THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL
TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "****" AND HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION."
EXHIBIT 4.22
COAL PURCHASE AND FINANCING AGREEMENT
PINE VALLEY MINING CORPORATION
FALLS MOUNTAIN COAL INC.
PINE VALLEY COAL LTD.
MARUBENI CORPORATION
TABLE OF CONTENTS
1. INTERPRETATION...........................................................2
1.1 Defined Terms....................................................2
1.2 Governing Law....................................................4
1.3 Severability.....................................................5
1.4 Number and Gender................................................5
1.5 Time of Day......................................................5
1.6 Time of Essence..................................................5
1.7 Schedules........................................................5
1.8 Currency.........................................................5
2. REPRESENTATIONS AND WARRANTIES OF THE PINE VALLEY GROUP..................6
2.1 Representations and Warranties of Falls Mountain.................6
2.2 Representations and Warranties of Pine Valley....................7
2.3 Representations and Warranties of PVC............................8
3. REPRESENTATIONS AND WARRANTIES OF MARUBENI...............................9
4. CLOSING.................................................................10
4.1 Closing Date....................................................10
4.2 Pine Valley Group Closing Documents.............................10
4.3 Marubeni's Closing Documents....................................11
4.4 Conditions Precedent............................................12
5. COAL PURCHASES..........................................................12
5.1 Purchase Commitment.............................................12
5.2 Delivery Schedule...............................................12
5.3 Volume Adjustments..............................................13
5.4 Current Coal-Year Pricing.......................................13
5.5 Future Coal-Year Pricing........................................13
5.6 Resale Terms....................................................14
5.7 Discount Application............................................14
5.8 Option Tonnage..................................................14
5.9 Option Tonnage Terms............................................14
5.10 Priority Deliveries.............................................15
5.11 Assignment of Purchase Commitment...............................15
5.12 Change of Control...............................................15
5.13 General Pine Valley Group Covenants.............................15
6. COAL DELIVERIES.........................................................16
6.1 Delivery Point..................................................16
6.2 Delivery Point Costs............................................16
6.3 Alternative Delivery Point......................................16
6.4 Loading Rate....................................................16
6.5 Delivery Schedules..............................................16
ii
6.6 Payment Terms...................................................16
7. CREDIT FACILITY.........................................................17
7.1 Loan Commitment.................................................17
7.2 Loan Advances...................................................17
7.3 Loan Interest...................................................17
7.4 Loan Fees.......................................................18
7.5 Due Date........................................................18
7.6 Withholding Taxes...............................................18
7.7 Prepayment......................................................18
7.8 Sale of the Project.............................................19
8. USE OF PROCEEDS.........................................................19
8.1 Budget..........................................................19
8.2 Spending Limits.................................................19
8.3 Project Account.................................................19
8.4 Post-Production Accounts........................................20
8.5 Termination of Post-Production Accounts.........................20
8.6 Signing Authorities.............................................21
8.7 Marubeni Canada.................................................21
8.8 Rights to Accounts..............................................21
8.9 Project Account Disbursements...................................21
8.10 Reallocation of Funds...........................................22
8.11 Post-Production Account Disbursements...........................22
8.12 US Post-Production Account......................................22
8.13 Canadian Post-Production Account................................22
8.14 Emergency Expenditures..........................................23
8.15 Inspection and Audit............................................23
8.16 Permit Amendments...............................................23
8.17 Leased Equipment................................................24
8.18 Cost Overruns...................................................24
9. LOAN SECURITY...........................................................24
9.1 General Security Agreement......................................24
9.2 Falls Mountain Share Pledge.....................................24
9.3 Release of Security.............................................24
9.4 Project Management..............................................25
10. GUARANTEES AND INDEMNITIES..............................................25
10.1 Guarantee of Pine Valley........................................25
10.2 Ability to Deal.................................................25
10.3 Indemnification from Pine Valley................................26
10.4 Indemnification from PVC........................................26
10.5 Indemnification from Marubeni...................................26
11. DEFAULT.................................................................27
11.1 Event of Default................................................27
iii
11.2 Consequences of Default.........................................28
11.3 Notice of Default...............................................28
11.4 Use of Proceeds Assumption......................................28
12. ADDITIONAL FINANCING....................................................29
12.1 Financing Terms.................................................29
12.2 Financing Status Reports........................................29
12.3 Disbursement....................................................29
13. COAL SALES PLANS........................................................30
13.1 Marketing Plans.................................................30
13.2 Sales Agent.....................................................30
14. FORCE MAJEURE...........................................................30
15. GENERAL.................................................................31
15.1 Arbitration.....................................................31
15.2 Further Assurances..............................................31
15.3 Entire Agreement................................................31
15.4 Notice..........................................................31
15.5 Assignment......................................................33
15.6 Confidentiality.................................................33
15.7 Public Disclosure Obligations...................................34
15.8 Counterparts....................................................34
15.9 Delivery by Fax.................................................34
LIST OF SCHEDULES
SCHEDULE 1.1(D) BUDGET
SCHEDULE 1.1(J) FALLS MOUNTAIN SHARE PLEDGE
SCHEDULE 1.1(FF) DEVELOPMENT PHASES
SCHEDULE 1.1(KK) WILLOW CREEK COAL SPECIFICATIONS
SCHEDULE 4.4(C) OPINION
SCHEDULE 5.1 SALE AND PURCHASE AGREEMENT
SCHEDULE 11.1(G) COAL LICENSES AND LEASES
SCHEDULE 13.2 AGENCY AGREEMENT
COAL PURCHASE AND FINANCING AGREEMENT
THIS AGREEMENT dated as of the 18th of May, 2004
BETWEEN:
PINE VALLEY MINING CORPORATION a company incorporated under the laws of
British Columbia having its registered office at Suite 3000 - 1055 West
Georgia Street Vancouver, BC V6E 3R3 ("PINE VALLEY")
AND:
FALLS MOUNTAIN COAL INC., a company incorporated under the laws of
British Columbia having its registered office at Suite 3000 - 1055 West
Georgia Street Vancouver, BC V6E 3R3 ("FALLS MOUNTAIN")
AND:
PINE VALLEY COAL LTD., an Alberta corporation having its principal
business office at Suite 501 - 535 Thurlow Street, Vancouver, BC V6E
3L2 ("PVC")
AND:
MARUBENI CORPORATION, a corporation incorporated under the laws of
Japan and having a business office at 4-2,1-Chome, Chiyoda-Ku, Tokyo,
Japan ("MARUBENI")
WHEREAS:
A. Pine Valley is a public mining company with its Common shares listed
for trading on the TSX Venture Exchange and the NASD OTC Bulletin Board;
B. Falls Mountain is a wholly-owned subsidiary of Pine Valley and holds
Pine Valley's coal mining interests;
C. PVC is a wholly-owned subsidiary of Falls Mountain and holds and
operates its principal asset, the Willow Creek Coal Project (as defined below);
D. Pine Valley requires additional financing to commence commercial
production of coal from the Willow Creek Coal Project;
E. Marubeni wishes to purchase certain quantities of coal from and is
prepared to provide debt financing to Pine Valley and its affiliates as the
basis set out in this Agreement.
NOW THEREFORE, IN CONSIDERATION of the covenants and agreements in this
Agreement, the Parties agree as follows:
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1. INTERPRETATION
1.1 DEFINED TERMS
In this Agreement:
(a) "ADDITIONAL FINANCING" has the meaning given to it in Section
12.1;
(b) "AGENCY AGREEMENT" has the meaning given to it in Section 13.2;
(c) "AGREEMENT" means this agreement including any recitals and
Schedules to this agreement, as amended, supplemented or restated
from time to time;
(d) "BUDGET" means the budget to develop the Willow Creek Project
attached as Schedule 1.1(d) to this Agreement, as such budget may
be amended by Falls Mountain and approved by Marubeni, acting
reasonably, from time to time;
(e) "BUSINESS DAY" means a day other than a Saturday or Sunday on
which banks are open for general banking business in Vancouver,
B.C. and Tokyo, Japan;
(f) "CLOSING" and "CLOSING DATE" will have the meanings set out in
Section 4.1;
(g) "COAL YEAR" means the 12-month period running from April 1 of
each calendar year to March 31 of the following calendar year;
(h) "DELIVERY POINT" has the meaning given to it in Section 6.1;
(i) "DRAW REQUEST" has the meaning given to it in Section 7.2;
(j) "FALLS MOUNTAIN SHARE PLEDGE" means a share pledge agreement in
the form attached as Schedule 1.1(j) pursuant to which Pine
Valley will pledge all of the issued and outstanding shares in
the capital of Falls Mountain to Marubeni as security for Pine
Valley's guarantee of Falls Mountain's performance of its
obligations under this Agreement;
(k) "FALLS MOUNTAIN SECURITY AGREEMENT" means the Security Agreement
dated May 13, 2004 among Falls Mountain and PVC as debtors and
Marubeni as secured party;
(l) "GOVERNMENTAL AUTHORITY" means any domestic or foreign
government, including any federal, provincial, state, territorial
or municipal government, and any government agency, tribunal,
commission or other authority exercising executive, legislative,
judicial, regulatory or administrative functions of, or
pertaining to, government;
(m) "GROSS SALE PRICE" means the price per tonne payable by Marubeni
for the Purchase Commitment Coal pursuant to Sections 5.4 and 5.5
before the application of Introductory Discount;
3
(n) "INTER-CREDITOR AGREEMENT" means an agreement between Mitsui
Canada, Marubeni, Falls Mountain and PVC, pursuant to which
Mitsui Canada and Marubeni will jointly manage their respective
security interests in with assets of Falls Mountain and PVC;
(o) "INTEREST" means the accrued interest on the Loan calculated and
payable in accordance with Section 7.3;
(p) "INTEREST RATE" means the meaning given to it in Section 7.3;
(q) "INTRODUCTORY DISCOUNT" means a discount applied to reduce the
Gross Sale Price payable by Marubeni to Falls Mountain for the
Purchase Commitment Coal in the amount of US$8.50 per tonne for
the first 400,000 tonnes of Purchase Commitment Coal and of
US$21.00 per tonne for the remaining 200,000 tonnes of Purchase
Commitment Coal delivered FOB Neptune Terminal;
(r) "INTRODUCTORY DISCOUNT PRICE" means the Gross Sale Price less the
Introductory Discount;
(s) "JOINT VENTURE" means the joint venture formed pursuant to the
Joint Venture Agreement;
(t) "JOINT VENTURE AGREEMENT" means the joint venture agreement
between Mitsui Canada, Falls Mountain and Pine Valley, dated
February 14, 1996 (as amended);
(u) "LIBOR" means the then-current LIBOR rate for US dollar
denominated loans having a term of six months as published in the
Interest Rates section of the then-current edition of the
Financial Times;
(v) "LIENS" means any mortgage, lien, charge, hypothec or
encumbrance, whether fixed or floating, on, or any security
interest in, any property, whether real, personal or mixed,
tangible or intangible, any pledge or hypothecation of any
property, any deposit arrangement priority, conditional sale
agreement, other title retention agreement or equipment trust,
capital lease or other security arrangements of any kind;
(w) "LOAN" has the meaning given to it in Section 7.1;
(x) "MARUBENI CANADA" means Marubeni Canada Ltd., a wholly-owned
subsidiary of Marubeni;
(y) "MITSUI" means Mitsui Matsushima Co., Ltd., a company
incorporated under the laws of Japan and having its principal
office at 1-12, Otemon 1-Chome, Chuo-ku, Fukuoka-shi, Fukuoka
Prefecture, Japan;
(z) "MITSUI CANADA" means Mitsui Matsushima Canada Ltd., a company
incorporated under the laws of British Columbia having its
registered office at
4
Suite 1600 - 777 Dunsmuir Street, Vancouver, BC V7Y 1K7, and a
subsidiary of Mitsui;
(aa) "OPTION TONNAGE" has the meaning given to it in Section 5.8;
(bb) "PARTIES" means the parties to this Agreement and "PARTY" means
any one of them;
(cc) "PCI" means pulverized coal injection;
(dd) "PERMITTED LIENS" means the security interests granted to Mitsui
Canada by PVC and Falls Mountain in the assets or Falls Mountain
and PVC, Liens in favour of the British Columbia Ministry of
Energy and Mines over reclamation security deposits required in
connection with the permits for the Willow Creek Project, and any
other Liens permitted under the Falls Mountain Security Agreement
and the Falls Mountain Share Pledge;
(ee) "PERSON" means any natural person, sole proprietorship,
partnership, corporation, trust, joint venture, any Governmental
Authority or any incorporated or unincorporated entity or
association of any nature;
(ff) "PHASE I", "PHASE II" and "PHASE III" mean the development phases
planned for the Willow Creek Project and described in Schedule
1.1(ff);
(gg) "PINE VALLEY GROUP" means Pine Valley, Falls Mountain and PVC;
(hh) "PROJECT INFORMATION" means all information and data relating to
the Willow Creek Project and this Agreement;
(ii) "PURCHASE COMMITMENT" means Marubeni's obligation to purchase
coal as described in Section 5.1;
(jj) "PURCHASE COMMITMENT COAL" means the 600,000 tonnes of Willow
Creek Coal described in Section 5.1;
(kk) "WILLOW CREEK COAL" means standard low-volatile pulverized coal
injection coal and coking coal produced from the Willow Creek
Project having the characteristics described in Schedule 1.1(kk);
(ll) "WILLOW CREEK PROJECT" means the exploration, development and
commercial exploitation of coal properties held by the Pine
Valley Group in north-eastern British Columbia.
