the case of a partial assignment, shall also issue
a replacement Debenture to the Holder in respect of the principal balance held
by it), upon surrender and cancellation of the existing Debenture, and shall
also, at the Holder's request, execute and deliver new Security Documents and
other Documents to and in favour of the assignee. The Corporation shall also,
and shall cause the Subsidiaries to, execute and deliver such other agreements,
documents and instruments as the Holder or the assignee may request in
connection with such assignment. The Holder may provide to any proposed assignee
or participant such information concerning the financial position and the
operations of the Corporation and its Subsidiaries as, in the opinion of the
Holder, may be relevant or useful in connection with this Debenture or any other
Document or any portion thereof proposed to be acquired by such assignee or
participant. Notwithstanding anything else in this Section 7.2, if no Default or
Event of Default has occurred the Holder shall not be entitled to assign this
Debenture to any corporation whose principal business is the exploration for or
mining of precious or base metals (other than to such Persons in which the
Holder or their respective Associates and Affiliates has a direct or indirect
interest, which Persons may be an assignee of this Debenture or the Documents).
Following a Default or an Event of Default, there shall be no restrictions on
the Holder's ability to assign tis Debenture or any of the Documents.
7.3 EXCHANGE OF INFORMATION
The Holder may provide to any proposed assignee or participant such
information concerning the financial position and the operations of the
Corporation and its Subsidiaries as, in the opinion of the Holder, may be
relevant or useful in connection with this Debenture or any other Document or
any portion thereof proposed to be acquired by such assignee or participant.
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7.4 RELIANCE AND NON-MERGER
All covenants, agreements, representations and warranties of the
Corporation made herein or in any other Document or in any certificate or other
document signed by any of its directors or officers and delivered by or on
behalf of either of them pursuant hereto or thereto are material, shall be
deemed to have been relied upon by the Holder notwithstanding any investigation
heretofore or hereafter made by the Holder or the Holder's Counsel or any
employee or other representative of the Holder and shall survive the execution
and delivery of this Debenture and the other Documents until the Corporation
shall have satisfied and performed all of its obligations hereunder and
thereunder. Nothing contained in this Debenture shall operate to subordinate
the Security provided in favour of the Holder to or in favour of any Permitted
Encumbrance or other Liens, or to postpone any of the obligations owing by the
Corporation to the Holder to any of the obligations, indebtedness or liabilities
owed by the Corporation to the holders of the Permitted Encumbrances or other
Liens.
7.5 AMENDMENT, WAIVER
No amendment or waiver of this Debenture shall be binding unless
executed in writing by the Corporation if it is to be bound thereby, or by the
Holder if the Holder is to be bound thereby (any such amendment or waiver to be
contemporaneously made in respect of the Debenture). No waiver of any provision
of this Debenture will constitute a waiver of any other provision nor will any
waiver of any provision of this Debenture constitute a continuing waiver unless
otherwise expressly provided.
7.6 NO SET-OFF BY THE CORPORATION
The amounts payable by the Corporation under this Debenture or any other
Document shall not be subject to any deduction, withholding, set-off or
counterclaim by the Corporation for any reason whatsoever.
7.7 EMPLOYMENT OF EXPERTS
The Holder may, at any time and from time to time, when a Default or
Event of Default has occurred and is continuing, retain and employ legal
counsel, independent accountants, consultants and other experts in order to
perform or assist it in the performance of its rights and powers under this
Debenture or the other Documents, and the Corporation shall pay to the Holder on
demand all proper and reasonable compensation paid or payable to such counsel,
accountant, consultant or other expert retained or employed pursuant to this
provision.
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7.8 FURTHER ASSURANCES
Whether before or after the happening of a Default or Event of Default,
the Corporation shall at its own expense do, make, execute or deliver, or cause
to be done, made, executed or delivered by its Subsidiaries or other Persons,
all such further acts, documents and things in connection with this Debenture
and the other Documents as the Holder may reasonably require from time to time
for the purpose of giving effect to the Documents including, without limitation,
for the purpose of facilitating the enforcement of the Security, all immediately
upon the request of the Holder.
7.9 GOVERNING LAW
This Debenture shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable
therein. The Corporation submits to the jurisdiction of the courts of Ontario
to determine all issues whether at law or in equity arising from this Debenture.
7.10 PAYMENT OF COSTS AND EXPENSES
The Corporation shall pay to the Holder on demand all reasonable costs
and expenses of the Holder, its agents, officers and employees, and any receiver
or receiver-manager appointed by the Holder or by a court, in connection with
this Debenture, the Security Documents and the other Documents including,
without limitation:
(a) the preparation, execution, filing and registration of the
Debenture, the Security Documents, and the other Documents (including,
without limitation, any Security Documents and other Documents to be
delivered following the date hereof pursuant to Article 3 hereof) and
any actual or proposed amendment or modification hereof or thereof or
any waiver hereunder or thereunder and all instruments supplemental or
ancillary thereto;
(b) obtaining advice as to the Holder's rights and responsibilities
under this Debenture, the Security Documents and the other Documents at
any time after an Event of Default; and
(c) the defence, establishment, protection or enforcement of any of
the rights or remedies of the Holder under this Debenture, any of the
Security Documents or any other Documents including, without limitation,
all costs and expenses of establishing the validity and enforceability
of, or of collection of amounts owing under, this Debenture, any of the
Security Documents or any other Documents or of any enforcement of the
Security,
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and all of the fees, expenses and disbursements of any advisors to the Holder
including, Counsel to the Holder on a solicitor and his own client basis,
incurred in connection therewith, and including all sales or value-added taxes
payable by the Holder (whether refundable or not) on all such costs and
expenses.
7.11 JUDGMENT CURRENCY
If for the purpose of obtaining judgment in any court, it is necessary
to convert an amount due under this Debenture or any other of the Documents or
under any instrument delivered thereunder from a currency in which it is due
(the "Original Currency") into another currency (the "Second Currency") the
parties hereto agree, to the fullest extent permitted by law, that the rate of
exchange used shall be that at which, in accordance with normal banking
procedures, the Holder could purchase the Original Currency with the Second
Currency on the date two Business Days preceding that on which judgment is
given. The obligation of the Corporation in respect of any Original Currency
due from it to the Holder under this Debenture or any other Documents or under
any instrument delivered thereunder shall, notwithstanding any judgment in the
Second Currency, be discharged by a payment made to the Holder entitled thereto
on account thereof in the Second Currency only to the extent that, on the
Business Day following receipt of such payment in the Second Currency, the
Holder may, in accordance with normal banking procedures, purchase the amount
due in the Original Currency with the amount of the Second Currency so paid; and
if the amount of the Original Currency which may be so purchased is less than
the amount originally due in the Original Currency, the Corporation agrees as a
separate and independent obligation and notwithstanding any such payment or
judgment to indemnify the Holder against such deficiency.
7.12 PAYMENT AGREEMENTS FOR DEBENTURE
Notwithstanding anything contained herein, the Corporation may enter
into an agreement with the Holder, in the absolute discretion of the Holder,
providing for the payment to such Holder of the principal of and interest on
this Debenture at a place and in a manner other than the place and manner
specified herein as the place and manner for such payment. Any payment of the
principal of and interest on this Debenture at such other place and in such
other manner pursuant to such agreement shall, notwithstanding any other
provision of this Debenture, be valid and binding on the Corporation and the
Holder.
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7.13 ENTIRE AGREEMENT
The Documents constitute the entire agreement between the parties hereto
pertaining to the matters therein set forth and supersede and replace any prior
understandings or arrangements pertaining to such matters. There are no
warranties, representations or agreements between the parties in connection with
such matters except as specifically set forth or referred to in the Documents.
IN WITNESS WHEREOF the Corporation has executed this Debenture on the
date first above written.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
--------------------------------------
Name: James H. Wood
Title: Chief Financial Officer
Dated as of June 22, 1998
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SCHEDULE "A"
DEFINITIONS
"ADDITIONAL PURCHASE PRICE" has the same meaning given to such term in the
Purchase Agreement;
"AFFILIATE" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT
(Ontario) and includes, for greater certainty, all Subsidiaries;
"APM" means Arctic Precious Metals, Inc., a company incorporated under the laws
of Nevada;
"APM TRANSACTIONS" means ordinary course transactions between the Corporation
and APM in accordance with past practice and generally as described in SCHEDULE
B hereto provided, however that such transactions shall not in any one Financial
Year involve transactions of the kind referred to in sections 5.3(b)(i),(ii) and
(iii), 5.3(c) and 5.3(d) hereof aggregating more than Can. $13,500,000 and
provided further that such transactions shall be permitted only prior to an
Event of Default;
"APPLICABLE LAW" means, in respect of any Person, property, transaction or
event, all applicable laws, statutes, rules, by-laws and regulations, and all
applicable official written directives, orders, judgments and decrees of
Governmental Bodies;
"ASSOCIATE" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT
(Ontario) and shall include any entity which is an Associate of an Associate,
and so on;
"AUDITED FINANCIAL STATEMENTS" means the audited consolidated financial
statements of the Corporation as at and for the 12 month fiscal period ended
December 31, 1997, consisting of a balance sheet, an income statement and a
statement of changes in financial position, together with the notes thereto,
copies of which have been provided to the Holder;
"BANK WORKING CAPITAL FACILITY" means a working capital facility provided to the
Corporation by the Bank of Nova Scotia pursuant to a credit agreement dated
February 15, 1996 as amended by agreements dated August 5, 1996 and May 30, 1997
in a maximum principal amount not to exceed Can. $1,900,000 pursuant to which
the Bank of Nova Scotia has outstanding letters of credit on behalf of the
Corporation and in respect of which the Corporation has provided to the Bank of
Nova Scotia cash collateral as security therefor in the approximate amount of
Can. $2,012,126 as at May 19, 1998 plus interest thereon.
"BUSINESS DAY" means any day, other than Saturday, Sunday or any statutory
holiday in Toronto, Canada;
"CAPITAL EXPENDITURES" means, for any period, those expenditures of the
Corporation (on a consolidated basis) which would, in accordance with generally
accepted accounting principles, be considered expenditures for capital assets of
the Corporation (on a consolidated basis) for such period;
<PAGE>
"CAPITAL LEASE OBLIGATIONS" of the Corporation means the obligations of the
Corporation to pay rent or other amounts under a lease (or other agreement
conveying the right to use) of real or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet under generally accepted accounting principles and, for purposes of this
Debenture, the amount of such obligations shall in each case be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles;
"CHANGE OF CONTROL OF THE CORPORATION" means if any Person acquires or becomes
the beneficial owner of, or a combination of Persons acting jointly acquire or
become the beneficial owners of, directly or indirectly more than 35% of the
common shares of the Corporation or any shares of the Corporation which in the
aggregate represent 35% of the voting shares of the Corporation, whether through
the acquisition of previously issued and outstanding shares, or of shares that
have not been previously issued, or any combination thereof, or any other
transaction having a similar effect;
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated February
19, 1998 between the Corporation and BC Pacific Capital Corporation;
"CONSENT" has the meaning attributed to such term in Section 4.1(g);
"COPPERSTONE PROPERTY" has the meaning ascribed thereto in SCHEDULE U;
"COUNSEL" means a barrister or solicitor or firm of barristers and solicitors
retained by the Holder or retained by the Corporation and acceptable to the
Holder acting reasonably;
"DEBENTURE" means this Senior Secured Debenture - Series B of the Corporation as
it may be amended, modified, restated or replaced from time to time;
"DEBENTURES" means all Senior Secured Debentures of the Corporation (whether
Series A or Series B) sold pursuant to the Purchase Agreement as same may be
amended, modified, restated or replaced from time to time.
"DEBT" of any Person means all indebtedness including, without limitation (i)
all indebtedness of such Person for and in respect of borrowed money, including
obligations with respect to bankers' acceptances, letters of credit and letters
of guarantee or indemnity; (ii) all indebtedness of such Person for the deferred
purchase price of property or services represented by a note or other evidence
of indebtedness or other security; (iii) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to the
possession or sale of such property); (iv) all obligations under leases which,
in accordance with generally accepted accounting principles (or accounting
principles generally accepted in the jurisdiction of incorporation or
organization of such Person), are recorded as capital leases, in respect of
which such Person is liable as lessee; (v) all
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indebtedness or obligations of such Person pursuant to any interest rate
swaps, currency swaps, commodity agreements and similar hedging agreements;
and (vi) all Debt Guaranteed by such Person;
"DEBT GUARANTEED" by any Person means Debt of the kinds referred to in (i)
through (v) of the definition of Debt which is directly or indirectly guaranteed
by such Person or which such Person has agreed (contingently or otherwise) with
the creditor to purchase or otherwise acquire or assume, or in respect of which
such Person has otherwise assured a credit against loss by means of an
indemnity, security or bond;
"DEFAULT" means any event which, but for the lapse of time, giving of notice or
both, would constitute an Event of Default;
"DISCLOSED DEFAULTS" has the meaning given to such term in Section 4.1(n)
hereof;
"DOCUMENTS" means, collectively, the Debenture, the Security Documents and any
other document now or hereafter delivered to the Holder by the Corporation or
any Subsidiary pursuant to or in connection therewith including any document,
agreement or guarantee delivered to the Holder pursuant to or in connection with
the Reorganization Undertaking (as defined in the Purchase Agreement);
"EBITDA" means, for any period, Net Income for such period, plus (i)
consolidated interest expense of the Corporation and its Subsidiaries for such
period, plus (ii) provision for income taxes of the Corporation and its
Subsidiaries for such period, plus (iii) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of the Corporation and its
Subsidiaries to the extent that such depreciation, amortization and other
non-cash charges were deducted in computing Net Income for such period, minus
(iv) non-cash items increasing consolidated revenues of the Corporation and its
Subsidiaries in determining Net Income for such period, in each case on a
consolidated basis and determined in accordance with generally accepted
accounting principles; provided that the following shall not be included in the
calculation of EBITDA as either a charge or revenue: (a) non-cash changes in the
carrying value of the Subordinated Notes and other Debt which is not denominated
in Canadian dollars and is translated to Canadian dollars at the balance sheet
date; and (b) non-cash changes resulting from the marking to market of foreign
currency and commodity contracts; and provided further that premiums paid or
received on options, warrants or similar instruments shall be recognized, for
the purposes of EBITDA, as expenses or revenue, as the case may be, only on the
date on which the option, warrant or other instrument in question expires,
matures, is exercised or otherwise terminates;
"ELIGIBLE CAPITAL LEASE OBLIGATIONS AND PURCHASE MONEY SECURITY INTERESTS" means
(a) Capital Lease Obligations and Purchase Money Security Interests existing as
at the date hereof
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or any renewals or replacements thereof on materially the same terms and in
amounts not materially exceeding those existing as at the date hereof; and
(b) Capital Lease Obligations and Purchase Money Security Interests incurred
following the date hereof if the claims of the lessor or creditor thereunder
are limited to recovery or repossession of the leased or financed property in
question and if such leased or financed property is newly acquired by the
Corporation;
"EVENT OF DEFAULT" has the meaning attributed to such term in section 6.1;
"EXCLUDED ASSETS" means the Windy Craggy Property;
"EXISTING ENCUMBRANCES" means the Liens specifically described in SCHEDULE C1;
"FINAL MATURITY DATE" has the meaning given to such term in Section 2.3(a)
hereof;
"FINANCIAL QUARTER" means, in relation to the Corporation or any Subsidiary, the
four periods each consisting of three months in each Financial Year of the
Corporation or such Subsidiary ending on the last day of each of the third,
sixth, ninth and twelfth months in such Financial Year;
"FINANCIAL YEAR" means, in relation to the Corporation or any Subsidiary, the
period beginning on January l and ending on December 31 of each calendar year;
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means the accounting principles so
described and promulgated by the Canadian Institute of Chartered Accountants
from time to time;
"GLENCORE AGREEMENT" means the letter agreement dated November 5, 1997 between
the Corporation and Glencore Ltd. relating to the sale by the Corporation of
copper concentrate;
"GOVERNMENTAL BODY" means any government, parliament, legislature, or any
regulatory, authority, agency, commission or board of any government, parliament
or legislature, or any court or (without limitation to the foregoing) any other
law, regulation or rule-making entity (including, without limitation, any
central bank, fiscal or monetary authority or authority regulating banks),
having jurisdiction in the relevant circumstances, or any Person acting under
the authority of any of the foregoing (including, without limitation, any
arbitrator);
"HAZARDOUS SUBSTANCE" includes but is not limited to any contaminants,
pollutants, dangerous substances, liquid wastes, industrial wastes, toxic
substances, hazardous wastes, hazardous materials of whatsoever nature or kind
or any other hazardous substance within the meaning of any Applicable Law
including without limitation the HAZARDOUS PRODUCTS ACT (Canada), the CANADIAN
ENVIRONMENTAL PROTECTION ACT (Canada), the ENVIRONMENTAL PROTECTION ACT
(Ontario) and the WASTE MANAGEMENT ACT (B.C.);
"HOLDER" means Trilon Financial Corporation and its successors and permitted
assigns;
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"INITIAL PURCHASE PRICE" has the same meaning given to such term in the Purchase
Agreement;
"INTELLECTUAL PROPERTY" means all trade marks, trade names, patents, patent
applications, copyrights, trade secrets, logos, processes, computer systems and
application software which are owned or used by, or which relate to the business
of, the Corporation or the Subsidiaries;
"INTEREST PAYMENT DATE" means each day on which interest is payable hereunder
pursuant to section 2.1;
"INTEREST RATE" means the LIBOR Rate plus 6.0% per annum;
"INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated financial
statements of the Corporation as at and for the 4 month period ended April 30,
1998 consisting of a balance sheet, an income statement and a statement of
changes in financial position, a copy of which has been provided to the Holder;
"KEMESS MINE" means the Kemess North Property and the Kemess South Mine;
"KEMESS NORTH PROPERTY" means all present and future property and assets
comprising or relating to what is generally referred to as the Kemess North
Property in British Columbia, Canada including, without limitation, all mineral
claims and leases referred to in SCHEDULE B-1 hereto, all buildings, equipment,
fixtures and other property and assets owned or leased by the Corporation (or in
which the Corporation otherwise has an interest) situated or used at the Kemess
North Property site all operations, exploration and other activities carried on
at such site and all permits, authorizations, licenses and similar approvals
relating thereto;
"KEMESS SOUTH MINE" means all present and future property and assets comprising
or relating to what is generally referred to as the Kemess South Mine property
in British Columbia, Canada including, without limitation, all mineral claims
and leases referred to in SCHEDULE B-2 hereto, all buildings, equipment,
fixtures and other property and assets owned or leased by the Corporation (or in
which the Corporation otherwise has an interest) situated or used at the Kemess
South Mine site, all operations, exploration and other activities carried on at
such site and all permits, authorizations, licenses and similar approvals
relating thereto;
"KEMESS MINE PRODUCTION DATE" means the date that the Kemess South Mine has
produced concentrate over the immediately preceding 30 day period, and is able
to sustain and maintain such production thereafter, of not less than 8500 short
tons of concentrate yielding mineral content that is acceptable to Glencore Ltd.
pursuant to the Glencore Agreement (without giving effect to any amendments
thereof);
"KEMESS MINE CONSTRUCTION CONTRACTS" has the meaning given to such term in
Section 4.1(x);
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"KNOWLEDGE" means the best knowledge of the senior management of that party
(which in the case of the Corporation specifically includes but is not limited
to the Kemess Mine Project Manager, the Kemess Mine Project Director and the
Kemess Mine Manager of Project Accounting, after having made all reasonable
inquiries;
"LIBOR RATE" means the rate of interest per annum, calculated on the basis of a
year of 360 days, determined by the Holder for a 30 day period to be (i) the
rate per annum, calculated on the basis of a year of 360 days, which appears on
the Reuters Telerate Page 3750 as of 11:00 a.m. (London time) on the second
Business Day prior to the commencement of such 30 day period in an amount of
U.S. dollars equal to the principal amount then outstanding under the Debenture
and for a 30 day deposit period, or (ii) if such rate does not appear on the
Reuters Telerate Page 3750 as and when contemplated herein, the arithmetic
average (rounded upwards to the nearest 1/16th of 1%) of the rates of interest
per annum, calculated on the basis of a year of 360 days, at which any three
prime banks in the London inter-bank market are offering deposits at
approximately 11:00 a.m. (London time) on the second Business Day prior to the
commencement of such 30 day period in an amount of U.S. dollars equal to the
principal amount then outstanding under this Debenture and for a 30 day deposit
period;
"LIEN" means any mortgage, lien, pledge, assignment, charge, security interest,
lease intended as security, title retention agreement, rights reserved in any
Governmental Body, registered lease of real property, hypothec, levy, execution,
seizure, attachment, garnishment or other similar encumbrance and includes any
contractual restriction which, if contravened, may give rise to an encumbrance;
"MATERIAL AUTHORIZATION" means, with respect to the Corporation or any
Subsidiary, any approval, permit, licence or similar authorization from, and any
filing or registration with, any Governmental Body required by such Person to
own its property and assets or to carry on its business in each jurisdiction in
which it does so or is contemplated to do so, where the failure to have such
approval, permit, licence, authorization, filing or registration would have a
material adverse effect upon its business, financial condition or prospects;
"MATERIAL CONTRACTS" has the meaning given to such term in Section 4.1(x);
"MATERIAL SUBSIDIARIES" means APM and all Subsidiaries each of which has total
assets exceeding a fair market value of Can. $2,000,000;
"MATERIALITY THRESHOLD" means that the representation, warranty, covenant or
other obligation in question shall apply only to subject matter which
individually or in the aggregate is or should reasonably be expected as
determined by the Holder, acting reasonably, to be material to:
(a) the business, property or affairs of the Corporation taken as a
whole;
(b) the construction, ownership or operation of the Kemess Mine or
the requirement
6
<PAGE>
that the Kemess Mine Production Date occur on or before
December 31, 1998; or
(c) the Holder, in its capacity as a secured creditor of the
Corporation under the Documents;
"MIKWAM PROPERTY" has the meaning ascribed thereto in SCHEDULE V;
"MORTGAGED PROPERTY" means all of the property, assets and undertaking of the
Corporation and APM of every nature and kind, both present and future, real and
personal, tangible and intangible, other than Excluded Assets, including without
limitation all proceeds of disposition of any such property, assets and
undertaking;
"NET INCOME" means, for any period, the aggregate of the net income of the
Corporation and its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles (for greater certainty,
after Taxes), but excluding therefrom (i) extraordinary items, (ii) any gains or
losses from the sale of any assets (other than inventory sold in the ordinary
course of business) of the Corporation or its Subsidiaries, (iii) the net income
of any Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that net income is not permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its shareholders, or is not
permitted without prior governmental approval (that has not been obtained), and
(iv) the income or loss from any entity in which the Corporation's or its
Subsidiary's, as applicable, investment is classified pursuant to generally
accepted accounting principles as a minority interest;
"NIGHTHAWK LAKE MINE" has the meaning ascribed thereto in SCHEDULE W;
"PAMOUR MINE" has the meaning ascribed thereto in SCHEDULE X;
"PERMITTED DEBT" means, collectively, the indebtedness pursuant to the
Debentures and:
(a) indebtedness of the Corporation under the Subordinated Notes;
(b) indebtedness of the Corporation which, pursuant to agreements and
confirmations delivered by the applicable creditor to and in favour of
the Corporation and the Holder in form and content satisfactory to the
Holder, is fully subordinated and postponed to the obligations of the
Corporation to the Holder under the Debenture and the other Documents,
provided that at the time any or all such indebtedness is incurred or
reincurred no Default or Event of Default has occurred;
(c) indebtedness of the Corporation to Persons under interest rate
swaps, currency swaps, commodity agreements and similar hedging
agreements (the "Permitted Hedging Indebtedness");
7
<PAGE>
(d) Debt under or secured by Eligible Capital Lease Obligations and
Purchase Money Security Interests, not at any time exceeding the
aggregate of (A) Can. $30,000,000 plus (B) for so long as the Proposed
Leaseback Assets are leased to the Corporation pursuant to the April 6,
1998 lease between the Corporation and Trilon Bancorp Inc. (Lease Number
L-RY001) and in the event of a sale and leaseback of the Proposed
Leaseback Assets and solely for those purposes, the amount by which the
Debt under or secured by an Eligible Capital Lease Obligation or
Purchase Money Security Interest relating to the Proposed Leaseback
Assets exceeds the difference between (1) Can. $30,000,000, and (2) the
amount of Debt under all Eligible Capital Lease Obligations and Purchase
Money Security Interests existing as at the date hereof;
(e) Debt by way of trade payables or the endorsement of negotiable
instruments incurred or created in the ordinary course of business for
the purpose of carrying on same.
"PERMITTED ENCUMBRANCES" means Liens granted to secure indebtedness under the
Debentures and other Documents, Liens granted to Trilon Financial Corporation to
secure obligations owing to it under a Royalty Agreement and a Royalty Debenture
each dated the date hereof; and:
(a) the Existing Encumbrances set out in Parts I and II of SCHEDULE C1
hereto and extensions, renewals or refinancings thereof on materially the
same terms and in amounts not materially exceeding those existing at the
date hereof;
(b) Liens on the Mortgaged Property granted by the Corporation to
holders of Permitted Hedging Indebtedness in an aggregate amount not at
any time exceeding U.S. $50,000,000 to secure the Corporation's
obligations in respect of Permitted Hedging Indebtedness in an aggregate
amount not at any time exceeding U.S. $50,000,000, provided that each
such holder delivers to and in favour of the Corporation and the Holder
an inter-creditor agreement, in form and content satisfactory to the
Holder, providing for, among other things, the subordination by such
holders of Permitted Hedging Indebtedness Note of any Liens granted to
them to and in favour of the Security until such time as all of the
obligations of the Corporation to the Holder are satisfied in full;
(c) cash collateral accounts for the letters of credit specifically
described in SCHEDULE Y and extensions, renewals or refinancings thereof
on materially the same terms and in amounts not materially exceeding
those existing at the date hereof;
8
<PAGE>
(d) Liens for taxes, assessments or governmental charges incurred in
the ordinary course of business that are not yet due and payable (taking
into account any relevant grace periods), in respect of which the
Corporation or a Subsidiary, as the case may be, has established on its
books reserves to the extent required by generally accepted accounting
principles considered by it and its auditors to be adequate therefor;
(e) rights reserved to or vested in any Governmental Body by the
terms of any lease, licence, franchise, grant or permit, or by any
statutory provision, to terminate the same, to take action which results
in an expropriation, to designate a purchaser of any Mortgaged Property
or to require annual or other payments as a condition to the continuance
thereof;
(f) construction, contractors', mechanics', carriers',
warehousemen's, suppliers' and materialmen's Liens and Liens in respect
of vacation pay, workers' compensation, unemployment insurance or
similar statutory obligations, provided the obligations secured by such
Liens are not yet due and payable and, in the case of construction
Liens, which have not yet been filed or for which the Corporation or a
Subsidiary has not received written notice of a Lien, provided that in
any case the Corporation may permit to exist construction Liens (in
addition to those included in the definition of Existing Encumbrances
and listed in Part I of SCHEDULE C1) which do not individually or in the
aggregate relate to indebtedness exceeding Can. $10,000,000, which the
Corporation is contesting in good faith by all appropriate proceedings
promptly instituted and diligently conducted, and in respect of which,
notice in writing has been given by the Corporation to the Holder, with
full particulars thereof;
(g) zoning restrictions, easements, rights of way, leases or other
similar encumbrances or privileges in respect of real property which in
the aggregate do not materially impair the use of such property by the
Corporation or a Subsidiary in the operation of its business;
(h) Liens in connection with any Eligible Capital Lease Obligations
and Purchase Money Security Interests in respect of Debt not at any time
exceeding in the aggregate of (A) Can. $30,000,000 plus (B) for so long
as the Proposed Leaseback Assets are leased to the Corporation pursuant
to the April 6, 1998 lease between the Corporation and Trilon Bancorp
Inc. (Lease Number L-RY001) and in the event of a sale and leaseback of
the Proposed Leaseback Assets and solely for those purposes, the amount
by which the Debt under or secured by an Eligible Capital Lease
Obligation or Purchase Money Security Interest relating to the Proposed
Leaseback Assets exceeds the difference between (1) Can. $30,000,000 and
(2) the amount of the Debt under all Eligible Capital lease Obligations
and Purchase Money Security Interests existing as at the date hereof;
(i) security given by the Corporation or a Subsidiary to a public
utility or any
9
<PAGE>
Governmental Body, when required by such utility or Governmental
Body in connection with the operations of the Corporation or
Subsidiary in the ordinary course of its business, which singly or in
the aggregate do not materially detract from the value of the asset
concerned or materially impair its use in the operation of the business
of the Corporation or Subsidiary;
(j) the reservation in any original grants from the Crown of any land
or interest therein and statutory exceptions to title;
(k) title defects or irregularities which are of a minor nature and
which do not materially detract from the value of the assets of the
Corporation or its Subsidiaries encumbered thereby;
(l) Liens on the Mortgaged Property granted by the Corporation to or
on behalf of holders of the Subordinated Notes in an aggregate principal
amount not at any time exceeding U.S. $175,000,000 to secure the
Corporation's obligations in respect of the Subordinated Note Trust
Indenture in an aggregate principal amount not at any time exceeding
U.S. $175,000,000, provided that Chase Manhattan Trust Company, National
Association, as trustee thereunder and any other collateral agent
appointed by it delivers to and in favour of the Corporation and the
Holder an inter-creditor agreement, in form and content satisfactory to
the Holder, providing for, among other things, the subordination by such
holders of Subordinated Notes of any Liens granted to them to and in
favour of the Security until such time as all of the obligations of the
Corporation to the Holder are satisfied in full, and providing that
notwithstanding the granting of such Liens the holders of the
Subordinated Notes will take reasonable steps to ensure that they are
placed in a separate class of creditors than the Holder in any
insolvency proceedings relating to the Corporation and if
notwithstanding the foregoing they are placed in the same class of
creditors they will assign their votes to the Holder so as to permit the
Holder to vote against and defeat any restructuring plan in such
insolvency proceedings; and
(m) any other Lien which the Holder after the date hereof approves in
writing as a Permitted Encumbrance;
provided that nothing herein shall constitute or be interpreted as a
postponement or subordination of the Security to any security granted by the
Corporation in connection with such Permitted Encumbrances.
"PERMITTED HEDGING INDEBTEDNESS" has the meaning given to it in paragraph (c) of
the definition of Permitted Debt;
"PERMITTED PAYMENTS" means any payment, distribution, loan, advance or
transfer by a Restricted Subsidiary (as defined in the Subordinated Note
Trust Indenture) to the Corporation or to another Restricted Subsidiary
contemplated in paragraphs 4.13(a),(b) and (c) of the
10
<PAGE>
Subordinated Note Trust Indenture that, and only to the extent that, cannot
be subject to a Payment Restriction pursuant to and as defined in Section
4.13 of the Subordinated Note Trust Indenture;
"PERSON" means any individual, partnership, limited partnership, joint
venture, syndicate. sole proprietorship, company or corporation with or
without share capital, unincorporated association, trust, trustee, executor,
administrator or other legal personal representative, government or
governmental authority or entity, however designated or constituted;
"PREPAYMENT AMOUNT" means the principal amount of this Debenture which the
Corporation proposes to prepay under Section 2.4 plus a non-refundable fee of
one per cent (1%) of such principal amount being prepaid;
"PROCEEDS CONDITIONS" means the conditions precedent in favour of the Holder
that (i) the Kemess South Mine has produced concentrate over the immediately
preceding 30 day period, and is able to sustain and maintain such production
thereafter, of not less than 7500 short tons of concentrate yielding mineral
content that is acceptable to Glencore Ltd. pursuant to the Glencore Agreement
(without giving effect to any amendments thereof), (ii) at such time the Kemess
South Mine accounts payable of the Corporation do not exceed U.S.$15,000,000 and
(iii) at such time the Kemess South Mine accounts payable of the Corporation are
not overdue in accordance with their respective terms;
"PROPOSED LEASEBACK ASSETS" means one P & H model 2800XPB Electric Mining Shovel
(Serial No.28127) and one P & H model 100XP Rotary Blast Hole Drill (Serial
No.10036);
"PURCHASE AGREEMENT" means the Securities Purchase Agreement dated April 17,
1998 entered into by Trilon Financial Corporation and the Corporation in respect
of, inter alia, the purchase of the Debentures, as amended from time to time;
"PURCHASE MONEY SECURITY INTEREST" means any Lien given, assumed or arising by
operation of law, including capital leases, to provide or secure, or to provide
the obliger with funds to pay, the whole or any part of the consideration for
the acquisition of property where the principal amount of the obligation secured
by such Lien (i) is not in excess of the cost to the obliger of the property
encumbered thereby and (ii) is secured only by the property being acquired by
the obliger, and includes the renewal or refinancing of any such Lien upon the
same property provided that the indebtedness secured and the security therefor
are not increased thereby;
"ROYALTY AGREEMENT" has the same meaning given to such term in the Purchase
Agreement;
"ROYALTY DEBENTURE" has the same meaning given to such term in the Purchase
Agreement;
11
<PAGE>
"SALE" has the meaning attributed to such term in section 5.3(e);
"SECURITY" means the Liens created by the Security Documents;
"SECURITY DOCUMENTS" means, collectively, the agreements, instruments and
documents delivered from time to time (both before and after the date of this
Debenture) to the Holder by the Corporation and APM and by any Subsidiary for
the purpose of creating, perfecting, preserving or protecting the security of
the Holder in respect of the Debenture and in respect of amounts outstanding
thereunder (including, without limitation, the documents referred to in Article
3, Section 5.1(v) and Section 5.1(x));
"SUBORDINATED NOTES" means the outstanding Secured 12.75% Senior Subordinated
Notes due 2006 in the aggregate principal amount of U.S.$175,000,000;
"SUBORDINATED NOTE TRUST INDENTURE" means the Trust Indenture dated as of August
12, 1996 among the Corporation, Kemess Mines Inc. and Mellon Bank, F.S.B.
relating to the Subordinated Notes, as amended by (i) the First Supplemental
Indenture, dated and effective as of December 31, 1997, (ii) the Second
Supplemental Indenture dated and effective as of January 31, 1998, (iii) the
Third Supplemental Indenture dated and effective as of May 19, 1998, (iv) the
Fourth Supplemental Indenture dated and effective the date hereof, and (v) the
Fifth Supplemental Indenture dated and effective the date hereof, each by and
between the Corporation and Chase Manhattan Trust Company, National Association,
the successor to Mellon Bank, F.S.B. as Trustee;
"SUBSIDIARIES" means all of the corporations listed on SCHEDULE E and any other
corporation or limited liability company which is or hereafter becomes directly
or indirectly controlled by the Corporation, and for the purposes of this
definition, the Corporation shall be deemed to control a corporation if the
Corporation beneficially owns, directly or indirectly, shares to which are
attached more than 50% of the voting rights ordinarily exercisable at meetings
of shareholders of such corporation, and the Corporation shall be deemed to own
beneficially shares beneficially owned by a corporation controlled by it, and so
on indefinitely, and the Corporation shall be deemed to control a limited
liability company where it owns more than 50% of the equity interests in such
limited liability company;
"TAXES" means all taxes of any kind or nature whatsoever including, without
limitation, income taxes, sales or value-added taxes, levies, stamp taxes,
royalties, duties, and all fees, deductions, compulsory loans and withholdings
imposed, levied, collected, withheld or assessed as of the date hereof or at any
time in the future, by any Governmental Body of or within Canada or any other
jurisdiction whatsoever having power to tax, together with penalties, fines,
additions to tax and interest thereon;
"THIS DEBENTURE" and "THE DEBENTURE" refer to this Debenture and, unless
otherwise expressly provided, not to any particular Article, section,
subsection, paragraph, clause, subdivision or other portion hereof, and
includes any and every instrument supplemental or ancillary hereto or in
implementation hereof;
12
<PAGE>
"WINDY CRAGGY PROPERTY" means the mineral claims in and around Windy Craggy
mountain in the Tatshenshini/Alsek region of northwestern British Columbia, more
particularly described in SCHEDULE F hereto.
