GENERAL SECURITY AGREEMENT
Dated as of April 19, 2022
Among
TORCHLIGHT MINING CORP. a corporation incorporated under the Canada Business Corporations Act
WOLVERINE LAKE MINING LTD. a corporation incorporated under the Business Corporations Act (Ontario)
TORCHLIGHT MILLING & PROCESSING INC. a corporation incorporated under the Business Corporations Act (Ontario)
(each a "Grantor" and collectively, the "Grantors")
in favour of
NORTHERN DOMINION TRUST COMPANY a national banking association organized under the laws of the United States, acting as Collateral Agent
in connection with the 8.750% Senior Secured Notes due 2029 $300,000,000 Aggregate Principal Amount
issued pursuant to the Indenture dated as of April 19, 2022 among Torchlight Mining Corp., as Issuer, the Guarantors named therein, and Northern Dominion Trust Company, as Trustee
and the Collateral Agency Agreement dated as of April 19, 2022 among Torchlight Mining Corp., the Guarantors named therein, and Northern Dominion Trust Company, as Collateral Agent
RECITALS
WHEREAS Torchlight Mining Corp. (the "Issuer") has issued Three Hundred Million United States Dollars ($300,000,000) in aggregate principal amount of its 8.750% Senior Secured Notes due 2029 (the "Notes") pursuant to an Indenture dated as of April 19, 2022 (as may be amended, restated, supplemented, or otherwise modified from time to time, the "Indenture") among the Issuer, the Guarantors named therein, and Northern Dominion Trust Company, as Trustee (the "Trustee");
WHEREAS Wolverine Lake Mining Ltd. ("WLML") and Torchlight Milling & Processing Inc. ("TMPI") are each wholly owned subsidiaries of Torchlight Mining Corp. ("TMC") and have each guaranteed the due and punctual payment of the principal of, premium, if any, and interest on the Notes and the performance and observance of every covenant and agreement of the Issuer under the Indenture, as Guarantors under the Indenture;
WHEREAS the Grantors have agreed to grant a first-priority security interest in substantially all of their respective tangible and intangible assets located in Canada to secure the Secured Obligations (as defined herein), on the terms and subject to the conditions set forth in this Agreement;
WHEREAS Northern Dominion Trust Company has been appointed as Collateral Agent pursuant to a Collateral Agency Agreement dated as of April 19, 2022 (as may be amended, restated, supplemented, or otherwise modified from time to time, the "Collateral Agency Agreement") among the Issuer, the Guarantors named therein, and Northern Dominion Trust Company, as Collateral Agent, to hold and administer the security interests granted under this Agreement and the other Security Documents (as defined in the Indenture) for the benefit of the holders of the Notes and the Trustee;
WHEREAS the execution and delivery of this Agreement is a condition precedent to the closing of the offering of the Notes under the Purchase Agreement dated March 29, 2022 (the "Purchase Agreement") among the Issuer, the Guarantors, and Kelvantis Capital Markets LLC, Prestige Barrington & Co., Inc., and Halcyon Securities Inc. (collectively, the "Initial Purchasers"); and
WHEREAS each Grantor has determined that its execution, delivery, and performance of this Agreement and the grant of the Security Interest contemplated hereby is in its best interest and will directly and indirectly benefit such Grantor;
NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties agree as follows:
ARTICLE 1 — INTERPRETATION AND DEFINITIONS
Section 1.1 — Definitions
In this Agreement, unless the context otherwise requires, the following terms shall have the following meanings:
"Accounts" means all accounts, accounts receivable, book debts, and other forms of monetary obligations now or hereafter owing to any Grantor, whether or not earned by performance, and all rights of any Grantor to receive any payment of money or other form of consideration, including amounts owing under contracts for the sale of nickel-in-concentrate, copper-in-concentrate, or other mineral products, and all rights of any Grantor in respect of goods that are the subject of any account, together with all guarantees and security therefor and all goods returned to or reclaimed by any Grantor.
"Agreement" means this General Security Agreement, including all schedules hereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Chattel Paper" means all chattel paper as defined in the applicable PPSA, whether tangible or electronic, and includes all rights arising thereunder.
"Collateral" has the meaning set forth in Section 2.1, and includes all present and after-acquired personal property and assets of each Grantor described therein, together with all Proceeds thereof.
"Collateral Agency Agreement" means the Collateral Agency Agreement dated as of April 19, 2022 among the Issuer, the Guarantors named therein, and Northern Dominion Trust Company, as Collateral Agent, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Collateral Agent" means Northern Dominion Trust Company, a national banking association organized under the laws of the United States, in its capacity as collateral agent under the Collateral Agency Agreement, and its successors and assigns in such capacity; Corporate Trust Office at 101 Barclay Street, 7th Floor, New York, New York 10286, United States.