1.2 GOVERNING LAW
This Agreement and each of the documents contemplated by or delivered under or
in connection with this Agreement are governed exclusively by, and are to be
enforced, construed and interpreted exclusively in accordance with, the laws of
British Columbia and the laws of Canada applicable in British Columbia which
will be deemed to be the proper law of this Agreement.
5
1.3 SEVERABILITY
Each provision of this Agreement is intended to be severable and accordingly:
(a) the unenforceability or invalidity of any particular provision
under any applicable law or in any jurisdiction, as determined by
a court having jurisdiction, an arbitrator or arbitrators
appointed under this Agreement, or other authority having
jurisdiction, will not affect the validity or enforceability of
any other provision, except that if, the other provision is
expressly stated to be, or if, on a proper construction of this
Agreement as a whole, it is reasonable to conclude that the
Parties intended the other provision to be, dependent on the
validity and enforceability of the particular provision, the
other provision will also be invalid or unenforceable; and
(b) if any provision of this Agreement is determined to be invalid or
unenforceable as aforesaid or is invalid or unenforceable
pursuant to subparagraph (a), the balance of this Agreement will
be construed and enforced as if all invalid or unenforceable
provisions were not contained herein.
If, as a result of a determination that any part of this Agreement is
unenforceable or invalid as aforesaid, and as a result of or despite the
operation of this section, the expectations of the Parties, as determined on a
proper construction of this Agreement as a whole, are substantially frustrated,
the Parties will negotiate in good faith such amendments and additions to this
Agreement as are reasonable and necessary to realize the original expectations
to the greatest extent possible under the circumstances.
1.4 NUMBER AND GENDER
Unless otherwise specified, words importing the singular include the plural and
vice versa and words importing gender include all genders.
1.5 TIME OF DAY
Unless otherwise specified, references to time of day or date mean the local
time or date in Vancouver, British Columbia.
1.6 TIME OF ESSENCE
Time is of the essence of this Agreement.
1.7 SCHEDULES
The schedules attached to this Agreement, will, for all purposes, form an
integral part of the Agreement.
1.8 CURRENCY
Except as otherwise expressly provided, all references to amounts of money mean
lawful currency of the Canada.
6
2. REPRESENTATIONS AND WARRANTIES OF THE PINE VALLEY GROUP
2.1 REPRESENTATIONS AND WARRANTIES OF FALLS MOUNTAIN
Falls Mountain represents and warrants as follows and acknowledges and confirms
that Marubeni is relying upon such representations and warranties in entering
into this Agreement:
(a) Falls Mountain is a valid and subsisting company duly
incorporated under the laws of the Province of British Columbia
and has all necessary corporate power and authority to enter into
this Agreement and perform its obligations hereunder;
(b) this Agreement has been duly authorized, executed and delivered
by Falls Mountain and is a legal, valid and binding obligation of
Falls Mountain, enforceable against Falls Mountain in accordance
with its terms except as enforcement may be limited by
bankruptcy, insolvency and other laws affecting creditors' rights
generally and subject to the qualification that specific
performance and injunction, as equitable remedies, may only be
granted in the discretion of a court of competent jurisdiction;
(c) Falls Mountain has good and sufficient right, power, corporate
authority and capacity to enter into and perform its obligations
under this Agreement;
(d) the making of this Agreement and the completion of the
transactions contemplated hereby and the performance of and
compliance with the terms hereof does not conflict with or result
in the breach of, or the acceleration of, any terms, provisions
or conditions of or constitute a default under: (i) the
constating documents of Falls Mountain; (ii) any indenture,
mortgage, deed of trust, agreement, lease, franchise, certificate
or other instrument to which Falls Mountain is a party or is
bound; or (iii) any term or provision of any licenses,
registrations or qualifications of Falls Mountain or any order of
any governmental authority or any applicable law;
(e) no litigation or administrative proceedings before any court or
governmental authority are presently pending, or have been
threatened in writing against Falls Mountain or any of its assets
which could have a material adverse effect on its business or
assets;
(f) the Willow Creek Project is the sole business undertaking of
Falls Mountain;
(g) Falls Mountain has conducted and is conducting, in all material
respects, its business in compliance with all applicable laws,
by-laws, rules and regulations of each jurisdiction in which the
Willow Creek Project is carried on and it holds all licences,
registrations, permits, consents or qualifications (whether
governmental, regulatory or otherwise) required in order to
enable the Willow Creek Project to be carried on as now
conducted, and all such licences, registrations, permits,
consents and qualifications are valid and subsisting and in good
standing, in all material respects, and Falls Mountain has not
received any notice of proceedings relating to the revocation or
modification of any such
7
licence, registration, permit, consent or qualification which, if
subject to an unfavourable decision, ruling or finding, would
materially adversely affect the business or assets of Falls
Mountain;
(h) Falls Mountain is the legal and beneficial owner of all of the
issued and outstanding shares in the capital of PVC, free and
clear of any Liens other than Permitted Liens; and
(i) except for those Willow Creek Project assets registered in the
name of PVC, Falls Mountain owns all of the Willow Creek Project
assets, licences, and permits required to carry on the Willow
Creek Project in its current state of development free and clear
of any Liens other than Permitted Liens.
The representations set out in this Section are continuous in nature and will
continue in effect as representations and warranties of Falls Mountain repeated
on a daily basis during the currency of this Agreement.
2.2 REPRESENTATIONS AND WARRANTIES OF PINE VALLEY
Pine Valley represents and warrants as follows and acknowledges and confirms
that Marubeni is relying upon such representations and warranties in entering
into this Agreement:
(a) Pine Valley is a valid and subsisting company duly incorporated
under the laws of the Province of British Columbia and has all
necessary corporate power and authority to enter into this
Agreement and perform its obligations hereunder;
(b) this Agreement has been duly authorized, executed and delivered
by Pine Valley and is a legal, valid and binding obligation of
Pine Valley, enforceable against Pine Valley in accordance with
its terms except as enforcement may be limited by bankruptcy,
insolvency and other laws affecting creditors' rights generally
and subject to the qualification that specific performance and
injunction, as equitable remedies, may only be granted in the
discretion of a court of competent jurisdiction;
(c) Pine Valley has good and sufficient right, power, corporate
authority and capacity to enter into and perform its obligations
under this Agreement; and
(d) the making of this Agreement and the completion of the
transactions contemplated hereby and the performance of and
compliance with the terms hereof does not conflict with or result
in the breach of, or the acceleration of, any terms, provisions
or conditions of or constitute a default under: (i) the
constating documents of Pine Valley; (ii) any indenture,
mortgage, deed of trust, agreement, lease, franchise, certificate
or other instrument to which :Pine Valley is a party or is bound;
or (iii) any term or provision of any licenses, registrations or
qualifications of Pine Valley or any order of any governmental
authority or any applicable law;
8
(e) no litigation or administrative proceedings before any court or
governmental authority are presently pending, or have been
threatened in writing against Pine Valley or any of its assets
which could have a material adverse effect on its business or
assets;
(f) Pine Valley has conducted and is conducting, in all material
respects, its business in compliance with all applicable laws,
by-laws, rules and regulations of each jurisdiction in which its
business is carried on and it holds all licences, registrations,
permits, consents or qualifications (whether governmental,
regulatory or otherwise) required in order to enable its business
to be carried on as now conducted, and all such licences,
registrations, permits, consents and qualifications are valid and
subsisting and in good standing, in all material respects, and
Pine Valley has not received any notice of proceedings relating
to the revocation or modification of any such licence,
registration, permit, consent or qualification which, if subject
to an unfavourable decision, ruling or finding, would materially
adversely affect the business or assets of Pine Valley; and
(g) Pine Valley is the legal and beneficial owner of all of the
issued and outstanding shares in the capital of Falls Mountain,
free and clear of any Liens.
The representations set out in this Section are continuous in nature and will
continue in effect as representations and warranties of Pine Valley repeated on
a daily basis during the currency of this Agreement.
2.3 REPRESENTATIONS AND WARRANTIES OF PVC
PVC represents and warrants as follows and acknowledges and confirms that
Marubeni is relying upon such representations and warranties in entering into
this Agreement:
(a) PVC is a valid and subsisting corporation duly incorporated under
the laws of the Province of Alberta and has all necessary
corporate power and authority to enter into this Agreement and
perform its obligations hereunder;
(b) this Agreement has been duly authorized, executed and delivered
by PVC and is a legal, valid and binding obligation of PVC,
enforceable against PVC in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency and other
laws affecting creditors' rights generally and subject to the
qualification that specific performance and injunction, as
equitable remedies, may only be granted in the discretion of a
court of competent jurisdiction;
(c) PVC has good and sufficient right, power, corporate authority and
capacity to enter into and perform its obligations under this
Agreement;
the making of this Agreement and the completion of the
transactions contemplated hereby and the performance of and
compliance with the terms hereof does not conflict with or result
in the breach of, or the acceleration of, any terms, provisions
or conditions of or constitute a default under: (i) the
constating documents of PVC; (ii) any indenture, mortgage, deed
of trust, agreement, lease,
9
franchise, certificate or other instrument to which :PVC is a
party or is bound; or (iii) any term or provision of any
licenses, registrations or qualifications of PVC or any order of
any governmental authority or any applicable law;
(d) no litigation or administrative proceedings before any court or
governmental authority are presently pending, or have been
threatened in writing against PVC or any of its assets which
could have a material adverse effect on its business or assets;
(e) PVC has conducted and is conducting, in all material respects,
its business in compliance with all applicable laws, by-laws,
rules and regulations of each jurisdiction in which its business
is carried on and it holds all licences, registrations, permits,
consents or qualifications (whether governmental, regulatory or
otherwise) required in order to enable its business to be carried
on as now conducted, and all such licences, registrations,
permits, consents and qualifications are valid and subsisting and
in good standing, in all material respects, and PVC has not
received any notice of proceedings relating to the revocation or
modification of any such licence, registration, permit, consent
or qualification which, if subject to an unfavourable decision,
ruling or finding, would materially adversely affect the business
or assets of PVC; and
(f) except for those Willow Creek Project assets owned by Falls
Mountain, PVC owns all of the Willow Creek Project assets,
licences, and permits required to carry on the Willow Creek
Project in its current state of development free and clear of any
Liens other than Permitted Liens.
The representations set out in this Section are continuous in nature and will
continue in effect as representations and warranties of PVC repeated on a daily
basis during the currency of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF MARUBENI
Marubeni hereby represents and warrants as follows and acknowledges and confirms
that the Pine Valley Group is relying upon such representations and warranties
in entering into this Agreement:
(a) Marubeni is a valid and subsisting company duly incorporated
under the laws of Japan and has all necessary corporate power and
authority to enter into this Agreement and perform its
obligations hereunder;
(b) this Agreement has been duly executed and delivered by Marubeni
and is a legal, valid and binding obligation of Marubeni,
enforceable against Marubeni in accordance with its terms except
as enforcement may be limited by bankruptcy, insolvency and other
laws affecting creditors' rights generally and subject to the
qualification that specific performance and injunction, as
equitable remedies, may only be granted in the discretion of a
court of competent jurisdiction;
10
(c) Marubeni has good and sufficient right, power, corporate
authority and capacity to enter into and perform its obligations
under this Agreement;
(d) the making of this Agreement and the completion of the
transactions contemplated hereby and the performance of and
compliance with the terms hereof does not conflict with or result
in the breach of, or the acceleration of, any terms, provisions
or conditions of or constitute a default under: (i) the
constating documents of Marubeni; (ii) any indenture, mortgage,
deed of trust, agreement, lease, franchise, certificate or other
instrument to which Marubeni is a party or is bound; or (iii) any
term or provision of any licenses, registrations or
qualifications of Marubeni or any order of any governmental
authority or any applicable law;
(e) to the best of Marubeni's knowledge and belief, without having
made specific inquiry, there is not now pending or threatened
against Marubeni, nor has Marubeni received notice in respect of
any material claim, nor is Marubeni aware of any facts that could
give rise to any claim, which could lead to, any litigation,
action, suit or other proceeding by or before any court, tribunal
or other competent governmental agency or authority or regulatory
body which if determined adversely to Marubeni would materially
affect the application of this Agreement or the Parties;
(f) Marubeni is the legal and beneficial owner of all of the issued
and outstanding shares in the capital of Marubeni Canada; and
(g) Marubeni is a non-resident of Canada within the meaning of
Section 116 of the Income Tax Act (Canada).