13
<PAGE>
ROYAL OAK MINES INC.
- -------------------------------------------------------------------------------
SENIOR SECURED DEBENTURE - SERIES B
- -------------------------------------------------------------------------------
JUNE 22, 1998
File #9801032.TRI - SENR12B.DEB
LWS:wpc
GOODMAN AND CARR
Suite 2300
200 King Street West
Toronto, Ontario
M5H 3W5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE NO. DESCRIPTION PAGE NO.
<S> <C> <C>
1 - INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Use of Singular and Plural . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Interpretation Not Affected by Headings, etc.. . . . . . . . . . . . . . . . . . . . 1
1.4 Monetary References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Day Not a Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Debenture to Govern. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Generally Accepted Accounting Principles . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Computation of Time Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 Debentures in Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2 - PRINCIPAL AND INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Payment of Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Optional Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3 - SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Further Assurances - Security. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Representations and Warranties by the Corporation. . . . . . . . . . . . . . . . . . 9
4.2 Survival of Representations and Warranties by the Corporation. . . . . . . . . . . . 20
5 - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1 Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 Holder's Right to Decline to Receive Information . . . . . . . . . . . . . . . . . . 27
5.3 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6 - DEFAULT AND ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 Acceleration on Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.3 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.4 Debenture Not Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.2 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3 Exchange of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.4 Reliance and Non-Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.5 Amendment, Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.6 No Set-Off by the Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.7 Employment of Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.10 Payment of Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.12 Payment Agreements for Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
<PAGE>
ROYAL OAK MINES INC.
(Amalgamated under the laws of Ontario)
SENIOR SECURED DEBENTURE - SERIES B
Royal Oak Mines Inc. (the "Corporation") for value received hereby
acknowledges itself indebted and promises to pay to or to the order of the
Holder on the Final Maturity Date, each as defined herein, or such dates as all
or any part of the principal amount hereof may become due in accordance with the
provisions hereof, the principal sum of THIRTY-FIVE MILLION UNITED STATES
DOLLARS (U.S. $35,000,000) (or such parts thereof as may become due), on
presentation and surrender of this Debenture (in the case of payment of all of
the principal amount hereof) to the Corporation at its registered office or at
such place as the Corporation may direct, and to pay interest on the principal
amount of this Debenture outstanding from time to time at the rates and times
and in the amounts set forth herein.
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS
In this Debenture, unless otherwise defined in this Debenture, the terms
set out in SCHEDULE A shall have the meanings ascribed to them in that schedule.
1.2 USE OF SINGULAR AND PLURAL
Words importing the singular include the plural and vice versa and words
importing gender include all genders.
1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this Debenture into Articles, Sections, subsections and
paragraphs and the insertion of headings are for convenience of reference only
and shall not affect the construction or interpretation of this Debenture.
1.4 MONETARY REFERENCES
Any reference in this Debenture to "Canadian dollars" or "Can. $" or
similar terms shall be deemed to be a reference to lawful money of Canada and
any reference in this Debenture to "United States of America dollars", "United
States dollars" or "U.S. $" or similar terms shall be deemed to be a reference
to lawful money of the United States of America. If no such references are made
with respect to any particular sum or obligation, the sum or obligation in
question shall be deemed to refer to lawful money of Canada.
<PAGE>
1.5 DAY NOT A BUSINESS DAY
In the event that any day on or before which any action is required to
be taken hereunder is not a Business Day, then such action shall be required to
be taken on or before the requisite time on the first Business Day thereafter.
1.6 INVALIDITY OF PROVISIONS
Each of the provisions contained in this Debenture is distinct and
severable and a declaration of invalidity, illegality or unenforceability of any
such provision or part thereof by a court of competent jurisdiction shall not
affect the validity or enforceability of any other provisions hereof or thereof.
Without limiting the generality of the foregoing, if any amounts on account of
interest or fees or otherwise payable by the Corporation to the Holder hereunder
exceed the maximum amount recoverable under Applicable Law, the amounts so
payable hereunder shall be reduced to the maximum amount recoverable under
Applicable Law.
1.7 REFERENCES
Except as otherwise specifically provided, reference in this Debenture
to any contract, agreement or any other instrument shall be deemed to include
references to the same as varied, amended, supplemented or replaced from time to
time and reference in this Debenture to any enactment, including without
limitation any statute, law, by-law, regulation, ordinance or order, shall be
deemed to include references to such enactment as re-enacted, amended or
extended from time to time.
1.8 DEBENTURE TO GOVERN
If there is any inconsistency between the terms of this Debenture and
the terms of any Security Document, the provisions hereof shall prevail to the
extent of the inconsistency, but the foregoing shall not apply to limit or
restrict in any way the rights and remedies of the Holder under the terms of the
Security Documents after the Liens thereby constituted shall have become
enforceable.
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1.9 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Unless otherwise specifically provided herein, all accounting terms
shall be applied and construed in accordance with Canadian generally accepted
accounting principles consistently applied. For the purpose of determining
compliance with the financial covenants set forth in Section 5.1(t), all
computations shall be calculated on a consolidated basis, where applicable, and
shall be adjusted to eliminate the effect of any discretionary change by the
Corporation in the application of generally accepted accounting principles since
the date of its most recent audited consolidated financial statements prior to
the date hereof.
1.10 COMPUTATION OF TIME PERIODS
In this Debenture, in the computation of periods of time from a
specified date to a later specified date, unless otherwise expressly stated, the
word "from" means "from and including", and the words "to" and "until" each mean
"to but excluding".
1.11 DEBENTURES IN SERIES
The Series A Senior Secured Debentures of the Corporation (the "Series A
Debentures") may be issued to one or more holders. The aggregate principal
amount of Series A Debentures which shall be issued shall be U.S. $85,000,000.
The Corporation shall also issue Series B Senior Secured Debentures of the
Corporation (the "Series B Debentures"), the aggregate principal amount of which
shall be U.S. $35,000,000.
This Debenture and all other Series B Debentures now or hereafter issued
shall be rateably secured by a Lien on the property, assets and undertaking of
the Corporation and shall rank pari passu inter se for payment (whether such
payment is a payment, repayment and/or prepayment and whether same is voluntary
or mandatory) of principal and/or interest hereunder and all such payments shall
be made pro rata to each holder of Series B Debentures in accordance with the
principal amount outstanding under the debenture held by such holder at the time
of such payment.
For as long as a Default or an Event of Default has occurred and is
continuing, all amounts realized pursuant to the enforcement or the exercise
of collection or other remedial action pursuant to or with respect to the
Security (as defined in the Series A Debenture) for the Series A Debenture or
the Security for the Series B Debenture shall be applied first to pay in full
any and all amounts outstanding pursuant to the Series A Debenture, and shall
not be applied to pay any or all amounts outstanding pursuant to this Series
B Debenture unless and until all amounts outstanding pursuant
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to the Series A Debenture have been paid in full.
At all times prior to the occurrence of a Default or an Event of
Default, and at all times after a Default or an Event of Default which has
occurred has been cured, provided that no other Default or Event of Default has
occurred which is continuing, all amounts realized pursuant to the enforcement
or the exercise of collection or other remedial action pursuant to or with
respect to the Security (as defined in the Series A Debenture) for the Series A
Debenture or the Security for the Series B Debenture shall be applied pro rata
in accordance with the relative amounts outstanding under the Series A Debenture
and the Series B Debenture at the time of such payment.
The Holder, by its acceptance of this Debenture, agrees to be bound by
the provisions contained herein.
1.12 REPAYMENT AMOUNT
For the purposes of (i) the repayment and prepayment of the principal
amounts outstanding hereunder, (ii) the payment of interest thereon and (iii)
the payment of fees contemplated in Sections 2.3 and 2.4 hereof, the amount
outstanding hereunder at any time shall be the aggregate of the Initial Purchase
Price paid by the Holder, the Additional Purchase Price paid by the Holder if
any, any and all compounded interest at such time, and such other fees, expenses
and other amounts as may be payable by the Corporation to the Holder pursuant to
the Documents at such time.
1.13 USE OF PROCEEDS
The Corporation hereby covenants, agrees, represents and warrants with
and to the Holder that the Corporation will use the proceeds from the issuance
and sale of Debentures:
(a) to repay all amounts outstanding under the Senior Secured
Debenture Facility (as defined in the Purchase Agreement);
(b) to repay those Kemess South Mine accounts payable of the
Corporation listed in SCHEDULE G;
(c) to fund capital and non-capital expenses of the Corporation in
connection with the construction, development and operation of the
Kemess South Mine.
In addition to the foregoing, and until the occurrence of a Default or
Event of Default hereunder:
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(d) the Corporation may use such proceeds for general corporate
purposes in an amount not to exceed the aggregate of U.S. $20,000,000;
and
(e) to the extent that the amounts referred to in Section 1.13(d)
hereof are insufficient to satisfy the general corporate purposes of the
Corporation, and provided the Proceeds Conditions have then been and
remain satisfied, the Corporation may then use such proceeds for general
corporate purposes.
ARTICLE 2 - PRINCIPAL AND INTEREST
2.1 INTEREST
Interest shall accrue from the date hereof, before and after the
occurrence of an Event of Default, demand, maturity or judgment, on the
outstanding principal amount of this Debenture, and on all overdue costs,
expenses and interest payable hereunder, at the Interest Rate and shall be
calculated and compounded monthly on the first day of each calendar month, and
shall be payable on the first day of the calendar month occurring after the
earlier of (i) July 31, 1998, and (ii) the Kemess Mine Production Date, and
thereafter shall be calculated and compounded monthly and payable monthly in
arrears on the first calendar day of each month in each year (each an "Interest
Payment Date") and on the Maturity Date. Notwithstanding the foregoing
sentence, any accrued or accruing interest hereunder shall become and shall be
immediately due and payable in full in the event that the principal amount
outstanding hereunder has become due and payable.
2.2 PAYMENT OF INTEREST
Except as otherwise provided for herein, as interest on this Debenture
becomes due (except interest payable on the Maturity Date, which shall be paid
upon presentation and surrender of this Debenture for payment), the Corporation
shall pay to the Holder the interest due and payable on each Interest Payment
Date, without deduction or set-off, by wire transfer of immediately available
funds to such account and address of the Holder as may be provided by the Holder
from time to time.
2.3 REPAYMENT
(a) Subject to the terms and conditions of this Debenture including the
provisions of Section 6.2 hereof, the principal amount of this Debenture and all
accrued interest thereon and any other amounts payable hereunder in connection
with this Debenture shall be repaid in full on the date that is two years from
the date hereof (the "Final Maturity Date").
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(b) In addition to any other amounts payable by the Corporation hereunder,
the Corporation shall pay:
(i) on February 15, 1999, a non-refundable fee equal to 2% of the
amount by which the aggregate amount then outstanding under the
Debentures (including principal and accrued interest and unpaid
fees and expenses) exceeds U.S. $80,000,000; and
(ii) On October 15, 1999, a non-refundable fee equal to 2% of the
amount by which the aggregate principal amount then outstanding
under the Debentures (including principal and accrued interest
and unpaid fees and expenses) exceeds U.S. $50,000,000.
Such fees shall be payable to the holders of the Debentures pro rata and pari
passu, in accordance with the provisions of Section 1.11.
2.4 OPTIONAL PREPAYMENT
Subject to the terms and conditions of this Debenture and provided no
Default or Event of Default has occurred hereunder, under any other Series B
Debentures or under any of the Series A Debentures, the Corporation shall have
the privilege of prepaying from time to time, on any Business Day, all or any
part of the principal amount of this Debenture on payment to the Holder of the
Prepayment Amount provided that:
(a) any such prepayment shall only be made on at least five Business
Days' notice to the Holder, which notice, once given, shall be
irrevocable and binding upon the Corporation;
(b) any such prepayment shall be in an amount of at least U.S.
$5,000,000;
(c) any such prepayment shall be accompanied by payment of all
interest, fees and other amounts accrued in respect of the principal
amount being so prepaid to the date of prepayments as well as all other
amounts due and payable under this Debenture on the date of prepayment;
(d) each such prepayment shall be in accordance with Section 1.11;
and
(e) no such prepayment will be permitted at any time that the
Permitted Encumbrances set out in Part I of SCHEDULE C1 exceeds
Can.$10,000,000.
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2.5 SUBORDINATED NOTE TRUST INDENTURE
The Corporation hereby designates the Debt payable hereunder by the
Corporation to the Holder as "Designated Senior Indebtedness" pursuant to and in
accordance with the Subordinated Note Trust Indenture.
ARTICLE 3 - SECURITY
3.1 SECURITY
(a) As security for the due and punctual payment of all of its
obligations to the Holder under or in respect of this Debenture and the
other Documents, the Corporation shall execute and deliver to the
Holder, contemporaneous with the delivery of this Debenture to the
Holder, valid and enforceable Liens against all present and
after-acquired property, undertaking and assets of the Corporation except
the Excluded Assets, all in form and substance satisfactory to the Holder
and its Counsel, including without limitation the following:
(i) a security debenture by the Corporation creating a fixed
and floating Lien on all of the Corporation's present and
after-acquired property and assets including, without limitation,
fixed and specific Liens on all property and assets comprising
the Kemess Mine;
(ii) a general security agreement by the Corporation creating
a Lien on all of the Corporation's present and after-acquired
property and assets;
(iii) a limited guarantee by APM of the obligations of the
Corporation to the Holder;
(iv) a general security agreement by APM creating a Lien on
all of APM's present and after-acquired property and assets;
(v) assignments of the Corporation's interests in all
material mining claims, concessions and leases in any way
relating to the Kemess Mine;
(vi) an assignment by the Corporation of its rights and
interest in the Kemess South Resources Limited Partnership;
(vii) if and to the extent required by the Holder, an
assignment (and, where required, consents to such assignment) by
the Corporation of its rights and interest in the Kemess Mine
Construction Contracts;
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(viii) an assignment (and, where required, consent to such
assignment) by the Corporation of its rights and interest in such
of the Material Contracts as the Holder may designate;
(ix) pledges of all of the shares in the capital of APM held
by the Corporation;
(x) a deed of moveable hypothec for use in the province of
Quebec; and
(xi) such other agreements and documents as may, in the sole
discretion of the Holder, be necessary or desirable to grant to
the Holder valid and enforceable Liens on all of the property,
undertaking and assets of the Corporation other than the Excluded
Assets.
Notwithstanding anything to the contrary contained in the foregoing but
subject always to the provisions of Section 5.1(v), the Corporation
shall not be obligated to register the Security against any real
property or mineral claims comprising: (i) the Pamour Mine, the
Nighthawk Lake Mine and the mines generally known as Giant, Hope Brook
and Colomac; and (ii) the Corporation's currently existing exploration
properties not in any way relating to the Kemess Mine.
(b) Contemporaneous with the delivery of the Security Documents
contemplated by Section 3.1(a), the Corporation shall deliver to the
Holder legal opinions in form and content, and from legal counsel,
satisfactory to the Holder regarding the validity, enforceability and
priority of all Liens created by such Security Documents and regarding
such other matters as the Holder may require to evidence compliance with
the terms of this Debenture and the other Documents.
(c) The Corporation shall ensure that all of the Security Documents
are executed and delivered in accordance with this Article 3 and the
Liens created thereby are perfected in all jurisdictions and at all
times reasonably required by the Holder.
3.2 NO MERGER
The Security Documents shall not merge in any other security. No
judgment obtained by the Holder shall in any way affect any of the provisions of
this Debenture or any of the Security Documents. For greater certainty, no
judgment obtained by the Holder shall in any way affect the obligation of the
Corporation to pay principal, fees and interest at the rates, times and in the
manner provided in this Debenture.
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3.3 FURTHER ASSURANCES - SECURITY
From time to time following the Closing Date, the Corporation shall at
the expense of the Corporation take such action (including, without limitation,
the provision of information and access to property) and execute and deliver to
the Holder such agreements, conveyances, deeds and other documents and
instruments as the Holder shall reasonably request in furtherance of granting to
the Holder valid and enforceable first priority Liens on all of the
Corporation's present and after acquired property, undertaking and assets other
than the Excluded Assets, and the Corporation shall at the expense of the
Corporation register, file or record the same (or a notice or financing
statement in respect thereof) in all offices where such registration, filing or
recording is, in the opinion of the Holder, necessary or advisable to
constitute, perfect and maintain such Liens in all jurisdictions reasonably
required by the Holder, subject only to Permitted Encumbrances, provided that
(subject always to the provisions of Section 5.1(v)) the Corporation shall not
be obligated to register the Security against any real property or mineral
claims comprising: (i) the Pamour Mine, the Nighthawk Lake Mine and the mines
generally known as Giant, Hope Brook and Colomac; and (ii) the Corporation's
currently existing exploration properties not in any way relating to the Kemess
Mine. The Corporation shall deliver opinions of its Counsel in respect of such
matters, in each case within a reasonable time after the request therefor by the
Holder, and in each case in form and substance reasonably satisfactory to the
Holder.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES BY THE CORPORATION
The Corporation hereby represents and warrants to the Holder and so long
as this Debenture remains in effect shall be deemed to continuously represent
and warrant as follows and acknowledges that the Holder is relying on such
representations and warranties in connection with its purchase of the Debenture:
(a) INCORPORATION AND STATUS OF THE CORPORATION. The Corporation is
the successor corporation resulting from the amalgamation on December
29, 1997 of the former Royal Oak Mines Inc. and Kemess Mines Inc., is
duly amalgamated and organized under the laws of its jurisdiction of
incorporation, is in good standing in each jurisdiction where, by reason
of its business or assets, it is required to be qualified or licensed
and has, subject to the Materiality Threshold, all powers, licenses,
franchises and permits required to own its assets and carry on its
business as the same is presently carried on.
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(b) POWER AND CAPACITY. The Corporation has the corporate power to
enter into each of this Debenture and the other Documents and to do all
acts and things as are required or contemplated hereunder or thereunder
to be done, observed and performed by it.
(c) DUE AUTHORIZATION, NO CONTRAVENTION. The entering into and the
performance by the Corporation of this Debenture, the other Documents
and the transactions contemplated herein and therein (i) have been duly
authorized by all necessary corporate action on the part of the
Corporation and (ii) do not and will not contravene, violate, breach or
result in any default under the articles, by-laws, constating documents
or other organizational documents of the Corporation, or any agreement
to which the Corporation is a party or, subject to the Materiality
Threshold, any term or provision of any regulatory license or permit or
any order of any court, governmental authority or regulatory body or any
law or regulation of any jurisdiction in which the Corporation carries
on its business.
(d) BINDING AGREEMENT. This Debenture and the other Documents have
been duly executed and delivered by the Corporation and constitute
legal, valid and binding obligations enforceable against the Corporation
in accordance with their terms, subject only to the availability of
equitable remedies and the effect of bankruptcy, insolvency and similar
laws affecting the rights of creditors generally.
(e) NO PROCEEDINGS. As of the date of execution of this Debenture,
except as is disclosed in SCHEDULE H and subject to the Materiality
Threshold there is no material litigation, arbitration or administrative
proceedings, actions, suits or investigations outstanding, pending or,
to the Knowledge of the Corporation, threatened against the Corporation
or any of its properties. None of the transactions contemplated hereby
or by the other Documents have been enjoined by any Governmental Body
and no suit or other proceeding challenging the transactions
contemplated hereby or by the other Documents has been instituted or, to
the Knowledge of the Corporation, threatened, and no investigative
demand on the Corporation or any Subsidiary related to such transactions
has been made by any Governmental Body and no Governmental Body or
Person has, to the Knowledge of the Corporation, threatened to take any
such action.
(f) COMPLIANCE WITH APPLICABLE DOCUMENTS AND LAWS. The Corporation
is not in violation of, or in default under (and there does not exist
any event or condition which, after notice or lapse of time or both,
would constitute such a default under), any term of its articles,
by-laws, constating documents or other organizational documents, or,
subject to the Materiality Threshold and other
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than amounts owed to the holders of the Existing Encumbrances, under any
term of any agreement, instrument, judgment, decree, order, statute,
injunction, governmental regulation, rule or ordinance (including,
without limitation, those relating to zoning, city planning or similar
matters) applicable to the Corporation, or to which the Corporation is
bound or which may otherwise be applicable to any property of the
Corporation other than as is disclosed in item 11 of SCHEDULE H.
(g) NO CONSENTS REQUIRED. Except as may be expressly set out in
SCHEDULE J hereto (the "Consents"), there are no consents, permits,
approvals, confirmations and acknowledgements required in order for the
Corporation to carry out the transactions contemplated hereby and by the
Documents, provided that the granting of fixed and specific Liens or
assignments which the Holder may request following the date hereof
pursuant to its right to do so hereunder or under the Documents may
require consents or approval of other Persons so as not to constitute
events of default under any agreements with such Persons.
(h) SHARES. SCHEDULE E sets out the name and jurisdiction of
incorporation, continuance or amalgamation of the Corporation and each
Subsidiary, and SCHEDULE K accurately describes the respective
authorized and issued share capital as of the date hereof of the
Corporation and each Material Subsidiary. Other than as disclosed in
Section 4.1(i) hereof, there are no shareholders' agreements, pooling
agreements, voting trusts or other similar agreements with respect to
the ownership or voting of any of the shares of the Corporation or of
Material Subsidiaries or pursuant to which any person may have any right
or claim in connection with any existing or past equity interest in the
Corporation or such Material Subsidiaries.
(i) NO OBLIGATION TO ISSUE SHARES. Except for (i) agreements,
options, warrants, rights and conversion or other rights granted to
current or former directors and employees of the Corporation in respect
of which no more than 10 million common shares of the Corporation may be
acquired, (ii) agreements to issue to the Corporation shares of APM
(which shares when issued will be subject to the Security and all share
certificates in respect thereof will, at the request of the Holder, be
delivered to the Holder), (iii) special warrants and common shares which
may be issued by the Corporation to its creditors, in lieu of partial
payment to such creditors, and to other Persons, and (iv) 10,000,000
common shares being issued to the consenting holders of the Subordinated
Notes, there are no agreements, options, warrants, rights of conversion
or other rights pursuant to which the Corporation or any of the
Subsidiaries is or may become obligated to issue any shares or any
securities convertible into, or exchangeable for, shares.
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(j) FINANCIAL STATEMENTS. The Audited Financial Statements and the
Interim Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied (subject
to usual year-end adjustments in the case of the Interim Financial
Statements) and fairly present the financial position of the Corporation
and the Subsidiaries and the results of their operations at the times
and for the periods indicated. The Corporation and each of the
Subsidiaries has no outstanding liabilities, contingent or otherwise,
other than those disclosed in the Audited Financial Statements and the
Interim Financial Statements and other than trade or business
obligations subsequently incurred in the ordinary course of business,
which such trade and business obligations are currently in good standing
in accordance with their respective terms, other than as set forth in
SCHEDULE L.
(k) PERMITS, COMPLIANCE WITH LAWS. This section 4.1(k) shall be
subject to the Materiality Threshold. The Corporation has all licences,
permits, approvals and franchises that it requires, or is required to
have, to own its properties and assets and to carry on its business as
presently conducted including, without limitation, in respect of the
construction and development of the Kemess South Mine. All such
licences, permits, approvals and franchises are in good standing and,
except as is disclosed in item 11 of SCHEDULE H, no actions,
proceedings, investigations or other steps of any kind are in process,
pending, to the Knowledge of the Corporation threatened, or reasonably
foreseeable which might result in any such licence, permit, approval or
franchise being terminated, revoked, withdrawn, suspended or otherwise
made unavailable to the Corporation for any period of time. The
Corporation has applications pending for all additional licences,
permits, approvals and franchises necessary or desirable for the
commencement of mining operations at the Kemess Mine in the manner and
to the full extent contemplated in plans and projections disclosed to
the Holder (a list of which additional licenses are attached here as
SCHEDULE M) and has no reason to believe that any or all such additional
licences, permits, approvals and franchises will not be granted to
prevent, impair or interfere with the Kemess Mine Production Date
occurring on or before December 31, 1998. Except as is disclosed in
item 11 of SCHEDULE H, the Corporation is conducting its business in
compliance with all applicable laws, regulations, by-laws and ordinances
of each jurisdiction in which its business is carried on, including
without limitation all laws, regulations, by-laws and ordinances
relating to mining concessions.
(l) NO RESTRICTIONS. Except as may be provided for in agreements
between the Province of British Columbia and the Corporation respecting
economic assistance, copies of which have been provided to the Holder,
the Corporation is not a party to or bound by any agreement which would
restrict or limit its
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right to carry on any business or activity or to solicit business from
any Person or in any geographical area or otherwise to conduct the
business of the Corporation. The Corporation is not subject to any
legislation or any judgment, order or requirement of any court or
governmental authority which is not of general application to persons
carrying on a business similar to the business of the Corporation.
(m) LIMITATION ON PAYMENT RESTRICTIONS. Except for restrictions
contained herein and in the Subordinated Note Trust Indenture, and
restrictions in favour of the holders of the Permitted Hedging
Indebtedness to the extent such restrictions herein and in the
Subordinated Note Trust Indenture have been agreed to and adopted by the
Corporation and such holders, neither the Corporation nor any Subsidiary
is subject to any consensual restriction on its ability (a) to pay
dividends or make any other distributions on its equity securities to,
or pay any indebtedness owing to, or repurchase or redeem any equity
securities from, the holders of such equity securities, the Corporation
or any other Subsidiary, (b) to make any loans or advances to the
Corporation or any other Subsidiary, or (c) to transfer any of its
property or assets to the Corporation or any other Subsidiary.
(n) NO MATERIAL ADVERSE CHANGES, DAMAGE OR ACCIDENTS. Since June 1,
1998, the Corporation has operated its business diligently and only in
the ordinary course of business and except for the defaults set out in
SCHEDULE I (the "Disclosed Defaults"), (which Disclosed Defaults have
been remedied), and except for the Corporation committing events of
default pursuant to the Subordinated Note Trust Indenture (which have
since been cured), there has not been any material adverse change in the
condition (financial or otherwise), assets, liabilities, affairs,
business or operations of the Corporation, any substantial loss of or
damage to the assets of the Corporation, or any accident (subject to the
Materiality Threshold) relating to the mines, properties or mining
operations of the Corporation in which any employee of the Corporation
was injured. For greater certainty, since June 1, 1998 the Corporation
has not:
(i) incurred any liabilities other than in the ordinary
course of business consistent with past practice;
(ii) sold, encumbered, assigned or transferred any assets or
properties of the Corporation, other than for fair market value,
to purchasers at arms length to the Corporation and in the
ordinary course of business consistent with past practice;
(iii) created, incurred, assumed or guaranteed any obligations,
liabilities or indebtedness except in the ordinary course of
business
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consistent with past practice or subjected any of its
assets to any Lien except for Existing Encumbrances;
(iv) changed or amended its governing documents in any
respect;
(v) declared, set aside, paid or made any distributions in
cash or property on its equity securities including its common
shares;
(vi) directly or indirectly redeemed, purchased or otherwise
acquired any of its equity securities;
(vii) other than the resignations of John May, Matthew
Gaasenbeek, Michael Lalonde, Nancy Deshaw and Scott Lampe,
suffered any resignation or termination of employment of any key
officers or directors or become aware of any impending
resignation or termination of employment of any such key officers
or directors;
(viii) except in the ordinary course of its business, or as
disclosed in writing to the Holder prior to the date hereof,
materially increased the compensation payable or to become
payable to any of its officers or directors or materially
increased any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made for or with any such officers
or directors;
(ix) materially changed its accounting methods, principles or
practices; or
(x) entered into any agreement or commitment to do any of the
things described in this section.
(o) NO WORK ORDERS. Except as is disclosed in item 11 of SCHEDULE H
and subject to the Materiality Threshold, no work orders, directions or
notices have been issued pursuant to any applicable law relating to the
business of the Corporation or any part of the Mortgaged Property or
relating to or pursuant to any environmental matters affecting the
foregoing and the Corporation has not received any notification from any
Governmental Body that any work, repairs, construction or capital
expenditures are required to be made in respect of the Mortgaged
Property or any part thereof as a condition of continued compliance with
any applicable law or any Material Authorizations issued thereunder.
(p) NO DEFAULT. Subject to the Materiality Threshold, the
Corporation is not in default or breach under any material commitment or
obligation under the terms and conditions relating to any Material
Authorizations and there exists
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no state of facts which, after notice or the passage of time or both,
would constitute such a default or breach and there are no proceedings
in progress, pending or, to the Knowledge of the Corporation, threatened
which may result in the revocation, cancellation, suspension, non-grant
or any adverse modification of any Material Authorization except as is
disclosed in item 11 of SCHEDULE H. The Corporation has obtained all
Material Authorizations necessary or desirable to carry on all
activities currently and previously carried on at the Kemess Mine.
(q) NON-ARM'S LENGTH TRANSACTIONS. Except as is described in
employment agreements and correspondence delivered to the Holder prior
to the date hereof, the Corporation is not a party to any contract,
commitment or transaction (including by way of loan) with any officer,
director or shareholder of the Corporation, any of the Subsidiaries, or
any of their respective affiliates or associates, other than as
disclosed in the Audited Financial Statements and the Interim Financial
Statements and other than employment contracts in the ordinary course of
business.
(r) TAX MATTERS.
(i) The Corporation has prepared and filed on a timely basis
with all appropriate Governmental Bodies all returns with respect
to Taxes and other documents that it is required to file in
respect of any Taxes for all fiscal periods ending on or prior to
the date hereof and all such returns or other documents are
correct and complete in all material respects;
(ii) The Corporation has paid in full all Taxes due on or
before the date hereof and, in the case of Taxes accruing on or
before the date hereof that are not due on or before the date
hereof, the Corporation will have made adequate provision in its
books and records and financial statements for such payment; and
the Corporation does not have any liability for Taxes other than
those provided for in the Audited Financial Statements and the
Interim Financial Statements and those arising subsequently in
the ordinary course of the operation of its business;
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(iii) The Corporation has withheld from each payment made to
any of its present or former employees, officers, directors and
to all persons who are non-residents of the applicable
jurisdictions all amounts required pursuant to Applicable Law to
be withheld or remitted and will continue to do so until the
Maturity Date and furthermore has remitted such amounts within
the applicable periods to the appropriate Governmental Body; the
Corporation has remitted all Canada Pension Plan contributions,
unemployment insurance premiums, employer health taxes and other
Taxes payable by it in respect of its employees and has or will
have remitted such amounts to the appropriate Governmental Body
within the time required under the applicable legislation; and
the Corporation has charged, collected and remitted on a timely
basis all Taxes as required under applicable legislation on any
sale, supply, or delivery whatsoever, made by the Corporation;
(iv) Except for a disputed assessment of fuel taxes payable by
the Corporation to the government of Canada in the approximate
amount of Can. $100,000, there are no reassessments of the
Corporation with respect to Taxes that have been issued and are
outstanding; no Governmental Body has challenged, disputed or
questioned the Corporation in respect of Taxes or in respect of
any returns, filings or other reports filed under any statute
providing for Taxes; the Corporation has not received any
indication from any Governmental Body that an assessment or a
reassessment in respect of the Corporation is proposed; and the
Corporation has not executed or filed any agreement extending the
period for assessment, reassessment or collection of any Taxes.
(s) NO ENCUMBRANCES. The Corporation owns and has good and
marketable title, free and clear of all Liens except Existing
Encumbrances, to all assets used in connection with its business
including, without limitation, all assets reflected on the balance sheet
included in the Audited Financial Statements and the Interim Financial
Statements or acquired by it after the date of such balance sheet except
for changes in such assets in the ordinary course of business subsequent
to that date. All material operating facilities, equipment and other
material items of tangible property and assets owned by the Corporation
are in good operating condition and repair, subject to normal wear and
maintenance and having regard to their respective ages, are usable in
the regular and ordinary course of business and conform to all
Applicable Laws relating to their construction, use and operation,
except where such failure, individually or in the aggregate, would not
have a material adverse effect on the Corporation. The Corporation's
quarterly report on Form 10-Q for the
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fiscal quarter ended March 31, 1998 filed with the United States
Securities And Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended, contains a complete and accurate description of
all material property and assets owned by the Corporation. SCHEDULE N
contains a complete and accurate description of all material property
and assets owned by the Corporation relating to the Kemess Mine.
Subject to the Materiality Threshold, all equipment or other tangible
assets or property situated on the premises of the Corporation, or
necessary to the operation of the business of the Corporation, which is
leased under a capital lease or under a material operating lease is
listed in SCHEDULE O. Subject to the Materiality Threshold, the
Corporation is in compliance with all terms of agreements and
arrangements governing the leased items listed in SCHEDULE O.
(t) MATERIAL INDEBTEDNESS. SCHEDULE P contains a list of all
material indebtedness of the Corporation in excess of Can. $1,000,000
and the identity of the Persons to whom it is owed. The accounts
payable of the Corporation listed in SCHEDULE G relate only to the
construction, development and operation of the Kemess South Mine.