"Documents of Title" means all documents of title as defined in the applicable PPSA, including warehouse receipts, bills of lading, and other documents that in the regular course of business or financing are treated as adequately evidencing that the person in possession or control of them is entitled to receive, hold, and dispose of the goods they cover.
"Equipment" means all equipment, machinery, tools, fixtures, furniture, vehicles, and other tangible personal property of each Grantor, now owned or hereafter acquired, including without limitation all mining equipment, drilling rigs, load-haul-dump machines, underground haulage trucks, ventilation systems, hoisting equipment, underground conveyance systems, surface conveyors, rock bolters, shotcrete machines, pumping systems, electrical distribution systems, processing plant machinery, crushing and grinding equipment, flotation cells, thickeners, filter presses, concentrate dryers, and all replacements, substitutions, additions, and accessions thereto and all parts, components, attachments, accessories, and upgrades relating thereto.
"Event of Default" has the meaning set forth in Section 7.1.
"Excluded Property" has the meaning set forth in Section 2.2.
"Goods" means all goods as defined in the applicable PPSA, including without limitation Equipment and Inventory.
"Grantors" means, collectively, Torchlight Mining Corp., Wolverine Lake Mining Ltd., and Torchlight Milling & Processing Inc., and "Grantor" means any one of them.
"Indenture" means the Indenture dated as of April 19, 2022 among Torchlight Mining Corp., as Issuer, the Guarantors named therein, and Northern Dominion Trust Company, as Trustee, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Initial Purchasers" means Kelvantis Capital Markets LLC, Prestige Barrington & Co., Inc., and Halcyon Securities Inc.
"Instruments" means all instruments as defined in the applicable PPSA, including promissory notes, bills of exchange, and certificates of deposit, whether negotiable or non-negotiable.
"Intellectual Property" means all intellectual property of each Grantor, including without limitation all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, copyright applications, industrial designs, industrial design applications, trade secrets, know-how, technical data, geological data, geotechnical data, geophysical data, geochemical data, mine plans, feasibility studies, pre-feasibility studies, NI 43-101 technical reports, metallurgical test data, software (including source code and object code), databases, and all applications, registrations, licences, and rights related thereto, together with all goodwill associated therewith and all rights to sue for past, present, and future infringement or misappropriation thereof.
"Intercompany Notes" means all intercompany notes, loans, advances, and receivables now or hereafter owing to any Grantor from any affiliate or subsidiary of any Grantor, whether or not evidenced by a promissory note, instrument, or other writing.
"Inventory" means all inventory of each Grantor, now owned or hereafter acquired, including without limitation raw materials, work-in-process, finished goods, mineral ore (including nickel ore and copper ore), nickel-in-concentrate, copper-in-concentrate, precious metals by-products, supplies, consumables, reagents, grinding media, fuel, lubricants, spare parts, and goods held for sale, lease, or furnishing under contracts of service, and all returned goods and all packaging materials and shipping containers relating thereto.
"Investment Property" means all investment property as defined in the applicable PPSA, including without limitation all shares, stock, membership interests, partnership interests, limited partnership interests, and other equity interests held by any Grantor in any subsidiary or other entity, and all securities, security entitlements, securities accounts, commodity contracts, and commodity accounts, and all rights and interests of any Grantor with respect thereto, including without limitation (a) one hundred per cent (100%) of the issued and outstanding shares of Wolverine Lake Mining Ltd. held by Torchlight Mining Corp., (b) one hundred per cent (100%) of the issued and outstanding shares of Torchlight Milling & Processing Inc. held by Torchlight Mining Corp., and (c) all other equity interests in subsidiaries or other entities held by any Grantor.
"Issuer" means Torchlight Mining Corp., in its capacity as issuer of the Notes under the Indenture.
"Mining Rights" means all mining rights, mineral claims, mining leases, mining licences, mining permits, prospecting licences, exploration permits, surface rights, sub-surface rights, water rights, access rights, and related interests now or hereafter held by any Grantor, including without limitation Ontario Mining Claim Nos. WL-4492-01 through WL-4492-47 (forty-seven claims in total), all surface rights relating to the Wolverine Lake property comprising approximately 12,400 hectares located approximately 85 kilometres northeast of Thunder Bay, in the Province of Ontario, Canada, and all renewals, extensions, and replacements thereof.
"Notes" means the 8.750% Senior Secured Notes due 2029, in the aggregate principal amount of Three Hundred Million United States Dollars ($300,000,000), issued by the Issuer under the Indenture; CUSIP (144A): 891207 AA 3; CUSIP (Reg S): C89120 AA 5.
"Permitted Liens" has the meaning set forth in Section 4.2, which meaning shall be consistent with the definition of "Permitted Liens" in the Indenture.