The representations and warranties set out in this Section are continuous in
nature and will continue in effect as representations and warranties of Marubeni
repeated on a daily basis during the currency of this Agreement.
4. CLOSING
4.1 CLOSING DATE
The closing of the Loan advance contemplated by this Agreement (the "CLOSING")
will take place at the offices of the Pine Valley Group's Vancouver legal
counsel at 11:00 a.m. (Vancouver time) on May 21,2004, or such other date as may
be agreed to by the Parties (the "CLOSING DATE").
4.2 PINE VALLEY GROUP CLOSING DOCUMENTS
At the Closing, the Pine Valley Group will table and, in accordance with the
other provisions of Section 4, will deliver to Marubeni:
(a) this Agreement duly executed by each member of the Pine Valley
Group;
(b) the Inter-Creditor Agreement duly executed by Falls Mountain and
PVC;
11
(c) a certificate of a senior officer of each member of the Pine
Valley Group directed to the truth and accuracy of the
representations and warranties of that member of the Pine Valley
Group made in this Agreement and the performance by that member
of the Pine Valley Group of the covenants to be performed by it
at or before the Closing and providing particulars of any
inaccuracy or non-performance;
(d) certified copies of resolutions of the directors of each member
of the Pine Valley Group authorizing the execution and delivery
by each such member of this Agreement and the performance of each
such member's obligations hereunder;
(e) the Falls Mountain Share Pledge duly executed by Pine Valley;
(f) the Falls Mountain Security Agreement duly executed by Falls
Mountain and PVC;
(g) the Agency Agreement duly executed by Falls Mountain;
(h) a comfort letter executed by Falls Mountain confirming its
intention to produce and deliver coal to meet the requirements of
Marubeni in connection with letters of intent solicited by
Marubeni and issued to Marubeni by proposed end-users of the
Willow Creek Coal;
(i) a bank draft in the amount of US $38,000 made payable to Marubeni
Canada in connection with Falls Mountain's obligation to pay a
fee in a that amount pursuant to Section 7.4; and
(j) all other documents as Marubeni or its solicitors may reasonably
request pursuant to the terms and conditions of this Agreement.
4.3 MARUBENI'S CLOSING DOCUMENTS
At the Closing Marubeni will table and, in accordance with the other provisions
in Section 4, will deliver to the Pine Valley Group:
(a) this Agreement duly executed by Marubeni;
(b) a certificate signed by the General Manager of Marubeni's legal
department (or the General Manager of Marubeni's coal department)
directed to the truth and accuracy of the representations and
warranties of Marubeni in this Agreement and the performance by
Marubeni of the covenants to be performed at or before the
Closing and providing particulars of any inaccuracy or
non-performance;
(c) a certificate signed by the General Manager of Marubeni's legal
department confirming that the execution and delivery of this
Agreement by Marubeni and the performance by Marubeni of each its
obligations hereunder have been authorized by all necessary
corporate procedures;
(d) the Agency Agreement duly executed by Marubeni;
12
(e) a bank draft in the amount of US $1,000,000 representing the
initial advance of the Loan principal for immediate deposit to
the Project Account; and
(f) all other documents as the Pine Valley Group may reasonably
request pursuant to the terms and conditions of this Agreement.
4.4 CONDITIONS PRECEDENT
The obligations of Marubeni to complete the Closing are subject to the
conditions stated at Subsections (a), (b), and (c) and below which are for the
exclusive benefit of Marubeni and all or any of which may be waived by Marubeni.
(a) Marubeni will have received confirmation of the registration of
the Falls Mountain Security Agreement in the personal property
security registries of British Columbia and Alberta, and the
recording of the Falls Mountain Security Agreement on the title
records of the Willow Creek Project coal licenses and coal leases
maintained at the office of the British Columbia Coal
Administrator.
(b) Marubeni will have received the Inter-Creditor Agreement duly
executed by Mitsui Canada, Falls Mountain and PVC.
(c) Marubeni will have received an opinion of the Pine Valley Group's
legal counsel in the form attached as Schedule 4.4(c).
Marubeni and Falls Mountain will use reasonable commercial efforts to fulfill
the condition in Subsection 4.4(a) and to settle the form of the Inter-Creditor
Agreement with Mitsui Canada promptly following the execution and delivery of
this Agreement.
5. COAL PURCHASES
5.1 PURCHASE COMMITMENT
Falls Mountain will sell to Marubeni, and Marubeni will purchase from Falls
Mountain 600,000 tonnes of Willow Creek Coal over the two-year period commencing
on the Closing Date at prices determined in accordance with Section 5.4 (the
"PURCHASE COMMITMENT COAL") in accordance with the terms and conditions of this
Agreement and such other terms and conditions as are customarily included in
agreements for the purchase and sale of coal to purchasers in Japan, all of
which will be incorporated into coal sale and purchase agreements substantially
in the form attached as Schedule 5.1.
5.2 DELIVERY SCHEDULE
Subject to Section 5.3, deliveries of Willow Creek Coal purchased by Marubeni
pursuant to the Purchase Commitment will commence not later than six months
following the Closing Date and will continue thereafter at an amount per quarter
mutually agreeable to Marubeni and Falls Mountain such that Falls Mountain will
deliver to Marubeni:
(a) 200,000 tonnes of Willow Creek Coal between July 1, 2004 and
March 31, 2005;
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(b) an additional 200,000 tonnes of Willow Creek Coal between April
1, 2005 and March 31, 2006; and
(c) an additional 200,000 tonnes of Willow Creek Coal between April
1, 2005 and March 31, 2006.
Falls Mountain will use reasonable commercial efforts to ensure that sufficient
coal is available to meet the above-described delivery schedule.
Notwithstanding the foregoing, if a Force Majeure (as defined in Section 14) or
any other event occurs, and the Parties, acting reasonably, agree that, in the
circumstances of such event, requiring Falls Mountain to comply with the
above-noted March 31, 2006 deadline would impose an undue hardship on the Pine
Valley Group, then the above noted March 31, 2006 deadline will be extended by
six months to September 30, 2006.
5.3 VOLUME ADJUSTMENTS
Notwithstanding Section 5.2, the Parties acknowledge that vessels may not load
the precise tonnages planned by the Parties. To accommodate such variances, the
Parties will work cooperatively to ensure that sufficient stocks of Willow Creek
Coal are made available to ensure that deliveries match the available vessels'
tonnage requirements, provided that the total Purchase Commitment amount will be
delivered by March 31, 2006. In addition, while the Parties will make reasonable
commercial efforts to arrange for deliveries of Purchase Commitment Coal to
occur on an even basis throughout each applicable delivery period, the Parties
acknowledge and agree that, during an initial start-up period running from July
1, 2004 to March 31, 2005, it is likely that more tonnes of the Committed
Purchase Coal will be delivered later in the period rather than evenly
throughout the period.
5.4 CURRENT COAL-YEAR PRICING
CONFIDENTIAL TREATMENT REQUESTED
For purchases of the Purchase Commitment Coal during the Coal Year commencing on
April 1, 2004 and ending on March 31, 2005, Marubeni will pay a price of US$
****** per tonne, less the applicable Introductory Discount.
5.5 FUTURE COAL-YEAR PRICING
For purchases of Purchase Commitment Coal in each subsequent Coal Year, Marubeni
will pay a price per tonne for the Purchase Commitment Coal fixed for that Coal
Year by agreement between Falls Mountain and Marubeni at that price that is the
reasonably achievable market price from coal buyers in Japan, Korea or Taiwan
for Willow Creek Coal taking into account all relevant circumstances that are
likely to have a material effect on such market price (including, the delivery
point, credit worthiness of the buyer, and purchase volume commitments made by
the buyer), less the applicable Introductory Discount.
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5.6 RESALE TERMS
Marubeni will resell all of the Purchase Commitment Coal to end-users under
agreements that accord with this Section 5.6. In each case, prior to entering
into an agreement for the resale of Purchase Commitment Coal to an end-user,
Marubeni will disclose the proposed agreement, including, without limitation,
the price, delivery and payment terms, to Falls Mountain for its review and
consideration, and Marubeni will not proceed with the proposed sale unless:
(a) the proposed sale price payable by the end-user is equal to the
Gross Sale Price for that same coal; and
(b) the proposed payment and delivery terms are acceptable to Falls
Mountain, acting reasonably.
5.7 DISCOUNT APPLICATION
The difference between Gross Sale Price and the Introductory Discount Price for
the sale of each and every tonne of the Purchase Commitment Coal will be applied
by Marubeni to the credit of Falls Mountain toward the repayment of the Loan
principal. Such reductions of the Loan principal will be deemed to be effective
as of the earlier of the day on which Marubeni pays the cash portion of the
purchase price for the subject Purchase Commitment Coal and the day on which
such cash payment is due from Marubeni.
5.8 OPTION TONNAGE
CONFIDENTIAL TREATMENT REQUESTED
In addition to the Purchase Commitment Coal, Marubeni will have an option,
exercisable at its discretion, to purchase up to an additional ******** tonnes
of Willow Creek Coal (the "OPTION TONNAGE") during the period running from July
1, 2004 to March 31, 2005 at a price of US$ ***** per tonne. If Marubeni elects
to exercise this option, then it must give Falls Mountain written notice of its
intention to do so, including the total amount of the Option Tonnage Marubeni
will purchase, by no later than December 31, 2004, so as to permit Falls
Mountain a reasonable opportunity to produce and deliver the Option Tonnage, and
Marubeni must purchase and remove from the Option Tonnage from Neptune Terminal
no later than March 31, 2005.
5.9 OPTION TONNAGE TERMS
If Marubeni exercises its option to purchase the Option Tonnage in accordance
with Section 5.8, then, subject to the deadline prescribed under Section 5.8,
Falls Mountain and Marubeni will negotiate in good faith to settle upon mutually
agreeable terms for the timing and volume of deliveries of the Option Tonnage
that are consistent with the overall coal production and delivery plans for the
Willow Creek Project. To the extent not inconsistent with this Section 5.9, the
terms of Section 6 will apply to sales of the Option Tonnage coal.
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5.10 PRIORITY DELIVERIES
In each calendar quarter, Falls Mountain will ensure that the Willow Creek Coal
produced is delivered first to fulfil the required deliveries of the Purchase
Commitment Coal in Subsection 5.2(a) and then, if applicable, the Option
Tonnage, and then the remaining Purchase Commitment Coal in accordance with the
timing for the delivery of the same prescribed under Section 5.2, unless
otherwise agreed by Marubeni and Falls Mountain. Production of Willow Creek Coal
in excess of such required deliveries may be sold by Falls Mountain at its
discretion.
5.11 ASSIGNMENT OF PURCHASE COMMITMENT
Neither the Pine Valley Group, nor Marubeni will be allowed to assign its
obligations with respect to the purchase and sale of the Purchase Commitment
Coal without the prior written approval of the other, provided that such
approval will not be unreasonably withheld or delayed.
If Marubeni assigns any of its obligation to purchase the Purchase Commitment
Coal, then to the extent the Purchase Commitment Coal is purchased by a
third-party assignee, then the Introductory Discount Price will not apply and,
upon receipt of the sale proceeds, Falls Mountain will pay directly to Marubeni
an amount per tonne for each such tonne of coal equal to the amount of the price
discount that would have applied had the coal been sold to Marubeni, which
payment(s) will be applied to the credit of Falls Mountain to reduce the
outstanding principal amount of the Loan.