(u) SECURITY DOCUMENTS. The Security Documents and the other
Documents create a valid and enforceable security interest and Lien upon
the Mortgaged Property securing the payment and satisfaction of all
obligations of the Corporation and APM to the Holder. Such security
interests are perfected security interests subject to no prior Liens or
Liens ranking senior in priority to the Liens in favour of the Holder,
except for such Liens (i) granted pursuant to the Royalty Debenture,
(ii) relating to or securing Debt of the Corporation not in excess of
Can. $15,000,000 as may be held by holders of Existing Encumbrances set
out in Part I of SCHEDULE C1.
(v) EMPLOYMENT MATTERS. Except as is disclosed in SCHEDULE Q, the
Corporation is not a party to or is not bound by any:
(i) written contract or commitment for the employment of any
employee or officer providing for an annual salary (including
benefits) of in excess of Can. $200,000 or a payment on
termination of in excess of six months salary and benefits;
(ii) oral contract or commitment for the employment of any
employee or officer, except for contracts of indefinite hire
terminable by the Corporation without cause on reasonable notice;
(iii) in the case of the Kemess Mine only, contract with or
commitment to any trade union, council of trade unions, employee
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bargaining agent or affiliated bargaining agent (collectively
called "labour representatives") and the Corporation has not
conducted negotiations with respect to any such future contracts
or commitments; no labour representatives hold bargaining rights
with respect to any employees of the Corporation relating to the
Kemess Mine; no labour representatives have applied to have the
Corporation declared a related employer pursuant to the
applicable labour legislation; and, to the Knowledge of the
Corporation, there are no current or threatened attempts to
organize or establish any trade union or employee association
with respect to the Kemess Mine project provided, however, that
the Corporation anticipates that steps may be taken by its
employees to unionize and negotiate collective bargaining
agreements for the Kemess Mine at some time in the future; or
(iv) except as is disclosed in financial information made
available to the Holder prior to the date hereof and subject to
the Materiality Threshold, bonus, pension, multi-employer, profit
sharing, deferred compensation, retirement, disability, health
insurance or similar benefit plan, with respect to any of its
employees or others (including without limitation any agreements
in respect of employee share ownership plans), other than Canada
Pension Plan, the Ontario Health Insurance Plan and other similar
health plans established and administered by any other
governmental authority or workers' compensation insurance
provided pursuant to statute.
Subject to the Materiality Threshold, there is no work stoppage or other
concerted action, grievance or dispute existing or, to the Knowledge of
the Corporation, threatened against the Corporation, and there is no
material complaint, grievance, claim, work order or investigation that
has been filed, made, commenced or, to the Knowledge of the Corporation,
threatened against the Corporation pursuant to any human rights,
occupational health and safety, workers compensation, employment
standards or pay equity legislation or any similar legislation of any
jurisdiction in which the Corporation carries on its business.
(w) INTELLECTUAL PROPERTY. The Corporation owns and has good and
marketable title, free and clear of all Liens except Existing
Encumbrances, to the Intellectual Property. The conduct of the business
of, and the use of the Intellectual Property by the Corporation does not
infringe, and the Corporation has not received any notice, complaint,
threat or claim alleging infringement of, any patent, trade mark, trade
name, copyright, industrial design, trade secret or other propriety
right of any other Person. To the Knowledge of the Corporation, the
Intellectual Property which is not owned by the Corporation is
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being used with the consent of, and in accordance with the consent or
licence from, the rightful owner thereof. The Corporation has taken all
necessary steps to establish, preserve and protect its rights in the
Intellectual Property which is material to the Corporation.
(x) MATERIAL CONTRACTS. SCHEDULE R contains a list of all agreements
of the Corporation which are material to the Kemess Mine and which have
not been fully performed by the parties thereto, including, without
limitation, agreements which relate to construction underway or proposed
at the Kemess Mine and including, without limitation, royalty, refining
and shipping agreements (the "Material Contracts"). SCHEDULE Z contains
a list of all material agreements of the Corporation relating to the
construction or development of the Kemess Mine or relating to the supply
of equipment to the Kemess Mine, which agreements have been performed by
the parties thereto but the warranty periods in respect of which have
not yet expired (the "Kemess Mine Construction Contracts"). Subject to
the Materiality Threshold, and other than amounts owed to holders of the
Existing Encumbrances, each of the Material Contracts and the Kemess
Mine Construction Contracts is in full force and effect without
amendment, and there has been no default under any of them, or under any
other material commitment or obligation, by the Corporation or, to the
Knowledge of the Corporation, any other party, nor has any event
occurred that, with the giving of notice, lapse of time or any other
condition subsequent, would constitute a default or would otherwise
allow the termination of any Material Contract or Kemess Mine
Construction Contract.
(y) MINING CONCESSIONS. SCHEDULES B-1 AND B-2 contain a complete and
accurate list of all material mining claims, concessions and leases in
which the Corporation has an interest relating in any way to the Kemess
Mine, including, without limitation, all mining claims, concessions and
leases in respect of which the Corporation has any obligation to
contribute funds or make payments, other than fees or taxes payable in
the ordinary course under the regulations governing such claims,
concessions or leases. The Corporation is the absolute beneficial owner
of, and has good and marketable title to, such mining claims,
concessions and leases in accordance with governing laws and
regulations, free of all Liens except for such rights as may be held by
Kemess South Resources Limited Partnership as disclosed in item (a) of
Part II of SCHEDULE C1 to this Debenture and by the holders of the
Existing Encumbrances.
(z) PRICING, HEDGING PROTECTION. Subject to the Materiality
Threshold, SCHEDULE S contains a complete and accurate list and
description of all hedging or related arrangements to which the
Corporation is a party or by which it is bound including, without
limitation, forward sale contracts, options, interest
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rate swap agreements, currency swap agreements, derivative agreements
and similar arrangements. None of the hedging or related arrangements
entered into by the Corporation provides for the granting of (i) any
Lien against the property, assets and undertaking of the Corporation
other than the Permitted Encumbrances described in Section (b) of the
definition thereof, or (ii) production advances or any other disposition
of any property, assets or undertaking of the Corporation in
consideration for advance or accelerated payment or other manner of
prepayment or payment not contemporaneous with delivery other than for
the sales of up to U.S. $10,000,000 of copper concentrate pursuant to
the Glencore Agreement.
(aa) ENVIRONMENTAL MATTERS. Except as is disclosed in item 11 of
SCHEDULE H regarding the sediment concerns at the Kemess South Mine and
subject to the Materiality Threshold, the Corporation is not in
violation of any applicable federal, provincial, state, municipal or
local laws, regulations, orders, governmental decrees or ordinances with
respect to environmental, health or safety matters (collectively,
"Environmental Laws") and no actions, proceedings, investigations or
other steps of any kind are in process, pending, to its Knowledge
threatened, or reasonably foreseeable with respect to any such existing
or past violation or alleged violation or other liability whatsoever on
the part of the Corporation under Environmental Laws. For greater
certainty, subject to the same qualifications and without limiting the
generality of the foregoing:
(i) the Corporation has carried on its business and at all
times has received, handled, used, stored, treated, shipped and
disposed at all times of all contaminants in compliance with all
Environmental Laws;
(ii) there have been no releases, deposits or discharges, in
violation of Environmental Laws, of any hazardous or toxic
substances, materials, pollutants, contaminants or wastes into
the earth, air or into any river, stream, lake or other body of
water or into any municipal or other sewer or drain water
systems;
(iii) no orders, directions or notices have been issued
pursuant to any Environmental Laws relating to the business or
assets of the Corporation; and
(iv) the Corporation has not failed to report to the proper
Governmental Body the occurrence of any event which is required
to be so reported by any Environmental Laws.
(bb) PLACES OF BUSINESS. The registered office of the Corporation is
situated
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at BCE Place, P.O. Box 747, Suite 2500, 181 Bay Street, Toronto,
Ontario, Canada M5J 2T7, and the chief executive office of the
Corporation is situated at 5501 Lakeview Drive, Kirkland, Washington,
U.S.A. 98033.
(cc) ALL MATERIAL INFORMATION SUPPLIED. The Corporation has provided
to the Holder all material information relating to the financial
condition, business and prospects of the Corporation and all information
provided to the Holder is true, accurate and complete in all material
respects and omits no material fact necessary to make such information
not misleading provided, however, that the Corporation is not
representing and warranting that the financial and operating projections
made by it will accurately correspond to actual future results
notwithstanding that they are based on the best information currently
available to the Corporation. For greater certainty, all documents
provided to the Holder in the course of investigating, negotiating and
preparing the Documents and the property, assets and affairs of the
Corporation are complete and, subject to the proviso in the immediately
preceding sentence, accurate in every respect and copies of all such
documents provided to the Holder conform in every respect to the
originals thereof.
(dd) DEBENTURE COVENANTS. No event or circumstance has occurred or
exists which is inconsistent with the covenants and agreements of the
Corporation set out in this Debenture or which would, immediately or
with the passage of time or giving of notice or taking of any other
prerequisite step, constitute a Default or Event of Default hereunder.
(ee) SUBORDINATED NOTES. The Corporation is, and will after giving
effect to the transactions contemplated by this Debenture and the other
Documents be, in compliance with all terms and conditions and agreements
applicable to the Subordinated Notes. The indebtedness under the
Debenture will fully constitute "Permitted Indebtedness" and the
Security will in every respect constitute "Permitted Liens" under the
Subordinated Note Trust Indenture. The indebtedness under the
Debentures and the amounts if any from time to time outstanding on
account of the Royalty Agreement constitute "Senior Indebtedness" under
the Subordinated Note Indenture. The indebtedness under the Debentures
constitute "Designated Senior Indebtedness" under the Subordinated Note
Indenture. The indebtedness of any Subsidiary under or on account of
the Debentures constitute "Guarantor Senior Indebtedness" under the
Subordinated Note Indenture. The Lender is entitled to the benefit of
and can rely on the provisions of the Subordinated Note Indenture
relating to "Senior Indebtedness", "Designated Senior Indebtedness" and
"Guarantor Senior Indebtedness" and the holder of the royalty pursuant
to the Royalty Agreement is entitled to the benefit of and can rely on
the provisions of the Subordinated Note Indenture relating to "Senior
Indebtedness" to the extent of
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the amounts if any from time to time outstanding on account of the
Royalty Agreement. Each of the Lenders and the holder of the royalty
pursuant to the Royalty Agreement, to the extent of the amounts if any
from time to time outstanding on account of the Royalty Agreement, can
enforce such provisions as are applicable to it directly against the
Corporation and any other Subsidiary. The Corporation has delivered to
the Holder complete and accurate copies of all agreements and documents
relating to the Subordinated Notes including, without limitation, the
Subordinated Note Trust Indenture. The Subordinated Notes are, in
accordance with their terms, fully subordinated and postponed to the
obligations of the Corpoation to the Holder under the Documents, which
obligations constitute "Senior Indebtedness" under the Subordinated Note
Trust Indenture.
(ff) SUBSIDIARIES OF THE CORPORATION. SCHEDULE E contains a list of
all of the Subsidiaries of the Corporation, including the jurisdiction
of incorporation, continuance and amalgamation for each such Subsidiary.
(gg) PROVINCIAL ECONOMIC ASSISTANCE. The Province of British Columbia
has unconditionally and irrevocably advanced to the Corporation
approximately Can. $154,000,000 of the previously committed economic
assistance, compensation and investment. All such economic assistance,
compensation and investment is completely and accurately described in
SCHEDULE T and the Holder has been provided with true, complete and
accurate copies of all agreements and other documents relating thereto.
Except for annual payments of Can. $1,000,000 for each of the 12
successive years commencing in 1999, both as identified in SCHEDULE T,
there are no further outstanding commitments of economic assistance,
compensation or investment which remain to be completed and there are no
commitments, agreements or arrangements with any Governmental Body which
would be breached or otherwise adversely impacted by the transactions
contemplated by the Documents or which could in any way preclude,
hinder, prejudice or delay the exercise of the Holder's rights and
remedies hereunder and thereunder.
(hh) WINDY CRAGGY PROPERTY. The inability of the Corporation to incur
expenditures on and maintain in good standing the Windy Craggy Property
will not result in: (i) any diminution in the amounts of payments from
the government of British Columbia pursuant to the agreement of June 27,
1997; (ii) revocation of any permits issued by the government of British
Columbia in connection with the Kemess Mine; or (iii) any material
adverse effect on the ability of the Corporation to conduct mining
operations at, and to maintain good title to, the Kemess Mine; and the
Windy Craggy Property does not include or in any way comprise the
property and assets comprising the Kemess Mine.
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(ii) BANKS. SCHEDULE T1 lists particulars, including bank, branch
address, account type and account number, of each bank account
maintained by the Corporation and by each of the Subsidiaries.
4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES BY THE CORPORATION
The representations and warranties made by the Corporation pursuant to
Section 4.1 hereof will survive the closing of the issuance of this Debenture
and the other transactions provided for herein and, notwithstanding such
closing or any investigation made by or on behalf of the Holder or any other
person or any knowledge of the Holder or any other person, shall continue in
full force and effect for the benefit of the Holder.
ARTICLE 5 - COVENANTS
5.1 AFFIRMATIVE COVENANTS
So long as the Debenture or any obligation of the Corporation to the
Holder under the Debenture or any other Document remains outstanding, the
Corporation covenants and agrees with the Holder that:
(a) PUNCTUAL PAYMENT AND PERFORMANCE OF DEBENTURE. The
Corporation shall pay or cause to be paid all amounts payable to the
Holder hereunder and under the other Documents on the dates and in the
manner specified therein and the Corporation shall perform and carry
out all of the acts or things to be done by the Corporation as
provided in the Debenture and the other Documents;
(b) CONDUCT OF BUSINESS. The Corporation shall do or cause to be
done all things necessary to maintain its corporate existence in its
present jurisdiction of incorporation and to maintain its corporate
power and capacity to own its properties and assets;
(c) PRESERVATION OF MATERIAL AUTHORIZATIONS. The Corporation and
each Material Subsidiary shall preserve and maintain all Material
Authorizations including, without limitation, all licenses, permits,
approvals and franchises necessary or desirable to carry on mining
operations at the Kemess Mine in the manner and to the full extent
contemplated in plans and projections disclosed to the Holder.
(d) PRESERVATION OF MINING CLAIMS, CONCESSIONS AND LEASES. The
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Corporation shall preserve and maintain: (i) all mining claims
subject to the Materiality Threshold, and all concessions and leases
necessary or desirable to carry on mining operations at the Kemess
Mine in the manner and to the full extent contemplated in plans and
projections disclosed to the Holder, and (ii) subject to the
Materiality Threshold, all other material mining claims, concessions
and leases.
(e) COMPLIANCE WITH APPLICABLE LAW AND CONTRACTS. The Corporation
and each Material Subsidiary shall comply with: (i) the requirements
of all Applicable Laws; (ii) all obligations which, if contravened,
could give rise to a Lien (other than Permitted Encumbrances) over any
of its property; and (iii) all insurance policies and all contracts to
which the Corporation or such Material Subsidiary is a party or by
which it or its properties are bound, non-compliance with which would,
singly or in the aggregate, have a material adverse effect upon the
business, property or financial condition of the Corporation or such
Material Subsidiary or upon its ability to perform its obligations
under this Debenture or any of the other Documents;
(f) INSURANCE. The Corporation and each Material Subsidiary shall:
(i) keep its properties and assets insured with reputable
insurers, in amounts not less than the replacement cost
thereof and against such losses as are insured against by
comparable corporations engaged in comparable businesses or
which the Holder may reasonably require including without
limitation, if requested by the Holder acting reasonably,
sudden and accidental pollution liability insurance;
(ii) maintain public liability insurance in such amounts and
against such risks as is normally carried by comparable
corporations engaged in comparable businesses or which the
Holder may reasonably require;
(iii) provide the Holder with certificates for all insurance
policies; and
(iv) provide that any loss under all such insurance policies
(other than policies in respect of third party liability and
business interruption insurance) in excess of Can. $500,000
shall be payable to the Holder subject only to any prior
rights which may be specifically held in such proceeds by the
holders of Permitted Encumbrances, provided that if a Default
or Event of Default has not occurred, the Corporation or such
Material Subsidiary shall, provided prior notice thereof shall
have been given to the Holder, be entitled to receive such
loss payment directly if the entire amount thereof is:
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(A) used to repair or replace the lost or damaged
property in question if the lost or damaged property
relates to the Kemess Mine; or
(B) if the lost or damaged property does not in any
way relate to the Kemess Mine either (x) used to repair
or replace the lost or damaged property in question or
(y) after applying such loss payment or a portion
thereof to the reasonable costs of any required
remediation of the lost or damaged property, used and
distributed as the proceeds of a "Sale" pursuant to and
in accordance with Section 5.3(e) hereof;
(g) ACCOUNTING METHODS AND FINANCIAL RECORDS. The Corporation
shall, and shall cause each of its Subsidiaries to, maintain a system
of accounting which is established and administered in accordance with
generally accepted accounting principles and keep adequate records and
books of account in which accurate and complete entries shall be made
in accordance with such accounting principles reflecting all
transactions required to be reflected by such accounting principles;
(h) MAINTENANCE OF MORTGAGED PROPERTY. The Corporation shall
maintain the Mortgaged Property comprising the Kemess Mine and all
other Mortgaged Property used by the Corporation or a Material
Subsidiary from time to time in good repair, working order and
condition (reasonable wear and tear excepted) and from time to time
make or cause to be made all necessary and appropriate repairs,
renewals, replacements, additions and improvements thereto;
(i) PAYMENT OF TAXES AND CLAIMS. The Corporation and each
Material Subsidiary shall:
(i) pay and discharge all lawful claims for labour,
material and supplies;
(ii) pay and discharge all Taxes payable by it;
(iii) withhold and collect all Taxes required to be withheld
and collected by it and remit such Taxes to the appropriate
Government Body at the time and in the manner required; and
(iv) pay and discharge all obligations incidental to any
trust imposed upon it by statute which, if unpaid, might
become a Lien upon any of the Mortgaged Property;
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(j) INSPECTIONS. The Corporation and each Material Subsidiary
shall permit the Holder and its authorized employees, representatives
and agents to: (i) visit and inspect its properties during normal
business hours, (ii) inspect and make extracts from and copies of its
books and records, and (iii) discuss with its senior management its
businesses, property, financial condition and prospects, all on a
reasonable basis and frequency;
(k) NOTICE OF LITIGATION AND OTHER MATTERS. The Corporation
shall, as soon as practicable after it shall become aware of the same,
give notice to the Holder of the following events:
(i) the commencement or threat of a material nature of any
action, proceeding, arbitration or investigation against or in
any other way relating adversely to the Corporation or the
Subsidiaries or any of their respective properties, assets or
businesses which, if adversely determined, would singly or
when aggregated with all other such actions, proceedings,
arbitrations and investigations have a material adverse effect
on the business, property or financial condition of the
Corporation or on the ability of the Corporation to perform
its obligations under this Debenture or any of the other
Documents;
(ii) any amendment of its articles, by-laws or other
organizational documents;
(iii) any actual or threatened revocation, termination,
modification, amendment, substitution, issuance or other
material event relating to Material Authorizations or to
mining claims, concessions or leases respecting the Kemess
Mine and, following any such event, the Corporation shall at
the request of the Holder use its best efforts to obtain from
the appropriate Governmental Body or other Persons such
consents, approvals, acknowledgements or other documents as
the Holder may consider necessary, acting reasonably, to
ensure that the Holder has valid and enforceable first
priority Liens on all such Material Authorizations, mining
claims, concessions or leases and may avail itself of the
rights and privileges of the Corporation thereunder and assign
such rights and privileges should the Holder enforce its
rights and remedies in respect of the Security and the other
Documents;
(iv) any development which has had or will have a material
adverse effect upon its business, property or financial
condition or its ability to perform its obligations under this
Debenture or any of the other Documents or which should
reasonably be expected to be of material interest to the
Holder, other than any changes in the market prices of
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gold or copper or changes in the Can. $/U.S.$ currency
exchange rate;
(v) any development which would lead the Corporation to
reasonably believe that the Kemess Mine Production Date will
not be on or before December 31, 1998;
(vi) any Default or Event of Default; and
(vii) any default or event of default, or the occurrence or
non-occurrence of any event which constitutes, or which with
the passage of time or giving of notice or both would
constitute, a material default under any other agreement to
which the Corporation or any Subsidiary is a party or by which
they or any of their properties may be bound which has a
material adverse effect on the business, property or financial
condition of the Corporation or its ability to perform its
obligations under this Debenture or any other Document;
giving in each case the details thereof and specifying the action
proposed to be taken with respect thereto.
(l) QUARTERLY CASHFLOW STATEMENTS. On or prior to the date hereof
and on the 25th day following the end of each calendar quarter
thereafter the Corporation shall deliver to the Holder in form and
substance acceptable to the Holder a cashflow statement on a line item
basis for the ensuing twelve (12) month period, all in such detail as
the Holder may reasonably require.
(m) MONTHLY FINANCIAL STATEMENTS. The Corporation shall, as soon
as practicable and in any event within 25 days after the end of each
month, deliver to the Holder the monthly unaudited consolidated
financial statements of the Corporation for the previous monthly
period including in each case a balance sheet, statement of profit and
loss and a statement of changes in financial position, together with
comparative figures for the corresponding month in the previous
Financial Year;
(n) INTERIM FINANCIAL STATEMENTS. The Corporation shall, as soon
as practicable and in any event within 60 days after the end of each
of the first three Financial Quarters of each Financial Year, deliver
to the Holder the interim unaudited consolidated financial statements
of the Corporation and, at the request of the Holder, interim
unaudited unconsolidated financial statements of the Corporation and
of the Subsidiaries, including in each case a balance sheet, statement
of profit and loss and a statement of changes in financial position,
together with comparative figures for the corresponding period in the
previous Financial Year;
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(o) ANNUAL FINANCIAL STATEMENTS. The Corporation shall, as soon
as practicable and in any event within 120 days after the end of each
Financial Year, deliver to the Holder the annual audited consolidated
financial statements of the Corporation and, at the request of the
Holder, annual unaudited unconsolidated financial statements of the
Corporation and of each Subsidiary including in each case a balance
sheet, statement of profit and loss, a statement of changes in
financial position and a statement of retained earnings, together with
comparative figures for the previous Financial Year;
(p) OFFICER'S CERTIFICATE. The Corporation shall deliver to the
Holder, together with the financial statements referred to in Sections
5.1(l), (n) and (o), an officers' certificate certifying (i) that such
financial statements were prepared in accordance with generally
accepted accounting principles (subject to normal year-end adjustments
in the case of interim unaudited financial statements) and fairly
present the financial condition of the Corporation and the other
Subsidiaries and the financial information presented therein for the
period and as at the date thereof, (ii) that no Default or Event of
Default has occurred hereunder or, if any Default or Event of Default
has occurred, specifying the relevant particulars and the period of
existence thereof and the action taken or proposed to be taken by the
Corporation with respect thereto, and (iii) demonstrating in
reasonable detail compliance (or, as the case may be, non-compliance)
with the covenants contained in Section 5.1(t);
(q) PUBLIC AND OTHER INFORMATION. The Corporation shall from time
to time deliver to the Holder copies of all reports, financial
statements, information or proxy circulars and other information or
notices sent by the Corporation (i) to its shareholders at the same
time as the Corporation sends such material to its shareholders, and
(ii) pursuant to the Subordinated Note Trust Indenture at the same
time as Corporation sends such material to the recipient thereof, and
(iii) the Corporation shall deliver to the Holder copies of all press
releases, material change reports and similar disclosures filed by the
Corporation with any securities regulatory authority or stock
exchange, provided that, if any such reports or disclosures under this
paragraph (iii) are filed on a confidential basis, then the
Corporation shall not be required to deliver the same to the Holder
until such time as they are no longer filed on a confidential basis;
(r) CHANGE OF CONTROL. The Corporation shall immediately notify
the Holder in the event of a Change of Control of the Corporation;
(s) OTHER INFORMATION. The Corporation shall furnish to the
Holder, as soon as practicable following a request therefor from the
Holder, such other information as the Holder may reasonably request
from time to time;
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(t) FINANCIAL COVENANTS. The Corporation shall ensure that:
(i) EBITDA shall not be less than:
(A) for the Financial Quarter ending March 31,
1999, Can. $9,000,000;
(B) for the two Financial Quarters ending June 30,
1999, Can. $18,000,000;
(C) for the three Financial Quarters ending
September 30, 1999, Can. $27,000,000; and
(ii) following September 30, 1999, Can. $36,000,000 as at
the end of each Financial Quarter and calculated in each case
for the preceding 12 months;
(u) KEMESS MINE PRODUCTION DATE. The Corporation shall keep the
Holder informed as to the progress of the construction, development
and operation of the Kemess South Mine and when the Kemess Mine
Production Date has occurred and shall deliver to the Holder a
certificate (together with reasonable backup) of a senior officer to
that effect;
(v) PAMOUR MINE AND NIGHTHAWK LAKE MINE The Corporation shall,
and shall cause each Subsidiary, as required to, forthwith following a
request therefor from the Holder and at the expense of the Corporation
deliver to the Holder valid and enforceable first priority Liens
against the Pamour Mine and the Nighthawk Lake Mine all in form and
substance satisfactory to the Holder and its Counsel together with
legal opinions in form and content, and from legal counsel,
satisfactory to the Holder regarding the validity, enforceability and
priority of such Liens and regarding such other matters as the Holder
may require to evidence compliance with the terms of this Debenture;
provided that the Holder may only request such Liens at a time that
the aggregate amount then outstanding under the Debentures (including
principal and accrued interest and unpaid fees and expenses) exceeds
U.S.$60,000,000; and
(w) PROPOSED LEASEBACK ASSETS. The Corporation will pay or cause
to be paid all amounts payable to Trilon Bancorp Inc. pursuant to an
equipment lease dated April 6, 1998 between the Corporation and Trilon
Bancorp Inc. (Lease Number L-RY001) on the dates and in the manner
specified therein and the Corporation will comply with, perform and
carry out all of its obligations provided under such equipment lease.
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(x) PERMITTED PAYMENTS SECURITY. The Corporation will provide 10
days prior written notice to the Holder of any proposed Permitted
Payments together with detailed particulars of the Permitted Payments.
The Corporation will provide or cause to be provided to the Holder
prior to or contemporaneous with the making of any such Permitted
Payments:
(i) a guarantee from each Subsidiary receiving such
Permitted Payments pursuant to which the Subsidiary guarantees
to the Holder all of the obligations of the Corporation to the
Holder;
(ii) such agreements, conveyances, deeds and other documents
and instruments as the Holder shall reasonably request in
furtherance of granting to the Holder valid and enforceable
first priority Liens on all of the present and after acquired
property, undertaking and assets of each Subsidiary receiving
such Permitted Payments and the Corporation shall at the
expense of the Corporation register, file or record the same
(or a notice or financing statement in respect thereof) in all
offices where such registration, filing or recording is, in
the opinion of the Holder, necessary or advisable to
constitute, perfect and maintain such Liens in all
jurisdictions reasonably required by the Holder, subject only
to Permitted Encumbrances, provided that (subject always to
the provisions of Section 5.1(v)) the Corporation shall not be
obligated to register the Security against any real property
or mineral claims comprising the Pamour Mine, the Nighthawk
Lake Mine and the mines generally known as Giant, Hope Brook
and Colomac, and the Corporation's currently existing
exploration properties not in any way relating to the Kemess
Mine; and
(iii) legal opinions in form and content, and from legal
counsel, satisfactory to the Holder regarding the validity,
enforceability and priority of all Liens created by such
Security Documents and regarding such other matters as the
Holder may require to evidence compliance with the terms of
this Debenture and the other Documents.
5.2 HOLDER'S RIGHT TO DECLINE TO RECEIVE INFORMATION
Notwithstanding the obligations of the Corporation to provide the
notices, documents and information referred to in Sections 5.1(k), (l), (m),
(n), (o), (p) and (u), the Holder shall be entitled to decline to receive any
or all such notices, documents and information by giving written notice
thereof to the Corporation. In the event the Holder gives any such notice to
the Corporation, the Corporation shall withhold the
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notices, documents and information expressly stated in the written notice of
the Holder for such periods of time and on such terms as the Holder may
direct. The Holder may at any time supplement, revoke or otherwise change
its directions to the Corporation under this Section 5.2 by further written
notice to the Corporation. Nothing in this Section 5.2 or in any written
notice given by the Holder hereunder in any way reduces or otherwise affects
the obligation of the Corporation to provide to the Holder the information
referred to in Sections 5.1(q) and (r).
5.3 NEGATIVE COVENANTS
So long as this Debenture or any obligations of the Corporation under
this Debenture or any other Document remain outstanding, the Corporation
covenants and agrees that without the prior written consent of the Holder
neither the Corporation nor any Material Subsidiary shall:
(a) ENCUMBER PROPERTY. Create, grant, assume or suffer to exist
any Lien upon any of its properties or assets other than Permitted
Encumbrances;
(b) LOANS AND INVESTMENTS. Except for (i) loans by the
Corporation and APM to existing employees not at any time exceeding in
the aggregate U.S. $2,250,000 and loans by the Corporation and APM to
new employees employed after the date hereof not at any time exceeding
in the aggregate U.S. $750,000, (ii) APM Transactions, (iii) payments
of up to Can. $1,500,000 in the aggregate made by the Corporation to
purchase shares in the capital of Asia Minerals Corp. and of Highwood
Resources Ltd., and (iv) Permitted Payments, make any loans to, or
acquire or invest in any securities issued by, any Person other than
currently existing loans by the Corporation to any Subsidiaries of
which notice in writing has been provided to the Holder;
(c) NON-ARM'S LENGTH TRANSACTIONS. Except for (i) loans by the
Corporation and APM to existing employees not at any time exceeding in
the aggregate U.S. $2,250,000 and loans by the Corporation and APM to
new employees employed after the date hereof not at any time exceeding
in the aggregate U.S. $750,000, (ii) APM Transactions, (iii) the
acquisition by the Corporation of the Mikwam Property from Highwood
Resources Ltd. on the terms disclosed to the Holder in writing prior
to the date hereof, (iv) the sale by the Corporation of the
Copperstone Property to a purchaser not dealing at arm's length to the
Corporation, and (v) Permitted Payments, repay any indebtedness or
liabilities owed to, transfer assets to, purchase assets from, lease
property to or from, pay any monies to, guarantee Debt of, provide
other financial assistance to, or otherwise enter into any transaction
or agreement to do any of the foregoing (other than as may be
expressly contemplated by the Documents) with or in respect of any
Affiliate (or any corporation which, after the transaction in
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question becomes effective, would become an Affiliate) or with any
officer, director, employee, shareholder or other related Person of
the Corporation or any Subsidiary, provided that if the Corporation
has not committed an Event of Default, the Corporation may pay
ordinary course compensation to officers, directors and employees
consistent with past practice and additional ordinary course
compensation under the Corporation's head office employee plans, in an
aggregate amount not exceeding U.S.$5,000,000 in any Financial Year.
(d) RESTRICTED DISTRIBUTIONS. Except for APM Transactions and
Permitted Payments, declare, pay or make any dividend or other
distribution on any shares in its capital or purchase, redeem, retire,
cancel or acquire (i) any shares in the capital of the Corporation or
any Subsidiary (except shares acquired upon the conversion thereof
into other shares in its capital), (ii) any option, warrant or other
right to acquire shares in the capital of the Corporation or any
Subsidiary, or (iii) any debt or equity security of the Corporation or
any Subsidiary, provided that the Corporation shall be entitled to
declare and pay stock dividends and to wind-up Witteck Development
Inc. and transfer to the Corporation all the property and assets of
Witteck Development Inc.;
(e) DISPOSITION OF ASSETS. Except for Permitted Payments, sell,
lease, consign or otherwise dispose of or agree to sell, lease,
consign or otherwise dispose of, any assets or property.
Notwithstanding the foregoing so long as no Default or Event of
Default has occurred or would occur as a result of any such sale,
lease, consignment or other disposition (collectively a "Sale"):
(i) at any time prior to the Kemess Mine Production Date,
assets of the Corporation, other than assets which comprise or
are in any way material to the Kemess Mine, may be sold by the
Corporation for proceeds equal to their fair market value to
purchasers dealing at arm's length with the Corporation
provided that:
(a) if the proceeds from all such Sales in the
aggregate are equal to or less than Can.
$15,000,000, such proceeds shall be used solely
for prepayments of principal hereunder in
accordance with the provisions of Section 2.4
hereof, regular debt service payments pursuant
to the Subordinated Notes, payment of capital
and non-capital expenses of the Corporation in
connection with the construction, development
and operation of Kemess Mine and/or general
corporate purposes; and
(b) if the proceeds from all such Sales in the
aggregate exceed Can. $15,000,000, such excess
proceeds shall be used
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solely for prepayments of principal hereunder
in accordance with the provisions of Section
2.4 hereof and/or for payment of capital and
non-capital expenses of the Corporation in
connection with the construction, development
and operation of the Kemess Mine;
(ii) at any time following the Kemess Mine Production Date,
provided that EBITDA of the Corporation for the consecutive
three (3) calendar month period immediately prior to the date
of such Sale is Can. $9,000,000 or more, assets of the
Corporation, other than assets which comprise or are in any
way material to the Kemess Mine, may be sold by the
Corporation at fair market value to purchasers dealing at
arm's length to the Corporation and the proceeds of such Sales
may be used for general corporate purposes of the Corporation;
and
(iii) at any time, assets of the Corporation which comprise
or were in any way material to the Kemess Mine but which fall
below the Materiality Threshold as a result of them being or
becoming obsolete or redundant, provided that if saleable they
are sold or disposed of by the Corporation for proceeds equal
to their fair market value to purchasers at arm's length with
the Corporation and the proceeds of such Sale are used in
connection with the construction, development and operation of
the Kemess Mine.