"PPSA" means the Personal Property Security Act (Ontario), R.S.O. 1990, c. P.10, and, where applicable, the personal property security legislation of any other Canadian province or territory in which any Collateral is situated or in which any Grantor has its jurisdiction of incorporation, registered office, or principal place of business, each as amended, re-enacted, or replaced from time to time.
"Proceeds" means all proceeds as defined in the applicable PPSA, and includes without limitation all proceeds of the Collateral in any form, whether in cash, near-cash, or non-cash form, including insurance proceeds, all identifiable or traceable property derived directly or indirectly from any dealing with the Collateral or Proceeds thereof, and all rights arising out of the Collateral.
"Purchase Agreement" means the Purchase Agreement dated March 29, 2022 among the Issuer, the Guarantors named therein, and the Initial Purchasers.
"Secured Obligations" means all present and future indebtedness, liabilities, and obligations of the Grantors (whether as principal obligor, guarantor, or otherwise) under or in connection with the Notes, the Indenture, the Guarantees (as defined in the Indenture), this Agreement, the Collateral Agency Agreement, and all other Security Documents (as defined in the Indenture) and all other documents, instruments, and agreements executed in connection with any of the foregoing, including without limitation all principal, interest (including post-petition interest to the extent permitted by applicable law), premium (if any), fees, costs, charges, expenses, and indemnification obligations, in each case whether direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, and whether or not from time to time reduced or extinguished and thereafter reinstated or increased.
"Securities" means all securities as defined in the applicable PPSA, and includes without limitation all shares, bonds, debentures, notes, and other instruments commonly known as securities.
"Security Interest" means the security interest granted by each Grantor in favour of the Collateral Agent pursuant to Section 2.1 of this Agreement.
"Trustee" means Northern Dominion Trust Company, in its capacity as trustee under the Indenture, and its successors and assigns in such capacity.
Section 1.2 — PPSA Definitions
Terms defined in the PPSA (Ontario) and used but not otherwise defined in this Agreement shall have the respective meanings given to them in the PPSA (Ontario). Where the PPSA of a jurisdiction other than Ontario is applicable to the perfection, priority, or enforcement of the Security Interest in any Collateral, reference to terms defined in the PPSA shall be deemed to be references to the analogous definitions under the PPSA of such other jurisdiction. In the event of any inconsistency between the definitions in the PPSA (Ontario) and the PPSA of another applicable jurisdiction, the definitions in the PPSA of the jurisdiction whose law governs the perfection, priority, or enforcement of the Security Interest in the relevant Collateral shall prevail with respect to such Collateral.
Section 1.3 — Rules of Interpretation
In this Agreement, unless the context otherwise requires:
(a) headings are inserted for convenience of reference only and shall not affect the construction or interpretation of this Agreement;
(b) words importing the singular include the plural and vice versa, and words importing any gender include all genders;
(c) references to "dollars" or "$" mean United States dollars unless otherwise specified; references to "CAD $" mean Canadian dollars;
(d) references to any statute, regulation, or rule include all regulations, rules, orders, instruments, and subordinate legislation made thereunder and all amendments, re-enactments, consolidations, and replacements thereof from time to time in force;
(e) references to the Indenture, the Collateral Agency Agreement, or any other agreement or document include all amendments, restatements, supplements, modifications, novations, and replacements thereof from time to time;
(f) references to any "Article," "Section," or "Schedule" are, unless otherwise specified, references to Articles, Sections, or Schedules of or to this Agreement;
(g) the words "hereof," "herein," "hereunder," and similar expressions refer to this Agreement as a whole and not to any particular provision of this Agreement;
(h) the word "including" and words of similar import shall mean "including, without limitation," and shall not be construed to limit any general statement to the specific or similar items or matters immediately following it;
(i) references to a "person" include any individual, corporation, body corporate, partnership, limited liability company, joint venture, trust, unincorporated association, governmental authority, or other entity; and
(j) any reference to a "business day" means any day other than a Saturday, Sunday, or a day on which commercial banks in Toronto, Ontario, or New York, New York are authorized or required by law or regulation to remain closed.
Section 1.4 — Conflict with Indenture and Collateral Agency Agreement
In the event of any conflict or inconsistency between any provision of this Agreement and any provision of the Indenture or the Collateral Agency Agreement, the applicable provisions of the Indenture or the Collateral Agency Agreement shall prevail to the extent of such conflict or inconsistency. Nothing in this Agreement shall be construed to limit, reduce, or otherwise impair the rights of the Collateral Agent, the Trustee, or the holders of the Notes under the Indenture or the Collateral Agency Agreement. The rights and remedies of the Collateral Agent under this Agreement are cumulative and are in addition to, and not in substitution for, any rights and remedies provided under the Indenture, the Collateral Agency Agreement, or any other Security Document.