5.12 CHANGE OF CONTROL
If the Pine Valley Group sells, assigns or transfers to a third party an
interest of greater than 50% of the Willow Creek Project or a third party
purchases all outstanding shares of Falls Mountain, then the Pine Valley Group
will make it a condition of such sale, assignment, transfer or purchase that the
Purchase Commitment Coal and Option Tonnage obligations will remain in effect
and will be binding on both the third party assignee, transferee, or purchaser,
as the case may be, and Marubeni. In addition, the Parties acknowledge and agree
that, in the event of a change of control of Pine Valley, such event will have
no effect on the enforceability of this Agreement, nor will it in any way
diminish the right and obligations of any Party arising under or in connection
with this Agreement.
5.13 GENERAL PINE VALLEY GROUP COVENANTS
The Pine Valley Group will:
(a) use reasonable commercial efforts to at all times maintain in
place and in good standing the coal licenses, coal leases, mining
permits, operating agreements, rail haulage agreements and port
agreements that are, in the opinion of the Parties, acting
reasonably, necessary and desirable to fulfil the Willow Creek
Coal production and delivery obligations arising under or in
connection with this Agreement;
(b) provide quarterly consolidated un-audited financial statements
and annual consolidated audited financial statements to Marubeni
coincident with the filing
16
by Pine Valley of such financial information with the British
Columbia Securities Commission; and
(c) without the prior written consent of Marubeni, not dispose of any
assets except in the ordinary course of its business.
6. COAL DELIVERIES
6.1 DELIVERY POINT
Subject to the other provisions of this Agreement, the delivery point for all
Purchase Commitment Coal and Option Tonnage will be F.O.B. vessels named by
Marubeni at the Neptune Terminal in North Vancouver, British Columbia (the
"DELIVERY POINT").
6.2 DELIVERY POINT COSTS
Marubeni will be responsible for all normal practice costs such as vessel costs,
harbour dues and other shipping related costs and must ensure that all vessels
dispatched to the Neptune Terminal meet Neptune's vessel standards.
6.3 ALTERNATIVE DELIVERY POINT
If a Party requests that deliveries of Purchase Commitment Coal or Option
Tonnage be made to a terminal other than at the Delivery Point, then the Parties
will negotiate in good faith to make reasonable alternative delivery point
arrangements with all reasonable direct and indirect incremental costs borne by
the party requesting the alternative deliver point.
6.4 LOADING RATE
Falls Mountain will ensure a vessel loading rate at the Delivery Point of
approximately 30,000 tonnes per weather working day, holidays excluded, unless
used. Specific loading-rate guarantees will, in each case, depend upon vessel to
be loaded. Falls Mountain will provide Marubeni with Neptune Terminal's standard
loading terms, which terms are consistent with normal international coal loading
facility terms.
6.5 DELIVERY SCHEDULES
Falls Mountain and Marubeni will discuss and agree upon quarterly delivery
schedules designed to maintain reasonable stockpiles of coal at the mine site
and at Neptune Terminals, and to permit Falls Mountain to meet its coal sales
commitments to Marubeni and to other purchasers of Willow Creek Coal.
6.6 PAYMENT TERMS
Falls Mountain will send copies of the shipping documents and will invoice
Marubeni for each shipment of Willow Creek Coal made to or to the order of
Marubeni under this Agreement within five days of Falls Mountain receiving the
final shipping documents for the shipment. Marubeni will pay such invoices
within one Business Day of the due date for the payment to Marubeni for the
subject coal from the end-user.
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7. CREDIT FACILITY
7.1 LOAN COMMITMENT
Subject to the terms and conditions of this Agreement, Marubeni will lend to
Falls Mountain US $7,600,000 (the "LOAN"). The Loan is available to be drawn
down by Falls Mountain on a non-revolving basis. Other than the initial advance
of US $1,000,000 that will be made by delivering a draft at the Closing, the
Lender will, in each case, advance the Loan proceeds by wire transfer to the
Project Account (as defined below).
7.2 LOAN ADVANCES
Marubeni will advance US$1,000,000 of the Loan at the Closing and the balance of
the Loan, from time to time, within three Business Days of the receipt by
Marubeni of a valid draw request (each a "DRAW REQUEST") from Falls Mountain. A
valid Draw Request will request funds in multiples of US$100,000, be in writing
and will include the following information:
(a) the Budget items that Falls Mountain intends to fund with the
requested funds;
(b) the time period over which Falls Mountain expects the requested
funds will be expended; and
(c) confirmation that no Event of Default has occurred and is
continuing.
Falls Mountain will not issue a Draw Request unless the Loan proceeds it is
requesting are reasonably required by the Pine Valley Group fund the
expenditures contemplated under the Budget during the then-next thirty days,
including funds required for reasonable corporate overhead expenses of the Pine
Valley Group. A minimum of US $100,000 of the Loan principal will not be subject
to a Draw Request and will remain available to be advanced until September 1,
2004.
7.3 LOAN INTEREST
Subject to the application of a premium in the circumstances described below,
the outstanding principal amount of the Loan will bear interest at an annual
effective interest rate equal to the LIBOR plus 4% (the "INTEREST RATE") on the
Advanced Funds Principal. Except for the stub period between the Closing Date
and June 30, 2004 in respect of which the Interest Rate will be fixed on the
last Business Day immediately prior to the Closing Date, the Interest Rate will
be fixed on the last Business Day of each calendar quarter for the subsequent
calendar quarter. The amount interest accrued on the outstanding principal
amount of the Loan (the "INTEREST") each calendar quarter will be paid by Falls
Mountain to Marubeni by the third Business Day following the end of each
calendar quarter. If Falls Mountain fails to meet the Willow Creek Coal delivery
requirements set out in Sections 5.2 and 5.3, then, provided that the acts or
omissions of Marubeni have not materially contributed to such failure, the
Interest Rate applicable on that portion of the Loan principal that would have
otherwise been reduced pursuant to Section 5.7 had Falls Mountain fulfilled such
delivery requirements will be increased to a premium rate that is 2% per annum
above the Interest Rate until such portion of the Loan principal and all accrued
Interest relating to such portion of the Loan principal have been repaid.
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7.4 LOAN FEES
Falls Mountain will pay to or to the order of Marubeni an initial fee of
US$38,000 as a fee to compensate Marubeni for its costs incurred in connection
with establishing the Loan facility. In addition, on March 31, 2006, Falls
Mountain will pay to or to the order of Marubeni an additional amount equal to
0.5% of the gross Loan principal advanced by Marubeni between the Closing Date
and March 31, 2006.
7.5 DUE DATE
Subject to the early repayment provisions in Sections 7.7 and 7.8, Falls
Mountain will pay to Marubeni, the entire outstanding amount of the Loan and any
and all accrued and unpaid Interest by no later than March 31, 2006.
Notwithstanding the foregoing, if a Force Majeure (as defined in Section 14) or
any other event occurs, and the Parties, acting reasonably, agree that, in the
circumstances of such event, requiring Falls Mountain to comply with the
above-noted March 31, 2006 deadline would impose an undue hardship on the Pine
Valley Group, then the above noted March 31, 2006 deadline will be extended by
six months to September 30, 2006.
7.6 WITHHOLDING TAXES
All payments in respect of interest, structuring fees and other amounts owing
under this Agreement will be made free and clear without deduction for any
taxes, duties, fees or other charges unless those deductions are required by
law. If Falls Mountain is compelled by law to make any such deduction, it will
pay such additional amounts as will result in receipt by Marubeni of the full
amount which would have been paid had no such deduction been made. Falls
Mountain will use its best efforts to provide, as soon as possible after a
deduction or withholding is made, official receipts or other official
documentation to Marubeni evidencing payment of the taxes, duties, fees or other
charges. If, following the imposition of taxes, duties, fees or other charges
referred to above upon any such payment, Marubeni is granted a credit or refund
in respect of those taxes for any tax payable, Marubeni (subject to Falls
Mountain having paid an additional amount in accordance with this paragraph), to
the extent that it is satisfied that it can do so without prejudice to the
retention of the amount of the credit or refund, will reimburse Falls Mountain
for that amount which Marubeni certifies to be the proportion of the credit or
refund as will leave Marubeni (after the reimbursement) in no worse or better
position than it would have been in if there had been no taxes imposed upon the
payment by Falls Mountain referred to above, and that reimbursement will be made
immediately upon the credit or refund being granted to Marubeni. Marubeni will
use reasonable commercial efforts to realize any such refunds or credits.
7.7 PREPAYMENT
Falls Mountain will have the right, at its option, to pay the Loan, in whole or
in part at any time and from time to time, without bonus or penalty. If Falls
Mountain repays the Loan in full before Marubeni has completed the purchase of
all 600,000 tonnes of the Purchase Commitment Coal, then Marubeni will remain
obligated to purchase and Falls Mountain will remain obligated to sell all of
the Purchase Commitment Coal, however the price payable by Marubeni for the
portion of
19
the Purchase Commitment Coal purchased after the repayment of the Loan will be
the Gross Sale Price for such coal and not the Introductory Discount Price.
7.8 SALE OF THE PROJECT
If the Pine Valley Group sells, assigns or transfers to a third party an
interest of greater than 50% of the Willow Creek Project or a third party
purchases all outstanding shares of Falls Mountain, then the Pine Valley Group
will make it a condition of any such transaction that the outstanding Loan
principal and accrued Interest will be repaid in full out of the transaction
proceeds.
8. USE OF PROCEEDS
8.1 BUDGET
The Loan proceeds will be used by the Pine Valley Group solely to fund the
expenditures contemplated under the Budget, including funds required for
reasonable corporate overhead expenses of the Pine Valley Group.
8.2 SPENDING LIMITS
Total capital spending by the Pine Valley Group on for Willow Creek Project
Phases I and II that is funded by the Loan principal will be capped at the
amounts shown in the Budget, and the Pine Valley Group will not be permitted to
make capital expenditures on Phases I and II out of the Loan proceeds in excess
of the amounts shown in the Budget without Marubeni's prior consent, provided
that such consent will not be unreasonably withheld or delayed.
Notwithstanding the foregoing, without any requirement for the consent of
Marubeni, the Pine Valley Group will be permitted to apply unused components of
the total Phases I and II capital amounts shown in the Budget to expenditure
categories requiring additional expenditure, provided that the total spent does
not exceed the total amount listed in the Budget and all elements of the Willow
Creek Project will be developed to the extent necessary to achieve a production
volume of not less than 1.0 million tonnes per year.
8.3 PROJECT ACCOUNT
The Loan proceeds will, upon being advanced by Marubeni, be deposited into an
account maintained at the main branch of the Bank of Montreal in Vancouver B.C.
or a Vancouver branch of any other Canadian chartered bank, and will be opened
in joint names of Marubeni's agent, Marubeni Canada, and Falls Mountain (the
"PROJECT ACCOUNT"). Falls Mountain will effect a draw of funds from the Project
Account by issuing a written request that will include:
(a) a detailed list of the specific invoices to be paid or other uses
to be made with the requested funds, including payees, amounts,
and other particulars sufficient to permit Marubeni to determine
whether the funds are reasonably required for the Willow Creek
Project and the Pine Valley Group's ongoing corporate overhead
expenses, and the request reasonably accords with the Budget;
20
(b) except in the case of the initial Release Request, a detailed
accounting of the payments made out of the funds released
pursuant to the preceding Release Request;
(c) confirmation that no Event of Default has occurred and is
continuing;
(d) confirmation that the proposed payments comply with the use of
funds permitted under this Agreement;
(e) confirmation that, as of the date of the Release Request, none of
the Pine Valley Group is in breach of any representation,
warranty or covenant under this Agreement; and
(f) confirmation that the aggregate of funds available to Falls
Mountain under the Loan, the Additional Funds, and Falls
Mountain's working capital are sufficient to allow Falls Mountain
to complete Phases I and II of the Willow Creek Project in a
manner that, subject to the limits prescribed under the mining
permit for the Willow Creek Project, will achieve a production
volume of not less than 1.0 million tonnes of coal per year.
(a "RELEASE REQUEST").
Subject to Section 8.9, funds released from the Project Account pursuant to a
Release Request will be paid directly to the payees specified in the list of
invoices described above within 7 Business Days of the Release Request being
delivered to Marubeni.
8.4 POST-PRODUCTION ACCOUNTS
In addition to the Project Account, Marubeni, through its agent, Marubeni
Canada, and Falls Mountain will establish two accounts at the main branch of the
Bank of Montreal in Vancouver B.C. or a Vancouver branch of any other Canadian
chartered bank (the "POST-PRODUCTION ACCOUNTS"). One of the Post-Production
Accounts will be a US dollar account held jointly by Marubeni, through its
agent, Marubeni Canada, and Falls Mountain into which will be deposited the coal
sales revenues received by Falls Mountain from the sale of the Willow Creek
Project (the "COAL SALES REVENUE") and the other will be a Canadian dollar
account held by Falls Mountain alone into which Coal Sales Revenue will be
transferred as working account to fund the expenses and obligations of the Pine
Valley Group.