In addition to the foregoing, and notwithstanding the Security, the
Corporation may without the consent of the Holder at any time prior to
the occurrence of a Default or Event of Default sell:
(iv) the Proposed Leaseback Assets for cash consideration as
part of an operating leaseback agreement or as part of an
agreement comprising an Eligible Capital Lease Obligation and
Purchase Money Security Interest;
(v) the Corporation's interest in the Copperstone Property
to a purchaser not dealing at arm's length to the Corporation
for consideration of shares in or a royalty interest from the
purchaser thereof; and
(vi) the Corporation's interest in the Mikwam Property to a
purchaser not dealing at arm's length to the Corporation for
consideration of shares in or a royalty interest from the
purchaser thereof;
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provided, in such cases, that the transaction is with an arm's length Person
(or to a non-arm's length Person but on arm's-length terms in the case of a
Sale of the Copperstone Property and the Mikwam Property) and on reasonable
commercial terms and that the proceeds of disposition become immediately
subject to the Liens in favour of the Holder created pursuant to the Security
Documents. In the event of any disposition or sale referred to in the
immediately preceding sentence, the Holder will deliver such acknowledgements
and discharges of the Security as the Corporation may reasonably request for
the purpose of giving effect to such sale rights on the part of the
Corporation.
(f) DEBT. Create, incur, assume or suffer to exist, contingently
or otherwise, Debt other than Permitted Debt.
(g) REPAYMENT OF DEBT. Pay any principal, interest, fees or any
other amounts in respect of Debt other than Permitted Payments and
other than, if no Default or Event of Default has occurred:
(i) payments of interest on the Subordinated Notes
ordinarily due and payable in accordance with the terms and
conditions contained in the Subordinated Note Trust Indenture;
and
(ii) other amounts ordinarily due and payable in respect of
Permitted Debt provided that such payments shall not be
inconsistent with the terms and conditions of applicable
documents provided to the Holder prior to the date hereof.
(h) GUARANTEES. Other than as may constitute Permitted Debt,
guarantee, give financial assistance to or render itself liable in any
manner whatsoever, directly or indirectly, conditionally or otherwise
for any Debt or obligation whatsoever of a third party.
(i) AMALGAMATIONS, ETC. Enter into any transaction (including by
way of reorganization, consolidation, amalgamation, merger,
reconstruction, liquidation, transfer, sale, lease or otherwise)
whereby all or any material portion or significant operating division
of the undertaking, property and assets of the Corporation or a
Material Subsidiary would become the property of any other Person or,
in the case of any such amalgamation, of the continuing corporation
resulting therefrom without the Holder's prior written consent,
provided that the Holder will provide its consent if the Holder,
acting reasonably, determines that such transaction will not impair or
prejudice the ability of the Corporation or the Material Subsidiaries
to pay the indebtedness owing hereunder, to perform its covenants
hereunder or impair or prejudice the Holder's Security.
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(j) CHANGE IN BUSINESS. (i) Enter into any contract, agreement or
commitment out of the ordinary course of its business or (ii) acquire or
establish any business unrelated to the current business of the
Corporation or (iii) make any material change in, or terminate or
suspend (other than in the ordinary course of its operations) any
material part of, the construction, development and operation of the
Kemess South Mine.
(k) PRICING, HEDGING PROTECTION. Enter into any hedging or related
arrangements (including, without limitation, forward sale contracts,
options, currency swap agreements, interest swap agreements, and similar
arrangements) which provide for (i) the granting of any Lien against the
property, assets and undertaking of the Corporation or a Material
Subsidiary other than Permitted Encumbrances or (ii) production advances
or any other disposition of any property, assets or undertaking of the
Corporation or a Material Subsidiary in consideration for advance or
accelerated payment or other manner of prepayment or payment not
contemporaneous with delivery, other than the sales by the Corporation
of not more than U.S. $10,000,000 of copper concentrate pursuant to the
Glencore Agreement.
(l) ENVIRONMENTAL MATTERS
(i) The Corporation shall maintain, and shall cause each of
the Subsidiaries to maintain, a system to assure and monitor
continued compliance with all Applicable Laws relating to the
environment, which system shall include periodic reviews of such
compliance.
(ii) Subject to the Materiality Threshold, if the Corporation
or any Subsidiary (a) receives written notice that any violation
of any Applicable Law relating to the environment may have been
committed or is about to be committed by it, (b) receives written
notice that any administrative or judicial complaint or order has
been filed or is about to be filed against it alleging violations
of any Applicable Law relating to the environment or requiring it
to take any action in connection with the release of Hazardous
Substances into the environment, or (c) receives any written
notice from a Governmental Body or other Person alleging that it
may be liable or responsible for costs associated with a response
to or clean-up of a release of a Hazardous Substance into the
environment or any damages caused thereby, the Corporation or
Subsidiary, as the case may be, shall provide the Holder with a
copy of such notice within ten days of receipt thereof. Subject
to the Materiality Threshold, the Corporation or Subsidiary, as
the case may be, shall also provide to the Holder, as soon as
practicable after it becomes
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available, a copy of any environmental site assessment or audit
report required to be submitted to any Governmental Body.
(iii) The Corporation shall indemnify the Holder and its
officers, directors, employees, agents and shareholders, and
shall hold each of them harmless, from and against any and all
losses, liabilities, damages, costs, expenses and claims
(including legal fees on a solicitor and his own client basis)
suffered or incurred by such party in respect of (a) any
violation by the Corporation or any Subsidiary of Applicable Law
related to the environment including the assertion of any Lien
thereunder, (b) the presence of any Hazardous Substance affecting
the Mortgaged Property or any adjacent real estate, or (c) the
release of any Hazardous Substance by the Corporation or any
Subsidiary into the environment, provided that the foregoing
indemnity shall not apply in connection with any negligence,
willful misconduct or violation of any Applicable Law relating to
the environment affecting the Mortgaged Property by the Holder or
its agents after taking possession of the Mortgaged Property. The
Corporation's obligations and indemnification under this section
shall survive the satisfaction and release of the Security
Documents and the repayment of this Debenture. The Holder shall
hold the benefit of this indemnity in trust for those indemnified
parties who are not parties to this Debenture.
(m) CAPITAL EXPENDITURES. Make or permit any of its Subsidiaries,
on a consolidated basis, to make any Capital Expenditures in any
Financial Year in excess of Can. $12,000,000 if such Capital
Expenditures do not directly relate to the construction, development or
operation of the Kemess South Mine.
(n) BANKING. Open or operate or permit any of its Subsidiaries to
open or operate a bank account anywhere other than in the provinces of
Ontario, British Columbia or Quebec and other than as set out in
SCHEDULE T1.
(o) GRANT OR AMEND SECURITY. Grant or permit any of its Subsidiaries
to grant any Liens to any of the holders of Permitted Encumbrances set
out in Section (b) or Section (l) of the definition thereof other than
in such form and on such property, assets or undertaking of the
Corporation or such Subsidiary that has been previously provided to the
Holder hereunder, or amend or permit any of its Subsidiaries to amend
any of the agreements, instruments or documents which provide Liens to
any of the holders of Permitted Encumbrances set out in Section (b) or
Section (l) of the definition thereof and which have been granted on or
prior to the date hereof.
(p) AMEND SUBORDINATED NOTE TRUST INDENTURE. Amend the Subordinated
Note
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Trust Indenture.
(q) BANK WORKING CAPITAL FACILITY. Amend the Bank Working Capital
Facility or increase the principal amount that may from time to time be
outstanding under the Bank Working Capital Facility to an amount in
excess of Can. $1,900,000.
ARTICLE 6 - DEFAULT AND ACCELERATION
6.1 EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an Event
of Default:
(a) if the Corporation defaults in payment of (i) all or any part of
the principal of this Debenture when due, or (ii) all or any part of the
fees provided for in Section 2.3 hereof when due; or
(b) if the Corporation defaults in payment of any interest or any
other amount due hereunder; or
(c) if the Corporation defaults in observing or performing any other
covenant or condition of this Debenture, the Purchase Agreement, the
Security Documents, any other Debentures, or any other Document on its
part to be observed or performed, and, if the default in question is one
which is reasonably capable of being cured or remedied, such default
continues for a period of 20 days after notice has been given to the
Corporation by the Holder specifying such default and requiring the
Corporation to rectify the same or cause to be rectified the same; or
(d) if any representation and warranty made by the Corporation in any
Document is found to be false or incorrect in any material respect; or
(e) if an order is made or an effective resolution is passed for the
winding-up or liquidation of the Corporation, or in the event of any
other dissolution of the Corporation by operation of law; or
(f) if the Corporation defaults after the expiry of any applicable
cure period thereunder in any way in the performance of any obligations
to any holders of (i) Subordinated Notes or (ii) any of the Permitted
Encumbrances referred to in clause (b) of the definition of Permitted
Encumbrances; or if any such holder asserts any claim or takes any
proceeding against the Corporation and such claim or proceeding is not
being contested in good faith by all appropriate actions or, if
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proceedings are commenced against the Corporation, the rights of such
holders are at any time unstayed or undismissed; or
(g) if the Corporation shall generally not pay its debts as such
debts become due, or shall admit its inability to pay its debts
generally as they become due or otherwise acknowledge its insolvency, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by the Corporation seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding-up,
reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts, or a proposal is made by the Corporation
under any Applicable Law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order
for the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property, including
without limitation any such proceeding under the Companies' Creditors
Arrangement Act (Canada); or the Corporation shall take any action to
consider, approve or authorize any of the actions set forth above; or
(h) if any proceeding shall be instituted against the Corporation
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding-up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its Debts, or a proposal is
made against the Corporation under any Applicable Law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for the appointment of a receiver,
trustee, custodian or other similar official for it or for any
substantial part of its property, including without limitation any such
proceeding under the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), and
such proceeding is at any time not being contested in good faith by all
appropriate proceedings or, if so contested, remains outstanding,
undismissed and unstayed, more than 30 days from the institution of such
proceeding; or
(i) if any execution, distress or other enforcement process, whether
by court order or otherwise, involving indebtedness of the Corporation
individually or in the aggregate in excess of Can. $2,000,000 becomes
enforceable against any property of the Corporation and if such
execution, distress or other enforcement process shall have been
commenced by a creditor before obtaining judgment, such execution,
distress or other enforcement process shall not have been stayed or
vacated within 3 Business Days from the commencement thereof, or if any
judgment or order for the payment of money in excess of Can. $2,000,000
shall be rendered against the Corporation and either (i) enforcement
proceedings shall have been commenced by any creditor upon such judgment
or order or (ii) there shall be any period during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
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(j) if any event or proceeding is taken with respect to any part of
the Mortgaged Property in any jurisdiction outside Canada which has an
effect equivalent or similar to any of the events described in sections
6.1(e), 6.1(g) or 6.1(h); or
(k) if the Corporation fails to make to any Person when due any
payment (whether at scheduled maturity or by required prepayment,
acceleration, demand or otherwise, but excluding trade payables incurred
in the ordinary course of business which are not overdue by 90 days or
more or are being contested in good faith by all appropriate proceedings
promptly instituted and diligently conducted by the Corporation) in
respect of indebtedness which exceeds individually Can. $3,000,000 or in
the aggregate Can. $7,000,000; or any other event shall occur or
condition shall exist specified in any agreement or instrument relating
to any such indebtedness or liability of the Corporation if the effect
of such event or condition is to accelerate, or to permit the
acceleration of the maturity of such indebtedness or liability of the
Corporation; or any such indebtedness or liability of the Corporation
which is outstanding shall be declared to be due and payable prior to
the stated maturity thereof and in each such case such failure or event
is not remedied within 20 days of such failure or event; or
(l) If the Corporation allows, permits, consents to or becomes
subject to a Change of Control of the Corporation without the prior
written consent of the Holder, provided that it shall not be an Event of
Default hereunder and the Holder will consent to a Change of Control of
the Corporation if prior to such Change of Control of the Corporation
the Holder, acting reasonably, determines that such Change of Control of
the Corporation (i) will not impair or prejudice the ability of the
Corporation to pay any indebtedness owing hereunder or to perform its
covenants hereunder, and (ii) will not impair or prejudice the Holder's
Security; or
(m) if the Kemess Mine Production Date is not on or before December
31, 1998; or
(n) if any Material Subsidiary commits an event of default (after any
applicable cure period) in any agreement with or obligation owing to the
Holder including pursuant to any of the Documents; or
(o) If the Corporation commits a default under or is in breach of the
equipment lease dated April 6, 1998 between the Corporation and Trilon
Bancorp Inc. (Lease Number L-RY001).
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6.2 ACCELERATION ON DEFAULT
Upon the occurrence of an Event of Default, the Holder may, in its
discretion:
(a) declare the principal amount of this Debenture then
outstanding, all accrued and unpaid interest hereunder and any
other moneys payable hereunder to be immediately due and payable
by the Corporation to the Holder; and
(b) realize upon all or any part of the Security constituted
by the Security Documents; and
(c) take such actions and commence such proceedings as may be
contemplated by the Documents or permitted at law or in equity
(whether or not provided for herein or in the Security Documents
or other Documents) at such times and in such manner as the
Holder in its sole discretion may consider expedient;
all without, except as may be required by Applicable Law, any additional
notice, presentment, demand, protest, notice of protest, dishonour or any
other action.
6.3 REMEDIES CUMULATIVE
No remedy conferred upon or reserved to the Holder herein or in the
Security Documents or any other Document is intended to be exclusive of any
other remedy, but each and every such remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or hereafter
existing by law or by statute.
6.4 DEBENTURE NOT REQUIRED
All rights of action under the Security Documents or hereunder may be
enforced by the Holder without the possession of this Debenture or the
production thereof on the trial or other proceedings relating thereto.
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ARTICLE 7 - MISCELLANEOUS
7.1 NOTICE
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be given by facsimile or other means
of electronic communication or by delivery as hereafter provided. Any such
notice or other communication, if sent by facsimile or other means of
electronic communication, shall be deemed to have been received on the
Business Day following the sending, or, if delivered by hand, shall be deemed
to have been received at the time it is delivered to the applicable address
noted below either to the individual designated below or to an individual at
such address having apparent authority to accept deliveries on behalf of the
addressee. Notice of change of address shall also be governed by this
section. Notices and other communications shall be addressed as follows:
(a) if to the Corporation: Royal Oak Mines Inc.
c/o Arctic Precious Minerals, Inc.,
d.b.a Royal Oak Mines (U.S.A.) Inc.
5501 Lakeview Drive
Kirkland, Washington
U.S.A. 98033
Attention: President
Facsimile Number: (425) 822-3349
with a copy to: Lang Michener
BCE Place, Box 747
2500 - 181 Bay Street
Toronto, Ontario
M5J 2T7
Attention: William Sheridan and
David Thring
Facsimile No.: (416) 365-1719
(b) if to the Holder: Northgate Exploration Limited
1 First Canadian Place
Suite 2630, P.O. Box 143
Toronto, Ontario
M5X 1C7
Attention: Terry Lyons
Facsimile Number: (416) 363-2856
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with a copy to: Goodman and Carr
Suite 2300
200 King Street West
Toronto, Ontario
M5H 3W5
Attention: Jeffrey Blidner and
Lorne Segal
Facsimile No.: (416) 595-0567
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7.2 ASSIGNMENT
The Corporation may not assign this Debenture. This Debenture and the
Holder's rights hereunder may be assigned at any time by the Holder in whole
or in part (including, without limitation, by the grant or conveyance of
participations in its interests hereunder), together with, at its discretion,
its corresponding rights in any or all of the Security Documents and other
Documents. Upon an assignment pursuant to this section, the Corporation
shall, at the request of the assignee, issue a replacement Debenture
registered in the name of the assignee (and, in the case of a partial
assignment, shall also issue a replacement Debenture to the Holder in respect
of the principal balance held by it), upon surrender and cancellation of the
existing Debenture, and shall also, at the Holder's request, execute and
deliver new Security Documents and other Documents to and in favour of the
assignee. The Corporation shall also, and shall cause the Subsidiaries to,
execute and deliver such other agreements, documents and instruments as the
Holder or the assignee may request in connection with such assignment. The
Holder may provide to any proposed assignee or participant such information
concerning the financial position and the operations of the Corporation and
its Subsidiaries as, in the opinion of the Holder, may be relevant or useful
in connection with this Debenture or any other Document or any portion
thereof proposed to be acquired by such assignee or participant.
Notwithstanding anything else in this Section 7.2, if no Default or Event of
Default has occurred the Holder shall not be entitled to assign this
Debenture to any corporation whose principal business is the exploration for
or mining of precious or base metals (other than to such Persons in which the
Holder or their respective Associates and Affiliates has a direct or indirect
interest, which Persons may be an assignee of this Debenture or the
Documents). Following a Default or an Event of Default, there shall be no
restrictions on the Holder's ability to assign tis Debenture or any of the
Documents.
7.3 EXCHANGE OF INFORMATION
The Holder may provide to any proposed assignee or participant such
information concerning the financial position and the operations of the
Corporation and its Subsidiaries as, in the opinion of the Holder, may be
relevant or useful in connection with this Debenture or any other Document or
any portion thereof proposed to be acquired by such assignee or participant.
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7.4 RELIANCE AND NON-MERGER
All covenants, agreements, representations and warranties of the
Corporation made herein or in any other Document or in any certificate or
other document signed by any of its directors or officers and delivered by or
on behalf of either of them pursuant hereto or thereto are material, shall be
deemed to have been relied upon by the Holder notwithstanding any
investigation heretofore or hereafter made by the Holder or the Holder's
Counsel or any employee or other representative of the Holder and shall
survive the execution and delivery of this Debenture and the other Documents
until the Corporation shall have satisfied and performed all of its
obligations hereunder and thereunder. Nothing contained in this Debenture
shall operate to subordinate the Security provided in favour of the Holder to
or in favour of any Permitted Encumbrance or other Liens, or to postpone any
of the obligations owing by the Corporation to the Holder to any of the
obligations, indebtedness or liabilities owed by the Corporation to the
holders of the Permitted Encumbrances or other Liens.
7.5 AMENDMENT, WAIVER
No amendment or waiver of this Debenture shall be binding unless
executed in writing by the Corporation if it is to be bound thereby, or by
the Holder if the Holder is to be bound thereby (any such amendment or waiver
to be contemporaneously made in respect of the Debenture). No waiver of any
provision of this Debenture will constitute a waiver of any other provision
nor will any waiver of any provision of this Debenture constitute a
continuing waiver unless otherwise expressly provided.
7.6 NO SET-OFF BY THE CORPORATION
The amounts payable by the Corporation under this Debenture or any
other Document shall not be subject to any deduction, withholding, set-off or
counterclaim by the Corporation for any reason whatsoever.
7.7 EMPLOYMENT OF EXPERTS
The Holder may, at any time and from time to time, when a Default or
Event of Default has occurred and is continuing, retain and employ legal
counsel, independent accountants, consultants and other experts in order to
perform or assist it in the performance of its rights and powers under this
Debenture or the other Documents, and the Corporation shall pay to the Holder
on demand all proper and reasonable compensation paid or payable to such
counsel, accountant, consultant or other expert retained or employed pursuant
to this provision.
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7.8 FURTHER ASSURANCES
Whether before or after the happening of a Default or Event of
Default, the Corporation shall at its own expense do, make, execute or
deliver, or cause to be done, made, executed or delivered by its Subsidiaries
or other Persons, all such further acts, documents and things in connection
with this Debenture and the other Documents as the Holder may reasonably
require from time to time for the purpose of giving effect to the Documents
including, without limitation, for the purpose of facilitating the
enforcement of the Security, all immediately upon the request of the Holder.
7.9 GOVERNING LAW
This Debenture shall be governed by and construed in accordance with
the laws of the Province of Ontario and the federal laws of Canada applicable
therein. The Corporation submits to the jurisdiction of the courts of
Ontario to determine all issues whether at law or in equity arising from this
Debenture.
7.10 PAYMENT OF COSTS AND EXPENSES
The Corporation shall pay to the Holder on demand all reasonable costs
and expenses of the Holder, its agents, officers and employees, and any
receiver or receiver-manager appointed by the Holder or by a court, in
connection with this Debenture, the Security Documents and the other
Documents including, without limitation:
(a) the preparation, execution, filing and registration of the
Debenture, the Security Documents, and the other Documents (including,
without limitation, any Security Documents and other Documents to be
delivered following the date hereof pursuant to Article 3 hereof) and
any actual or proposed amendment or modification hereof or thereof or
any waiver hereunder or thereunder and all instruments supplemental or
ancillary thereto;
(b) obtaining advice as to the Holder's rights and responsibilities
under this Debenture, the Security Documents and the other Documents at
any time after an Event of Default; and
(c) the defence, establishment, protection or enforcement of any of
the rights or remedies of the Holder under this Debenture, any of the
Security Documents or any other Documents including, without limitation,
all costs and expenses of establishing the validity and enforceability
of, or of collection of amounts owing under, this Debenture, any of the
Security Documents or any other Documents or of any enforcement of the
Security,
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and all of the fees, expenses and disbursements of any advisors to the Holder
including, Counsel to the Holder on a solicitor and his own client basis,
incurred in connection therewith, and including all sales or value-added
taxes payable by the Holder (whether refundable or not) on all such costs and
expenses.
7.11 JUDGMENT CURRENCY
If for the purpose of obtaining judgment in any court, it is necessary
to convert an amount due under this Debenture or any other of the Documents
or under any instrument delivered thereunder from a currency in which it is
due (the "Original Currency") into another currency (the "Second Currency")
the parties hereto agree, to the fullest extent permitted by law, that the
rate of exchange used shall be that at which, in accordance with normal
banking procedures, the Holder could purchase the Original Currency with the
Second Currency on the date two Business Days preceding that on which
judgment is given. The obligation of the Corporation in respect of any
Original Currency due from it to the Holder under this Debenture or any other
Documents or under any instrument delivered thereunder shall, notwithstanding
any judgment in the Second Currency, be discharged by a payment made to the
Holder entitled thereto on account thereof in the Second Currency only to the
extent that, on the Business Day following receipt of such payment in the
Second Currency, the Holder may, in accordance with normal banking
procedures, purchase the amount due in the Original Currency with the amount
of the Second Currency so paid; and if the amount of the Original Currency
which may be so purchased is less than the amount originally due in the
Original Currency, the Corporation agrees as a separate and independent
obligation and notwithstanding any such payment or judgment to indemnify the
Holder against such deficiency.
7.12 PAYMENT AGREEMENTS FOR DEBENTURE
Notwithstanding anything contained herein, the Corporation may enter
into an agreement with the Holder, in the absolute discretion of the Holder,
providing for the payment to such Holder of the principal of and interest on
this Debenture at a place and in a manner other than the place and manner
specified herein as the place and manner for such payment. Any payment of
the principal of and interest on this Debenture at such other place and in
such other manner pursuant to such agreement shall, notwithstanding any other
provision of this Debenture, be valid and binding on the Corporation and the
Holder.
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7.13 ENTIRE AGREEMENT
The Documents constitute the entire agreement between the parties
hereto pertaining to the matters therein set forth and supersede and replace
any prior understandings or arrangements pertaining to such matters. There
are no warranties, representations or agreements between the parties in
connection with such matters except as specifically set forth or referred to
in the Documents.
IN WITNESS WHEREOF the Corporation has executed this Debenture on the
date first above written.
ROYAL OAK MINES INC.
By: /s/ James H. Wood
-------------------------------------
Name: James H. Wood
Title: Chief Financial Officer
Dated as of June 22, 1998.
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SCHEDULE "A"
DEFINITIONS
"ADDITIONAL PURCHASE PRICE" has the same meaning given to such term in the
Purchase Agreement;
"AFFILIATE" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT
(Ontario) and includes, for greater certainty, all Subsidiaries;
"APM" means Arctic Precious Metals, Inc., a company incorporated under the laws
of Nevada;
"APM TRANSACTIONS" means ordinary course transactions between the Corporation
and APM in accordance with past practice and generally as described in SCHEDULE
B hereto provided, however that such transactions shall not in any one Financial
Year involve transactions of the kind referred to in sections 5.3(b)(i),(ii) and
(iii), 5.3(c) and 5.3(d) hereof aggregating more than Can. $13,500,000 and
provided further that such transactions shall be permitted only prior to an
Event of Default;
"APPLICABLE LAW" means, in respect of any Person, property, transaction or
event, all applicable laws, statutes, rules, by-laws and regulations, and all
applicable official written directives, orders, judgments and decrees of
Governmental Bodies;
"ASSOCIATE" has the meaning ascribed thereto in the BUSINESS CORPORATIONS ACT
(Ontario) and shall include any entity which is an Associate of an Associate,
and so on;
"AUDITED FINANCIAL STATEMENTS" means the audited consolidated financial
statements of the Corporation as at and for the 12 month fiscal period ended
December 31, 1997, consisting of a balance sheet, an income statement and a
statement of changes in financial position, together with the notes thereto,
copies of which have been provided to the Holder;
"BANK WORKING CAPITAL FACILITY" means a working capital facility provided to the
Corporation by the Bank of Nova Scotia pursuant to a credit agreement dated
February 15, 1996 as amended by agreements dated August 5, 1996 and May 30, 1997
in a maximum principal amount not to exceed Can. $1,900,000 pursuant to which
the Bank of Nova Scotia has outstanding letters of credit on behalf of the
Corporation and in respect of which the Corporation has provided to the Bank of
Nova Scotia cash collateral as security therefor in the approximate amount of
Can. $2,012,126 as at May 19, 1998 plus interest thereon.
"BUSINESS DAY" means any day, other than Saturday, Sunday or any statutory
holiday in Toronto, Canada;
"CAPITAL EXPENDITURES" means, for any period, those expenditures of the
Corporation (on a consolidated basis) which would, in accordance with generally
accepted accounting principles, be considered expenditures for capital assets of
the Corporation (on a consolidated basis) for such period;
<PAGE>
"CAPITAL LEASE OBLIGATIONS" of the Corporation means the obligations of the
Corporation to pay rent or other amounts under a lease (or other agreement
conveying the right to use) of real or personal property, which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet under generally accepted accounting principles and, for purposes of this
Debenture, the amount of such obligations shall in each case be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles;
"CHANGE OF CONTROL OF THE CORPORATION" means if any Person acquires or becomes
the beneficial owner of, or a combination of Persons acting jointly acquire or
become the beneficial owners of, directly or indirectly more than 35% of the
common shares of the Corporation or any shares of the Corporation which in the
aggregate represent 35% of the voting shares of the Corporation, whether through
the acquisition of previously issued and outstanding shares, or of shares that
have not been previously issued, or any combination thereof, or any other
transaction having a similar effect;
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated February
19, 1998 between the Corporation and BC Pacific Capital Corporation;
"CONSENT" has the meaning attributed to such term in Section 4.1(g);
"COPPERSTONE PROPERTY" has the meaning ascribed thereto in SCHEDULE U;
"COUNSEL" means a barrister or solicitor or firm of barristers and solicitors
retained by the Holder or retained by the Corporation and acceptable to the
Holder acting reasonably;
"DEBENTURE" means this Senior Secured Debenture - Series B of the Corporation as
it may be amended, modified, restated or replaced from time to time;
"DEBENTURES" means all Senior Secured Debentures of the Corporation (whether
Series A or Series B) sold pursuant to the Purchase Agreement as same may be
amended, modified, restated or replaced from time to time.
"DEBT" of any Person means all indebtedness including, without limitation (i)
all indebtedness of such Person for and in respect of borrowed money, including
obligations with respect to bankers' acceptances, letters of credit and letters
of guarantee or indemnity; (ii) all indebtedness of such Person for the deferred
purchase price of property or services represented by a note or other evidence
of indebtedness or other security; (iii) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to the
possession or sale of such property); (iv) all obligations under leases which,
in accordance with generally accepted accounting principles (or accounting
principles generally accepted in the jurisdiction of incorporation or
organization of such Person), are recorded as capital leases, in respect of
which such Person is liable as lessee; (v) all
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indebtedness or obligations of such Person pursuant to any interest rate
swaps, currency swaps, commodity agreements and similar hedging agreements;
and (vi) all Debt Guaranteed by such Person;
"DEBT GUARANTEED" by any Person means Debt of the kinds referred to in (i)
through (v) of the definition of Debt which is directly or indirectly guaranteed
by such Person or which such Person has agreed (contingently or otherwise) with
the creditor to purchase or otherwise acquire or assume, or in respect of which
such Person has otherwise assured a credit against loss by means of an
indemnity, security or bond;
"DEFAULT" means any event which, but for the lapse of time, giving of notice or
both, would constitute an Event of Default;
"DISCLOSED DEFAULTS" has the meaning given to such term in Section 4.1(n)
hereof;
"DOCUMENTS" means, collectively, the Debenture, the Security Documents and any
other document now or hereafter delivered to the Holder by the Corporation or
any Subsidiary pursuant to or in connection therewith including any document,
agreement or guarantee delivered to the Holder pursuant to or in connection with
the Reorganization Undertaking (as defined in the Purchase Agreement);
"EBITDA" means, for any period, Net Income for such period, plus (i)
consolidated interest expense of the Corporation and its Subsidiaries for such
period, plus (ii) provision for income taxes of the Corporation and its
Subsidiaries for such period, plus (iii) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of the Corporation and its
Subsidiaries to the extent that such depreciation, amortization and other
non-cash charges were deducted in computing Net Income for such period, minus
(iv) non-cash items increasing consolidated revenues of the Corporation and its
Subsidiaries in determining Net Income for such period, in each case on a
consolidated basis and determined in accordance with generally accepted
accounting principles; provided that the following shall not be included in the
calculation of EBITDA as either a charge or revenue: (a) non-cash changes in the
carrying value of the Subordinated Notes and other Debt which is not denominated
in Canadian dollars and is translated to Canadian dollars at the balance sheet
date; and (b) non-cash changes resulting from the marking to market of foreign
currency and commodity contracts; and provided further that premiums paid or
received on options, warrants or similar instruments shall be recognized, for
the purposes of EBITDA, as expenses or revenue, as the case may be, only on the
date on which the option, warrant or other instrument in question expires,
matures, is exercised or otherwise terminates;
"ELIGIBLE CAPITAL LEASE OBLIGATIONS AND PURCHASE MONEY SECURITY INTERESTS" means
(a) Capital Lease Obligations and Purchase Money Security Interests existing as
at the date hereof
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or any renewals or replacements thereof on materially the same terms and in
amounts not materially exceeding those existing as at the date hereof; and
(b) Capital Lease Obligations and Purchase Money Security Interests incurred
following the date hereof if the claims of the lessor or creditor thereunder
are limited to recovery or repossession of the leased or financed property in
question and if such leased or financed property is newly acquired by the
Corporation;
"EVENT OF DEFAULT" has the meaning attributed to such term in section 6.1;
"EXCLUDED ASSETS" means the Windy Craggy Property;
"EXISTING ENCUMBRANCES" means the Liens specifically described in SCHEDULE C1;
"FINAL MATURITY DATE" has the meaning given to such term in Section 2.3(a)
hereof;
"FINANCIAL QUARTER" means, in relation to the Corporation or any Subsidiary, the
four periods each consisting of three months in each Financial Year of the
Corporation or such Subsidiary ending on the last day of each of the third,
sixth, ninth and twelfth months in such Financial Year;
"FINANCIAL YEAR" means, in relation to the Corporation or any Subsidiary, the
period beginning on January l and ending on December 31 of each calendar year;
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means the accounting principles so
described and promulgated by the Canadian Institute of Chartered Accountants
from time to time;
"GLENCORE AGREEMENT" means the letter agreement dated November 5, 1997 between
the Corporation and Glencore Ltd. relating to the sale by the Corporation of
copper concentrate;
"GOVERNMENTAL BODY" means any government, parliament, legislature, or any
regulatory, authority, agency, commission or board of any government, parliament
or legislature, or any court or (without limitation to the foregoing) any other
law, regulation or rule-making entity (including, without limitation, any
central bank, fiscal or monetary authority or authority regulating banks),
having jurisdiction in the relevant circumstances, or any Person acting under
the authority of any of the foregoing (including, without limitation, any
arbitrator);
"HAZARDOUS SUBSTANCE" includes but is not limited to any contaminants,
pollutants, dangerous substances, liquid wastes, industrial wastes, toxic
substances, hazardous wastes, hazardous materials of whatsoever nature or kind
or any other hazardous substance within the meaning of any Applicable Law
including without limitation the HAZARDOUS PRODUCTS ACT (Canada), the CANADIAN
ENVIRONMENTAL PROTECTION ACT (Canada), the ENVIRONMENTAL PROTECTION ACT
(Ontario) and the WASTE MANAGEMENT ACT (B.C.);
"HOLDER" means Northgate Exploration Limited and its successors and permitted
assigns;
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"INITIAL PURCHASE PRICE" has the same meaning given to such term in the Purchase
Agreement;
"INTELLECTUAL PROPERTY" means all trade marks, trade names, patents, patent
applications, copyrights, trade secrets, logos, processes, computer systems and
application software which are owned or used by, or which relate to the business
of, the Corporation or the Subsidiaries;
"INTEREST PAYMENT DATE" means each day on which interest is payable hereunder
pursuant to section 2.1;
"INTEREST RATE" means the LIBOR Rate plus 6.0% per annum;
"INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated financial
statements of the Corporation as at and for the 4 month period ended April 30,
1998 consisting of a balance sheet, an income statement and a statement of
changes in financial position, a copy of which has been provided to the Holder;
"KEMESS MINE" means the Kemess North Property and the Kemess South Mine;
"KEMESS NORTH PROPERTY" means all present and future property and assets
comprising or relating to what is generally referred to as the Kemess North
Property in British Columbia, Canada including, without limitation, all mineral
claims and leases referred to in SCHEDULE B-1 hereto, all buildings, equipment,
fixtures and other property and assets owned or leased by the Corporation (or in
which the Corporation otherwise has an interest) situated or used at the Kemess
North Property site all operations, exploration and other activities carried on
at such site and all permits, authorizations, licenses and similar approvals
relating thereto;
"KEMESS SOUTH MINE" means all present and future property and assets comprising
or relating to what is generally referred to as the Kemess South Mine property
in British Columbia, Canada including, without limitation, all mineral claims
and leases referred to in SCHEDULE B-2 hereto, all buildings, equipment,
fixtures and other property and assets owned or leased by the Corporation (or in
which the Corporation otherwise has an interest) situated or used at the Kemess
South Mine site, all operations, exploration and other activities carried on at
such site and all permits, authorizations, licenses and similar approvals
relating thereto;
"KEMESS MINE PRODUCTION DATE" means the date that the Kemess South Mine has
produced concentrate over the immediately preceding 30 day period, and is able
to sustain and maintain such production thereafter, of not less than 8500 short
tons of concentrate yielding mineral content that is acceptable to Glencore Ltd.