ARTICLE 2 — GRANT OF SECURITY INTEREST
Section 2.1 — Security Interest
As general and continuing collateral security for the due and punctual payment and performance of all Secured Obligations, each Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates, and charges to and in favour of the Collateral Agent, for the benefit of the holders of the Notes and the Trustee, a first-priority security interest in all of such Grantor's present and after-acquired right, title, and interest in and to all of the following property, wherever situated (collectively, the "Collateral"):
(a) Accounts — all Accounts, including all accounts receivable, book debts, and other monetary obligations now or hereafter owing to such Grantor, whether arising from the sale of mineral products, the provision of services, or otherwise;
(b) Chattel Paper — all Chattel Paper, whether tangible or electronic, now owned or hereafter acquired by such Grantor;
(c) Documents of Title — all Documents of Title, including warehouse receipts, bills of lading, and similar documents now owned or hereafter acquired by such Grantor;
(d) Equipment — all Equipment, including without limitation all mining equipment, milling machinery, processing equipment, vehicles, fixtures, and all other tangible personal property located at or used in connection with the Wolverine Lake mine and concentrator facilities at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, and all replacements, substitutions, additions, accessions, parts, components, attachments, accessories, and upgrades thereto;
(e) Goods — all other Goods not otherwise described in this Section 2.1, now owned or hereafter acquired by such Grantor;
(f) Instruments — all Instruments, including promissory notes, bills of exchange, and certificates of deposit, now owned or hereafter acquired by such Grantor;
(g) intellectual Property — all intellectual Property, including without limitation all geological surveys, geotechnical data, geophysical data, geochemical data, mine plans, feasibility studies, pre-feasibility studies, NI 43-101 compliant technical reports, proprietary metallurgical processes, trade secrets, and associated know-how, together with all registrations and applications therefor and all goodwill associated therewith;
(h) Intercompany Notes — all Intercompany Notes, including all intercompany notes, loans, advances, and receivables owing to such Grantor from any affiliate or subsidiary, whether or not evidenced by a writing;
(i) Inventory — all Inventory, including without limitation nickel ore, copper ore, nickel-in-concentrate, copper-in-concentrate, precious metals by-products, raw materials, work-in-process, finished goods, supplies, reagents, grinding media, fuel, lubricants, consumables, spare parts, and all packaging materials and shipping containers relating thereto;
(j) Investment Property — all Investment Property, including without limitation:
(i) one hundred per cent (100%) of the issued and outstanding shares of Wolverine Lake Mining Ltd. held by Torchlight Mining Corp., as more particularly described in Schedule E hereto;
(ii) one hundred per cent (100%) of the issued and outstanding shares of Torchlight Milling & Processing Inc. held by Torchlight Mining Corp., as more particularly described in Schedule E hereto;
(iii) all other equity interests in subsidiaries or other entities held by any Grantor, whether now owned or hereafter acquired; and
(iv) all securities, security entitlements, securities accounts, commodity contracts, and commodity accounts of such Grantor;
(k) Mining Rights — all Mining Rights, including without limitation:
(i) Ontario Mining Claim Nos. WL-4492-01 through WL-4492-47 (forty-seven claims in total), as more particularly described in Schedule A hereto;
(ii) all surface rights at the Wolverine Lake property, comprising approximately 12,400 hectares located approximately 85 kilometres northeast of Thunder Bay, in the Province of Ontario, Canada, as more particularly described in Schedule A hereto;
(iii) all mining leases, mining licences, exploration permits, prospecting licences, and related governmental authorizations held by such Grantor in respect of the Wolverine Lake property or any other mining property; and
(iv) all renewals, extensions, replacements, and substitutions of any of the foregoing;
(l) Money — all money, cash, cash equivalents, and funds held in any deposit account or other account of such Grantor, including all amounts from time to time credited to or on deposit in any such account;
(m) Securities — all Securities, now owned or hereafter acquired by such Grantor;
(n) General Intangibles — all other intangible property of such Grantor not otherwise described in this Section 2.1, including without limitation goodwill, government approvals, licences, permits, authorizations, consents, contractual rights, choses in action, tax refunds, insurance claims, and all other rights and interests of such Grantor of every kind and nature;
(o) Books and Records — all books, records, files, correspondence, ledgers, journals, data (including electronic data, databases, and computer records), and other information and documentation relating to any of the foregoing Collateral; and
(p) Proceeds — all Proceeds of any and all of the foregoing Collateral, in whatever form, whether in cash, near-cash, or non-cash form, including all insurance proceeds, all identifiable or traceable property derived directly or indirectly from any dealing with the Collateral or any Proceeds thereof, and all rights arising out of the Collateral.