8.5 TERMINATION OF POST-PRODUCTION ACCOUNTS
After completion of Phases I and II of the Willow Creek Project, and after the
balance in the US dollar Post-Production Account is sufficient to pay all
outstanding debts of the Pine Valley Group to Mitsui Canada, the outstanding
budgeted Phase III capital expenditures, and the outstanding Loan principal and
accrued Interest owing to Marubeni, any future Coal Sales Revenues will be
deposited into Falls Mountain's general operating accounts and will no longer be
subject to management by or input from Marubeni under this Agreement or
otherwise. Immediately following the repayment by Falls Mountain of the
outstanding Loan principal and accrued
21
Interest owing to Marubeni the Post-Production Accounts will be closed and all
of the funds therein will be transferred to or to the order of Falls Mountain.
8.6 SIGNING AUTHORITIES
Payments from the Project Account and the US dollar Post-Production Account will
require two signatures, one from an authorized signing officer of each of
Marubeni's agent, Marubeni Canada, and Falls Mountain. The Canadian dollar
Post-Production Account and all other Pine Valley Group bank accounts, including
Falls Mountain's operating accounts, will require two authorized signing
officers of the account holder to sign each cheque or other withdrawal.
8.7 MARUBENI CANADA
Marubeni hereby confirms that it has appointed Marubeni Canada as its agent in
connection with this Agreement for the sole purpose of being a joint holder, on
behalf of Marubeni, and together with Falls Mountain, of the a Project Account
and the US dollar Post-Production Account. Such appointment by Marubeni of
Marubeni Canada to serve as its agent under this Agreement will in no way
release Marubeni from any of its obligations under this Agreement. Marubeni will
cause Marubeni Canada to performs its role as Marubeni's agent in compliance
with the terms and conditions of this Agreement, and will be fully liable to the
members of the Pine Valley Group for any and all acts or omissions of Marubeni
Canada in connection with such agency.
8.8 RIGHTS TO ACCOUNTS
Except as expressly provided for below, Marubeni and Marubeni Canada will have
no right, title or interest in or to the funds in the Project Account or the
Post-Production Joint Accounts, and those accounts are being established merely
as a mechanism to manage the receipt and disbursement of Falls Mountain's funds
under this Agreement. Marubeni's rights with respect to the Project Account or
the Post-Production Joint Accounts are strictly limited to the following:
(a) for so long as any of the Loan or accrued Interest remains
outstanding, Marubeni, either directly or through its agent,
Marubeni Canada, will be entitled to control the disbursement of
funds from such accounts to ensure that such funds are applied by
Falls Mountain in accordance with this Agreement; and
(b) Marubeni will be entitled to rights in and to funds in the
Project Account or the Post-Production Joint Accounts to the
extent such rights arise out of Marubeni's proper enforcement of
its rights under the Falls Mountain Security Agreement.
Neither Marubeni, nor its agent, Marubeni Canada, will represent to any Person
that it has any right, title or interest in or to the funds in the Project
Account or the Post-Production Joint Accounts other than those described in this
Section.
8.9 PROJECT ACCOUNT DISBURSEMENTS
If Marubeni objects to the payment of any invoice ("QUESTIONED INVOICE") listed
on a Release Request issued under Section 8.3, then Marubeni will provide
written notice of its objection and
22
the reasons therefore to Falls Mountain within five Business Days of the Release
Request being delivered to Marubeni. Promptly following the issuance by Marubeni
of notice of such an objection, the Parties will arrange a meeting, which
meeting may be held in person, by telephone or, if acceptable to the Parties,
through an exchange of e-mails, to give Marubeni an opportunity to explain its
concerns regarding the invoice in question and Falls Mountain an opportunity to
respond to such concerns. If appropriate, Falls Mountain will provide such
additional information as may be requested by Marubeni, acting reasonably, to
support or explain the Questioned Invoice.
8.10 REALLOCATION OF FUNDS
Loan proceeds originally allocated in the Budget to capital expenditure and
pre-development general corporate overhead may be applied to the Pine Valley
Group's general working capital requirements or Phase III only after the Willow
Creek Project construction specified under Phase I and Phase II has been
completed and Falls Mountain has provided notice of such completion to Marubeni.
8.11 POST-PRODUCTION ACCOUNT DISBURSEMENTS
The funds held in the Post-Production Accounts will be managed and disbursed in
accordance with annual budgets (including a fifteen per cent contingency)
prepared by Falls Mountain and approved by Marubeni, acting reasonably, taking
into account the requirements of operating the Willow Creek Project at an annual
production level of 2,000,000 tonnes and the benefits to the Pine Valley Group
arising out of the identification of additional coal resources and reserves
("PROJECT BUDGETS"), provided that the initial Project Budget may, at the
discretion of Falls Mountain, cover a period of less than one year due to the
difficulty of predicting initial costs during start up and transition of the
Willow Creek Project to its full production capacity.
8.12 US POST-PRODUCTION ACCOUNT
The funds will be released from the US dollar Post-Production Account at the
request of Falls Mountain for deposit to the Canadian dollar Post-Production
Account in a timely and sufficient manner as funds are required in accordance
with the then-current Project Budget.
8.13 CANADIAN POST-PRODUCTION ACCOUNT
Expenditures from the Canadian dollar Post-Production Account will be under the
control of Falls Mountain and will be used to operate the Willow Creek Project
and to otherwise carry on the business of the Pine Valley Group, including, but
not limited to expenditures on the following items: Willow Creek Project
operating costs (including transportation and port charges, demurrage charges,
foreign exchange hedging charges consistent with prudent management of the
Willow Creek Project), taxes, interest payments, Mitsui Canada principal and
interest payments, capital expenditures (including any cost overruns in Phase I
and Phase II, and Phase III), and the Pine Valley Group's general and
administrative expenses, as will be set out in the Project Budgets prepared in
accordance with Section 8.11, but not for cost overruns for Phase I, Phase II or
Phase III unless first approved by Marubeni, such approval not to be
unreasonably withheld.
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8.14 EMERGENCY EXPENDITURES
In case of an emergency, the Pine Valley Group may take any reasonable action it
deems necessary, including expending funds outside of the amounts specified in
any budget, to protect life, limb or property, to prevent material damage to or
loss of assets of the Willow Creek Project or to comply with laws applicable to
the Pine Valley Group without Marubeni's prior consent, provided that that any
such expenditures are objectively reasonable in the circumstances. In the event
of such expenditures relating to a single incident aggregating more than
$10,000, Falls Mountain will report the particulars of the same and the
circumstances giving rise to the emergency expenditures to Marubeni, as soon as
reasonably possible, and will prepare necessary amendments to the Budget or
then-current Project Budget to make allowance for the emergency expenditures for
consideration and approval by Marubeni, such approval not to be unreasonably
withheld.
8.15 INSPECTION AND AUDIT
The Pine Valley Group will maintain complete and accurate records relating to
the use of the Loan proceeds. During the currency of this Agreement, Marubeni or
its representatives may, upon reasonable notice to the Pine Valley Group and
during normal business hours, inspect and take copies of such records. In
addition, Marubeni will have the right, during the currency of this Agreement to
have such records audited by a firm of internationally recognized chartered
accountants. Such audit will be carried out during reasonable business hours and
on reasonable notice to the Pine Valley Group. In addition, Marubeni will have
the right, at its cost, to appoint independent experts, including engineers, to
review the construction and condition of the Willow Creek Project for compliance
with the requirements of this Agreement, provided that:
(a) Marubeni must give the Pine Valley Group reasonable advance
notice of the identity of such independent experts and the
proposed timing of any visits by such experts to the Willow Creek
Project site;
(b) such experts must not be competitors of the Pine Valley Group,
associates or affiliates of competitors of the Pine Valley Group,
or former or current consultants of competitors of the Pine
Valley Group; and
(c) before conducting any review of the Willow Creek Project, such
experts must enter into an agreement with the Pine Valley Group
setting out reasonable and customary confidentiality provisions
governing the use and disclosure of confidential information
relating to the Pine Valley Group and the Willow Creek Project.
8.16 PERMIT AMENDMENTS
Falls Mountain will, by April 30, 2005, commence making and continue to make
commercially reasonable efforts to apply for and obtain amendments to its mining
permits so as to increase its allowable coal production rate from the presently
permitted 900,000 tonnes per annum to a minimum of 1,500,000 tonnes per annum.
24
8.17 LEASED EQUIPMENT
The Pine Valley Group may, in its discretion and without any requirement for the
consent of Marubeni, elect not to not to purchase capital equipment in its own
right and instead lease or have a contractor supply such pieces of equipment,
provided that such equipment is secured for the Willow Creek Project in a
condition and on terms that will support an ongoing production volume of not
less than 1.0 million tonnes per year.
8.18 COST OVERRUNS
The Pine Valley Group will make reasonable commercial efforts to secure the
financing necessary to fund any cost overruns for the items covered by the
Budget and for any Willow Creek Project expenses not covered by the Budget.
While any amount of the Loan remains outstanding, the net proceeds of any such
financing will, if Phase I and Phase II have not yet been completed, be
deposited into the Project Account, and otherwise will be deposited into one of
the Post-Production Accounts.
9. LOAN SECURITY
9.1 GENERAL SECURITY AGREEMENT
Falls Mountain's obligation to repay the Loan and the Interest will be secured
by the Falls Mountain Security Agreement, and the security interests arising
thereunder will rank pari passu with the security interest presently held by
Mitsui Canada and arising under a General Security Agreement made January 6,
2004 between Falls Mountain and PVC as debtors and Mitsui Canada.
9.2 FALLS MOUNTAIN SHARE PLEDGE
At the Closing, as security for the guarantee set out in Section 10, Pine Valley
will deliver to Marubeni the Falls Mountain Share Pledge and all deliveries
contemplated thereunder. The original certificates representing all of the
issued and outstanding shares of Falls Mountain will be held by Marubeni or its
agent in accordance with the terms of the Falls Mountain Share Pledge.
9.3 RELEASE OF SECURITY
Upon the repayment in full of the Loan and Interest, the Falls Mountain Security
Agreement and the Falls Mountain Share Pledge will terminate, and Marubeni will
irrevocably release and discharge the Falls Mountain Security Agreement and
return to Pine Valley any certificates representing shares of Falls Mountain and
powers of attorney with respect to those shares that are then in Marubeni's
possession or control. Marubeni will irrevocably release and discharge the
guarantee of Pine Valley expressed in Section 10.1 upon the repayment in full of
the Loan and Interest, and the fulfilment by the Pine Valley Group of the
obligation to sell and deliver the Purchase Commitment Coal and the Option
Tonnage.
25
9.4 PROJECT MANAGEMENT
Notwithstanding the Falls Mountain Security Agreement and the Falls Mountain
Share Pledge, the Willow Creek Project will be developed and operated by and
under the control of the Pine Valley Group and the contractors and agents
engaged by the Pine Valley Group.
10. GUARANTEES AND INDEMNITIES
10.1 GUARANTEE OF PINE VALLEY
Marubeni is willing to proceed with this Agreement and the transactions
contemplated hereby only with the participation of Pine Valley as set forth in
this Section 10. In consideration of the payment of $20 and other good and
valuable consideration paid and given by Marubeni to Pine Valley (the receipt
and sufficiency of which are hereby acknowledged), Pine Valley hereby guarantees
the performance by Falls Mountain of the respective covenants, agreements and
obligations of Falls Mountain under this Agreement and guarantees payment by
Falls Mountain to Marubeni of any and all loss, damage, expense, liability,
claim or demand suffered or incurred by Marubeni arising out of any breach of
any covenant, agreement, representation or warranty of this Agreement by Falls
Mountain or any misrepresentation on the part of Falls Mountain.