pursuant to the Glencore Agreement (without giving effect to any amendments
thereof);
"KEMESS MINE CONSTRUCTION CONTRACTS" has the meaning given to such term in
Section 4.1(x);
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"KNOWLEDGE" means the best knowledge of the senior management of that party
(which in the case of the Corporation specifically includes but is not limited
to the Kemess Mine Project Manager, the Kemess Mine Project Director and the
Kemess Mine Manager of Project Accounting, after having made all reasonable
inquiries;
"LIBOR RATE" means the rate of interest per annum, calculated on the basis of a
year of 360 days, determined by the Holder for a 30 day period to be (i) the
rate per annum, calculated on the basis of a year of 360 days, which appears on
the Reuters Telerate Page 3750 as of 11:00 a.m. (London time) on the second
Business Day prior to the commencement of such 30 day period in an amount of
U.S. dollars equal to the principal amount then outstanding under the Debenture
and for a 30 day deposit period, or (ii) if such rate does not appear on the
Reuters Telerate Page 3750 as and when contemplated herein, the arithmetic
average (rounded upwards to the nearest 1/16th of 1%) of the rates of interest
per annum, calculated on the basis of a year of 360 days, at which any three
prime banks in the London inter-bank market are offering deposits at
approximately 11:00 a.m. (London time) on the second Business Day prior to the
commencement of such 30 day period in an amount of U.S. dollars equal to the
principal amount then outstanding under this Debenture and for a 30 day deposit
period;
"LIEN" means any mortgage, lien, pledge, assignment, charge, security interest,
lease intended as security, title retention agreement, rights reserved in any
Governmental Body, registered lease of real property, hypothec, levy, execution,
seizure, attachment, garnishment or other similar encumbrance and includes any
contractual restriction which, if contravened, may give rise to an encumbrance;
"MATERIAL AUTHORIZATION" means, with respect to the Corporation or any
Subsidiary, any approval, permit, licence or similar authorization from, and any
filing or registration with, any Governmental Body required by such Person to
own its property and assets or to carry on its business in each jurisdiction in
which it does so or is contemplated to do so, where the failure to have such
approval, permit, licence, authorization, filing or registration would have a
material adverse effect upon its business, financial condition or prospects;
"MATERIAL CONTRACTS" has the meaning given to such term in Section 4.1(x);
"MATERIAL SUBSIDIARIES" means APM and all Subsidiaries each of which has total
assets exceeding a fair market value of Can. $2,000,000;
"MATERIALITY THRESHOLD" means that the representation, warranty, covenant or
other obligation in question shall apply only to subject matter which
individually or in the aggregate is or should reasonably be expected as
determined by the Holder, acting reasonably, to be material to:
(a) the business, property or affairs of the Corporation taken as a
whole;
(b) the construction, ownership or operation of the Kemess Mine or
the requirement that the Kemess Mine Production Date occur on or before
December 31, 1998; or
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(c) the Holder, in its capacity as a secured creditor of the
Corporation under the Documents;
"MIKWAM PROPERTY" has the meaning ascribed thereto in SCHEDULE V;
"MORTGAGED PROPERTY" means all of the property, assets and undertaking of the
Corporation and APM of every nature and kind, both present and future, real and
personal, tangible and intangible, other than Excluded Assets, including without
limitation all proceeds of disposition of any such property, assets and
undertaking;
"NET INCOME" means, for any period, the aggregate of the net income of the
Corporation and its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles (for greater certainty,
after Taxes), but excluding therefrom (i) extraordinary items, (ii) any gains or
losses from the sale of any assets (other than inventory sold in the ordinary
course of business) of the Corporation or its Subsidiaries, (iii) the net income
of any Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that net income is not permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its shareholders, or is not
permitted without prior governmental approval (that has not been obtained), and
(iv) the income or loss from any entity in which the Corporation's or its
Subsidiary's, as applicable, investment is classified pursuant to generally
accepted accounting principles as a minority interest;
"NIGHTHAWK LAKE MINE" has the meaning ascribed thereto in SCHEDULE W;
"PAMOUR MINE" has the meaning ascribed thereto in SCHEDULE X;
"PERMITTED DEBT" means, collectively, the indebtedness pursuant to the
Debentures and:
(a) indebtedness of the Corporation under the Subordinated Notes;
(b) indebtedness of the Corporation which, pursuant to agreements and
confirmations delivered by the applicable creditor to and in favour of
the Corporation and the Holder in form and content satisfactory to the
Holder, is fully subordinated and postponed to the obligations of the
Corporation to the Holder under the Debenture and the other Documents,
provided that at the time any or all such indebtedness is incurred or
reincurred no Default or Event of Default has occurred;
(c) indebtedness of the Corporation to Persons under interest rate
swaps, currency swaps, commodity agreements and similar hedging
agreements (the "Permitted Hedging Indebtedness");
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(d) Debt under or secured by Eligible Capital Lease Obligations and
Purchase Money Security Interests, not at any time exceeding the
aggregate of (A) Can. $30,000,000 plus (B) for so long as the Proposed
Leaseback Assets are leased to the Corporation pursuant to the April 6,
1998 lease between the Corporation and Trilon Bancorp Inc. (Lease Number
L-RY001) and in the event of a sale and leaseback of the Proposed
Leaseback Assets and solely for those purposes, the amount by which the
Debt under or secured by an Eligible Capital Lease Obligation or
Purchase Money Security Interest relating to the Proposed Leaseback
Assets exceeds the difference between (1) Can. $30,000,000, and (2) the
amount of Debt under all Eligible Capital Lease Obligations and Purchase
Money Security Interests existing as at the date hereof;
(e) Debt by way of trade payables or the endorsement of negotiable
instruments incurred or created in the ordinary course of business for
the purpose of carrying on same.
"PERMITTED ENCUMBRANCES" means Liens granted to secure indebtedness under the
Debentures and other Documents, Liens granted to Trilon Financial Corporation to
secure obligations owing to it under a Royalty Agreement and a Royalty Debenture
each dated the date hereof; and:
(a) the Existing Encumbrances set out in Parts I and II of
SCHEDULE C1 hereto and extensions, renewals or refinancings thereof on
materially the same terms and in amounts not materially exceeding those
existing at the date hereof;
(b) Liens on the Mortgaged Property granted by the Corporation to
holders of Permitted Hedging Indebtedness in an aggregate amount not at
any time exceeding U.S. $50,000,000 to secure the Corporation's
obligations in respect of Permitted Hedging Indebtedness in an aggregate
amount not at any time exceeding U.S. $50,000,000, provided that each
such holder delivers to and in favour of the Corporation and the Holder
an inter-creditor agreement, in form and content satisfactory to the
Holder, providing for, among other things, the subordination by such
holders of Permitted Hedging Indebtedness Note of any Liens granted to
them to and in favour of the Security until such time as all of the
obligations of the Corporation to the Holder are satisfied in full;
(c) cash collateral accounts for the letters of credit specifically
described in SCHEDULE Y and extensions, renewals or refinancings thereof
on materially the same terms and in amounts not materially exceeding
those existing at the date hereof;
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(d) Liens for taxes, assessments or governmental charges incurred in
the ordinary course of business that are not yet due and payable (taking
into account any relevant grace periods), in respect of which the
Corporation or a Subsidiary, as the case may be, has established on its
books reserves to the extent required by generally accepted accounting
principles considered by it and its auditors to be adequate therefor;
(e) rights reserved to or vested in any Governmental Body by the
terms of any lease, licence, franchise, grant or permit, or by any
statutory provision, to terminate the same, to take action which results
in an expropriation, to designate a purchaser of any Mortgaged Property
or to require annual or other payments as a condition to the continuance
thereof;
(f) construction, contractors', mechanics', carriers',
warehousemen's, suppliers' and materialmen's Liens and Liens in respect
of vacation pay, workers' compensation, unemployment insurance or
similar statutory obligations, provided the obligations secured by such
Liens are not yet due and payable and, in the case of construction
Liens, which have not yet been filed or for which the Corporation or a
Subsidiary has not received written notice of a Lien, provided that in
any case the Corporation may permit to exist construction Liens (in
addition to those included in the definition of Existing Encumbrances
and listed in Part I of SCHEDULE C1) which do not individually or in the
aggregate relate to indebtedness exceeding Can. $10,000,000, which the
Corporation is contesting in good faith by all appropriate proceedings
promptly instituted and diligently conducted, and in respect of which,
notice in writing has been given by the Corporation to the Holder, with
full particulars thereof;
(g) zoning restrictions, easements, rights of way, leases or other
similar encumbrances or privileges in respect of real property which in
the aggregate do not materially impair the use of such property by the
Corporation or a Subsidiary in the operation of its business;
(h) Liens in connection with any Eligible Capital Lease Obligations
and Purchase Money Security Interests in respect of Debt not at any time
exceeding in the aggregate of (A) Can. $30,000,000 plus (B) for so long
as the Proposed Leaseback Assets are leased to the Corporation pursuant
to the April 6, 1998 lease between the Corporation and Trilon Bancorp
Inc. (Lease Number L-RY001) and in the event of a sale and leaseback of
the Proposed Leaseback Assets and solely for those purposes, the amount
by which the Debt under or secured by an Eligible Capital Lease
Obligation or Purchase Money Security Interest relating to the Proposed
Leaseback Assets exceeds the difference between (1) Can. $30,000,000 and
(2) the amount of the Debt under all Eligible Capital lease Obligations
and Purchase Money Security Interests existing as at the date hereof;
(i) security given by the Corporation or a Subsidiary to a public
utility or any
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Governmental Body, when required by such utility or Governmental
Body in connection with the operations of the Corporation or
Subsidiary in the ordinary course of its business, which singly or in
the aggregate do not materially detract from the value of the asset
concerned or materially impair its use in the operation of the business
of the Corporation or Subsidiary;
(j) the reservation in any original grants from the Crown of any land
or interest therein and statutory exceptions to title;
(k) title defects or irregularities which are of a minor nature and
which do not materially detract from the value of the assets of the
Corporation or its Subsidiaries encumbered thereby;
(l) Liens on the Mortgaged Property granted by the Corporation to or
on behalf of holders of the Subordinated Notes in an aggregate principal
amount not at any time exceeding U.S. $175,000,000 to secure the
Corporation's obligations in respect of the Subordinated Note Trust
Indenture in an aggregate principal amount not at any time exceeding
U.S. $175,000,000, provided that Chase Manhattan Trust Company, National
Association, as trustee thereunder and any other collateral agent
appointed by it delivers to and in favour of the Corporation and the
Holder an inter-creditor agreement, in form and content satisfactory to
the Holder, providing for, among other things, the subordination by such
holders of Subordinated Notes of any Liens granted to them to and in
favour of the Security until such time as all of the obligations of the
Corporation to the Holder are satisfied in full, and providing that
notwithstanding the granting of such Liens the holders of the
Subordinated Notes will take reasonable steps to ensure that they are
placed in a separate class of creditors than the Holder in any
insolvency proceedings relating to the Corporation and if
notwithstanding the foregoing they are placed in the same class of
creditors they will assign their votes to the Holder so as to permit the
Holder to vote against and defeat any restructuring plan in such
insolvency proceedings; and
(m) any other Lien which the Holder after the date hereof approves in
writing as a Permitted Encumbrance;
provided that nothing herein shall constitute or be interpreted as a
postponement or subordination of the Security to any security granted by the
Corporation in connection with such Permitted Encumbrances.
"PERMITTED HEDGING INDEBTEDNESS" has the meaning given to it in paragraph (c) of
the definition of Permitted Debt;
"PERMITTED PAYMENTS" means any payment, distribution, loan, advance or transfer
by a Restricted Subsidiary (as defined in the Subordinated Note Trust Indenture)
to the Corporation
10
<PAGE>
or to another Restricted Subsidiary contemplated in paragraphs 4.13(a),(b)
and (c) of the Subordinated Note Trust Indenture that, and only to the extent
that, cannot be subject to a Payment Restriction pursuant to and as defined
in Section 4.13 of the Subordinated Note Trust Indenture;
"PERSON" means any individual, partnership, limited partnership, joint venture,
syndicate. sole proprietorship, company or corporation with or without share
capital, unincorporated
association, trust, trustee, executor, administrator or other legal personal
representative, government or governmental authority or entity, however
designated or constituted;
"PREPAYMENT AMOUNT" means the principal amount of this Debenture which the
Corporation proposes to prepay under Section 2.4 plus a non-refundable fee of
one per cent (1%) of such principal amount being prepaid;
"PROCEEDS CONDITIONS" means the conditions precedent in favour of the Holder
that (i) the Kemess South Mine has produced concentrate over the immediately
preceding 30 day period, and is able to sustain and maintain such production
thereafter, of not less than 7500 short tons of concentrate yielding mineral
content that is acceptable to Glencore Ltd. pursuant to the Glencore Agreement
(without giving effect to any amendments thereof), (ii) at such time the Kemess
South Mine accounts payable of the Corporation do not exceed U.S.$15,000,000 and
(iii) at such time the Kemess South Mine accounts payable of the Corporation are
not overdue in accordance with their respective terms;
"PROPOSED LEASEBACK ASSETS" means one P & H model 2800XPB Electric Mining Shovel
(Serial No.28127) and one P & H model 100XP Rotary Blast Hole Drill (Serial
No.10036);
"PURCHASE AGREEMENT" means the Securities Purchase Agreement dated April 17,
1998 entered into by Trilon Financial Corporation and the Corporation in respect
of, inter alia, the purchase of the Debentures, as amended from time to time;
"PURCHASE MONEY SECURITY INTEREST" means any Lien given, assumed or arising by
operation of law, including capital leases, to provide or secure, or to provide
the obliger with funds to pay, the whole or any part of the consideration for
the acquisition of property where the principal amount of the obligation secured
by such Lien (i) is not in excess of the cost to the obliger of the property
encumbered thereby and (ii) is secured only by the property being acquired by
the obliger, and includes the renewal or refinancing of any such Lien upon the
same property provided that the indebtedness secured and the security therefor
are not increased thereby;
"ROYALTY AGREEMENT" has the same meaning given to such term in the Purchase
Agreement;
"ROYALTY DEBENTURE" has the same meaning given to such term in the Purchase
Agreement;
11
<PAGE>
"SALE" has the meaning attributed to such term in section 5.3(e);
"SECURITY" means the Liens created by the Security Documents;
"SECURITY DOCUMENTS" means, collectively, the agreements, instruments and
documents delivered from time to time (both before and after the date of this
Debenture) to the Holder by the Corporation and APM and by any Subsidiary for
the purpose of creating, perfecting, preserving or protecting the security of
the Holder in respect of the Debenture and in respect of amounts outstanding
thereunder (including, without limitation, the documents referred to in Article
3, Section 5.1(v) and Section 5.1(x));
"SUBORDINATED NOTES" means the outstanding Secured 12.75% Senior Subordinated
Notes due 2006 in the aggregate principal amount of U.S. $175,000,000;
"SUBORDINATED NOTE TRUST INDENTURE" means the Trust Indenture dated as of August
12, 1996 among the Corporation, Kemess Mines Inc. and Mellon Bank, F.S.B.
relating to the Subordinated Notes, as amended by (i) the First Supplemental
Indenture, dated and effective as of December 31, 1997, (ii) the Second
Supplemental Indenture dated and effective as of January 31, 1998, (iii) the
Third Supplemental Indenture dated and effective as of May 19, 1998, (iv) the
Fourth Supplemental Indenture dated and effective the date hereof, and (v) the
Fifth Supplemental Indenture dated and effective the date hereof, each by and
between the Corporation and Chase Manhattan Trust Company, National Association,
the successor to Mellon Bank, F.S.B., as Trustee;
"SUBSIDIARIES" means all of the corporations listed on SCHEDULE E and any other
corporation or limited liability company which is or hereafter becomes directly
or indirectly controlled by the Corporation, and for the purposes of this
definition, the Corporation shall be deemed to control a corporation if the
Corporation beneficially owns, directly or indirectly, shares to which are
attached more than 50% of the voting rights ordinarily exercisable at meetings
of shareholders of such corporation, and the Corporation shall be deemed to own
beneficially shares beneficially owned by a corporation controlled by it, and so
on indefinitely, and the Corporation shall be deemed to control a limited
liability company where it owns more than 50% of the equity interests in such
limited liability company;
"TAXES" means all taxes of any kind or nature whatsoever including, without
limitation, income taxes, sales or value-added taxes, levies, stamp taxes,
royalties, duties, and all fees, deductions, compulsory loans and withholdings
imposed, levied, collected, withheld or assessed as of the date hereof or at any
time in the future, by any Governmental Body of or within Canada or any other
jurisdiction whatsoever having power to tax, together with penalties, fines,
additions to tax and interest thereon;
"THIS DEBENTURE" and "THE DEBENTURE" refer to this Debenture and, unless
otherwise expressly provided, not to any particular Article, section,
subsection, paragraph, clause, subdivision or other portion hereof, and includes
any and every instrument supplemental or
12
<PAGE>
ancillary hereto or in implementation hereof;
"WINDY CRAGGY PROPERTY" means the mineral claims in and around Windy Craggy
mountain in the Tatshenshini/Alsek region of northwestern British Columbia, more
particularly described in SCHEDULE F hereto.
13
<PAGE>
ROYAL OAK MINES INC.
as Corporation
and
MONTREAL TRUST COMPANY OF CANADA
as Trustee
- --------------------------------------------------------------------------------
TRUST INDENTURE
PROVIDING FOR THE ISSUE OF
U.S. $50 MILLION 15% DEMAND BONDS
JUNE 22, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
<TABLE>
<S> <C> <C>
Section 1.1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Meaning of "outstanding" for Certain Purposes. . . . . . . . 11
Section 1.3. Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1.4. Deemed Notice of Indenture . . . . . . . . . . . . . . . . . 12
Section 1.5. Judgment Currency. . . . . . . . . . . . . . . . . . . . . . 12
Section 1.6. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
ARTICLE 2
THE BONDS
<TABLE>
<S> <C> <C>
Section 2.1. Terms, Form and Denomination of Bonds. . . . . . . . . . . . 13
Section 2.2. Issue of Bonds . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.3. Signing of Bonds . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.4. Certification. . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.5. Replacement of Bonds . . . . . . . . . . . . . . . . . . . . 15
Section 2.6. Ownership of Bonds . . . . . . . . . . . . . . . . . . . . . 15
Section 2.7. Payment of Principal and Interest. . . . . . . . . . . . . . 15
Section 2.8. Taxes and Other Taxes. . . . . . . . . . . . . . . . . . . . 16
Section 2.9. Exchange of Bonds. . . . . . . . . . . . . . . . . . . . . . 17
Section 2.10. Registration . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
ARTICLE 3
REPLEDGING OF BONDS
<TABLE>
<S> <C> <C>
Section 3.1. Repledging of Bonds. . . . . . . . . . . . . . . . . . . . . 18
Section 3.2. Outstanding. . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
ARTICLE 4
SECURITY
<TABLE>
<S> <C> <C>
Section 4.1. Security . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.2. Effect of Liens. . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.3. Security Effective Notwithstanding Date of Advance . . . . . 20
Section 4.4. Title to Collateral. . . . . . . . . . . . . . . . . . . . . 20
Section 4.5. Further Assurances . . . . . . . . . . . . . . . . . . . . . 20
Section 4.6. Registration . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.7. Release from Charge. . . . . . . . . . . . . . . . . . . . . 22
Section 4.8. Application of Insurance Proceeds. . . . . . . . . . . . . . 22
Section 4.9. Expropriation. . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.10. Priority of Liens. . . . . . . . . . . . . . . . . . . . . . 23
Section 4.11. Disposition of Assets. . . . . . . . . . . . . . . . . . . . 23
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.12. Royalty Interest . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.13. Restricted Payments. . . . . . . . . . . . . . . . . . . . . 24
Section 4.14. Security . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.15. Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
ARTICLE 5
COVENANTS OF THE CORPORATION
<TABLE>
<S> <C> <C>
Section 5.1. Payment of Principal and Interest. . . . . . . . . . . . . . 25
Section 5.2. Trustee's Remuneration and Expenses. . . . . . . . . . . . . 25
Section 5.3. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.4. Reorganization . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5. Limitation on Liens. . . . . . . . . . . . . . . . . . . . . 26
Section 5.6. Performance of Covenants by Trustee. . . . . . . . . . . . . 26
</TABLE>
ARTICLE 6
DEFAULT AND ENFORCEMENT
<TABLE>
<S> <C> <C>
Section 6.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . 28
Section 6.2. Acceleration on Default. . . . . . . . . . . . . . . . . . . 28
Section 6.3. Enforcement by Trustee . . . . . . . . . . . . . . . . . . . 29
Section 6.4. Enforcement by Bondholders . . . . . . . . . . . . . . . . . 29
Section 6.5. Entry by Trustee . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.6. Appointment of Receiver. . . . . . . . . . . . . . . . . . . 30
Section 6.7. Sale by Trustee. . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.8. Applying Bonds in Payment. . . . . . . . . . . . . . . . . . 31
Section 6.9. Application of Proceeds of Sale or Realization . . . . . . . 32
Section 6.10. Distribution of Proceeds. . . . . . . . . . . . . . . . . . 32
Section 6.11. Persons Dealing with Trustee. . . . . . . . . . . . . . . . 33
Section 6.12. Trustee Appointed Attorney. . . . . . . . . . . . . . . . . 33
</TABLE>
ARTICLE 7
SATISFACTION AND DISCHARGE
<TABLE>
<S> <C> <C>
Section 7.1. Cancellation and Destruction . . . . . . . . . . . . . . . . 34
Section 7.2. Release from Covenants . . . . . . . . . . . . . . . . . . . 34
</TABLE>
ARTICLE 8
SUCCESSOR CORPORATIONS
<TABLE>
<S> <C> <C>
Section 8.1. Certain Requirements in Respect of Merger, etc . . . . . . . 35
Section 8.2. Vesting of Powers in Successor . . . . . . . . . . . . . . . 35
Section 8.3. Opinion of Counsel to be Given to Trustee. . . . . . . . . . 35
</TABLE>
-ii-
<PAGE>
ARTICLE 9
EXTRAORDINARY RESOLUTIONS
<TABLE>
<S> <C> <C>
Section 9.1. Powers Exercisable by Extraordinary Resolution . . . . . . . 36
Section 9.2. Meaning of "Extraordinary Resolution". . . . . . . . . . . . 37
Section 9.3. Powers Cumulative. . . . . . . . . . . . . . . . . . . . . . 37
Section 9.4. Binding Effect of Resolutions. . . . . . . . . . . . . . . . 37
</TABLE>
ARTICLE 10
SUPPLEMENTAL INDENTURES
<TABLE>
<S> <C> <C>
Section 10.1. Execution of Supplemental Indentures. . . . . . . . . . . . 38
</TABLE>
ARTICLE 11
CONCERNING THE TRUSTEE
<TABLE>
<S> <C> <C>
Section 11.1. Conditions Precedent to Trustee's Obligation to Act . . . . 39
Section 11.2. Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 11.3. Experts and Advisers. . . . . . . . . . . . . . . . . . . . 40
Section 11.4. Action by Trustee to Protect Interests. . . . . . . . . . . 40
Section 11.5. Trustee Not Required to Give Security . . . . . . . . . . . 40
Section 11.6. Protection of Trustee . . . . . . . . . . . . . . . . . . . 40
Section 11.7. Replacement of Trustee. . . . . . . . . . . . . . . . . . . 41
Section 11.8. Conflict of Interest. . . . . . . . . . . . . . . . . . . . 41
Section 11.9. Cash Collateral Held by the Trustee . . . . . . . . . . . . 42
Section 11.10. Certificate of Compliance . . . . . . . . . . . . . . . . . 42
Section 11.11. Legislation Relating to Indentures. . . . . . . . . . . . . 42
Section 11.12. Acceptance of Trust . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
ARTICLE 12
MISCELLANEOUS
<TABLE>
<S> <C> <C>
Section 12.1 Communications . . . . . . . . . . . . . . . . . . . . . . . 43
Section 12.2. Address of Record. . . . . . . . . . . . . . . . . . . . . . 43
Section 12.3. Indemnification of Trustee . . . . . . . . . . . . . . . . . 43
Section 12.4. Deposit of Securities. . . . . . . . . . . . . . . . . . . . 44
Section 12.5. Change of Name . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
ARTICLE 13
FORM OF BONDS
<TABLE>
<S> <C> <C>
Section 13.1. Form of Bonds . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
-iii-
<PAGE>
ARTICLE 14
EXECUTION
<TABLE>
<S> <C> <C>
Section 14.1. Notarial Trust Deed . . . . . . . . . . . . . . . . . . . . 49
Section 14.2. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 49
Section 14.3. Formal Date . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
-iv-
<PAGE>
TRUST INDENTURE
TRUST INDENTURE dated June 22, 1998 between ROYAL OAK MINES INC.
(the "CORPORATION") and MONTREAL TRUST COMPANY OF CANADA (the "TRUSTEE").
WHEREAS the Corporation deems it necessary for its corporate
purposes to deliver security to certain parties who have or may in future
enter into hedging transactions with the Corporation;
AND WHEREAS it is desirable to grant such security through a
trustee acting under a trust indenture;
AND WHEREAS in order to give effect to such security the
Corporation proposes to issue bonds under the trust indenture;
AND WHEREAS the Corporation under the laws relating to it is duly
authorized to create, issue and secure the Bonds to be issued as provided in
this Indenture;
AND WHEREAS all things necessary have been done and performed to
make the Bonds, when issued by the Corporation and certified by the Trustee,
valid, binding and legal obligations of the Corporation with the benefits and
subject to the terms of this Indenture and to make this Indenture a valid and
binding indenture in accordance with its terms;
AND WHEREAS the foregoing recitals and any statements contained in
this Indenture or in the Bonds (except the representations in the certificate
of the Trustee on the Bonds) are and shall be deemed to be made as
representations and statements of fact by the Corporation;
NOW THEREFORE, in consideration of the foregoing, the sum of $10.00
and other good and valuable consideration, the receipt and sufficiency of
which are acknowledged by the Corporation, the Corporation agrees as follows:
ARTICLE 1
INTERPRETATION
SECTION 1.1. DEFINED TERMS. (1) As used in this Indenture and
the Bonds, the following terms have the following meanings:
"APM" means Arctic Precious Metals, Inc., a Nevada corporation.
"AFFILIATE" has the meaning specified in the BUSINESS CORPORATIONS
ACT (Ontario).
"BONDS" means the bonds of the Corporation issued and certified
under this Indenture and for the time being outstanding.
<PAGE>
-2-
"BONDHOLDERS" means the holders of the Bonds for the time being and
from time to time.
"BUSINESS DAY" means any day of the year, other than a Saturday,
Sunday or other day on which banks are required or authorized to close in
Toronto, Ontario.
"CANADIAN DOLLARS" and "CDN. $" each mean lawful money of Canada.
"CAPITAL LEASE OBLIGATIONS" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease that
are required to be classified and accounted for as capital lease obligations
in accordance with GAAP.
"CERTIFICATE OF THE CORPORATION", "ORDER OF THE CORPORATION" and
"REQUEST OF THE CORPORATION" mean, respectively, a written certificate, order
and request signed in the name of the Corporation by any one of its Chairman,
President, Chief Financial Officer or Secretary.
"CERTIFIED RESOLUTION" means a copy of a resolution certified by
the Secretary or any Assistant Secretary of the Corporation to have been duly
passed by the Directors and to be in full force and effect on the date of the
certification.
"COLLATERAL" means the property, assets and undertaking of the
Corporation and its Restricted Subsidiaries charged or in which the Trustee
is granted a Lien pursuant to the Security and all replacements,
substitutions and additions thereto and all income, gains and distributions
thereon and proceeds thereof, of whatsoever nature and kind.
"CORPORATION" means Royal Oak Mines Inc. and every Successor
Corporation which has complied with the provisions of Article 8.
"COUNSEL" means an attorney, barrister or solicitor or a firm of
attorneys or barristers and solicitors retained by the Trustee or retained by
the Corporation and acceptable to the Trustee.
"DEBT" of any Person means all indebtedness including, without
limitation (i) all indebtedness of such Person for and in respect of borrowed
money, including obligations with respect to bankers' acceptances, letters of
credit and letters of guarantee or indemnity; (ii) all indebtedness of such
Person for the deferred purchase price of property or services represented by
a note or other evidence of indebtedness or other security; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement
in the event of default are limited to the possession or sale of such
property); (iv) all obligations under leases which, in accordance with GAAP
(or accounting principles generally accepted in the jurisdiction of
incorporation or organization of such Person), are recorded as capital
leases, in respect of which such Person is liable as lessee; (v) all
indebtedness or obligations of such Person pursuant to any interest rate
swaps, currency swaps, commodity agreements and similar hedging agreements;
and (vi) all Debt Guaranteed by
<PAGE>
-3-
such Person.
"DEBT GUARANTEED" by any Person means Debt of the kinds referred to
in (i) through (v) of the definition of Debt which is directly or indirectly
guaranteed by such Person or which such Person has agreed (contingently or
otherwise) with the creditor to purchase or otherwise acquire or assume, or
in respect of which such Person has otherwise assured a credit against loss
by means of an indemnity, security or bond.
"DIRECTOR" means a director of the Corporation for the time being,
and reference without more to action by the Directors means action by the
directors of the Corporation as a board or, whenever duly empowered, action
by a committee of the board.
"DOCUMENTS" means the Security Documents and any other document
delivered to the Bondholders by the Corporation or any Subsidiary pursuant to
or in connection therewith.
"ELIGIBLE CAPITAL LEASE OBLIGATIONS AND PURCHASE MONEY SECURITY
INTERESTS" means (a) Capital Lease Obligations and Purchase Money Security
Interests existing as at the date hereof or any renewals or replacements
thereof on materially the same terms and in amounts not materially exceeding
those existing as at the date hereof; and (b) Capital Lease Obligations and
Purchase Money Security Interests incurred following the date hereof if the
claims of the lessor or creditor thereunder are limited to recovery or
repossession of the leased or financed property in question and if such
leased or financed property is newly acquired by the Corporation.
"ELIGIBLE HEDGING INDEBTEDNESS" means (i) Existing Hedging
Indebtedness; and (ii) Indebtedness which is Permitted Indebtedness described
in clauses (iii) or (iv) of the definition of "Permitted Indebtedness" in the
Subordinated Indenture, as in effect on the date hereof.
"EQUIVALENT CDN. $ AMOUNT" means, with respect to any amount of any
currency other than Canadian Dollars, the amount of Canadian Dollars
determined by using the quoted spot rate at which The Bank of Nova Scotia's
principal office in Toronto, Ontario offers to provide Canadian Dollars in
exchange for such other currency at 12:00 noon (Toronto time) on the date
which such Equivalent Cdn. $ Amount is to be determined.
"EVENT OF DEFAULT" has the meaning specified in Section 6.1.
"EXCLUDED ASSETS" means the Windy Craggy Property.
"EXISTING HEDGING INDEBTEDNESS" has the meaning ascribed to that
term in the Subordinated Indenture, as in effect on the date hereof.
"EXTRAORDINARY RESOLUTION" has the meaning specified in Section 9.2.
"FISCAL YEAR" means a fiscal year of the Corporation commencing on
<PAGE>
-4-
January 1 of each calendar year and ending on December 31 of the same
calendar year.
"GAAP" means at any time, accounting principles generally accepted
in Canada as recommended in the Handbook of the Canadian Institute of
Chartered Accountants at the relevant time applied on a consistent basis.
"GOVERNMENTAL ENTITY" means any (i) multinational, federal,
provincial, state, municipal, local or other government, governmental or
public department, central bank, court, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) any subdivision or authority of
any of the foregoing, or (iii) any quasi-governmental or private body
exercising any regulatory, expropriation or taxing authority under or for the
account of any of the foregoing.
"HEDGING COUNTERPARTY" means Bankers Trust Company, Macquarie Bank
Limited, The Bank of Nova Scotia, and their respective successors and
assigns, and any other Person with whom from time to time the Corporation has
entered, or is proposing to enter into or incur Currency Agreements, Interest
Swap Obligations, Foreign Exchange Obligations or Commodity Agreements, as
such terms are defined in the Subordinated Indenture, as in effect on the
date hereof.
"IN AGREED FORM" means, with respect to any documents to be
delivered by the Corporation or any Restricted Subsidiary to the Trustee
under or pursuant to this Indenture, that such document is in substantially
the same form and substance as the comparable document, if any, previously
delivered or to be delivered contemporaneously by the Corporation or such
Restricted Subsidiary to the Senior Bondholders.
"INDENTURE", "HEREIN", "HEREBY", "HEREOF" and similar expressions
mean and refer to this Indenture as supplemented or amended by any indenture,
deed or instrument supplemental or ancillary hereto; and the expressions
"ARTICLE" and "SECTION" followed by a number mean and refer to the specified
Article or Section of this Indenture.
"INSIDER" has the meaning specified in Section 1(1) of the
SECURITIES ACT (Ontario).
"KEMESS MINE" means the Kemess North Property and Kemess South Mine.
"KEMESS NEWCO" means the wholly owned subsidiary of the Corporation
to which, at the request of the Senior Bondholders, the Corporation will
transfer ownership of the Kemess Mine and related assets.
"KEMESS NEWCO GUARANTEE AND ASSUMPTION" means the guarantee and
assumption to be given by Kemess Newco, in compliance with Section 5.4 of the
Indenture, which guarantee and assumption shall be In Agreed Form and in form
and substance satisfactory to the Trustee, based on the advice of Counsel,
pursuant to which Kemess Newco will guarantee the obligations of the
Corporation pursuant to the Bonds.
"KEMESS NEWCO LIENS" means the present and future fixed and
floating
<PAGE>
-5-
Liens to be granted by Kemess Newco to the Trustee in all of its property,
assets and undertaking, including the Kemess Mine and related assets, which
Lien shall be In Agreed Form and in form and substance satisfactory to the
Trustee, based on the advice of Counsel, and which will secure the payment
and performance by Kemess Newco of its obligations under the Kemess Newco
Guarantee and Assumption.
"KEMESS NORTH PROPERTY" means all present and future property,
assets and undertaking comprising or relating to what is generally referred
to as the Kemess North property in British Columbia, Canada, including,
without limitation, all mineral claims and leases referred to in Schedule
"B-1" to the Secured Debenture, all buildings, equipment, fixtures and other
property and assets owned or leased by the Corporation (or in which the
Corporation otherwise has an interest) situated or used at the Kemess North
Property site, all operations, exploration and other activities carried on at
such site and all permits, authorizations, licenses and similar approvals
relating thereto.