Section 2.2 — Excluded Property
Notwithstanding the provisions of Section 2.1, the "Collateral" shall not include the following (collectively, "Excluded Property"):
(a) any contract, permit, licence, authorization, or agreement to the extent that the grant of a security interest therein is prohibited by the express terms thereof or by applicable law, but only to the extent that such prohibition is valid and enforceable under applicable law after giving effect to the applicable provisions of the PPSA (including Section 40 of the PPSA (Ontario)) and any other applicable law that renders such prohibition ineffective or unenforceable;
(b) consumer goods of individual employees of any Grantor; and
(c) last-day interests retained by any Grantor in respect of any leasehold interests, to the extent required to preserve the characterization of such interests as real property leasehold interests under applicable real property law.
For greater certainty, any property that would constitute Excluded Property under clause (a) above shall be included in the Collateral at such time as the applicable prohibition on the grant of a security interest therein shall have been removed, shall have expired, or shall have been waived or consented to by the applicable counterparty. Each Grantor shall use commercially reasonable efforts to obtain any consent, waiver, or approval necessary to permit the inclusion in the Collateral of any property that would otherwise constitute Excluded Property under clause (a) above, and shall promptly notify the Collateral Agent upon obtaining any such consent, waiver, or approval.
Section 2.3 — Attachment
Each Grantor acknowledges and confirms that: (a) value has been given by the Collateral Agent and the holders of the Notes in connection with the transactions contemplated by the Indenture and this Agreement; (b) such Grantor has rights in the Collateral or the power to transfer rights in the Collateral to the Collateral Agent; and (c) the Security Interest has attached to the Collateral and, subject to registration and perfection as contemplated by Article 5, is effective against third parties in respect of all present Collateral of such Grantor as of the date hereof and, as to after-acquired Collateral, shall attach and become effective against third parties at the time such Grantor acquires rights therein or the power to transfer rights therein.
Section 2.4 — Purpose of Security
The Security Interest secures the due and punctual payment and performance of all Secured Obligations, including without limitation all principal, interest (including post-petition interest to the extent permitted by applicable law), premium (if any), fees, costs, charges, expenses, and indemnification obligations owing by the Grantors under or in connection with the Notes, the Indenture, the Guarantees, this Agreement, the Collateral Agency Agreement, and all other Security Documents and related documents, instruments, and agreements.
ARTICLE 3 — REPRESENTATIONS AND WARRANTIES
Each Grantor hereby represents and warrants to the Collateral Agent, for the benefit of the holders of the Notes and the Trustee, as follows, as of the date hereof:
Section 3.1 — Organization and Good Standing
(a) Torchlight Mining Corp. is a corporation duly incorporated, validly existing, and in good standing under the Canada Business Corporations Act, R.S.C. 1985, c. C-44. Its registered office is located at 1600 – 925 West Georgia Street, Vancouver, British Columbia V6C 3L2, Canada, and its headquarters and principal place of business is located at 2200 – 400 Burrard Street, Vancouver, British Columbia V6C 3A6, Canada. Torchlight Mining Corp. is duly qualified to carry on business and is in good standing in each jurisdiction where the nature of its business or the ownership or leasing of its properties requires such qualification, including the Province of Ontario.
(b) Wolverine Lake Mining Ltd. is a corporation duly incorporated, validly existing, and in good standing under the Business Corporations Act (Ontario), S.O. 1990, c. B.16. Its registered office is located at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada. Wolverine Lake Mining Ltd. is duly qualified to carry on business and is in good standing in each jurisdiction where the nature of its business or the ownership or leasing of its properties requires such qualification.
(c) Torchlight Milling & Processing Inc. is a corporation duly incorporated, validly existing, and in good standing under the Business Corporations Act (Ontario), S.O. 1990, c. B.16. Its registered office is located at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada. Torchlight Milling & Processing Inc. is duly qualified to carry on business and is in good standing in each jurisdiction where the nature of its business or the ownership or leasing of its properties requires such qualification.
Section 3.2 — Power and Authority
Each Grantor has full corporate power and authority to execute, deliver, and perform its obligations under this Agreement and to grant the Security Interest contemplated hereby. Each Grantor has full corporate power and authority to own, hold, and operate its properties and to carry on its business as presently conducted.
Section 3.3 — Authorization
The execution, delivery, and performance of this Agreement and the granting of the Security Interest have been duly authorized by all necessary corporate action on the part of each Grantor, including resolutions of the board of directors of each Grantor approving and authorizing the execution, delivery, and performance of this Agreement, the granting of the Security Interest, and the consummation of the transactions contemplated hereby. No other corporate proceedings on the part of any Grantor are necessary to authorize the execution, delivery, or performance of this Agreement or the granting of the Security Interest.
Section 3.4 — Enforceability
This Agreement has been duly executed and delivered by each Grantor and constitutes a legal, valid, and binding obligation of each Grantor, enforceable against each Grantor in accordance with its terms, subject to: (a) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and similar laws of general applicability affecting the enforcement of creditors' rights generally, including the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada), and the Winding-up and Restructuring Act (Canada); and (b) general principles of equity, whether applied in a proceeding at law or in equity (including principles governing the availability of specific performance, injunctive relief, and other equitable remedies, and the applicability of concepts of materiality, reasonableness, good faith, and fair dealing).