10.2 ABILITY TO DEAL
Pine Valley acknowledges and agrees that none of the following will release Pine
Valley of any of its obligations under this Section 10:
(a) any modification, amendment or change to the rights or
obligations of Falls Mountain under this Agreement in any manner
whatsoever, regardless of the magnitude or materiality of such
change and regardless of whether Pine Valley has consented to or
approved such change;
(b) the granting of any time, renewals, extensions, or indulgences to
Falls Mountain with respect to its obligations under this
Agreement;
(c) the taking of any securities (which word as herein used includes
other guarantees) for the performance by Falls Mountain of its
obligations under this Agreement; abstaining from taking or
perfecting such securities; accepting compositions from,
exchanging, enforcing, waiving or releasing any such securities;
or otherwise dealing with such securities as Marubeni may see
fit, and, Marubeni may apply all monies at any time received from
such securities or Falls Mountain or others to such part of the
liabilities of Falls Mountain as Marubeni deems best and change
such application in whole or in part from time to time as
Marubeni sees fit;
and Pine Valley further waives presentment, demand, protest and all notices and
any right to require Marubeni to proceed against Falls Mountain or to proceed
against or exhaust any security or pursue any other remedy available to Marubeni
as a condition to enforcement of Pine Valley's obligations under this Agreement.
26
10.3 INDEMNIFICATION FROM PINE VALLEY
Pine Valley will indemnify and save harmless Marubeni from and against all
suits, claims, demands, liabilities, losses and expenses which Marubeni may
suffer, incur or sustain resulting or arising from any non-fulfilment of any
covenant or agreement or any breach of or incorrectness in any representation or
warranty by or of Pine Valley or any other member of the Pine Valley Group
contained in this Agreement or the Falls Mountain Security Agreement.
Every indemnity and exemption from liability, limitation and condition contained
in this Agreement for the benefit of Marubeni and every defence and immunity of
whatsoever nature applicable to Marubeni or to which Marubeni is entitled under
this Agreement will also be available and extend to protect every director,
officer, employee, agent or independent contractor from time to time of
Marubeni.
10.4 INDEMNIFICATION FROM PVC
PVC will indemnify and save harmless Marubeni from and against all suits,
claims, demands, liabilities, losses and expenses which Marubeni may suffer,
incur or sustain resulting or arising from any non-fulfilment of any covenant or
agreement or any breach of or incorrectness in any representation or warranty by
or of PVC or any other member of the Pine Valley Group contained in this
Agreement or the Falls Mountain Security Agreement.
Every indemnity and exemption from liability, limitation and condition contained
in this Agreement for the benefit of Marubeni and every defence and immunity of
whatsoever nature applicable to Marubeni or to which Marubeni is entitled under
this Agreement will also be available and extend to protect every director,
officer, employee, agent or independent contractor from time to time of
Marubeni.
10.5 INDEMNIFICATION FROM MARUBENI
Marubeni will indemnify and save harmless each and ever member of the Pine
Valley Group from and against all suits, claims, demands, liabilities, losses
and expenses which any member of the Pine Valley Group may suffer, incur or
sustain resulting or arising from any failure or refusal by Marubeni to advance
any part of the Loan in breach of its obligations under this Agreement, or the
failure or refusal by Marubeni to consent to any release of funds from the
Project Account or the Post-Production Accounts in breach of its obligations
under this Agreement.
Every indemnity and exemption from liability, limitation and condition contained
in this Agreement for the benefit of the Pine Valley Group and every defence and
immunity of whatsoever nature applicable to any member of the Pine Valley Group
or to any member of the Pine Valley Group is entitled under this Agreement will
also be available and extend to protect every director, officer, employee, agent
or independent contractor from time to time of any member of the Pine Valley
Group.
27
11. DEFAULT
11.1 EVENT OF DEFAULT
Event of Default means the occurrence of any of the following events:
(a) Falls Mountain defaults in any payment when the same is due under
this Agreement;
(b) any member of the Pine Valley Group becomes insolvent or makes a
general assignment for the benefit of its creditors, or if an
order is made or effective resolutions are passed for the
winding-up, of a member of the Pine Valley Group or if any member
of the Pine Valley Group is declared bankrupt or if a custodian
or receiver is appointed for a member of the Pine Valley Group
under any bankruptcy legislation, or if a compromise or
arrangement is proposed by any member of the Pine Valley Group to
its creditors or any class of its creditors, or if a receiver or
other officer with like powers is appointed for a member of the
Pine Valley Group;
(c) the Pine Valley Group uses the Loan proceeds for purposes other
than those permitted by Section 8 of this Agreement;
(d) the Pine Valley Group uses the funds in the Canadian dollar
Post-Production Joint Controlled Account for purposes other than
those permitted by Section 8 of this Agreement;
(e) Pine Valley pays any dividends or makes any other cash
distributions to shareholders, or makes any payment towards an
amount of $600,000 which Pine Valley has disclosed in the notes
to its annual financial statements as owing to the estate of Pine
Valley's former Chairman;
(f) Falls Mountain pays any cash dividends or makes any other cash
distributions to its shareholder, other than by paying expenses
of its shareholder that it is otherwise permitted to pay under
this Agreement, which payments may be accounted for as dividends
by Falls Mountain;
(g) the Pine Valley Group forfeits or abandons any of the coal
licenses or coal leases listed in Schedule 11.1(g), or cause any
conditions of its mining permits to be changed or amended such
that the Pine Valley Group would have to cease mining operations
on the Willow Creek Project for a period of greater than thirty
consecutive days;
(h) the Pine Valley Group sells or otherwise disposes of any assets
without the prior written consent of Marubeni, excluding assets
sold or otherwise disposed of in the normal course of business
such as coal and equipment sales and other asset dispositions
which will not interfere with the Willow Creek Project's
continued operation at the production rates contemplated by this
Agreement;
28
(i) the Willow Creek Project fails to produce a minimum of 15,000
tonnes of saleable coal within five months of the date of the
initial drawdown from the Project Account;
(j) the Willow Creek Project has not been advanced to the point of
that it is, subject to the production limits prescribed under the
mining permit for the Willow Creek Project, capable of producing
1.0 million tonnes of saleable coal per annum within one year of
the date of the initial drawdown from the Project Account;
(k) the Pine Valley Group has not completed the Additional Financing
by July 31, 2004;
(l) Falls Mountain fails to deliver the Purchase Commitment Coal in
accordance with Section 5.2, provided that acts or omissions of
Marubeni have not materially contributed to such a default;
(m) a member of the Pine Valley Group is in material breach of any
agreements with a third party and such material breach is
reasonably likely to have a material impact on the ownership of
the Willow Creek or the Pine Valley Group's ability to operate
the Willow Creek Project in a manner that will permit it to meet
its contractual coal sales commitments to Marubeni; or
(n) a member of the Pine Valley Group is in material breach of any
provision of this Agreement.
11.2 CONSEQUENCES OF DEFAULT
If any Event of a Default occurs and is continuing for a period of 30 days after
written notice has been given by Marubeni to the Pine Valley Group, and acts or
omissions of Marubeni have not materially contributed to such a default, then
Marubeni may declare the outstanding Loan to be immediately due and payable and
may exercise all of its rights and remedies available to it at law, including
under the Falls Mountain Security Agreement and the Falls Mountain Share Pledge.
Notwithstanding the foregoing, the provisions of this Section 11.2 will not in
any way relieve the obligation of Falls Mountain to repay the entire outstanding
amount of the Loan and any and all accrued and unpaid Interest in accordance
with the repayment deadline prescribed in Section 7.5.
11.3 NOTICE OF DEFAULT
Upon it becoming aware of the occurrence of an Event of a Default or an event
which, with the passage of time, will become an Event of Default, Falls Mountain
will give written notice of such event to Marubeni.
11.4 USE OF PROCEEDS ASSUMPTION
Unless Marubeni is able to prove otherwise, the Pine Valley Group will be
assumed to have used the Loan proceeds in accordance with Article 8 of this
Agreement, and the funds in the
29
Canadian dollar Post-Production Joint Controlled Account in accordance with the
terms and conditions of this Agreement.
12. ADDITIONAL FINANCING
12.1 FINANCING TERMS
The Pine Valley Group will raise an additional $2,950,000 in equity financing by
July 31, 2004, which financing proceeds will be dedicated to the funding of the
Willow Creek Project Phase I and II expenditures set out in the Budget (the
"ADDITIONAL FINANCING"). The Pine Valley Group can raise the Additional
Financing through new subscriptions for the Common shares of Pine Valley or
through the exercise of outstanding Pine Valley share purchase options and
warrants.
If Pine Valley completes the equity financing announced in its news release
dated April 27, 2004, then it will be deemed to have fulfilled its obligation to
raise the Additional Financing under this Agreement, and the amount of the
proceeds of such financing expended prior to the Closing on Willow Creek Project
Phase I and II expenditures set out in the Budget, to the extent that such
expenditures can be evidenced to the reasonable satisfaction of Marubeni, will
be credited toward the Pine Valley Group's obligation under Section 12.3 to
deposit the proceeds of the Additional Financing into the Project Account.
12.2 FINANCING STATUS REPORTS
The Pine Valley Group will keep Marubeni informed of its plans and progress with
regard to the Additional Financing.
12.3 DISBURSEMENT
The proceeds of the Additional Financing will be deposited into the Project
Account and will be managed and disbursed in the same manner as the Loan
proceeds deposited in the Project Account. Any equity financing raised by the
Pine Valley Group over and above $3,000,000, (being the aggregate of the
$2,950,000 Additional Financing proceeds and an additional $50,000 in equity
financing proceeds raised and retained in the general operating account of Pine
Valley to be expended in its sole discretion), will:
(a) unless and until the outstanding balance of the Loan, the
proceeds of the Additional Financing, and any other financing
raised by Pine Valley and deposited into the Project Account, are
sufficient to complete construction of Phase I and Phase II, be
deposited into the Project Account; and
(b) thereafter, will, during the currency of this Agreement, be
deposited in the Canadian dollar Post-Production Account, and
will be disbursed in accordance with the terms of Sections 8.11
and 8.13.
For greater certainty, if the budgeted cost to complete Phase I and Phase II to
meet the requirements set out in this Agreement has, as a result of
cost-overruns, increased beyond the originally budgeted amount, then Pine Valley
will be responsible to raise the additional financing
30
necessary to complete Phase I and Phase II and deposit the proceeds of such
financing into the Project Account to be dispersed in accordance with this
Agreement.
13. COAL SALES PLANS
13.1 MARKETING PLANS
The Parties acknowledge that it is their intent to work together to sell coal
from the Willow Creek Project over and above the Purchase Commitment Coal and
the Option Tonnage. The sales target of the Parties for coal from the Willow
Creek Project, in addition to the Purchase Commitment Coal and the Option
Tonnage, is:
CONFIDENTIAL TREATMENT REQUESTED
(a) ******** tonnes (in addition to the Purchase Commitment Coal and
the Option Tonnage) in the period from July 1, 2004 to March 31,
2005;
(b) ********* tonnes (in addition to the Purchase Commitment Coal) in
the period April 1, 2005 to March 31, 2006; and
(c) ********* tonnes in the period April 1, 2006 to March 31, 2007
inclusive of any outstanding Purchased Commitment Coal.
(collectively, the "ADDITIONAL TONNAGE").
13.2 SALES AGENT
In furtherance of the Parties' efforts to effectively market and sell coal from
the Willow Creek Project, at the Closing Falls Mountain will appoint Marubeni as
its exclusive sales agent for Willow Creek Coal in Japan, Korea and Taiwan
pursuant to a coal sales agency agreement in the form attached as Schedule 13.2
(the "AGENCY Agreement").
14. FORCE MAJEURE
If any Party is delayed in the performance of its obligations under this
Agreement or its operations are suspended by strikes, lockouts or other labour
unrest or disturbances, fire, flood, insurrection, riots, acts of the enemy,
acts of the government including governmental agencies or other bodies, acts of
God, or by any other similar causes reasonably beyond the control of the
affected Party (such an event being herein referred to as "FORCE MAJEURE"), then
the obligations of the Party, insofar as its obligations are affected by the
Force Majeure, will be suspended, while, but only for so long as, the Force
Majeure continues to prevent the performance of the said obligations. The Party
claiming suspension of its obligations as aforesaid will give the other Party
written notice of the Force Majeure within ten (10) days of its commencement
including reasonably full particulars in respect thereof, which particulars will
include the commencement date of the Force Majeure. The affected Party will
promptly take steps to remedy the cause and effect of the Force Majeure
described in the aforesaid notice insofar as it is reasonably able so to do;
provided that the terms of settlement of any strike, lockout, or other labour
unrest or disturbance will be wholly in the discretion of the Party so
31
affected and that Party will not be required to accede to the demands of its
opponents in any strike, lockout or other labour unrest or disturbance solely to
remedy promptly the Force Majeure thereby constituted.