"KEMESS SOUTH MINE" means all present and future property, assets
and undertaking comprising or relating to what is generally referred to as
the Kemess South property in British Columbia, Canada, including, without
limitation, all mineral claims and leases referred to in Schedule "B-2" to
the Secured Debenture hereto, all buildings, equipment, fixtures and other
property and assets owned or leased by the Corporation (or in which the
Corporation otherwise has an interest) situated or used at the Kemess South
Mine site, all operations, exploration and other activities carried on at
such site and all permits, authorizations, licenses and similar approvals
relating thereto.
"KEMESS SOUTH RESOURCES LIMITED PARTNERSHIP" means the limited
partnership of that name formed under the laws of the Province of British
Columbia, and its successors and assigns.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
lien, charge or deposit arrangement or other arrangement or condition that in
substance secures payment or performance of an obligation and shall include
the interest of a vendor or lessor under any conditional sale agreement,
capitalized lease or other title retention agreement.
"NIGHTHAWK LAKE MINE" means the property covering approximately
11,726 acres representing 254 claims in both Cody and Macklem Townships,
Ontario, with most of the property held outright by the Corporation as staked
mineral claims and the remaining property held through various agreements and
subsidiary companies.
"ORIGINAL CURRENCY" has the meaning specified in Section 1.5(1).
"OTHER CURRENCY" has the meaning specified in Section 1.5(1).
"OTHER TAXES" has the meaning specified in Section 2.8(2).
"PAMOUR MINE" means the property (exclusive of the Hoyle
properties) located in Whitney Township approximately 15 miles east of
Timmins, Ontario which consisted of 38 patented mining claims and one license
of occupation covering
<PAGE>
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approximately 1,531 acres of mining and surface rights.
"PERMITTED LIENS" mean
(a) Liens on the property, assets or undertaking of the Corporation or
of a Restricted Subsidiary that, in each case, secure indebtedness under the
Senior Indentures in a principal amount not in excess of U.S.$120,000,000;
(b) Liens securing indebtedness of a Person existing at the time that
such Person is merged into or consolidated with the Corporation or a
Restricted Subsidiary, provided that such Liens were in existence prior to
the completion of such merger or consolidation and do not extend to any
assets other than those of such Person;
(c) Liens on property acquired by the Corporation or a Restricted
Subsidiary, provided that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any other property;
(d) Liens on property, assets or undertaking of the Corporation that,
in each case, secure the royalty payments to be made by the Corporation or a
Restricted Subsidiary to Kemess South Resources Limited Partnership or, upon
dissolution to the partners thereof, in respect of copper extracted and
processed from the Kemess South property;
(e) Liens on the property, assets or undertaking of the Corporation or
a Restricted Subsidiary that, in each case, secure Capital Lease Obligations
or Purchase Money Obligations;
(f) Liens incurred, or pledges and deposits in connection with,
workers' compensation, unemployment insurance and other social security
benefits, and leases, appeal bonds and other obligations of like nature
incurred by the Corporation or any Restricted Subsidiary in the ordinary
course of business;
(g) Liens imposed by law, including, without limitation, mechanics',
carriers' warehousemen's, materialmen's, suppliers' and vendors' Liens,
incurred by the Corporation or any Restricted Subsidiary in the ordinary
course of business in a principal amount not in excess of at any time of Cdn.
$15,000,000;
(h) Liens for AD VALOREM, income or property taxes or assessments and
similar charges which either are not delinquent or are being contested in
good faith by appropriate proceedings for which the Corporation has set aside
on its books reserves to the extent required by GAAP;
(i) Liens on the property, assets or undertaking of the Corporation
that, in each case, secure the obligations of the Corporation under the
Royalty Agreement, including pursuant to the Royalty Debenture;
(j) Liens on the property, assets or undertaking of Kemess Newco that
secure indebtedness of the Corporation assumed by Kemess
<PAGE>
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Newco on the transfer of Kemess Newco of ownership of the Kemess Mine and
related assets;
(k) Liens granted by the Corporation and its Restricted Subsidiaries to
the Trustee pursuant to the terms hereof and the Security Documents;
(l) the Subordinated Liens;
(m) rights reserved to or vested in any Governmental Entity by the
terms of any lease, licence, franchise, grant or permit, or by any statutory
provision, to terminate the same, to take action which results in an
expropriation, to designate a purchase of any property subject thereto or to
require annual or other payments as a condition to the continuance thereof;
(n) zoning restrictions, easements, rights of way, leases or other
similar encumbrances or privileges in respect of real property which in the
aggregate do not materially impair the use of such property by the
Corporation or any Restricted Subsidiary in the operation of its business;
(o) security given by the Corporation or a Restricted Subsidiary to a
public utility or any Governmental Entity, when required by such utility or
Governmental Entity in connection with the operations of the Corporation or
such Restricted Subsidiary in the ordinary course of its business, which
singly or in the aggregate do not materially detract from the value of the
asset concerned or materially impair its use in the operation of the business
of the Corporation or such Restricted Subsidiary;
(p) the reservation in any original grants from any Governmental Entity
of any land or interest therein and statutory exceptions to title; and
(q) title, defects or irregularities which are of a minor nature and
which do not materially detract from the value of the assets of the
Corporation or its Restricted Subsidiaries encumbered thereby.
"PERSON" means a natural person, partnership, corporation,
joint-stock company, trust, unincorporated association, joint venture or
other entity or Governmental Entity and pronouns which have a similarly
extended meaning.
"PLEDGE AGREEMENT" means an agreement between the Corporation and a
Bondholder, pursuant to which a Bond issued hereunder is pledged to the
Bondholder as security for the obligations specified therein.
"PROPOSED LEASEBACK ASSETS" means one P & H model 2800 x PB
Electric Mining Shovel and one P & H model 100 x P Rotary Blast Hole Drill.
"PURCHASE MONEY OBLIGATIONS" means indebtedness of the Corporation
and its Restricted Subsidiaries incurred in connection with the purchase of
assets; provided that any Lien so created in connection with such incurrence
is limited solely to the property or assets so purchased.
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"PURCHASE MONEY SECURITY INTEREST" means any Lien given, assumed
or arising by operation of law, including capital leases, to provide or
secure, or to provide the obliger with funds to pay, the whole or any part of
the consideration for the acquisition of property where the principal amount
of the obligation secured by such Lien (i) is not in excess of the cost to
the obliger of the property encumbered thereby and (ii) is secured only by
the property being acquired by the obliger, and includes the renewal or
refinancing of any such Lien upon the same property provided that the
indebtedness secured and the security therefor are not increased thereby.
"RECEIVER'S CERTIFICATE" has the meaning specified in Section 6.6.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Corporation
that is not an Unrestricted Subsidiary.
"ROYALTY AGREEMENT" means the agreement between the Corporation and
Trilon Financial Corporation to be dated the date hereof pursuant to which
Trilon Financial Corporation has been granted a royalty interest in the
Kemess South Mine, as amended from time to time (other than amendments which
violate Section 4.12 hereof).
"ROYALTY DEBENTURE" means the debenture dated June 22, 1998,
securing the obligations of the Corporation under the Royalty Agreement.
"SALE" has the meaning specified in Section 4.11.
"SECURED DEBENTURE" means the secured debenture to be delivered to
the Trustee pursuant to Section 4.1(i) hereof.
"SECURITY" means the security granted pursuant to Section 4.1 and
any other security from time to time held by the Trustee for the benefit of
the Bondholders.
"SECURITY DOCUMENTS" means, collectively, the agreements,
instruments and documents delivered from time to time to the Trustee by the
Corporation, Kemess Newco and APM for the purpose of creating, perfecting,
preserving or protecting the Liens in favour of the Trustee for the benefit
of the Bondholders which secure the payment and performance by the
Corporation and its Restricted Subsidiaries of their respective obligations
under the Indenture, the Bonds and the Security Documents. The Security
Documents as the date hereof are described in Section 4.1(i) to (ix), hereof.
"SENIOR BONDHOLDERS" means the holders of the Senior Security.
"SENIOR INDENTURES" means the senior secured debenture, Series A,
dated as of June 22, 1998 issued by the Corporation to Trilon Financial
Corporation and the senior secured debenture, Series B, dated as of June 22,
1998, issued by the Corporation to Northgate Exploration Limited, as from
time to time amended (other than amendments which increase the principal
amount due thereunder) and any debentures or other agreements which refinance
or renew the amounts outstanding thereunder (provided that the principal
amount outstanding thereunder is not increased).
<PAGE>
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"SENIOR SECURITY" means the security from time to time granted by
the Corporation or any of its Subsidiaries to secure the obligations of the
Corporation or such Subsidiaries pursuant to the Senior Indentures.
"SINGLE BONDHOLDER REQUEST" means an instrument signed in one or
more counterparts by a Bondholder or Bondholders holding not less than U.S.
$1 million in aggregate principal amount of the Bonds at the time outstanding.
"SUBORDINATED INDENTURE" means the indenture dated as of August 12,
1996 made by the Corporation as issuer, Kemess Mines Inc., as guarantor, and
Mellon Bank, F.S.B., as trustee, as amended by supplemental indentures dated
December 31, 1997, January 31, 1998 and May 19, 1998 and the date hereof,
between the Corporation and Chase Manhattan Trust Company, National
Association, as successor trustee, as further amended from time to time.
"SUBORDINATED LIENS" means the present and future Liens held by a
trustee or a collateral agent for and on behalf of the Subordinated
Noteholders to secure payment and performance of the obligations of the
Corporation and its Restricted Subsidiaries under the Subordinated Indenture,
the Subordinated Notes and the Subordinated Security.
"SUBORDINATED NOTES" means the notes issued pursuant to the
Subordinated Indenture.
"SUBORDINATED NOTEHOLDERS" means the holders from time to time of
Subordinated Notes pursuant to the Subordinated Indenture.
"SUBORDINATED SECURITY" means the security from time to time
granted by the Corporation or any Subsidiary to secure the obligations of the
Corporation pursuant to the Subordinated Indenture.
"SUCCESSOR CORPORATION" has the meaning specified in Section 8.1.
"SUBSIDIARIES" means all of the corporations listed on Schedule E
to the Senior Indentures and any other corporation or limited liability
company which is or hereafter becomes directly or indirectly controlled by
the Corporation, and for the purposes of this definition, the Corporation
shall be deemed to control a corporation if the Corporation beneficially
owns, directly or indirectly, shares to which are attached more than 50% of
the voting rights ordinarily exercisable at meetings of shareholders of such
corporation, and the Corporation shall be deemed to own beneficially shares
beneficially owned by a corporation controlled by it, and so on indefinitely,
and the Corporation shall be deemed to control a limited liability company
where it owns more than 50% of the equity interests in such limited liability
company.
"TAXES" has the meaning specified in Section 2.8(1).
"TRUSTEE" means Montreal Trust Company of Canada and its successors
for the time being in the trusts hereby created.
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"U.S. DOLLARS" and "U.S. $" each mean lawful money of the United
States of America.
"UNANIMOUS BONDHOLDERS' REQUEST" means an instrument signed in one
or more counterparts by the Bondholders holding not less than 100% in
aggregate principal amount of the Bonds at the time outstanding (excluding
any such held by Affiliates or Insiders of the Corporation) requesting the
Trustee to take some action or proceeding specified therein.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Corporation
designated as an Unrestricted Subsidiary by the board of directors of the
Corporation; PROVIDED, HOWEVER, that (i) the Subsidiary to be so designated
(x)(I) has total assets with a fair market value at the time of such
designation of U.S. $1,000,000 or less, or (II) is being so designated prior
to the acquisition by the Corporation of such Subsidiary by merger or
consolidation with an Unrestricted Subsidiary, and (y) does not own any
capital stock of the Corporation or any Restricted Subsidiary, (ii) if such
Subsidiary is acquired by the Corporation, such Subsidiary is designated as
an Unrestricted Subsidiary prior to the consummation of such acquisition,
(iii) no Event of Default shall have occurred and be continuing, (iv) no
portion of any Debt or any other obligation (contingent or otherwise) of such
Subsidiary (a) is guaranteed by or is otherwise the subject of credit support
provided by the Corporation or any of its Restricted Subsidiaries, (b) is
recourse to or obligates the Corporation or any of its Restricted
Subsidiaries in any way, or (c) subjects any property or asset of the
Corporation or any of its Restricted Subsidiaries directly or indirectly,
contingently or otherwise, to the satisfaction of such Debt or other
obligation, (v) neither the Corporation nor any of its Restricted
Subsidiaries has any contract, agreement, arrangement or understanding with
such Subsidiary other than on terms as favourable to the Corporation or such
Restricted Subsidiary as those that might be obtained at the time from
Persons that are not Affiliates of the Corporation, and (vi) neither the
Corporation nor any of its Restricted Subsidiaries has any obligations (a) to
subscribe for additional shares of the capital stock of such Subsidiary, or
(b) to maintain or preserve such Subsidiary's financial condition or to cause
such Subsidiary to achieve certain levels of operating results. Any such
designation by the Corporation's board of directors shall be evidenced to the
Trustee by filing with the Trustee a certified certificate stating that such
designation complies with the foregoing conditions. The Corporation's board
of diectors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such
designation, no event of default shall have occurred and be continuing under
the Senior Indentures or the Subordinated Indenture, assuming the incurrence
by the Corporation and its Restricted Subsidiaries at the time of such
designation of all existing Debt and Liens of the Unrestricted Subsidiary to
be so designated as a Restricted Subsidiary. In the event of any transaction
described in Article 8 involving the Corporation in which the Corporation is
not the Successor Corporation, the board of directors of the Successor
Corporation may (x) prior to such transaction, designate any of its
Subsidiaries, and any of the Corporation's Subsidiaries being acquired
pursuant to such transaction that are not Restricted Subsidiaries, as
Unrestricted Subsidiaries, and (y) after such transaction, designate any of
its direct or indirect Subsidiaries as an Unrestricted Subsidiary under the
same conditions and in the same manner as the Corporation under the terms of
this
<PAGE>
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Indenture.
"WINDY CRAGGY PROPERTY" means the mineral claims in and around
Windy Craggy mountain in the Tatshenshini/Alsek region of northwestern
British Columbia.
(2) Reference to any statute shall be deemed to be a reference to
such statute as amended or re-enacted from time to time.
(3) Any references in this Indenture or in a Bond to gender
includes all genders and words importing the singular number only shall
include the plural and vice versa.
SECTION 1.2. MEANING OF "OUTSTANDING" FOR CERTAIN PURPOSES. Every
Bond certified and delivered by the Trustee shall be deemed to be outstanding
until it shall be cancelled or delivered to the Trustee for cancellation,
provided, however, that:
(a) where a new Bond has been issued in substitution for a Bond which
has been lost, destroyed or stolen, only one of them shall be counted for the
purpose of determining the aggregate principal amount of Bonds outstanding;
and
(b) for the purpose of any provision of this Indenture entitling
Bondholders to vote, sign consents, requests or other instruments or take any
other action under this Indenture, Bonds owned by the Corporation or any
Affiliate shall be disregarded, except that (i) for the purpose of
determining whether the Trustee shall be protected in relying on any such
vote, consent, request, instrument or other action, only the Bonds which the
Trustee knows are so owned shall be so disregarded, and (ii) Bonds so owned
which have been pledged in good faith other than to the Corporation or any
Affiliate shall not be so disregarded if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right to vote such Bonds in its
discretion free from the control of the Corporation or any Affiliate.
SECTION 1.3. HEADINGS, ETC. The provision of a Table of Contents,
the division of this Indenture into Articles and Sections and the insertion
of headings are for convenient reference only and are not to affect the
interpretation of this Indenture.
SECTION 1.4. DEEMED NOTICE OF INDENTURE. Bondholders and all
Persons claiming through or under them, respectively, shall be deemed to have
notice of, and shall be bound by, the provisions of this Indenture.
SECTION 1.5. JUDGMENT CURRENCY. (1) If, for the purposes of
obtaining judgment in any court, it is necessary to convert a sum due
hereunder or under a Bond in any currency (the "ORIGINAL CURRENCY") into
another currency (the "OTHER CURRENCY"), the Corporation agrees, to the
fullest extent that it may effectively do so, that the rate of exchange used
shall be that at which, in accordance with normal banking procedures, the
Trustee or the relevant Bondholder, as the case may be, could purchase the
Original Currency with the Other Currency on the Business Day preceding that
on which final judgment is given or, if permitted by applicable laws, on the
day on which such judgment
<PAGE>
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is paid or satisfied.
(2) The obligations of the Corporation in respect of any sum due
in the Original Currency from it hereunder or under a Bond shall,
notwithstanding any judgment in any Other Currency, be discharged only to the
extent that on the Business Day following receipt by the Trustee or the
relevant Bondholder of any sum adjudged to be so due in such Other Currency,
the Trustee or such Bondholder may, in accordance with normal banking
procedures, purchase the Original Currency with such Other Currency. If the
amount of the Original Currency so purchased is less than the sum originally
due to the Trustee or such Bondholder in the Original Currency, the
Corporation shall, as a separate obligation and notwithstanding any such
judgment, indemnify the Trustee or such Bondholder, against such loss, and if
the amount of the Original Currency so purchased exceeds the sum originally
due to the Trustee or such Bondholder in the Original Currency, the Trustee
or such Bondholder shall remit such excess to the Corporation.
SECTION 1.6. APPLICABLE LAW. This Indenture and the Bonds shall
be governed by and interpreted and enforced in accordance with the laws of
the Province of Ontario and the federal laws of Canada applicable therein.
<PAGE>
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ARTICLE 2
THE BONDS
SECTION 2.1. TERMS, FORM AND DENOMINATION OF BONDS. (1) The Bonds
authorized to be issued pursuant to this Indenture shall consist of and be
limited to an aggregate principal amount of U.S. $50 Million and shall be
designated as the "U.S. $50 MILLION 15% DEMAND BONDS".
(2) The Bonds shall (i) be dated their issue date, (ii) be due and
payable on demand, and (iii) bear interest (both before and after demand and
judgment) from and including their issue date to but excluding the date of
their payment in full at the rate of 15% per annum (including, in case of
default, interest at the same rate on all amounts overdue payable on demand)
calculated and compounded monthly in arrears from the issue date, and shall
be paid in arrears on the last Business Day of each month beginning January
of 1999.
(3) The Bonds shall (i) be issuable in registered form in integral
multiples of U.S. $1 Million, (ii) be substantially in the form set out in
Article 13 with appropriate insertions, and (iii) bear such distinguishing
letters and numbers as the Trustee approves.
(4) Subject to this Indenture, all Bonds shall rank PARI PASSU
among themselves and shall be secured equally and rateably.
SECTION 2.2. ISSUE OF BONDS. (1) Bonds in the aggregate principal
amount of U.S. $50 Million, in definitive form, are hereby created and may
immediately be executed by the Corporation, certified by or on behalf of the
Trustee and delivered by it to or upon the order of the Corporation.
(2) No Bond shall be issued, unless and until the Corporation and
the Bondholder to whom the Bond is to be issued have certified to the Trustee
as follows:
(i) the Bondholder is a Hedging Counterparty; and
(ii) upon issuance, the Bond will be pledged to the Bondholder
pursuant to a Pledge Agreement to be held as security only for
the obligations of the Corporation or its affiliates to the
Bondholder pursuant to Eligible Hedging Indebtedness.
(3) A Bond shall only be obligatory or entitle the Bondholder to
any benefit if, and to the extent, that such Bond is pledged to secure
Eligible Hedging Indebtedness.
(4) Each of the Bondholders acknowledges that the indebtedness
owed to a Hedging Counterparty is separate and unrelated to the indebtedness
owed to any other Hedging Counterparty. In the event that the Security, to
the extent it secures any indebtedness to a Hedging Counterparty or any Bond
pledged to such Hedging
<PAGE>
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Counterparty to secure such indebtedness (the "Affected Security"), is for
any reason subordinated to any security for any other indebtedness (the
"Other Security"), to which the Security, to the extent it secures Hedging
Indebtedness to other Hedging Counterparties or the Bond pledged to such
other Hedging Counterparties, (the "Unaffected Security") is not
subordinated, then, notwithstanding subsection 2.1(4) or Section 4.2, the
priority of the Unaffected Security shall not be affected and the Unaffected
Security shall maintain its priority over the Other Security, and the holders
of the Unaffected Security shall be entitled to participate in a distribution
as if the Affected Security had not been subordinated.
(5) Except for the Bonds issued or to be issued to Bankers Trust
Company, Macquarie Bank Limited and The Bank of Nova Scotia on or about the
date hereof, no Bond shall be issued, or, if issued, shall be obligatory,
unless the Trustee shall have received either (i) the consent of the existing
Bondholders to such issuance expressed by way of Extraordinary Resolution; or
(ii) each of the following:
(i) an acknowledgment of the trustee under the Subordinated Indenture,
substantially in the form of the acknowledgment received by the
Trustee and Bankers Trust Company, Macquarie Bank Limited and The Bank
of Nova Scotia on or about the date hereof;
(ii) an opinion of Counsel that new Bonds will rank equally and rateably
with the existing Bonds and will not prejudice the priority of the
existing Bonds; and
(iii) a certificate of The Bank of Nova Scotia or an opinion of counsel
providing evidence that the principal amount of the Bonds outstanding
after the issuance will not exceed U.S. $50 million less 150% of The
Bank of Nova Scotia cash collateral.
SECTION 2.3. SIGNING OF BONDS. The Bonds shall be under the
corporate seal of the Corporation and shall be signed in the name and on
behalf of the Corporation by any one of the Chairman or the President or the
Chief Financial Officer, together with any one of the Secretary or any
Assistant Secretary of the Corporation. Notwithstanding that any of the
individuals whose signature appears on any Bond as one of such officers may
no longer hold office at the date of this Indenture, the date of the Bond or
the date of certification and delivery, any Bond signed as aforesaid shall be
valid and binding upon the Corporation.
SECTION 2.4. CERTIFICATION. (1) No Bond shall be issued, or, if
issued, shall be obligatory or entitle the Bondholder to any benefit, until
it has been certified by or on behalf of the Trustee substantially in the
form of the certificate set out in Article 13, or in some other form approved
by the Trustee, and such certification by the Trustee upon any Bond shall be
conclusive evidence as against the Corporation that the Bond so certified has
been duly issued and is a valid obligation of the Corporation.
(2) The certificate of the Trustee on the Bonds shall not be
construed as a representation or warranty by the Trustee as to the validity of
this Indenture or of the Bonds (except the due certification and any other
warranties implied by law) and the Trustee shall not, in any respect, be liable
or answerable for the use made of the Bonds or any of them or of the proceeds of
the Bond.
<PAGE>
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SECTION 2.5. REPLACEMENT OF BONDS. (1) If any of the Bonds are
mutilated, defaced, lost, destroyed or stolen, the Corporation, subject to
applicable law, shall issue and the Trustee, at its principal office in
Toronto, Ontario or its principal office in Vancouver, British Columbia,
shall certify and deliver a new Bond of like date and tenor as the one
mutilated, defaced, lost, destroyed or stolen in exchange for, and in place
of, and upon cancellation of, the mutilated or defaced Bond and in lieu of,
and in substitution for, the lost, destroyed or stolen Bond. The new Bond
shall be entitled to the Security and rank equally in accordance with its
terms with all other Bonds issued under this Indenture.
(2) The applicant for the issue of a new Bond pursuant to this
Section 2.5 shall bear the cost of issue and, in the case of loss,
destruction or theft shall, as a condition precedent to the issue, furnish
the Corporation and the Trustee with such evidence of ownership and of the
loss, destruction or theft as shall be satisfactory to the Corporation and
the Trustee in their discretion. The applicant may also be required to
furnish an indemnity and surety bond in amount and form satisfactory to the
Corporation and the Trustee in their discretion, and shall pay the reasonable
charges of the Corporation and the Trustee.
SECTION 2.6. OWNERSHIP OF BONDS. (1) A Bondholder may not
transfer a Bond.
(2) Unless otherwise required by law, the Corporation and the
Trustee may deem and treat the Bondholder of any Bond as the person entitled
to the benefit thereof and neither the Corporation nor the Trustee shall be
affected by any notice to the contrary, and payment of, or on account of the
principal of, or any interest on, any Bond shall be made only to or upon the
order in writing of the registered Bondholder.
(3) The Bondholder of any Bond shall be entitled to the principal
or interest, or both, evidenced by the Bond, free from all equities or rights
of set-off or counterclaim between the Corporation and the original or any
intermediate Bondholder and all Persons may act accordingly. The receipt of
any Bondholder for any principal or interest shall be a good discharge to the
Corporation and the Trustee for the same and neither the Corporation nor the
Trustee shall be bound to inquire into the title of any Bondholder.
SECTION 2.7. PAYMENT OF PRINCIPAL AND INTEREST. (1) The principal
of the Bonds will be payable at the principal office of the Trustee in
Vancouver, British Columbia on the Business Day after demand for payment has
been made by a Bondholder.
(2) Interest accrued on the principal amount of any Bond, and
interest on overdue interest, will be paid by the Corporation directly to the
Bondholder of such Bond. Upon request, the Corporation shall provide to the
Trustee written confirmation of any amounts so paid.
(3) Interest shall be calculated at the rate mentioned in Section
2.1(2) on the basis of the number of days elapsed in the year (which shall
consist of three hundred and sixty-five (365) or three hundred and sixty-six
(366) days, as the case may be).
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(4) If the day on which interest on the Bonds falls due is not a
Business Day, a Bondholder shall not be entitled to payment until the next
following Business Day or to any interest or other sums in respect of the
postponed payment.
SECTION 2.8. TAXES AND OTHER TAXES. (1) All payments to a
Bondholder under the Bond shall be made free and clear of and without
deduction or withholding for any and all taxes, levies, imposts, deductions,
charges or withholdings and all related liabilities (all such taxes, levies,
imposts, deductions, charges, withholdings and liabilities being referred to
as "Taxes") imposed by Canada (or any political subdivision or taxing
authority of it), unless such Taxes are required by applicable Law to be
deducted or withheld. If the Corporation shall be required by applicable Law
to deduct or withhold any such Taxes from or in respect of any amount payable
under any Bond except, as provided in the next sentence, (i) the amount
payable shall be increased (and for greater certainty, in the case of
interest, the amount of interest shall be increased) as may be necessary so
that after making all required deductions or withholdings (including
deductions or withholdings applicable to any additional amounts paid under
this Section 2.8), the Bondholder receives an amount equal to the amount it
would have received if no such deduction or withholding had been made, (ii)
the Corporation shall make such deductions or withholdings, and (iii) the
Corporation shall immediately pay the full amount deducted or withheld to the
relevant governmental entity in accordance with applicable Law. The
Corporation will not be required to pay any such additional amounts to any
Bondholder by reason of that Bondholder being connected with Canada otherwise
than merely by lending money to the Corporation pursuant to this Indenture.
(2) The Corporation agrees to immediately pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges, financial institutions duties, debits taxes or similar levies (all
such taxes, charges, duties and levies being referred to as "Other Taxes")
which arise from any payment made by the Corporation under any of the Bonds
or from the execution, delivery or registration of, or otherwise with respect
to, this Indenture or any of the Bonds.
(3) The Corporation shall indemnify the Bondholder for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable by the Corporation
under this Section 2.8) paid by the Bondholder and any liability (including
penalties, interest and expenses) arising from or with respect to such Taxes
or Other Taxes, whether or not they were correctly or legally asserted,
excluding, in the case of any Bondholder, taxes imposed on its net income or
capital taxes or receipts and franchise taxes. The Corporation will not be
required to indemnify a Bondholder for any Taxes or Other Taxes imposed by
reason of a Bondholder being connected with Canada otherwise than merely by
lending money to the Corporation pursuant to this Indenture. Payment under
this indemnification shall be made within 30 days from the date the
Bondholder makes written demand for it. A certificate as to the amount of
such Taxes or Other Taxes submitted to the Corporation by the Bondholder
shall be conclusive evidence, absent manifest error, of the amount due from
the Corporation to the Bondholder, as the case may be.
(4) The Corporation shall furnish to the Bondholder the original
or a certified copy of a receipt evidencing payment of Taxes or Other Taxes
made by the Corporation within 30 days after the date of any payment of Taxes
or Other Taxes.
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(5) The provisions of this Section 2.8 shall survive the
termination of the Indenture and the repayment of all amounts secured by this
Indenture.
SECTION 2.9. EXCHANGE OF BONDS. (1) Bonds may be exchanged for
other Bonds of the same aggregate outstanding principal amount as the Bonds
so exchanged.
(2) Bonds may be exchanged only at the principal office of the
Trustee in Toronto, Ontario or the principal office of the Trustee in
Vancouver, British Columbia or at such other place or places (if any) as may
from time to time be designated by the Corporation with the approval of the
Trustee. Any Bond tendered for exchange shall be surrendered to the Trustee.
The Corporation shall execute and the Trustee shall certify all Bonds
necessary to carry out exchanges as aforesaid. All Bonds surrendered for
exchange shall be cancelled.
(3) The Corporation and a Bondholder may agree to reduce the
principal amount of a Bond held by such Bondholder (without payment thereon)
and the Trustee shall adjust the Bond and its records accordingly.
(4) The Trustee shall not charge a Bondholder for its services in
connection with any transfer, exchange or adjustment of a Bond. Payment of
any applicable stamp or transfer tax or other governmental charge shall be
made by the party requesting such exchange, transfer or adjustment as a
condition precedent.
SECTION 2.10. REGISTRATION. (1) The Corporation shall cause to be
kept by and at the principal office of the Trustee in Toronto, Ontario or in
Vancouver, British Columbia a register in which shall be entered the names
and addresses of Bondholders and particulars of the Bonds held by each of
them. Such registration shall be noted on the Bonds by the Trustee or a new
Bond shall have been issued by the Trustee.
(2) No transfer of a Bond shall be valid unless made on the
register by the registered holder, its legal representatives or its attorney
duly appointed by an instrument in writing in form and execution satisfactory
to the Trustee, in compliance with such reasonable requirements as the
Trustee may prescribe, and such transfer shall have been noted on such Bond
by the Trustee or a new Bond shall have been issued by the Trustee.
(3) The transferee of a Bond shall, after the Bond together with
any necessary endorsement on it or on any appropriate form of transfer is
lodged with the Trustee, accompanied by a written designation, in form
reasonably satisfactory to the Trustee, of the telecopy number or mailing
address of the transferee and upon compliance with all other conditions in
that behalf required by this Indenture or by law, be entitled to be entered
on the register as the owner of such Bond.
(4) The register maintained pursuant to this Section 2.10 shall at
all reasonable times be open for inspection by the Corporation, the Trustee
or any Bondholder.
<PAGE>
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ARTICLE 3
REPLEDGING OF BONDS
SECTION 3.1. REPLEDGING OF BONDS. Bonds issued by the Corporation
hereunder and acquired by the Corporation upon the release of a pledge may be
cancelled or may be repledged to a Hedging Counterparty pursuant to a Pledge
Agreement to secure Eligible Hedging Indebtedness of the Corporation
provided, in any event, that the requirements of this Indenture are met.
SECTION 3.2. OUTSTANDING. For purposes of determining whether a
Bond can be issued within the limit set out in Section 2.1(1) hereof, (i)
where the principal amount of a Bond has been reduced pursuant to Section
2.9(3), only the reduced principal amount shall be taken into account; and
(ii) the principal amount of a Bond which has been acquired by the
Corporation upon the release of a pledge shall not be taken into account
against the limit set out in Section 2.1(1) hereof, unless and until such
Bond is repledged.
<PAGE>
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ARTICLE 4
SECURITY
SECTION 4.1. SECURITY. As security for the due and punctual payment
and performance of all of its obligations to the Trustee and the Bondholders
under and in respect of this Indenture and the Bonds, the Corporation and its
Subsidiaries, as applicable, shall execute and deliver to the Trustee in each
case for the benefit of the Trustee and the Bondholders and in form and
substance satisfactory to the Trustee, valid and enforceable Liens against all
present and after acquired property, assets and undertaking of the Corporation
and the Restricted Subsidiary, except the Excluded Assets, all In Agreed Form,
including without limitation, the following:
(i) a secured debenture by the Corporation creating a fixed and floating
Lien on all of the Corporation's present and after acquired property,
assets and undertaking including, without limitation, fixed and
specific Liens on all property, assets and undertaking comprising the
Kemess Mine, and assignments of the Corporation's interests in all
material mining claims, concessions and leases in any way relating to
the Kemess Mine;
(ii) a general security agreement by the Corporation creating a Lien on all
of the Corporation's present and after acquired property, assets and
undertaking;
(iii) a limited guarantee by APM of the obligations of the Corporation
hereunder to the Bondholders;
(iv) a general security agreement by APM creating a Lien on all of APM's
present and after acquired property, assets and undertaking;
(v) an assignment by the Corporation of its rights and interests in its
right to receive distributions from the Kemess South Resources Limited
Partnership;
(vi) an assignment by the Corporation of its rights and interests in the
Hydro contracts relative to the Kemess Mine;
(vii) a pledge of all the shares in the capital of APM held by the
Corporation;
(viii) a moveable hypothec in form suitable for registration in Quebec; and
(ix) such other agreements and documents as may be necessary or desirable
to grant to the Trustee or the Collateral Agent valid and enforceable
Liens on all of the property, assets and undertaking of the
Corporation other than the Excluded Assets.
Notwithstanding anything to the contrary contained in the foregoing, the
Corporation shall not be obligated to register the Liens against any real
property or mineral claims consisting of: (a) the Pamour Mine, the Nighthawk
Lake Mine and the mines generally
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known as Giant, HopeBrook and Colomac; and (b) the Corporation's currently
existing exploration properties not in any way related to the Kemess Mine.
The Corporation shall register Liens against the Pamour Mine and the
Nighthawk Lake Mine in favour of the Trustee In Agreed Form should the
Corporation grant or register Liens against (either or both) such mines in
favour of the Senior Bondholders. The Corporation shall ensure that all of
the Security Documents are executed and delivered in accordance with this
Section 4.1 such that the Liens created thereby are perfected in all
jurisdictions and at all times required to maintain such perfection by the
Trustee for the benefit of the Bondholders.