Section 3.5 — No Conflict
The execution, delivery, and performance of this Agreement and the granting of the Security Interest do not and will not: (a) contravene, conflict with, or result in any violation or breach of, any provision of the articles of incorporation, articles of amalgamation, by-laws, or other constating documents of any Grantor; (b) contravene, conflict with, or result in a violation or breach of, any applicable federal, provincial, municipal, or foreign law, regulation, order, or rule; (c) contravene, conflict with, or result in a violation or breach of, constitute a default under, require any consent or notice under, or give rise to any right of termination, cancellation, or acceleration of any obligation under, any material contract, agreement, instrument, indenture, lease, or other obligation to which any Grantor is a party or by which any Grantor or any of its assets is bound; or (d) result in the creation or imposition of any lien, encumbrance, or security interest on any property or asset of any Grantor, other than the Security Interest created under this Agreement and Permitted Liens.
Section 3.6 — Title to Collateral
Each Grantor is the sole legal and beneficial owner of all of its Collateral, free and clear of all liens, claims, charges, encumbrances, and security interests of any kind, except for: (a) the Security Interest created under this Agreement; and (b) Permitted Liens. Each Grantor has good and valid title to, or valid leasehold interests in, all of its tangible Collateral, and has the full right, power, and authority to grant the Security Interest in all of its Collateral to the Collateral Agent as contemplated by this Agreement. No person other than the Collateral Agent has any right, interest, or claim in or to the Collateral, or any part thereof, except for Permitted Liens.
Section 3.7 — Mining Rights
(a) Torchlight Mining Corp. and/or Wolverine Lake Mining Ltd. hold valid and subsisting mining rights, mineral claims, and surface rights comprising Ontario Mining Claim Nos. WL-4492-01 through WL-4492-47, covering an aggregate area of approximately 12,400 hectares located at the Wolverine Lake property, situated approximately 85 kilometres northeast of Thunder Bay, in the Province of Ontario, Canada, all as more particularly described in Schedule A hereto. Each of the Mining Rights is duly and validly registered in the name of Torchlight Mining Corp. or Wolverine Lake Mining Ltd., as applicable, with the Ontario Ministry of Northern Development, Mines, Natural Resources and Forestry (the "Ministry") or the applicable land titles or land registry office.
(b) All Mining Rights are in good standing, and all required assessment work filings, renewal fees, annual reports, and other obligations required to maintain the Mining Rights in good standing have been duly and timely satisfied. There are no pending or, to the knowledge of any Grantor, threatened proceedings to revoke, suspend, cancel, or otherwise adversely affect any of the Mining Rights.
(c) The mineral resource estimates disclosed in connection with the offering of the Notes, being: (i) Measured and Indicated mineral resources of 48.2 million tonnes grading 1.12% nickel and 0.38% copper; and (ii) Inferred mineral resources of 11.7 million tonnes grading 0.94% nickel and 0.31% copper, are supported by NI 43-101 compliant technical reports prepared by Cascade Technical Advisors Inc. (authored by Dr. Elaine Whitaker, P.Eng., a qualified person within the meaning of National Instrument 43-101 — Standards of Disclosure for Mineral Projects), copies of which have been delivered to the Collateral Agent.
Section 3.8 — Location of Collateral
Schedule B hereto sets forth the locations of all tangible Collateral having a fair market value in excess of CAD $500,000 as of the date hereof. The principal locations of tangible Collateral are: (a) the Wolverine Lake mine site and concentrator facilities at 44 Lakeshore Boulevard, Wolverine Lake, Ontario P0L 1R0, Canada; and (b) the headquarters of Torchlight Mining Corp. at 2200 – 400 Burrard Street, Vancouver, British Columbia V6C 3A6, Canada. Each Grantor represents and warrants that no material tangible Collateral is located outside of Canada as of the date hereof.
Section 3.9 — Equity Interests
Torchlight Mining Corp. is the sole legal and beneficial owner of one hundred per cent (100%) of the issued and outstanding common shares of each of Wolverine Lake Mining Ltd. and Torchlight Milling & Processing Inc., free and clear of all liens, claims, charges, encumbrances, and security interests other than the Security Interest created under this Agreement. No options, warrants, conversion rights, exchange rights, pre-emptive rights, or other rights or agreements to subscribe for, purchase, or otherwise acquire any shares or other equity interests in Wolverine Lake Mining Ltd. or Torchlight Milling & Processing Inc. are outstanding, other than as held by Torchlight Mining Corp. All issued and outstanding shares of Wolverine Lake Mining Ltd. and Torchlight Milling & Processing Inc. are fully paid and non-assessable. The particulars of such equity interests are set forth in Schedule E hereto.