Notwithstanding the foregoing, the provisions of this Section 14 will not in any
way relieve the obligation of Falls Mountain to repay the entire outstanding
amount of the Loan and any and all accrued and unpaid Interest in accordance
with the repayment deadline prescribed in Section 7.5.
15. GENERAL
15.1 ARBITRATION
All disputes between the parties arising out of or in connection with this
Agreement which cannot be settled by them will be referred to a single
arbitrator under the Commercial Arbitration Act then in effect in British
Columbia whose decision thereon will be final, binding and conclusive. All
arbitration proceedings will be conducted, unless the Parties otherwise agree,
in Vancouver, British Columbia. Any matter, issue or dispute referred to
arbitration will be dealt with on an expeditious basis with the parties using
all commercially reasonable efforts to obtain and implement a timely decision of
the arbitration panel.
15.2 FURTHER ASSURANCES
Before, at, and after the Closing Date, each Party will promptly execute and
deliver all further documents and take all further action reasonably necessary
or appropriate to give effect to the provisions and intent of this Agreement and
to complete the transactions contemplated by this Agreement.
15.3 ENTIRE AGREEMENT
This Agreement, together with the agreements and other documents delivered
pursuant hereto, constitutes the entire agreement between the Parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, express
or implied, statutory or otherwise between the Parties hereto and there are no
warranties, representations or other agreements between the Parties in
connection with the subject matter hereof except as specifically set forth
herein and therein.
15.4 NOTICE
Any notice or other communication required or permitted to be given under this
Agreement must be in writing and delivered personally or sent by facsimile,
addressed as follows:
IF TO ANY MEMBER OF THE PINE VALLEY GROUP:
#501 - 535 Thurlow Street
Vancouver, BC V6E 3L2
Attention: President
32
Fax: (604) 682-4698
WITH A COPY TO:
Bull, Housser & Tupper
3000 - 1055 W. Georgia St.
Vancouver, B.C.
V6E 3R3
Attention: David Hunter
Fax: (604) 646-2634
AND IF TO MARUBENI:
Marubeni Corporation
4-2, Ohtemachi 1-Chome
Chiyoda-Ku
Tokyo Japan
Attention: Hisao Azuma
Fax: 81-3-3282-9539
and
Marubeni Canada Ltd.
Suite 530, Bow Valley Square 1
202-6th Avenue, South West
Calgary, Alberta
Canada T2P 2R9
Attention: Junji Morinaga
Fax: (403) 263-8100
WITH A COPY TO:
Davis & Company
2800 Park Place
666 Burrard Street
Vancouver, British Columbia
V6C 2Z7
Attention: Don Bell
Fax: (604) 605-3535
or to such other address or facsimile number as a party may specify by notice in
writing given hereunder.
Each notice to a Party given pursuant to or in connection with this Agreement
must be given in writing and will be validly given if delivered on a Business
Day to an individual at the address for
33
the Party designated in accordance with this Section, or, if transmitted on a
Business Day by fax to the fax number for that the Party designated in
accordance with this Section. Any notice:
(a) if validly delivered, will be deemed to have been given when
delivered;
(b) if validly transmitted by fax before 3:00 p.m. (local time at the
place of receipt) on a Business Day, will be deemed to have been
given on that Business Day; and
(c) if validly transmitted by fax after 3:00 p.m. (local time at the
place of receipt) on a Business day, will be deemed to have been
given on the first Business Day after the date of the
transmission.
For greater certainty, for all purposes under this Agreement, any notice,
delivery, payment, approval, or direction to be made or given by Marubeni to or
to the benefit of any member of the Pine Valley Group will be effected by a
notice, delivery, payment, approval, or direction by Marubeni to Pine Valley as
the duly authorized representative for each and every member of the Pine Valley
Group.
15.5 ASSIGNMENT
Except as expressly provided for herein, or an assignment by Marubeni of all or
a portion of its rights under this Agreement to Marubeni Canada, which may occur
without consent provided that Marubeni is not released from its obligations as a
result of such assignment, this Agreement may not be assigned by any Party
without the prior written consent of the other Parties. This Agreement will
enure to the benefit of and be binding upon the each of the Parties and their
successors and permitted assigns.
15.6 CONFIDENTIALITY
Marubeni will hold all Project Information in confidence, taking reasonable
security precautions (at least as great as the precautions it takes to protect
its own confidential information) to keep confidential the Project Information,
except for Project Information which:
(a) is or becomes generally available to the public other than as a
result of a disclosure by Marubeni, its representatives or anyone
to whom Marubeni or its representatives have transmitted any
Project Information;
(b) is or becomes available or known to Marubeni on a
non-confidential basis and not in contravention of applicable law
from a source other than the Pine Valley Group, provided that
Marubeni does not have reason to believe that such source is
bound by a confidentiality agreement with the Pine Valley Group
or is otherwise prohibited from transmitting the Project
Information to Marubeni;
(c) was known to Marubeni on a non-confidential basis prior to the
date of this Agreement, provided that such Project Information is
not subject to another confidentiality agreement with, or other
obligation of secrecy to, any member of the Pine Valley Group or
another party; or
34
(d) is information which Marubeni is or becomes legally obligated to
disclose pursuant to an order of a court or other governmental
entity having jurisdiction over such disclosure.
15.7 PUBLIC DISCLOSURE OBLIGATIONS
Marubeni acknowledges that Pine Valley is a reporting issuer in British Columbia
and Alberta and has certain of its securities listed for trading on the TSX
Venture Exchange, and agrees that where Pine Valley, in its reasonable opinion,
is required to publicly disclose Project Information in order to comply with its
obligations to the TSX Venture Exchange, or any other exchange, quotation and
trade reporting system on which Pine Valley's securities are listed for trading,
or securities laws applicable to Pine Valley, then Pine Valley will be
permitted, in its sole discretion, to make such disclosure, provided that Pine
Valley provides Marubeni with advance notice of any disclosure relating directly
or indirectly to Marubeni.
15.8 COUNTERPARTS
This Agreement and all documents contemplated by or delivered under or in
connection with this Agreement may be executed and delivered in any number of
counterparts with the same effect as if all Parties had all signed and delivered
the same document and all counterparts will be construed together to be an
original and will constitute one and the same agreement.
15.9 DELIVERY BY FAX
Any Party may deliver an executed copy of this Agreement by fax but that Party
will immediately dispatch by delivery in person to the other Parties an
originally executed copy of this Agreement.
35
IN WITNESS WHEREOF the Parties hereto have executed this Agreement the day and
year first above written.
PINE VALLEY MINING CORPORATION
Per: ______________________________
Authorized Signatory
I have authority to bind
PINE VALLEY MINING CORPORATION
FALLS MOUNTAIN COAL INC.
Per: ______________________________
Authorized Signatory
I have authority to bind
FALLS MOUNTAIN COAL INC.
PINE VALLEY COAL LTD.
Per: ______________________________
Authorized Signatory
I have authority to bind
PINE VALLEY COAL LTD.
MARUBENI CORPORATION
Per: ______________________________
Authorized Signatory
I have authority to bind
MARUBENI CORPORATION
36
With respect to its appointment as the agent of Marubeni Corporation under
Section 8.7 of this Agreement, Marubeni Canada Ltd. hereby accepts such
appointment and agrees to conduct itself in such capacity in accordance with the
terms and conditions of this Agreement.
MARUBENI CANADA LTD.
Per: ______________________________
Authorized Signatory
I have authority to bind
Marubeni CANADA LTD.
SCHEDULE 1.1(D)
BUDGET
PINE VALLEY MINING CORPORATION ESTIMATED MONTHLY EXPENSES
MAY 1, 2004 TO OCTOBER 31, 2004
AS OF MAY 21, 2004
(PAGE 1 OF 2)
CONFIDENTIAL TREATMENT REQUESTED
<Table>
<Caption>
ONE TIME
MONTHLY COSTS TOTAL
-------- -------- ----------
PAYROLL:
Graham Mackenzie $ 8,333
Mark Fields 7,750
Ray Lagace 3,000
************** *******
Payroll expenses:
CPP & EI employer's portion only 200
WCB 55
-------
22,088 $ 132,530
OFFICE RENT 2,731 16,386
LEGAL - BULL HOUSSER & TUPPER
(including AGM & 20F) 9,000 54,000
TELEPHONE & COMMUNICATION
6 lines Tel & Fax 410
Long distance & telephone conference 150
Cell phone - GM 100
ADSL - Radiant Communication 130
Web hosting 200
-------
990 $ 5,940
OFFICE SUPPLIES
Stationery, postage, computers
& Biz cards 250
StockWatch & Northern Miner 150
CGA courses 1,125
------- -------
400 1,125 2,025
TRANSFER AGENT - COMPUTERSHARE
AGM - shareholder service fees
(one time) 5,000
Monthly agency fees 400
------- -------
400 5,000 7,400
FILING COSTS - BCSC & TSX 5,000 5,000
</Table>
2
PINE VALLEY MINING CORPORATION ESTIMATED MONTHLY EXPENSES
MAY 1, 2004 TO OCTOBER 31, 2004
AS OF MAY 21, 2004
(PAGE 2 OF 2)
<Table>
<Caption>
ONE TIME
MONTHLY COSTS TOTAL
-------- -------- ----------
INVESTOR RELATIONS
Printing 8,000
Property Tours 25,000
Promotional Events 20,000
-------
53,000 53,000
ACCOUNTING & AUDIT
Deloitte & Touche year-end audit 25,000
Deloitte & Touche 20F review 5,000
Accounting support (Ping Shen) 1,500
-------
31,500 31,500
VARIOUS
Travel (estimate, include Coal
Association Conference) 3,000 3,400
AGM Material (excluding legal and
transfer agent) 6,000
Coal Association Membership 1,360
Mitsui Matsushima June Payment 268,900
Mitsui Matsushima September Payment 367,600
Marubeni June Interest Payment
(est 6.5% interest) 9,735
Marubeni September Interest Payment
(est 6.5%interest) 84,195
Marubeni fee for loan establishment 50,667
Employee salary, bonus and
benefits adjustments (1)
------- -------
3,000 791,856 809,856
CONTINGENCY @ 5% 55,882
---------
TOTAL 1,173,519
=========
1. To be considered by directors post closing.
MINE SITE OPERATIONAL BUDGET
(PAGE 1 OF 2)
<Table>
<Caption>
MAY JUNE JULY AUG SEPT OCT
--------- ---------- ---------- ----------- ----------- -----------
PAYROLL:
Accountant $ 1,900 $ 7,500 $ 7,500 $ 7,500 $ 7,500
Engineer/Geologist 1,900 7,000 7,000 7,000 7,000
Maintenance 1,900 7,000 7,000 7,000 7,000
Operators (3/crew) - 17,400 17,400 17,400 34,800
Payroll expenses:
CPP & EI employer's portion only 228 1,556 1,556 1,556 2,252
WCB $ 125 $ 856 $ 856 $ 856 $ 1,239
--------- ---------- ---------- ----------- ----------- -----------
6,053 41,312 41,312 41,312 59,791
TELEPHONE & COMMUNICATION
3 lines Tel & Fax 300 300 300 300 300
Long distance & telephone conference 200 200 200 200 200
ADSL - Radiant Communication Satellite 300 300 300 300 300
--------- ---------- ---------- ----------- ----------- -----------
800 800 800 800 800
OFFICE SUPPLIES
Stationery, postage, computers &
Biz cards 150 150 150 150 150
--------- ---------- ---------- ----------- ----------- -----------
-- 150 150 150 150 150
COMMUNITY RELATIONS
Property Tours 200 200 200 200 200
Sponsorships 1,000 1,000 1,000 1,000 1,000
--------- ---------- ---------- ----------- ----------- -----------
-- 1,200 1,200 1,200 1,200 1,200
VARIOUS
Travel 1,500 1,500 1,500 1,500 1,500 1,500
--------- ---------- ---------- ----------- ----------- -----------
1,500 1,500 1,500 1,500 1,500 1,500
</Table>
2
MINE SITE OPERATIONAL BUDGET
(PAGE 2 OF 2)
CONFIDENTIAL TREATMENT REQUESTED
<Table>
<Caption>
MAY JUNE JULY AUG SEPT
-------- ---------- ---------- ----------- -----------
PRODUCTION COSTS - PRODUCT TONNES 45,000 45,000 45,000 90,000
Mining Contractor ****** ******* ******* ******** ******** ********
Rail ****** ******* ******** ******** ********
Port ****** ******* ******** ******** ********
Sampling ****** ******* ******** ******** ********
Marketing fee *****% ****** ******* ******** ******** ********
-------- ---------- ---------- ----------- -----------
******* ******* ******** ******** ********
-------- ---------- ---------- ----------- -----------
TOTAL SITE COSTS $ 485,703 $1,701,112 $1,701,112 $ 1,701,112 $ 3,375,741
RECLAMATION BOND WITH GOVT $ 650,000
must be lodged and left in place
Sales Tonnes 45000 60000 75000
Price/tonne US$ $52.00 $52.00 $52.00
Exchange Rate 0.75 0.75 0.75
---------- ---------- -----------
REVENUE CAD$ $3,120,000 $ 4,160,000 $ 5,200,000
---------- ----------- -----------
Operational Working Capital $1,135,703 $2,836,815 $1,417,927 $(1,040,961) $(2,865,221)
</Table>
SCHEDULE 1.1(J)
FALLS MOUNTAIN SHARE PLEDGE
See attached.