SECTION 4.2. EFFECT OF LIENS. The Trustee shall have and hold the
Security Documents and the Collateral and all rights hereby and thereby
conferred unto the Trustee and its successors and assigns forever, but in
trust, nevertheless, for the equal benefit and security of the Bondholders
(subject to Section 2.2(4) hereof) without any preference or priority between
them, subject to this Indenture, and with the powers and authorities and
subject to the terms and conditions set forth in this Indenture and in the
Security Documents. The Corporation shall furnish to the Trustee, promptly
after the execution and delivery of the Security Documents and promptly after
the execution and delivery of any amendment hereto or thereto or any
instrument of further assurance, an opinion of Counsel stating that, in the
opinion of such Counsel, subject to customary exclusions and exceptions
reasonably acceptable to the Trustee, either (i) the Security Documents, any
such amendment and all other instruments of further assurance have been
properly recorded, registered and filed and all such other action has been
taken to the extent necessary to make effective the Liens intended to be
created by the Security Documents and to perfect such Liens, and reciting the
details of such action or referring to prior opinions of Counsel in which
such details are given, or (ii) no such action is necessary to make the Liens
intended to be created by the Security Documents effective.
SECTION 4.3. SECURITY EFFECTIVE NOTWITHSTANDING DATE OF ADVANCE.
The Security shall be effective whether the moneys secured by this Indenture
are advanced before or after or at the same time as the issue of any of the
Bonds intended to be secured or before or after or upon the date of the
execution of this Indenture.
SECTION 4.4. TITLE TO COLLATERAL. The Corporation covenants with
the Trustee and the Bondholders that (i) it lawfully owns and is lawfully
possessed of that part of the Collateral described as the Kemess Mine and,
except for Permitted Liens, will lawfully own and be lawfully possessed of
all other property hereafter subjected to the Security, (ii) it has good
right and lawful authority to mortgage, pledge, charge and grant a security
interest in the same, (iii) such property is and will remain free and clear
of any Lien except Permitted Liens, and (iv) it will warrant and defend its
title to such property against the claims and demands of all Persons.
SECTION 4.5. FURTHER ASSURANCES. The Corporation covenants with
the Trustee that:
(a) it shall from time to time execute all such assurances and do all
such things as, in the opinion of Counsel, are necessary or of advantage for
validly giving to the Trustee (so far as may be possible under applicable
laws) the specific mortgage, pledge and charge intended to be created
pursuant to the Security upon the Collateral, whether
<PAGE>
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now owned or hereafter acquired by the Corporation; and
(b) it shall from time to time, after the Security has become
enforceable and the Trustee has determined or become bound to enforce it,
execute and give all such assurances and do all things as the Trustee may
reasonably require for facilitating the realization of the Collateral and for
exercising all the powers, authorities and discretions conferred upon the
Trustee and for confirming to any purchaser of any of the Collateral, whether
sold by the Trustee or by judicial proceedings, title to the assets so sold.
SECTION 4.6. REGISTRATION. The Corporation covenants with the
Trustee that:
(a) immediately after the execution of the Security Documents and each
supplemental instrument, the Corporation shall register, file or record the
same (or a deed in notarial form or a financing statement or such other
document as may be appropriate under applicable law) in all offices where
such registration, filing or recording is necessary or of advantage to
perfect the Security created or intended so to be and the Corporation shall
deliver to the Trustee certificates establishing each such registration,
filing or recording, and shall do, observe and perform all matters and things
necessary or expedient to be done, observed and performed for the purpose of
creating and maintaining the Security as valid and effective security;
(b) notwithstanding anything contained in Section 4.6(a), but subject
to the last paragraph of Section 4.1, the Corporation shall not be required
to register or record the Security Documents or any other instrument against
the title to any real or immoveable property of the Corporation or in which
the Corporation has any interest other than the Kemess Mine unless the
Trustee (upon the request of Bondholders holding a majority in the principal
amount of the Bonds) shall so request, in which event, and provided that the
Corporation has first registered or recorded Liens in favour of the Senior
Bondholders, the Corporation (so far as may be possible under the local laws
of the places where the real or immoveable property is situate) shall
immediately register or record the Security Documents and any supplemental
instrument which may be required for such purpose, against the title to the
real or immoveable property in respect of which the request has been made;
(c) the Corporation shall not register, record or file the security in
favour of the Subordinated Noteholders in any office, or against the title to
any real or immovable property, or register any financing statement in
respect of the security in favour of the Subordinated Noteholders, or consent
to any of such actions, unless the Corporation has registered the Security
Documents in priority to the security in favour of the Subordinated
Noteholders; and
(d) the Corporation shall, within five Business Days of the
registration, recordation or filing of any security in favour of the Senior
Bondholders, notify the Trustee of the particulars of any such registration,
recordation or filing.
SECTION 4.7. RELEASE FROM CHARGE. Until the Security has become
enforceable and the Trustee has determined or become bound to enforce the
same, the
<PAGE>
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Trustee shall upon the Request of the Corporation execute and deliver to the
Corporation such documents as, in the opinion of Counsel, may be necessary or
desirable to release from the Security any lands, buildings, plant, machinery
or equipment, whether moveable or immoveable, licenses or rights, or any
interest therein, or any other property or assets sold or disposed of by the
Corporation in accordance with Section 4.11(b), (c), (d) or (e) without
payment to the Trustee of any proceeds. Any Request of the Corporation shall
be accompanied by a Certificate of the Corporation evidencing that the sale
or disposition is not in breach of any provision of this Indenture.
SECTION 4.8. APPLICATION OF INSURANCE PROCEEDS. The Corporation
shall, from time to time until payment in full of the Bonds and the
satisfaction and discharge of this Indenture, within 10 days following the
receipt by the Corporation of any payment of proceeds of any insurance
required to be maintained pursuant to Section 5.3 on account of each separate
loss, damage or injury to any tangible property subject to the Security
(unless such proceeds (or an equivalent amount) have been (i) expended or
committed by the Corporation for the repair or replacement of the damaged
property, with the prior written consent of the Trustee, and the Corporation
has furnished to the Trustee evidence satisfactory to the Trustee of the
expenditure or commitment, or (ii) paid to or for the benefit of the Senior
Bondholders or any other holder of a Permitted Lien in the damaged or lost
property ranking prior to the Security) apply, or to the extent the Trustee
is loss payee under any insurance policy, irrevocably direct the Trustee to
apply, without premium or penalty, the proceeds to the payment of principal
or interest, or both, under the Bonds in the Trustee's sole discretion. No
consent of the Trustee shall be required for the application by the
Corporation of insurance proceeds to the repair or replacement of property
unless (i) the aggregate amount of insurance proceeds on account of loss,
damage or injury in any twelve-month period exceed Can. $5,000,000, or (ii)
an Event of Default (or any circumstance exists which, with the giving of
notice, the lapse of time, or both, would constitute an Event of Default) has
occurred and is continuing.
SECTION 4.9. EXPROPRIATION. In the event of any expropriation or
similar taking of any part of the Collateral or of any sale or conveyance by
the Corporation in lieu of an expropriation or similar taking and in
reasonable anticipation of such event, the Trustee may release the property
so taken, sold or conveyed upon the deposit with the Trustee of a sum equal
to (i) the net proceeds of, or compensation for, the expropriation or similar
taking, or (ii) in case of a sale or conveyance in lieu of and in reasonable
anticipation of such taking, the greater of (y) the net proceeds of the sale
of the property to be released, or (z) the fair market value of the property
as appraised by an independent appraiser acceptable to the Trustee. For
purposes hereof "net proceeds" shall mean proceeds after costs of disposition
and payments to the Senior Bondholders and any other holder of a Permitted
Lien in the subject property ranking prior to the Security. The Trustee
shall be fully protected in giving a release upon being furnished with an
opinion of Counsel to the effect that the property has been lawfully
expropriated or taken or, in the case of an anticipatory sale or conveyance,
sold or conveyed as aforesaid, and in case of any anticipatory sale or
conveyance, upon being furnished with a Certified Resolution stating that, in
the opinion of the Directors, such sale or conveyance was in lieu of and in
reasonable anticipation of expropriation or similar taking and was in the
best interests of the Corporation. In any proceedings for the taking of any
part of the Collateral by expropriation or similar taking the Trustee may be
represented by Counsel.
<PAGE>
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SECTION 4.10. PRIORITY OF LIENS. Notwithstanding the time of
grant of Liens, or the time of registering, filing or recording the same (or
a notice or financing statement in respect thereof) (i) the Liens and
beneficial rights of each of the Senior Bondholders in the assets and
properties of the Corporation and its Restricted Subsidiaries and the
proceeds thereof shall be senior and prior to the Liens and beneficial rights
of the Trustee and any Bondholder therein, and (ii) the Liens and beneficial
rights of the Trustee and any Bondholder in the assets and properties of the
Corporation and its Restricted Subsidiaries shall be and are hereby
subordinated and postponed to the Liens and beneficial rights of each of the
Senior Bondholders therein. Each Bondholder, by its acceptance of Bonds
issued hereunder, authorizes and expressly directs the Trustee on its behalf
to take such action as may be necessary or appropriate to effectuate, as
between the Senior Bondholders and the Bondholders, the aforesaid
subordination and postponement of the Liens and beneficial rights of the
Trustee and any Bondholder therein, and appoints the Trustee its
attorney-in-fact for such purposes.
SECTION 4.11. DISPOSITION OF ASSETS. The Corporation shall not
and shall not permit any of its Restricted Subsidiaries to consummate any
sale, lease, consignment or other disposition (collectively a "Sale") of
assets or property other than:
(a) Any Sale of properties or assets of the Corporation or a Restricted
Subsidiary to a direct or indirect wholly-owned Restricted Subsidiary of the
Corporation;
(b) (i) any Sale of machinery, equipment, other personal property or
other similar property that has become worn out, obsolete or unserviceable;
(ii) any Sale or abandonment of any personal property the use of which is no
longer necessary or desirable in or material to the conduct of the business
of the Corporation and its Restricted Subsidiaries; (iii) any Sale of any
real property or an interest therein which is undeveloped and held by the
Corporation or a Restricted Subsidiary for exploration purposes and is not
material to the conduct of the business of the Corporation and its Restricted
Subsidiaries; and (iv) any Sale of any assets and properties of the
Corporation or a Restricted Subsidiary, other than assets and properties
described in clauses (i), (ii) and (iii) above, and other than assets which
comprise or are in any way material to the Kemess South Mine, if the proceeds
from all such Sales in aggregate do not exceed U.S. $15,000,000 in any
calendar year;
(c) any Sale of the Proposed Leaseback Assets in connection with a
sale-leaseback transaction;
(d) any Sale of inventory of the ordinary course of business; and
(e) any Sale of properties or assets not described in Sections 4.14
(a), (b), (c) or (d) above, provided that the Corporation obtains the prior
written consent of the Bondholders expressed by Extraordinary Resolution of
any such Sale.
SECTION 4.12. ROYALTY INTEREST. The Corporation shall not,
without the prior written consent of the Trustee, amend the Royalty Agreement
so as to increase the Initial Royalty Rate (as described therein) or amend
Section 2.2 and 7.2(c) thereof.
<PAGE>
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SECTION 4.13. RESTRICTED PAYMENTS. The Corporation and its
Subsidiaries shall not, directly or indirectly, pay principal, interest, fees
or any other amount in respect of any Debt of the Corporation or a Subsidiary
other than on account of the Senior Indentures, the Eligible Hedging
Indebtedness or other Debt secured by Liens ranking prior to the Security on
liquidation, provided that if no Event of Default has occurred and is
continuing, the foregoing shall not prohibit the Corporation, or a Restricted
Subsidiary, from (i) paying interest on the Subordinated Notes in accordance
with the terms and conditions contained in the Subordinated Indenture, (ii)
paying amounts due and payable in the ordinary course in respect of other
Debt other than Debt under the Subordinated Indenture; or (iii) in the case
of a Restricted Subsidiary, from making payment to the Corporation or another
Restricted Subsidiary. The Corporation will not establish, designate or
allow to exist a Restricted Subsidiary unless the property and undertaking of
such Restricted Subsidiary is charged in favour of the Trustee with security
with the same or better priority as the charges granted by the Corporation to
the Trustee.
SECTION 4.14. SECURITY. Each Bondholder, by its acceptance of a
Bond hereunder, represents and warrants that it does not hold security in
respect of Eligible Hedging Indebtedness of the Corporation or of a
Restricted Subsidiary other than (i) pursuant to or in connection with the
Bond or Bonds pledged to such Bondholder, this Indenture and the Security,
and any other security which may now or hereafter be granted hereunder; and
(ii) in the case of The Bank of Nova Scotia, cash collateral which does not
and will not exceed U.S. $3,000,000.
SECTION 4.15. CONFLICTS. In the event of any conflict or
inconsistency between a provision of this Indenture and a provision of the
Security Documents, the provision of this Indenture shall prevail.
<PAGE>
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ARTICLE 5
COVENANTS OF THE CORPORATION
SECTION 5.1. PAYMENT OF PRINCIPAL AND INTEREST. The Corporation
covenants that it will punctually pay or cause to be paid the principal of
and interest on each of the Bonds at the place, at the respective times and
in the manner provided in this Indenture and in the Bonds.
SECTION 5.2. TRUSTEE'S REMUNERATION AND EXPENSES. The Corporation
covenants that it will pay to the Trustee from time to time reasonable
remuneration for its services and will pay or reimburse the Trustee upon its
request for all reasonable expenses, disbursements and advances incurred or
made by the Trustee in the administration or execution of these trusts
(including the reasonable compensation and the disbursements of its Counsel
and all other advisors and assistants not regularly in its employ), both
before and after any Event of Default, until all duties of the Trustee shall
be finally and fully performed and paid, except any such expense,
disbursement or advance as may arise from the wilful misconduct or bad faith
of the Trustee. Any amount due under this Section 5.2 and unpaid 30 days
after request for payment shall bear interest from the expiration of such 30
days at a rate per annum equal to the prime rate from time to time reported
by The Bank of Nova Scotia or its successor. After the occurrence and during
the continuance of an Event of Default, all amounts so payable and the
interest on such amounts shall be payable out of any funds coming into the
possession of the Trustee in priority to any payments on the Bonds.
SECTION 5.3. INSURANCE. (1) The Corporation shall (i) keep all of
its properties adequately insured against loss or damage by fire and other
hazards, at all times with responsible insurance carriers, in amounts and on
terms as are customary in the mining industry, (ii) maintain adequate
insurance at all times with responsible insurance carriers, in amounts and on
such terms as are customary in the mining industry against liability on
account of damage to persons and property, and (iii) maintain adequate
insurance covering such other risks as are customary in the mining industry.
All insurance covering tangible property subject to the Security shall
provide that, in the case of each separate loss, the full amount of insurance
proceeds in excess of U.S. $500,000 shall be payable to the Trustee as
secured party or otherwise as its interest may appear and subject to the
rights of any prior encumbrancer, to be applied in accordance with Section
4.8, and shall further (iv) provide for at least 30 days' prior written
notice to the Trustee of its cancellation or substantial modification, (v)
provide that, in respect of the interests of the Trustee, the insurance shall
not be invalidated by any action or inaction of the Corporation or any other
Person, (vi) insure the Trustee's interests regardless of any breach of or
violation by the Corporation or any other person of any warranties,
declarations, or conditions contained in the insurance, and (vii) provide
that the Trustee shall have the right (but not the obligation) to cure any
default by the Corporation under the insurance. Each liability policy
required pursuant to this Section 5.3 shall name the Trustee as an additional
insured and shall be primary without right of contribution from any other
insurance which is carried by the Trustee to the extent that the other
insurance provides it with contingent or excess liability insurance, or both,
with respect to its interest in the Collateral and shall expressly provide
that all of its provisions, except the limits of liability (which shall be
applicable to all insureds as a group) and except liability
<PAGE>
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for premiums (which shall be solely a liability of the Corporation), shall
operate in the same manner as if there were a separate policy covering each
insured.
(2) The Corporation shall, from time to time upon request by the
Trustee, promptly furnish or cause to be furnished to the Trustee evidence,
in form and substance satisfactory to the Trustee, of the maintenance of all
insurance required to be maintained by Section 5.3(1), including, but not
limited to, originals or copies as the Trustee may request of policies,
certificates of insurance, riders and endorsements relating to such insurance
and proof of premium payments.
SECTION 5.4. REORGANIZATION. Except as set forth herein, the
Corporation shall not dispose of any interest in the Kemess Mine or the right
to the production or income thereof. The Corporation may transfer Kemess
Mine to Kemess Newco on the terms set out herein. If the Corporation
proposes to transfer all or a material interest in the Kemess Mine and the
rights and benefits associated therewith to Kemess Newco, the Corporation
shall, prior to, or contemporaneously with, any such transfer(s), cause
Kemess Newco to assume and guarantee to the Trustee on behalf of the
Bondholders all of the Corporation's obligations, liabilities and
indebtedness under or pursuant to the Indenture and the Bonds, pledge
(subject to the prior Liens held by the Senior Bondholders) to the Trustee on
behalf of the Bondholders all of the Corporation's shares in the capital of
Kemess Newco and any debt, equity or other consideration received by the
Corporation in respect of such transfer, provide to the Trustee on behalf of
the Bondholders such additional security, agreements and assurances
(including a confirmation from the Trustee under the Subordinated Indenture
that any acknowledgment of subordination and postponement will continue to
apply after such transfer) as it may reasonably request to ensure that the
Liens in favour of the Trustee on such assets are valid, enforceable and
prior ranking to all other Liens, claims and interests in such assets except
for such Liens as are held by the Senior Bondholders or as ranked prior to
the Security immediately prior to the disposition, and obtain and deliver an
opinion of counsel as to the enforceability of the Kemess Newco Guarantee and
Assumption and validity and perfection of the Kemess Newco Liens and such
other consents, certificates and authorizations as the Trustee, on the advice
of Counsel, may require in connection with the foregoing.
SECTION 5.5. LIMITATION ON LIENS. The Corporation shall not, and
shall not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or permit or suffer to exist or remain in
effect any Liens (other than Permitted Liens) upon any properties or assets
of the Corporation or of any of its Restricted Subsidiaries whether owned or
hereafter acquired, or on any income or profits therefrom, or assign or
otherwise convey any right to receive income or profits thereon.
SECTION 5.6. PERFORMANCE OF COVENANTS BY TRUSTEE. If the
Corporation fails to perform any of its covenants in this Indenture, the
Trustee may itself perform any of the covenants capable of being performed by
it, but shall be under no obligation to do so. All sums so expended or
advanced by the Trustee shall be repayable as provided in Section 5.2. No
such performance or advance by the Trustee shall be deemed to relieve the
Corporation of any default.
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ARTICLE 6
DEFAULT AND ENFORCEMENT
SECTION 6.1. EVENTS OF DEFAULT. The Security shall become
enforceable in each and every of the following events (each of which is an
"EVENT OF DEFAULT"):
(a) if the Corporation fails to pay forthwith upon demand the principal
or interest of any Bond;
(b) if the Subordinated Indenture is amended in any way which purports
to have the effect of prejudicing the priority of the Security, or any action
is taken in furtherance of any such amendment;
(c) if any registration, recordation or filing is effected in respect
of the Subordinated Security, in respect of any asset or in any jurisdiction,
and no such registration, recordation or filing has been made in priority to
such in respect of the Security in favour of the Trustee hereunder;
(d) if the Corporation fails to comply with its obligations under
Section 5.4 or 5.5;
(e) if the Corporation fails to observe or perform any other covenant
or condition on its part to be observed or performed and, after notice in
writing has been given by the Trustee to the Corporation specifying the
default and requiring the Corporation to cure it, the Corporation fails to
cure the default within a period of 30 days unless the Trustee has agreed to
a longer period, (having regard to the subject matter of default) and in such
event, within the period agreed to by the Trustee.
SECTION 6.2. ACCELERATION ON DEFAULT. If any Event of Default
shall occur and be continuing, the Trustee may, in its discretion, and shall,
upon receipt of a Single Bondholders Request requiring it to do so, declare
the principal of, and interest on, the Bonds and other monies secured by this
Indenture to be due and payable and the same shall immediately become due and
payable to the Trustee on demand (and without any further demand being
required under any of the Bonds). The Corporation shall on such demand
immediately pay to the Trustee, for the benefit of the Bondholders, the
principal of, and accrued and unpaid interest on, amounts in default, in each
case in accordance with Article 2, on the Bonds and all other moneys secured
by this Indenture, together with subsequent interest at the rates borne by
the Bonds from the date of the declaration until payment is received by the
Trustee, such subsequent interest to be payable at the times and places and
in the moneys mentioned in and according to the tenor of the Bonds. Such
payment when made shall be deemed to have been made in discharge of the
Corporation's obligations under this Indenture and any moneys so received by
the Trustee shall be applied in the same manner as if they were proceeds of
realization of the Collateral.
SECTION 6.3. ENFORCEMENT BY TRUSTEE. Whenever the Security has
become enforceable and so long as the Security remains enforceable, but
subject to the provisions of any Extraordinary Resolution:
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(a) the Trustee, in the exercise of its discretion, may proceed to
realize the Security and enforce the rights of the Trustee and the
Bondholders under the Security by entry as provided in Section 6.5; or by the
appointment of a receiver or receiver and manager under the provisions of
Section 6.6; or by sale under the provisions of Section 6.7; or by
proceedings in any court of competent jurisdiction for the appointment of a
receiver or receiver and manager or for sale of all or any part of the
Collateral or for foreclosure; or by any other action, suit, remedy or
proceedings authorized or permitted by this Indenture or by law or by equity;
and may file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee and the
Bondholders lodged in any bankruptcy, winding-up or other judicial
proceedings relative to the Corporation; and no such remedy for the
realization of the Security or for the enforcement of the rights of the
Trustee or the Bondholders shall be exclusive of or dependent on any other
remedy but any one or more of the remedies may from time to time be exercised
independently or in combination;
(b) all rights of action may be enforced by the Trustee without the
possession of any of the Bonds or their production at any trial or other
related proceedings; and
(c) upon receipt of a Unanimous Bondholders' Request and upon being
indemnified and funded to its satisfaction as provided in Section 11.1, the
Trustee shall exercise or take such one or more of the aforesaid remedies as
the Unanimous Bondholders' Request may direct or, if such Unanimous
Bondholders' Request contains no direction, as the Trustee may deem expedient.
SECTION 6.4. ENFORCEMENT BY BONDHOLDERS. A Bondholder who has
requested that the other Bondholders execute and deliver a Unanimous
Bondholders Request, but has failed to obtain the consent of one or more of
the other Bondholders may, acting for the benefit of itself and all the other
Bondholders, take proceedings in any court of competent jurisdiction such as
the Trustee might have taken under Section 6.3, but (subject to the foregoing
right to take proceedings in a court of competent jurisdiction for the
appointment of a receiver or receiver and manager or any other remedy) in no
event shall a Bondholder or combination of Bondholders have any right to take
or exercise any power of sale or appoint a receiver or receiver and manager
or exercise or take any other remedy or proceedings out of court; it being
understood and intended that no one or more Bondholders shall have any right
in any manner whatsoever to affect, disturb or prejudice the Security by its
or their action or enforce any right under this Indenture or under any Bond
except subject to the conditions and in the manner herein provided, and that
all powers and trusts shall be exercised and all proceedings at law which are
instituted and maintained by the Trustee shall be instituted and maintained
for the equal and rateable benefit of all Bondholders.
SECTION 6.5. ENTRY BY TRUSTEE. Whenever the Security has become
enforceable and so long as the Security remains enforceable, the Trustee
shall have the right by its officers, agents or attorneys to enter into and
upon and to take possession of all or any part of the Collateral and possess
and use the same subject to the Security, with full power to carry on and
manage the business operations of the Corporation to receive the rents,
incomes and profits of such property and business, to pay all expenses of
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operating the property and of carrying on the business and all charges
against the property and business ranking in priority to the Bonds or payment
of which may be necessary to preserve or protect the property. The remainder
of the moneys so received and not required for any of the above purposes
shall be applied by the Trustee in the manner provided in Section 6.10. The
foregoing is, however, subject to the condition that the Trustee shall, if
all Events of Default existing to the knowledge of the Trustee have been
cured, restore such property and business to the Corporation, and pay to it
the remainder of the moneys so received after payment of all interest then
due in accordance with Article 2 upon the Bonds. In case of any return of
property to the Corporation, the Security shall no longer be or be deemed to
be enforceable by reason of the Event of Default whereby the right of entry
became vested in the Trustee, and any declaration that may have been made by
the Trustee pursuant to Section 6.2 as a result of such Event of Default
shall be cancelled. Any part of the Collateral which has become subject to a
fixed charge solely by reason of the crystallization of a floating charge
shall be freed from the fixed charge, but shall subsequently be subject to
the floating charge provided for in the Security, as fully and to the same
extent as though no Event of Default had occurred.
SECTION 6.6. APPOINTMENT OF RECEIVER. Whenever the Trustee
determines under the applicable provisions of the Security and the provisions
of Section 6.3 to appoint a receiver (which term shall include a receiver and
manager) the following provisions shall apply:
(a) the appointment shall be made by resolution of the board of
directors of the Trustee or an executive committee of the Trustee and a copy
of the resolution, certified by an officer of the Trustee under its corporate
seal, shall be evidence for all purposes of such appointment; the Trustee may
from time to time in the same manner remove any receiver so appointed and
appoint another in its stead; in making any such appointment the Trustee
shall be deemed to be acting as the attorney of the Corporation;
(b) any appointment may be limited to a part or parts of the Collateral
or may extend to the whole of the Collateral;
(c) every receiver may, in the discretion of the Trustee, be vested
with all or any of the powers and discretions of the Trustee;
(d) the Trustee may from time to time fix the remuneration of every
receiver and direct its payment out of the Collateral;
(e) the Trustee may from time to time require any receiver to give
security for the performance of its duties and may fix the nature and amount
of such security, but shall not be bound to require such security;
(f) every receiver may, with the consent in writing of the Trustee,
borrow money for the purposes of carrying on the business of the Corporation
or for the maintenance, protection or preservation of the Collateral, and the
receiver may issue certificates (the "RECEIVER'S CERTIFICATES") for such sums
as will, in the opinion of the Trustee, be sufficient for obtaining, upon the
security of the Collateral, the amounts from time to time required; the
Receiver's Certificates may be payable either to order or to
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bearer and may be payable at such time or times as to the Trustee may appear
expedient, and shall bear interest as therein provided; the receiver may
sell, pledge or otherwise dispose of the same in such manner as to the
Trustee may seem advisable, and may pay a reasonable commission on a sale;
the amounts from time to time payable pursuant to the Receiver's Certificates
shall form a charge upon the Collateral in priority to the Bonds;
(g) every receiver shall, so far as concerns responsibility for its
acts or omissions, be deemed to be the agent of the Corporation, and in no
event the agent of the Trustee, and the Trustee shall not, in making or
consenting to such appointment, incur any liability to the receiver for its
remuneration or otherwise;
(h) except as may be otherwise directed by the Trustee, all moneys from
time to time received by a receiver shall be paid over to the Trustee to be
held by it on the trusts of these presents; and
(i) the Trustee may pay to a receiver any moneys constituting part of
the Collateral to be applied for the purposes of this Indenture, and the
Trustee may from time to time determine what funds the receiver may keep in
hand with a view to the performance of its duty as a receiver.
SECTION 6.7. SALE BY TRUSTEE. If the Trustee decides to realize
on the Security by sale, the Trustee shall have the right with or without
entry to sell and dispose of all or any part of the Collateral en bloc or in
parcels, at public auction or by tender or by private contract and at such
time or times and on such terms and conditions, which shall, at the Trustees
option, include, in case of sale by auction or tender, a reasonable reserve
bid, as the Trustee shall determine. The Trustee may make any such sale,
whether by auction, tender or private contract, either for cash or upon
credit or partly for one and partly for the other, upon such reasonable
conditions as to terms of payment as it may deem proper; it may also rescind
or vary any contract of sale that may have been entered into and resell with
or under any of the powers conferred herein; it may also stop, suspend or
adjourn any sale from time to time and hold the sale as adjourned without
further notice; also deliver to the purchaser or purchasers of all or any
part the Collateral a good and sufficient deed or deeds for the same.
SECTION 6.8. APPLYING BONDS IN PAYMENT. Upon any sale of all or
any part of the Collateral, whether made under power of sale or pursuant to
foreclosure or other judicial proceedings, the Trustee or any one or more of
the Bondholders or any agent or representative may become purchasers and may,
in paying the purchase price, deliver the Bonds in place of cash to the
amount which would, upon distribution of the net proceeds of such sale, be
payable; and in case the amounts so payable are less than the amount due, the
Bonds shall be returned after being properly marked or stamped to show
partial payment; provided, however, that any such purchaser shall pay in cash
the amount necessary to provide for the payments mentioned in Section 6.9(a).
SECTION 6.9. APPLICATION OF PROCEEDS OF SALE OR REALIZATION.
Except as otherwise expressly provided, the moneys arising from any sale or
other realization of the whole or any part of the Collateral, whether through
a sale by the Trustee or by judicial process or otherwise, shall be held by
the Trustee and applied, together with any other
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moneys in the hands of the Trustee available for such purposes as follows:
(a) firstly, in payment of all charges on the Collateral (except those
subject to which the sale or realization was made), ranking in priority to
the Bonds;
(b) secondly, in payment of the expenses referred to in Section 5.2;
(c) thirdly, reasonable costs of realization not included in (a), above;
(d) fourthly, in payment of the principal of the Bonds and, after
payment of such principal, any accrued and unpaid interest on the Bonds, in
that order, or in such other order of priority as between principal and
interest as may be directed by Extraordinary Resolution; and
(e) the surplus (if any) shall be paid to the Corporation or its
assigns, unless otherwise provided by law.
SECTION 6.10. DISTRIBUTION OF PROCEEDS. Payments to Bondholders
pursuant to Section 6.9 shall be made as follows:
(a) at least 10 days' notice of each payment shall be given in the
manner provided in Article 12 specifying the time when and the place where
the Bonds are to be presented, the amount of the payment and the application
of the payment as between principal and interest;
(b) payment of any Bond shall be made upon presentation of the Bond at
any one of the places specified in the notice and any Bond paid in full shall
be surrendered, otherwise a memorandum of the payment shall be endorsed on
it; but the Trustee may, in its discretion, dispense with presentation and
surrender or endorsement in any special case upon receipt of an indemnity
acceptable to it;
(c) from and after the date of payment specified in the notice,
interest shall accrue only on the amount owing on each Bond after giving
credit for the amount of the payment specified in such notice unless it is
properly presented on or after the date so specified and payment is not made;
(d) the Trustee shall not be required to make any interim payment to
Bondholders unless the moneys in its hands, after reserving such amount as
the Trustee may think necessary to provide for the payments mentioned in
Section 6.9(a), exceeds 5% of the principal amount of the Bonds;
(e) payments on account of the Bonds shall be made rateably to each
Bondholder based on the lesser of (i) the Eligible Hedging Indebtedness which
is owed to such Bondholder and is secured by a pledge of such Bond pursuant
to the applicable Pledge Agreement; and (ii) the principal amount of the Bond
held by such Bondholder;
(f) if as a result of distributions made in accordance with paragraph
(e), above, (i) the Eligible Hedging Indebtedness of any Hedging Counterparty
has been paid
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in full, (ii) one or more other Hedging Counterparties have received the full
amount of the Bond pledged to such Hedging Counterparty but have not received
payment in full of their Eligible Hedging Indebtedness, and (iii) the Hedging
Counterparties pursuant to a Secondary Pledge Agreement hold a security
interest in the Bond held by the Hedging Counterparty whose claim has been
paid in full, then, distributions shall thereafter be made rateably to the
remaining Bondholders based upon the lesser of their remaining Eligible
Hedging Indebtedness and the amount of the Bond held by them, whether by way
of primary or secondary pledge (provided that a secondary pledge will only be
taken into account where the primary pledge has been fully discharged); and
(g) no Bondholder who is the Corporation or a Subsidiary or an
Affiliate or Insider of the Corporation or a Subsidiary shall be entitled to
participate in any distribution until the claims of all other Bondholders
have been satisfied in full.
SECTION 6.11. PERSONS DEALING WITH TRUSTEE. No person dealing
with the Trustee or its agents shall be concerned to enquire whether the
Security has become enforceable, or whether the powers which the Trustee is
purporting to exercise have become exercisable, or whether any money remains
due, or as to the necessity or expediency of the stipulations and conditions
subject to which any sale has been made, or otherwise as to the propriety or
regularity of any sale or of any other dealing by the Trustee with the
Collateral, or to see to the application of any money paid to the Trustee.
SECTION 6.12. TRUSTEE APPOINTED ATTORNEY. Effective from and
after an Event of Default and so long as such Event of Default is continuing,
the Corporation irrevocably appoints the Trustee to be the attorney of the
Corporation in the name and on behalf of the Corporation to execute and do
any deeds, transfers conveyances, assignments, assurances and things which
the Corporation ought to execute and do, and has not executed or done, under
the covenants and provisions contained in this Indenture and generally to use
the name of the Corporation in the exercise of all or any of the powers
conferred on the Trustee.
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ARTICLE 7
SATISFACTION AND DISCHARGE
SECTION 7.1. CANCELLATION AND DESTRUCTION. All matured Bonds
shall be cancelled and delivered to or to the order of the Trustee
immediately after payment. All Bonds (whether in temporary or definitive
form) cancelled or required to be cancelled under this or any other provision
of this Indenture may be destroyed by or under the direction of the Trustee
(in the presence of a representative of the Corporation, if the Corporation
requests) and the Trustee shall prepare or cause to be prepared and shall
retain a certificate of such destruction and deliver a duplicate copy to the
Corporation.
SECTION 7.2. RELEASE FROM COVENANTS. Upon proof being given to
the reasonable satisfaction of the Trustee that (i) the principal of all the
Bonds and interest thereon and other moneys payable hereunder have been paid
or satisfied, or (ii) all the Bonds have matured or have been called for
redemption, or upon the Trustee having been given irrevocable instructions by
the Corporation to give notice of redemption of all the Bonds, and (iii) such
payment or redemption, or both, has been duly and effectually provided for by
payment to the Trustee or otherwise, and (iv) upon payment of all costs,
charges and expenses properly incurred by the Trustee in relation and the
remuneration of the Trustee has been paid, or upon provision satisfactory to
the Trustee being made for such payment, the Trustee shall, at the request
and at the expense of the Corporation, execute and deliver to the Corporation
such deeds or other instruments as shall be required to (v) evidence the
satisfaction and discharge of the Security in accordance with Section 4.11,
and (vi) release the Corporation from its covenants except pursuant to
Section 2.8 and those relating to the indemnification of the Trustee.