Section 3.10 — No Prior Security Interests
No financing statement, financing change statement, registration, notice, or other filing under the PPSA or any similar personal property security legislation is currently effective with respect to any Collateral of any Grantor, except: (a) filings made by or on behalf of Ridgeline Bank of Canada, as administrative agent, in connection with the CAD $225,000,000 revolving credit facility (the "Ridgeline Facility"), under which CAD $140,000,000 was outstanding and drawn, all of which amount has been repaid in full as of the date hereof in connection with the closing of the offering of the Notes and the termination of the Ridgeline Facility; and (b) filings relating to Permitted Liens. All PPSA registrations and other security filings in favour of Ridgeline Bank of Canada are being discharged on or promptly following the date hereof, and the Grantors have received a payoff letter and discharge authorization from Ridgeline Bank of Canada confirming the same.
Section 3.11 — Trade Names and Other Names
Schedule C hereto sets forth a complete and accurate list of all trade names, former names, and other names under which any Grantor has conducted business or been known at any time within the five-year period preceding the date hereof. No Grantor operates or conducts business under any name other than its legal name and the trade names listed in Schedule C.
Section 3.12 — Intellectual Property
Schedule D hereto sets forth a complete and accurate list of all registered intellectual Property and all pending applications for registration of intellectual Property owned by each Grantor as of the date hereof. Schedule D also identifies all material unregistered intellectual Property of each Grantor, including geological databases, proprietary mine plans, and metallurgical process know-how. Each Grantor owns or has valid and subsisting rights to use all intellectual Property necessary for the conduct of its business as presently conducted.
Section 3.13 — Compliance with Laws
Each Grantor is in compliance in all material respects with all applicable federal, provincial, and municipal laws, regulations, rules, orders, permits, licences, authorizations, and governmental approvals, including without limitation all environmental laws (including the Canadian Environmental Protection Act, 1999, the Ontario Environmental Protection Act, and the Ontario Water Resources Act), mining regulations (including the Ontario Mining Act, R.S.O. 1990, c. M.14, and regulations thereunder), occupational health and safety laws, and taxation laws. No Grantor has received any notice of any material violation of, or non-compliance with, any such laws, regulations, or permits that has not been cured or resolved.
ARTICLE 4 — COVENANTS
Each Grantor covenants and agrees with the Collateral Agent, for the benefit of the holders of the Notes and the Trustee, as follows:
Section 4.1 — General Covenants of the Grantors
(a) Maintenance of Collateral. Each Grantor shall maintain, preserve, and protect the Collateral in good working order, condition, and repair (ordinary wear and tear excepted) and shall not permit or commit any waste, destruction, or material diminution in value of the Collateral. Each Grantor shall operate and maintain the Wolverine Lake mine, concentrator, and associated facilities and equipment in accordance with prudent mining industry practices and in compliance with all applicable laws and regulations.
(b) Insurance. Each Grantor shall maintain insurance on and with respect to the Collateral, with financially sound and reputable insurance companies, in such amounts, with such deductibles, and against such risks (including risks of loss by fire, theft, explosion, property damage, business interruption, environmental liability, and third-party liability) as are customary in the mining industry for companies of similar size engaged in similar operations. Each Grantor shall name the Collateral Agent as additional insured and loss payee (or mortgagee, as applicable) under all such insurance policies, as the interests of the Collateral Agent may appear. Each Grantor shall deliver to the Collateral Agent, upon request, certificates of insurance and endorsements evidencing such insurance coverage and the Collateral Agent's status as additional insured and loss payee.
(c) Payment of Taxes and Claims. Each Grantor shall pay and discharge when due all taxes, assessments, royalties, fees, and governmental charges levied or imposed upon or in respect of the Collateral or the income or profits therefrom, and all claims (including claims of mechanics, materialmen, carriers, warehousemen, and other similar claims) that, if unpaid, could result in the creation of a lien or charge on the Collateral (other than Permitted Liens); provided, however, that no Grantor shall be required to pay any such tax, assessment, royalty, fee, charge, or claim so long as the validity or amount thereof is being contested in good faith by appropriate proceedings diligently conducted and adequate reserves are maintained in accordance with generally accepted accounting principles.
(d) Books and Records. Each Grantor shall keep and maintain, at its own cost and expense, accurate and complete books of account and records relating to the Collateral in accordance with generally accepted accounting principles and sound business practices, and shall permit the Collateral Agent and its authorized representatives to inspect, examine, and make copies of such books and records and to inspect the Collateral at any reasonable time during normal business hours upon reasonable prior notice (which notice shall not be required during the continuance of an Event of Default).
(e) Compliance with Laws. Each Grantor shall comply in all material respects with all applicable federal, provincial, municipal, and foreign laws, regulations, rules, orders, permits, licences, authorizations, and governmental approvals, including all environmental laws, mining laws and regulations, occupational health and safety laws, and taxation laws.