SCHEDULE 1.1(FF)
DEVELOPMENT PHASES
DEVELOPMENT PHASES FOR WILLOW CREEK
Capital expenditures for the Willow Creek Project are broken into three phases.
Phases I and II are designed to bring the Willow Creek Project into production
at a rate of at least 1.0 million tonnes per year on an unwashed basis and will
be funded by the Loan principal and Additional Funds. Phase III involves the
construction of a coal preparation plant with associated facilities and is to be
funded out of surplus Willow Creek Project cash flow. At the completion of Phase
III the Willow Creek Project will have a production capacity of at least 1.5
million tonnes per year of washed product coal.
Phase I and II will occur simultaneously and design and procurement is currently
in progress. It is expected that Phase I and II will be substantially complete
by the end of December, 2004. The development is comprised of the following
elements:
o Engineering, detailed surveying, tender preparation and evaluation of
specific equipment available for purchase are in progress.
o Development of the water control systems, road building and site
preparation, clearing and removal of all stumps. This will begin in
late May to early June and be largely completed by the fourth calendar
quarter, 2004. There will be some water control systems and clearing
and stump removal which will occur during the summer season of 2005,
however they will not impact the production capacity of the mine.
o Installation of the mine site office and lab facilities with control
room for coal crushing and stacking system during the third calendar
quarter, 2004.
o Purchase of land from the nearby land owners. This is subject to
negotiation and establishing appropriate agreements. It is expected to
occur by the end of December, 2004.
o Construction and installation of the crushing and conveying systems,
initial site office building infrastructure , the rail siding to
accommodate a full unit train and a rail bin loading system. These are
targeted for completion by mid-October.
Phase III will begin in the fourth calendar quarter, 2004 and continue through
June 2005. It will be comprised of the purchase and installation of a coal
preparation plant.
During Phase I, II and III it is the intention to use second-hand equipment
wherever practical in constructing the mine and commencing production so as to
minimise cost. The equipment installed will be designed to achieve throughput
rates of no less than 1.5 million tonnes per year upon the completion of Phase
III. Key items of capital equipment may be leased or be supplied by the
contractor. In all cases such equipment, or a reasonable substitute, will be
such that the Project is capable of operating at a production rate of at least
1.5 million tonnes per year upon the completion of Phase III.
SCHEDULE 1.1(KK)
WILLOW CREEK COAL SPECIFICATIONS
Brand - Willow Creek Coal - sourced from the north-eastern coalfields of British
Columbia, Canada.
Specification - PCI Coal (in British Standard Specifications):
Total Moisture (As Received) = 8.0% (guaranteed maximum 10.0%)
Inherent Moisture (Air Dried) = 0.7%
Ash (Dry Basis) = 8.0% (guaranteed maximum 8.5%)
Volatile Matter (Dry Basis) = 16.0%
Fixed Carbon (Dry Basis) = 76.0%
Total Sulphur (Dry Basis) = 0.57% (guaranteed maximum 0.70%)
Calorific Value (Dry Basis) = 7,850 kcal/kg (guaranteed minimum 7,750
kcal/kg)
Calorific Value (Dry Basis) = 14,130 btu/lb (guaranteed minimum 13,950
btu/lb)
Specification - Coking Coal. The Coking coal requires further testing to
definitively determine the specifications. Based on the testing to date and
subject to the results of further testing which will be conducted in 2004, the
Coking coal shall typically meet the following specifications:
Total Moisture (As Received) = 8.0% (guaranteed maximum 10.0%)
Inherent Moisture (Air Dried) = 0.7%
Ash (Dry Basis) = 8.0% (guaranteed maximum 8.5%)
Volatile Matter (Dry Basis) = 21.0%
Fixed Carbon (Dry Basis) = 71.0%
Total Sulphur (Dry Basis) = 0.6% (guaranteed maximum 0.70%)
Calorific Value (Dry Basis) = 7,850 kcal/kg (guaranteed minimum 7,750
kcal/kg)
FSI = 6 approx
Fluidity = 20ddpm
SCHEDULE 4.4(C)
OPINION
Our File: 9147174
Date: May -, 2004
Davis & Company Marubeni Corporation
2800 Park Place 4-2,1-Chome, Chiyoda-Ku,
666 Burrard Street Tokyo, Japan
Vancouver, BC V6C 2Z7
Canada
Dear Sirs/Mesdames:
RE: PINE VALLEY MINING CORPORATION ("PINE VALLEY"), FALLS MOUNTAIN COAL
LTD. ("FALLS MOUNTAIN") AND PINE VALLEY COAL LTD. ("PVC") (COLLECTIVELY
REFERRED TO HEREIN AS THE "CORPORATIONS")
We have acted as counsel to the Corporations in connection with the Coal
Purchase and Financing Agreement ("Financing Agreement") entered into between
the Corporations and Marubeni Corporation ("Marubeni") as of May -, 2004.
Capitalized terms used in this opinion that are defined in the Financing
Agreement and are not otherwise defined herein will have the same meaning herein
as in the Financing Agreement.
EXAMINATIONS
For the purpose of this opinion letter, we have examined the originals or
copies, certified or otherwise identified to our satisfaction, of:
o the constating documents of each of the Corporations;
o resolutions of the directors of the Corporations relating to the
subject matter of this opinion letter;
o the Financing Agreement;
o the Agency Agreement;
o the Inter-Creditor Agreement;
o the Falls Mountain Security Agreement; and
o the Falls Mountain Share Pledge.
(collectively referred to herein as the "Documents")
2
In addition, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of such public and corporate records,
certificates, instruments and other documents and have considered such questions
of law as we have deemed relevant and necessary as a basis for the opinions
hereinafter expressed.
ASSUMPTIONS AND LIMITATIONS
For the purposes of this opinion letter, we have, with your concurrence, and
without independent investigation, assumed the following:
o the genuineness of all signatures on, and the authenticity and
completeness of, the Documents and any other documents reviewed
by us;
o the conformity to original documents of the Documents and any
other documents reviewed by us as true, certified, confirmed or
photostatic copies (including facsimiles);
o the identity, capacity and authority of any person acting or
purporting to act in a representative capacity or as a public
official;
o the accuracy and completeness of any information provided to us
by any office of public record;
o the corporate existence and capacity of Marubeni, and the due
authorization, execution and delivery of the Documents to which
Marubeni is a party, by Marubeni.
The opinions expressed in paragraphs 1, 2 and 3 below, are based solely and
entirely upon Certificates of Good Standing issued by the British Columbia
Registrar of Companies dated May -, 2004 and a Certificate of Status issued by
the Alberta Registrar of Corporations dated May -, 2004, copies of which are
attached to this opinion.
The opinion expressed in paragraph 7, below, is given without independent
investigation and is based solely and entirely on the certificate of the
individual who is the President of each of the Corporations, and our review of
records which we have prepared and currently retain in our active files and
which would likely bring to our attention the existence of actions, proceedings,
investigations or claims against or affecting the Corporations or the property
of the Corporations.
OPINIONS
Based and relying upon our examinations, but subject to the assumptions,
limitations and qualifications set out in this letter, in our opinion:
1. Pine Valley and Falls Mountain exist as companies under the British Columbia
Business Corporations Act and are in good standing at the office of the British
Columbia Registrar of Companies with respect to the filing of annual reports.
3
2. PVC exists as a corporation under the Alberta Business Corporations Act and
is in good standing at the office of the Alberta Registrar of Corporations with
respect to the filing of annual returns.
3. PVC is registered with the British Columbia Registrar of Companies as an
extra-provincial corporation.
4. Each of the Corporations has the corporate capacity to own its properties, to
carry on its business as currently conducted and to enter into and perform its
obligations under the Documents.
5. All necessary corporate proceedings have been taken by each of the
Corporations to authorize the entering into, execution and delivery of the
Documents to which each Corporation is a party.
6. The execution and delivery of the Documents by the Corporations, and the
performance by the Corporations of their respective obligations under the
Documents do not conflict with or result in a breach of any provisions of the
constating documents of the Corporations or, insofar as we are aware, without
having made any investigation in this regard, any agreements to which the any of
the Corporations is a party or by which it or any of the assets of the
Corporations are bound.
7. There are no actions, proceedings, investigations or claims against or
affecting the Corporations now pending before any court, administrative agency
or other governmental authority.
8. There is no governmental consent, approval, authorization, filing, order or
qualification of or with any governmental authority having jurisdiction over the
Corporations which, under the laws of the Province of British Columbia, or the
federal laws of Canada applicable therein, is required for the execution and
delivery of the Documents and the performance by the Corporations of their
respective obligations under the Documents.
This opinion is furnished solely for the benefit of the addressees in connection
with the completion of the transactions contemplated under the above-described
agreements and may not be circulated to, or relied upon by, any other person or
used for any other purpose.
Yours truly,
SCHEDULE 5.1
SALE AND PURCHASE AGREEMENT
See attached.
SCHEDULE 11.1(G)
COAL LICENSES AND LEASES
I. LICENSOR
British Columbia Provincial Crown
II. LICENSES AND LEASES
A. Pine Valley Coal Ltd.
<Table>
<Caption>
COAL TENURE NO. MAP NUMBER WORK STATUS AREA
LICENSE NO./ RECORDED TO (G.S. - GOOD (HA)
TENURE NUMBER STANDING)
1. 8574 327312 093O09W 2005.03.31 G.S. 2005.03.31 293
2. 8575 327313 093O09W 2005.03.31 G.S. 2005.03.31 293
3. 8576 327314 093O09E 2005.03.31 G.S. 2005.03.31 293
4. 8577 327316 093O09W 2005.03.31 G.S. 2005.03.31 293
5. 8578 327318 093O09W 2005.03.31 G.S. 2005.03.31 293
6. 8579 327320 093O09W 2005.03.31 G.S. 2005.03.31 293
7. 8580 327321 093O09W 2005.03.31 G.S. 2005.03.31 293
8. 347214 347214 093O09W 2005.03.31 G.S. 2005.03.31 292
9. 347215 347215 093O09E 2005.03.31 G.S. 2005.03.31 293
10. 347216 347216 093O09E 2005.03.31 G.S. 2005.03.31 293
11. 347217 347217 093O09E 2005.03.31 G.S. 2005.03.31 293
12. 347218 347218 093O09E 2005.03.31 G.S. 2005.03.31 293
13. 389294 389294 093O09E 2005.03.31 G.S. 2005.03.31 6151
</Table>
B. Falls Mountain Coal Inc.
<Table>
<Caption>
COAL TENURE NO. MAP NUMBER WORK STATUS AREA
LICENSE NO./ RECORDED TO (G.S. - GOOD (HA)
TENURE NUMBER STANDING)
1. 409343 409343 093O09W 2005.04.07 G.S. 2005.04.07 293
2. 409344 409344 093O09W 2005.04.07 G.S. 2005.04.07 293
3. 409345 409345 093O09W 2005.04.07 G.S. 2005.04.07 293
4. 409346 409346 093O09W 2005.04.07 G.S. 2005.04.07 293
5. 409347 409347 093O09W 2005.04.07 G.S. 2005.04.07 293
6. 409348 409348 093O09W 2005.04.07 G.S. 2005.04.07 293
7. 409349 409349 093O09W 2005.04.07 G.S. 2005.04.07 293
8. 409350 409350 093O09W 2005.04.07 G.S. 2005.04.07 293
9. 409351 409351 093O09W 2005.04.07 G.S. 2005.04.07 293
10. 409352 409352 093O09W 2005.04.07 G.S. 2005.04.07 292
</Table>
Together with any other coal licenses or coal leases acquired after the date
hereof by Pine Valley Coal Ltd. or Falls Mountain Coal Inc.
SCHEDULE 13.2
AGENCY AGREEMENT
See attached.