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ARTICLE 8
SUCCESSOR CORPORATIONS
SECTION 8.1. CERTAIN REQUIREMENTS IN RESPECT OF MERGER, ETC. The
Corporation shall not enter into any transaction (whether by way of
reconstruction, reorganization, amalgamation, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking, property and
assets would become the property of any other person or, in the case of any
such amalgamation, of the continuing Corporation unless, but may do so if:
(a) such other person or continuing corporation (the "SUCCESSOR
CORPORATION") is a corporation incorporated under the laws of Canada or any
of its provinces;
(b) the Successor Corporation executes, prior to or contemporaneously
with the completion of the transaction, a supplemental indenture and such
other instruments (if any) as are satisfactory to the Trustee and, in the
opinion of Counsel, are necessary or advisable to evidence the assumption by
the Successor Corporation of the Corporation's liability for the due and
punctual payment of all the Bonds and any interest thereon and all other
moneys payable under this Indenture and the covenant of the Successor
Corporation to pay the same and its agreement to observe and perform all the
covenants and obligations of the Corporation under this Indenture;
(c) such transaction shall, to the satisfaction of the Trustee and in
the opinion of Counsel, be upon such terms as preserve and do not impair in
any respect the rights and powers of the Trustee or of the Bondholders; and
(d) no condition or event shall exist in respect of the Successor
Corporation at the time of such transaction and after giving full effect to
the transaction which constitutes or would constitute an Event of Default.
SECTION 8.2. VESTING OF POWERS IN SUCCESSOR. Whenever the
conditions of Section 8.1 have been observed and performed, the Trustee shall
execute and deliver the supplemental indenture provided for in Article 10 and
the Successor Corporation shall possess and from time to time may exercise
each and every right and power of the Corporation under this Indenture in the
name of the Corporation or otherwise and any act or proceeding by any
provision of this Indenture required to be done or performed by any directors
or officers of the Corporation may be done and performed with like force and
effect by the like directors or officers of such Successor Corporation.
SECTION 8.3. OPINION OF COUNSEL TO BE GIVEN TO TRUSTEE. The
Trustee shall receive an opinion of Counsel as conclusive evidence that any
such reorganization, consolidation, amalgamation, sale, conveyance or lease
and any such assumption complies with the provisions of this Article 8.
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ARTICLE 9
EXTRAORDINARY RESOLUTIONS
SECTION 9.1. POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION. In
addition to all other powers stated in this Indenture to be exercisable by
Extraordinary Resolution, the Bondholders shall have the following powers
exercisable from time to time by Extraordinary Resolution:
(a) the power to agree to any modification, abrogation or compromise or
arrangement of the rights of the Bondholders or the Trustee against the
Corporation or against the undertaking, property and assets of the
Corporation, whether such rights arise under this Indenture, the Bonds or
otherwise;
(b) the power to direct or authorize the Trustee to exercise any power,
right, remedy or authority given to it by this Indenture or the Bonds in any
manner specified in such Extraordinary Resolution or to refrain from
exercising any such power, right, remedy or authority;
(c) the power to assent to any modification or change in, or omission
from, these provisions or any supplemental instrument which shall be agreed
to by the Corporation and to authorize the Trustee to concur in or execute
any deed or supplemental instrument embodying the modification, change or
omission;
(d) the power, with the approval of the Corporation, to sanction the
exchange of the whole or any part of the Bonds for other obligations of the
Corporation or another corporation;
(e) the power to waive and direct the Trustee to waive any default of
the Corporation either unconditionally or upon any conditions specified in
such Extraordinary Resolution whether or not the Security has become
enforceable, and where a Bondholder has commenced a proceeding to enforce the
Security by reason of such default, to restrain the Bondholder from
continuing the proceeding and to stay or discontinue the same, upon payment
of the costs, charges or expenses reasonably and properly incurred by the
Bondholder in that connection;
(f) the power to restrain any Bondholder from taking or instituting any
suit, action or proceeding for the purpose of enforcing payment of the
principal of or interest on the Bonds, or for the appointment of a liquidator
or a receiver or a trustee in bankruptcy or to have the Corporation wound-up
or for any other remedy under this Indenture;
(g) the power to sanction any scheme for the reorganization of the
Corporation or for the consolidation, amalgamation or merger of the
Corporation with any other corporation and for the selling or leasing of all
or substantially all of the undertaking, property and assets of the
Corporation;
(h) the power to approve the form and content of any document to be
delivered to or by the Trustee, including the form of any Security to be
delivered to the
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Trustee pursuant to Section 4.1 or otherwise;
(i) the power to direct the Trustee as to the adequacy of the insurance
maintained by the Corporation;
(j) the power to authorize and direct the Trustee to execute and
deliver such subordinations, priorities agreements, inter-creditor agreements
and acknowledgments as the Extraordinary Resolution may specify; and
(k) the power to amend, alter and repeal any Extraordinary Resolution
previously adopted by the Bondholders.
SECTION 9.2. MEANING OF "EXTRAORDINARY RESOLUTION". The expression
"EXTRAORDINARY RESOLUTION" when used in this Indenture means an instrument in
writing signed in one or more counterparts by both (a) the Bondholders of a
principal amount of the Bonds of not less than 75% of the Bonds which are
outstanding at such time, excluding any of such as are then held by
Affiliates or Insiders of the Corporation, and (b) each of Bankers Trust
Company, Macquarie Bank Limited and The Bank of Nova Scotia, if they are then
Bondholders.
SECTION 9.3. POWERS CUMULATIVE. Any one or more of the powers or
any combination of the powers in this Indenture stated to be exercisable by
the Bondholders by Extraordinary Resolution or otherwise may be exercised
from time to time and the exercise of any one or more of such powers or any
combination of powers from time to time shall not be deemed to exhaust the
right of the Bondholders to exercise such power or powers or combination of
powers then or any power or powers or combination of powers thereafter from
time to time.
SECTION 9.4. BINDING EFFECT OF RESOLUTIONS. Every Extraordinary
Resolution adopted in accordance with Section 9.2 shall be binding upon all
the Bondholders, whether they are signatories or not, and each and every
Bondholder and the Trustee (subject to any provisions for its indemnity)
shall be bound to give effect accordingly to every such Extraordinary
Resolution.
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ARTICLE 10
SUPPLEMENTAL INDENTURES
SECTION 10.1. EXECUTION OF SUPPLEMENTAL INDENTURES. From time to
time the Corporation (when authorized by a resolution of its Directors) and
the Trustee may, subject to the provisions of this Indenture, and the
Corporation and the Trustee shall, when so directed by or pursuant to this
Indenture, execute and deliver indentures or other supplemental instruments,
which shall form a part of this Indenture, for any one or more or all of the
following purposes:
(a) evidencing the succession of Successor Corporations to the
Corporation and the covenants of and obligations assumed by such Successor
Corporations in accordance with the provisions of Article 8;
(b) giving effect to any Extraordinary Resolution;
(c) providing for the issue of Bonds in forms or denominations other
than those herein provided for and for the exchange of Bonds of different
forms and denominations, and making modifications in the form of the Bonds
which, in the opinion of the Trustee, does not affect their substance;
(d) making any additions to, deletions from or alterations in the
provisions of this Indenture which, in the opinion of Counsel, may from time
to time be necessary or advisable to conform the same to legislation or to
the requirements of any stock exchange;
(e) adding such additional covenants, enforcement provisions, release
provisions and other provisions as, in the opinion of Counsel, are necessary
or advisable, provided that, in the opinion of the Trustee, the rights of the
Trustee and of the Bondholders are not materially prejudiced;
(f) correcting or rectifying any ambiguities, defective provisions,
errors or omissions, provided that, in the opinion of the Trustee, the rights
of the Trustee and of the Bondholders are not materially prejudiced; and
(g) any other purpose not inconsistent with the terms of this
Indenture, provided that, in the opinion of the Trustee, the rights of the
Trustee and of the Bondholders are not materially prejudiced.
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ARTICLE 11
CONCERNING THE TRUSTEE
SECTION 11.1. CONDITIONS PRECEDENT TO TRUSTEE'S OBLIGATION TO ACT.
(1) The Trustee is not bound to give any notice or do or take any act, action
or proceeding by virtue of the powers conferred on it unless and until it is
required so to do under the terms of this Indenture; nor shall the Trustee be
required to take notice of any default other than in payment of any moneys
required to be paid to it, unless and until notified in writing of such
default. In the absence of any such notice, the Trustee may, for all purposes
of this Indenture, conclusively assume that the Corporation is not in default
with respect to the payment of principal of, or interest on, the Bonds or in
the observance or performance of any of its covenants, agreements or
conditions. Any such notice shall in no way limit any discretion given to the
Trustee to determine whether or not it shall take any action with respect to
any default.
(2) The obligation of the Trustee to commence or continue any
action or proceeding for the purpose of enforcing its or the Bondholders'
rights shall be conditional upon the Bondholders providing, when required by
notice in writing from the Trustee, (i) sufficient funds to commence or
continue the action or proceeding, and (ii) an indemnity satisfactory to the
Trustee to protect and hold harmless the Trustee against the cost, charges,
expenses and liabilities to be incurred and any loss and damage it may suffer.
(3) None of the provisions contained in this Indenture shall
require the Trustee to spend or risk its own funds or otherwise incur
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers unless indemnified and funded
pursuant to Section 11.1(2).
(4) The Trustee may, before commencing or at any time during the
continuance of any such action or proceeding, require the Bondholders at
whose instance it is acting to deposit with the Trustee the Bonds held by
them provided the Trustee issues receipts to the relevant Bondholders.
SECTION 11.2. EVIDENCE. (1) Whenever it is provided in this
Indenture, with reference to any application to the Trustee for the
certification and delivery of Bonds or other action, that the Corporation
deposit with the Trustee resolutions, certificates, opinions, requests,
orders or other documents, it is intended that the truth, accuracy and good
faith at the time of the granting of such application (or on the effective
date of any such certificate or report, as the case may be) of the facts and
opinions stated in all documents so deposited shall, in each and every such
case, be conditions precedent to the right of the Corporation to have such
application granted. The Trustee may rely and shall be protected in acting
upon documents deposited with it in purported compliance with any such
provision or for any other purpose, but may in its discretion require further
evidence before acting or relying on them.
(2) The Trustee may rely and shall be protected in acting upon any
Certified Resolution, Certificate of the Corporation, Order of the
Corporation, Request of the Corporation or any other resolution, certificate,
order, request, statement, instrument,
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opinion, report, notice, consent, letter, telecopy or other paper or document
believed by it to be genuine and to have been signed, sent or presented by or
on behalf of the proper party or parties.
SECTION 11.3. EXPERTS AND ADVISERS. (1) The Trustee may employ or
retain such Counsel, accountants, appraisers or other experts or advisers as
it may reasonably require for the purpose of discharging its duties and shall
not be responsible for any misconduct on the part of any of them.
(2) The Trustee may act and shall be protected in acting in good
faith on the advice of, or information obtained from, any Counsel,
accountant, appraiser or other expert or adviser, whether retained or
employed by the Corporation or by the Trustee, in relation to any moneys held
by the Trustee, which under the trusts of this Indenture may be placed in the
deposit vaults of the Trustee or of any Canadian chartered bank or deposited
for safekeeping with any such bank. Unless otherwise expressly provided, any
moneys so held, pending its application or withdrawal under any provisions of
this Indenture, may be deposited in the name of the Trustee in any Canadian
chartered bank, at the rate of interest (if any) then current on similar
deposits or, with the consent of the Corporation, may be (i) deposited in the
deposit department of the Trustee or any other loan or trust company
authorized to accept deposits under the laws of Canada or a province thereof,
or (ii) invested in securities issued or guaranteed by the Government of
Canada or any province thereof or any Canadian chartered bank or loan or
trust company, maturing not more than one year from the date of investment.
Unless an Event of Default shall have occurred and be continuing, all
interest or other income received by the Trustee in respect of the deposits
and investments shall belong to the Corporation.
SECTION 11.4. ACTION BY TRUSTEE TO PROTECT INTERESTS. The Trustee
shall have power to institute and to maintain such actions and proceedings as
it may consider necessary or expedient to preserve, protect or enforce its
interests and the interests of the Bondholders.
SECTION 11.5. TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee
shall not be required to give any bond or security in respect of the
execution of the trusts and powers of this Indenture or otherwise.
SECTION 11.6. PROTECTION OF TRUSTEE. By way of supplement to the
provisions of any law for the time being relating to trustees:
(a) the Trustee shall not be liable for or by reason of any statements
of fact or recitals in this Indenture or in the Bonds (except the
representation contained in Section 11.10 and in the certificate of the
Trustee on the Bonds) or required to verify the same, but all such statements
or recitals are and shall be deemed to be made by the Corporation;
(b) the Trustee shall have no obligation to see to or to require
evidence of the registration or filing (or renewal) of this Indenture or any
supplemental or ancillary instrument;
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(c) the Trustee shall not be bound to notify any Person of the
execution of this Indenture; and
(d) the Trustee shall have no liability or responsibility whatsoever or
be in any way responsible for the consequence of any breach on the part of
the Corporation of any of the covenants or of any other acts of the agents or
servants of the Corporation.
SECTION 11.7. REPLACEMENT OF TRUSTEE. The Trustee may resign its
trust and be discharged from all further duties and liabilities under this
Indenture by giving the Corporation not less than 90 days' notice in writing
or such shorter notice as may be acceptable to the Corporation. The
Bondholders, by Extraordinary Resolution, may at any time remove the Trustee
and appoint a new Trustee. In the event of the Trustee resigning or being
removed or being dissolved, becoming bankrupt, going into liquidation or
otherwise becoming incapable of acting, the Corporation shall immediately
appoint a new Trustee unless a new Trustee has already been appointed by the
Bondholders by Extraordinary Resolution; failing such appointment by the
Corporation, the retiring Trustee or any Bondholder may apply to a Judge of
the Ontario Court of Justice (General Division), for the appointment of a new
Trustee. Any new Trustee appointed by the Corporation or by the Court shall
be subject to removal as aforesaid by the Bondholders. Any new Trustee shall
be a corporation authorized to carry on the business of a trust company in
the Province of Ontario. On any new appointment, the new Trustee shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Trustee without any further assurance, conveyance,
act or deed, but there shall be immediately executed, at the expense of the
Corporation, all such conveyances or other instruments as, in the opinion of
Counsel, may be necessary or advisable for the purpose of assuring the same
to the new Trustee. At the request of the Corporation or the new Trustee,
the retiring Trustee, upon payment of the amounts, if any, due to it pursuant
to Section 5.2, shall assign, transfer and deliver to the new Trustee all
property and money held and all records kept by the retiring Trustee in
connection with this Indenture.
SECTION 11.8. CONFLICT OF INTEREST. (1) The Trustee represents to
the Corporation that, at this date, no material conflict of interest exists
in the Trustee's role as a fiduciary under this Indenture and agrees that in
the event of a material conflict of interest arising it will, within 90 days
after ascertaining that it has such material conflict of interest, either
eliminate the conflict or resign these trusts.
(2) Subject to Section 11.8(1), the Trustee, in its personal or
any other capacity, may buy, lend upon and deal in securities of the
Corporation or any of its Affiliates and generally may contract and enter
into financial transactions with the Corporation or any of its Affiliates
without being liable to account for any profit.
(3) The Bondholders acknowledge that the Trustee is a wholly-owned
subsidiary of The Bank of Nova Scotia and agree that such fact is not, in and
of itself, a conflict of interest.
SECTION 11.9. CASH COLLATERAL HELD BY THE TRUSTEE. The Trustee,
the Corporation and by its acceptance of a Bond hereunder, each Bondholder
acknowledge that (i) the Trustee is holding in safekeeping cash or cash
equivalents equal to
<PAGE>
-41-
Cdn. $12,000,000 (the "Cash Collateral") on behalf of Her Majesty the Queen
in Right of the Province of British Columbia (the "Province"), as represented
by the Minister of Finance and Corporate Relations, as security for certain
obligations of the Corporation under Permit M-206, issued to the Corporation
under the MINES ACT (British Columbia) in connection with the Kemess Mine;
(ii) the Trustee, both in its personal capacity and its capacity as the
holder of the Cash Collateral on behalf of the Province, does not have any
lien, charge, or right of set-off against the Cash Collateral or the proceeds
thereof from the sale or redemption of the Cash Collateral (the foregoing
does not however apply to or limit any existing lien, charge or right of
set-off held by the province against the Cash Collateral or the proceeds
thereof); (iii) any residual right, title or interest of the Corporation in
the Cash Collateral is subject to the Senior Security, the Security, the
Subordinated Security and any other security interests granted by the
Corporation therein from time to time; (iv) the priority of any of the
aforesaid security will be determined in accordance with inter-creditor
agreements entered into between the holders of such security from time to
time and applicable law; (v) the Trustee, the Corporation and each Bondholder
hereby acknowledge that the Trustee will not be in conflict or breach of its
duties and obligations hereunder by virtue of holding the Cash Collateral on
behalf of the Province; and (vi) the Trustee may, upon receipt of a valid
direction or instruction from the Province, deliver the Cash Collateral to
the Province free and clear of any Lien created by the Security.
SECTION 11.10. CERTIFICATE OF COMPLIANCE. At least once in each
twelve-month period beginning on the date of this Indenture and at any other
time upon the demand of the Trustee, the Corporation shall furnish the
Trustee with a certificate that the Corporation has complied with all
requirements contained in the Indenture that, if not complied with, would,
with the giving of notice, lapse of time or otherwise, constitute an Event of
Default, or, if there has been failure to comply, giving particulars of such
failure.
SECTION 11.11. LEGISLATION RELATING TO INDENTURES. The provisions
of this Indenture are subject to the BUSINESS CORPORATIONS ACT (Ontario) and
any other legislation applicable from time to time relating to trust
indentures and to the rights, duties and obligations of trustees under trust
indentures and of corporations issuing debt obligations under trust
indentures. In the event of any conflict between the provisions of this
Indenture and the provisions of the BUSINESS CORPORATIONS ACT (Ontario) or
any other such legislation, such legislation shall govern.
SECTION 11.12. ACCEPTANCE OF TRUST. Montreal Trust Company of
Canada accepts the trusts of this Indenture declared and provided for and
agrees to perform the same upon the terms and conditions herein set forth.
<PAGE>
-42-
ARTICLE 12
MISCELLANEOUS
SECTION 12.1 COMMUNICATIONS. Any notice, direction or other
communication required or permitted to be given under this Indenture shall,
except as otherwise permitted, be in writing and given by delivering it or
sending it by telecopy or other similar form of recorded communication
addressed, if to the Corporation, to it at: 5501 Lakeview Drive, Kirkland,
Washington 98033, Attention: President, Telephone: (425) 822-8992,
Telecopier: (425) 822-3349, if to the Trustee, to it at: 4th Floor, 510
Burrard Street, Vancouver, British Columbia V6C 3B9, Telephone: (604)
661-9591, Telecopier: (604) 685-4079, and, if to the Bondholders, at the
addresses shown in the records of the Trustee. Any communication shall be
deemed to have been validly and effectively given (i) if personally
delivered, on the date of such delivery if such date is a Business Day and
such delivery was made prior to 4:00 p.m. (Toronto time), otherwise on the
next Business Day, (ii) if transmitted by facsimile or similar means of
recorded communication on the Business Day following the date of transmission.
SECTION 12.2. ADDRESS OF RECORD. The Corporation and each
Bondholder shall notify the Trustee of their respective telecopy number and
mailing address and the Trustee shall furnish the same information with
respect to itself to the Corporation and each of the Bondholders at the date
of issue of the Bonds. From time to time, the Corporation and any Bondholder
may notify the Trustee and the Trustee may notify the Corporation and each
Bondholder of a change in its telecopy number or mailing address, as the case
may be, in the manner set forth in subsection 12.1. Such number or address,
until changed by a similar notice, shall be the address of record of such
party for all purposes of this Indenture.
SECTION 12.3. INDEMNIFICATION OF TRUSTEE. (1) The Corporation
will at all times keep the Trustee indemnified and save the Trustee harmless
from and against all claims, demands, losses, actions, causes of action,
costs, charges, expenses, damages and liabilities whatsoever arising in
connection with this Indenture including, without limitation, those arising
out of or related to actions taken or omitted to be taken by the Trustee
contemplated hereby, legal fees and disbursements of counsel engaged by the
Trustee on a solicitor and client basis and costs and expenses incurred in
connection with the enforcement of this indemnity (unless such enforcement is
unsuccessful), which the Trustee may suffer or incur, whether at law or in
equity, in any way caused by or arising, directly or indirectly, in respect
of any act, deed, matter or thing whatsoever made, done, acquiesced in or
omitted in or about or in relation to the execution of its duties as trustee
and including any deed, matter or thing in relation to the registration,
perfection, release or discharge of security. The foregoing provisions of
this Section 12.3(1) do not apply to the extent that the Trustee or its
employees have acted fraudulently or negligently.
(2) The Corporation hereby agrees to indemnify the Trustee, its
directors, officers, employees, and agents, and all of their successors and
assigns (collectively the "Indemnified Parties") against any loss, expenses,
claim, liability or asserted liability (including strict liability and
including costs and expenses of abatement and remediation of spills or
releases of contaminants and including liabilities of the Indemnified Parties
to third parties (including governmental agencies) in respect of bodily
<PAGE>
-43-
injuries, property damage, damage to or impairment of the environment or any
other injury or damage and including liabilities of the Indemnified Parties
to third parties for the third parties' foreseeable and unforeseeable
consequential damages) incurred as a result of:
(a) the administration of the trust created hereby; or
(b) the exercise by the Trustee of any rights hereunder or under the
Security; which result from or relate, directly or indirectly, to:
(i) the presence or release of any contaminants, by any means or
for any reason, on the property subject to the Security,
whether or not release or presence of the contaminants was
under the control, care or management of the Corporation or of
a previous owner, or of a tenant;
(ii) any contaminant present on or released from any contiguous
property to the property subject to the Security; or
(iii) the breach or alleged breach of any environmental laws by the
Corporation.
For purposes of this Section 12.3(2), "liability" shall include (i)
liability of an Indemnified Party for costs and expenses of abatement and
remediation of spills and releases of contaminants, (ii) liability of an
Indemnified Party to a third party to reimburse the third party for bodily
injuries, property damages and other injuries or damages which the third
party suffers, including (to the extent, if any, that the Indemnified Party
is liable therefor) foreseeable and unforeseeable consequential damages
suffered by the third party and (iii) liability of the Indemnified Party for
damage to or impairment of the environment.
SECTION 12.4. DEPOSIT OF SECURITIES. The Trustee shall not be
responsible or liable in any manner whatsoever for the sufficiency,
correctness, genuineness or validity of any security deposited with it.
SECTION 12.5. CHANGE OF NAME. The Corporation shall not change
its name or amalgamate with another corporation under a different name
without giving at least 10 day's prior notice to the Trustee of the new name
and the date upon which such change of name or amalgamation is to take effect
and, within five Business Days of the change of name or amalgamation, the
Corporation shall proved the Trustee with:
(a) a notarial or certified copy of the articles of amendment or
articles of amalgamation effecting the change of name; and
(b) an opinion from legal counsel satisfactory to the Trustee as to the
correct name of the Corporation and confirming that all appropriate
registrations, filings or recordings have been made on behalf of the Trustee
to fully and effectively maintain the perfection and priority of the Security
created hereby.
<PAGE>
-44-
<PAGE>
-45-
ARTICLE 13
FORM OF BONDS
SECTION 13.1. FORM OF BONDS. The form of the Bonds and the
related certificate of the Trustee, registration panel and panel for the
notation of payments on account of principal shall be substantially as
follows:
No. ........ U.S. $................
ROYAL OAK MINES INC.
(incorporated under the laws of the Province of Ontario)
15% DEMAND BONDS
Royal Oak Mines Inc. (the "CORPORATION"), for value received,
acknowledges itself indebted and promises to pay to the registered holder on
demand, or on such earlier date as the principal amount may become due in
accordance with the Indenture hereinafter mentioned, the sum of - UNITED
STATES DOLLARS (U.S. $-) and to pay interest on principal sum from this date
in like money calculated and compounded monthly in arrears and payable on the
last Business Day of January of 1999 and thereafter on the last Business Day
of each month in each year at the rate of FIFTEEN (15%) PER CENT PER ANNUM,
with interest on amounts overdue payable on demand at the same rate and in
like currency.
This Bond is one of the U.S. $50 Million 15% Demand Bond of the
Corporation issued under an Indenture made June 22, 1998 between the
Corporation and Montreal Trust Company of Canada, as Trustee (which,
together, with all supplementary instruments is referred to as the
"INDENTURE"). Terms used in this Bond which are defined in the Indenture
have the meanings specified in the Indenture. The Bonds issuable under the
Indenture are limited to an aggregate principal amount of U.S. $50 million
outstanding at any time.
The principal amount of this Bond shall be payable at the principal
office of Montreal Trust Company of Canada, as Trustee under the Indenture,
in Vancouver, British Columbia. Interest on the Bonds and on overdue
interest shall be paid directly by the Corporation to the registered holder.
<PAGE>
-46-
Subject to the terms of the Indenture, This Bond and all other
Bonds now or hereafter certified and issued under the Indenture rank PARI
PASSU and are secured equally and rateably by the Indenture. This Bond shall
not become obligatory for any purpose until certified by or on behalf of the
Trustee.
IN WITNESS WHEREOF the Corporation has caused this Bond to be
executed by its duly authorized officers.
ROYAL OAK MINES INC.
Per:
---------------------------
Authorized Signing Officer
c/s
Per:
---------------------------
Authorized Signing Officer
(FORM OF TRUSTEE'S CERTIFICATE)
This is one of the U.S. $50 Million 15% Demand Bonds referred to in the
Indenture within mentioned.
MONTREAL TRUST COMPANY OF
CANADA
Per:
---------------------------
Authorized Signing Officer
(FORM OF REGISTRATION PANEL)
(No writing here except by the Trustee)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DATE OF NAME AND ADDRESS OF AUTHORIZED
REGISTRATION REGISTERED BONDHOLDER SIGNATURES
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-47-
(FORM OF PANEL FOR NOTATION OF PAYMENTS ON
ACCOUNT OF PRINCIPAL OR REDUCTIONS OF PRINCIPAL)
Payments on Account of Principal
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZED AMOUNT PAID BALANCE OF PRINCIPAL SIGNATURE
DATE OR REDUCED AMOUNT UNPAID
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
-48-
ARTICLE 14
EXECUTION
SECTION 14.1. NOTARIAL TRUST DEED. The Corporation, in conformity
with the laws of the Province of Quebec in which part of the Collateral may at
any time be situate, will execute, in notarial form, a Trust Deed of Hypothec,
Mortgage and Pledge hypothecating, mortgaging, pledging, charging, ceding and
transferring all its undertaking, property and assets situate in the Province of
Quebec as security for the Bonds, such Trust Deed being substantially of the
same tenor and to the same effect as this Indenture, such Trust Deed and this
Indenture constituting and to be read as one and the same instrument.
SECTION 14.2. COUNTERPARTS. This Indenture may be executed in any
number of counterparts and all such counterparts together shall be deemed to
constitute one and the same instrument.
SECTION 14.3. FORMAL DATE. This Indenture may be referred to as
bearing formal date of June 22, 1998 notwithstanding its actual date of
execution.
IN WITNESS WHEREOF the parties have caused this Indenture to be
executed by their respective duly authorized officers.
ROYAL OAK MINES INC.
Per: /s/ James H. Wood
-----------------------------
Authorized Signing Officer
c/s
Per:
-----------------------------
Authorized Signing Officer
MONTREAL TRUST COMPANY OF
CANADA
Per: /s/ Robert McKenzie
-----------------------------
Robert McKenzie
Corporate Trust Officer
Per: /s/ Sean Pigott
-----------------------------
Sean Pigott
Senior Trust Officer
Corporate Trust Services
<PAGE>
ROYAL OAK MINES INC.
NOTICE OF ADDRESS
TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee
- -------------------------------------------------------------------------------
The undersigned, Royal Oak Mines Inc. (the "CORPORATION") gives notice
to Montreal Trust Company of Canada, pursuant to Section 12.2 of the trust
indenture dated June 22, 1998 (the "INDENTURE") between the Corporation and the
Trustee of its address of record for communications under the Indenture as
follows:
5501 Lakeview Drive
Kirkland, Washington
98033
Attention: President
Telecopier: (425) 822-3349
DATED at Toronto this 22nd day of June, 1998.
ROYAL OAK MINES INC.
Per: /s/ James H. Wood
----------------------------
Authorized Signing Officer
Per:
----------------------------
Authorized Signing Officer
<PAGE>
ROYAL OAK MINES INC.
ORDER OF THE CORPORATION
TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee
- --------------------------------------------------------------------------------
Royal Oak Mines Inc. (the "CORPORATION"), pursuant to the provisions
of Section 2.2 of the trust indenture dated June 22, 1998 between the
Corporation and you, as trustee, orders you to certify and issue a 15% Demand
Bond in the principal amount of U.S. $15,000,000, to Macquarie Bank Limited of
Level 26, 20 Bond Street, Sydney, N.S.W. Australia and to deliver the same on
this date to the representative of Macquarie Bank Limited at the offices of
Stikeman, Elliott, Suite 5300, Commerce Court West, Toronto, Ontario, without
receiving any consideration for such certification, issuance and delivery.
DATED at Toronto this 22nd day of June, 1998.
ROYAL OAK MINES INC.
Per: /s/ James H. Wood
----------------------------
Authorized Signing Officer
Per:
----------------------------
Authorized Signing Officer
<PAGE>
ROYAL OAK MINES INC.
ORDER OF THE CORPORATION
TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee
- --------------------------------------------------------------------------------
Royal Oak Mines Inc. (the "CORPORATION"), pursuant to the provisions
of Section 2.2 of the trust indenture dated June 22, 1998 between the
Corporation and you, as trustee, orders you to certify and issue a 15% Demand
Bond in the principal amount of U.S. $21,000,000, to Bankers Trust Company of
130 Liberty Street, New York, New York 10006 and to deliver the same on this
date to the representative of Bankers Trust Company at the offices of Stikeman,
Elliott, Suite 5300, Commerce Court West, Toronto, Ontario, without receiving
any consideration for such certification, issuance and delivery.
DATED at Toronto this 22nd day of June, 1998.
ROYAL OAK MINES INC.
Per: /s/ James H. Wood
----------------------------
Authorized Signing Officer
Per:
----------------------------
Authorized Signing Officer
<PAGE>
ROYAL OAK MINES INC.
ORDER OF THE CORPORATION
TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee
- --------------------------------------------------------------------------------
Royal Oak Mines Inc. (the "CORPORATION"), pursuant to the provisions
of Section 2.2 of the trust indenture dated June 22, 1998 between the
Corporation and you, as trustee, orders you to certify and issue a 15% Demand
Bond in the principal amount of U.S. $5,000,000, to The Bank of Nova Scotia of
One Financial Place, 1 Adelaide Street East, 9th Floor, Toronto, Ontario and to
deliver the same on this date to the representative of The Bank of Nova Scotia
at the offices of Stikeman, Elliott, Suite 5300, Commerce Court West, Toronto,
Ontario, without receiving any consideration for such certification, issuance
and delivery.
DATED at Toronto this 22nd day of June, 1998.
ROYAL OAK MINES INC.
Per: James H. Wood
----------------------------
Authorized Signing Officer
Per:
----------------------------
Authorized Signing Officer
<PAGE>
ROYAL OAK MINES INC.
CERTIFICATE OF COMPLIANCE
TO: MONTREAL TRUST COMPANY OF CANADA, as Trustee
- --------------------------------------------------------------------------------
Pursuant to the provisions of Article 1 and Section 2.2 of the
Indenture (as hereinafter defined) the undersigned, James H. Wood, duly
appointed Chief Financial Officer of Royal Oak Mines Inc. (the "CORPORATION"),
certifies for and on behalf of the Corporation and not in my personal capacity,
intending that the same may be relied upon by you without further enquiry, that:
(a) I have read and understand the provisions of the trust indenture dated
June 22, 1998 (the "INDENTURE") between the Corporation and Montreal Trust
Company of Canada (the "TRUSTEE"), as trustee, relating to the issue,
certification and delivery of 15% Demand Bonds (the "BONDS") (defined terms used
herein have the respective meanings ascribed thereto in the Indenture);
(b) I have examined the order of the Corporation dated June 22, 1998 (the
"ORDER") ordering the Trustee to issue, certify, and deliver Bonds to Bankers
Trust Company, Macquarie Bank Limited and The Bank of Nova Scotia in accordance
with Section 2.2 of the Indenture;
(c) to the best of my knowledge, after such examination and investigation
as I have deemed necessary with regard to such actions, no further or other
actions are required to be taken by the Corporation or by any other person in
order to enable the Trustee to act in accordance with the Order;
(d) each of Bankers Trust Company, Macquarie Bank Limited and The Bank of
Nova Scotia is a Hedging Counterparty within the meaning of the Indenture; and
(e) the Bonds are to be pledged to Bankers Trust Company, Macquarie Bank
Limited and The Bank of Nova Scotia, respectively, to be held as security for
the obligations of the Corporation or an affiliate pursuant to Eligible Hedging
Indebtedness.
DATED at Toronto this 22nd day of June, 1998.
/s/ James H. Wood
----------------------------
James H. Wood
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND IN
THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 0.6953
<CASH> 16,423
<SECURITIES> 560
<RECEIVABLES> 8,891
<ALLOWANCES> 0
<INVENTORY> 15,447
<CURRENT-ASSETS> 46,254
<PP&E> 886,083
<DEPRECIATION> 98,343
<TOTAL-ASSETS> 903,876
<CURRENT-LIABILITIES> 94,800
<BONDS> 426,764
0
0
<COMMON> 397,375
<OTHER-SE> (95,404)
<TOTAL-LIABILITY-AND-EQUITY> 903,876
<SALES> 45,050
<TOTAL-REVENUES> 45,050
<CGS> 35,247
<TOTAL-COSTS> 50,963
<OTHER-EXPENSES> 3,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,066
<INCOME-PRETAX> (32,057)
<INCOME-TAX> 841
<INCOME-CONTINUING> (32,742)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,742)
<EPS-PRIMARY> (0.24)<F1>
<EPS-DILUTED> (0.24)<F1>
<FN>
<F1>Using US GAAP and SFAS 128, Basic and Diluted EPS are both $(0.35).
</FN>
</TABLE>