(f) Further Assurances. Each Grantor shall, from time to time, at its own cost and expense, promptly execute and deliver such further instruments, documents, and agreements and take such further actions as the Collateral Agent may reasonably request to: (i) perfect, protect, and maintain the first-priority Security Interest in the Collateral; (ii) ensure the continued enforceability and effectiveness of this Agreement; (iii) carry out the intent and purposes of this Agreement; and (iv) better assure, convey, grant, assign, transfer, and confirm unto the Collateral Agent the rights granted or intended to be granted to the Collateral Agent under this Agreement.
Section 4.2 — Permitted Liens
The Security Interest is subject only to the following liens (collectively, "Permitted Liens"), which term shall have the meaning given to "Permitted Liens" in the Indenture and shall include the following:
(a) liens for taxes, assessments, royalties, or governmental charges not yet delinquent or being contested in good faith by appropriate proceedings diligently conducted, provided that adequate reserves are maintained therefor in accordance with generally accepted accounting principles;
(b) workers', mechanics', materialmen's, carriers', warehousemen's, repairmen's, and similar statutory liens arising in the ordinary course of business securing obligations that are not overdue for more than sixty (60) days or are being contested in good faith by appropriate proceedings diligently conducted;
(c) easements, rights-of-way, servitudes, restrictions, zoning ordinances, building codes, and similar encumbrances on real property and minor irregularities in title thereto that are incidental to the ownership or operation of the Wolverine Lake property and that do not, individually or in the aggregate, materially detract from the value of the Collateral or materially impair the use thereof in the operation of the business of any Grantor;
(d) liens securing Permitted Indebtedness (as defined in the Indenture), to the extent and as permitted by the applicable provisions of the Indenture;
(e) purchase money security interests and liens securing capital lease obligations, in each case to the extent permitted under the Indenture; and
(f) other Permitted Liens as defined in the Indenture, as in effect from time to time.
Section 4.3 — Negative Covenants
Without the prior written consent of the Collateral Agent (acting at the direction of the Trustee or the holders of the Notes as provided in the Collateral Agency Agreement and the Indenture), no Grantor shall:
(a) create, incur, assume, or permit or suffer to exist any lien, charge, mortgage, pledge, hypothec, security interest, or other encumbrance on or with respect to any Collateral, other than Permitted Liens;
(b) sell, assign, transfer, convey, lease, licence, or otherwise dispose of any material Collateral, except: (i) sales of Inventory (including nickel-in-concentrate, copper-in-concentrate, and other mineral products) in the ordinary course of business on arm's-length terms; (ii) dispositions of worn-out, obsolete, or surplus Equipment in the ordinary course of business; and (iii) other dispositions permitted under the Indenture's covenant limiting asset sales (including the requirement that such dispositions be for fair market value consideration, with at least 75% of the consideration received in cash or cash equivalents, and application of Net Proceeds in accordance with the terms of the Indenture within 365 days of receipt);
(c) change its legal name, jurisdiction of incorporation, or location of its registered office or principal place of business, or adopt any new trade name, without providing at least thirty (30) days' prior written notice to the Collateral Agent and taking such action as may be necessary or desirable to ensure the continued perfection, priority, and enforceability of the Security Interest, including the filing of amended or new PPSA registrations;
(d) move any material tangible Collateral (being tangible Collateral having a fair market value in excess of CAD $500,000) outside of Canada without the prior written consent of the Collateral Agent, unless such movement is in the ordinary course of business for repair, maintenance, or reconditioning purposes and for a period not exceeding ninety (90) days; and
(e) enter into any agreement or arrangement that restricts or inhibits the Collateral Agent's rights or ability to sell or otherwise dispose of the Collateral or to exercise any other rights or remedies under this Agreement or the PPSA.
Section 4.4 — Mining Rights Maintenance
Each applicable Grantor shall, at its own cost and expense:
(a) maintain in full force and effect all Mining Rights, including without limitation Ontario Mining Claim Nos. WL-4492-01 through WL-4492-47 and all surface rights at the Wolverine Lake property, and shall not permit any Mining Right to expire, lapse, be forfeited, or be cancelled for any reason within the control of such Grantor;
(b) perform or cause to be performed all required assessment work, exploration work, and development work necessary to maintain the Mining Rights in good standing, within the time periods prescribed by the Ontario Mining Act and regulations thereunder and any other applicable legislation;
(c) pay when due all renewal fees, annual rentals, royalties, and other amounts required to be paid to maintain the Mining Rights in good standing;
(d) comply with all terms, conditions, and requirements of the Mining Rights and all applicable laws and regulations governing such Mining Rights; and
(e) not surrender, abandon, release, relinquish, or allow to lapse any material Mining Right without the prior written consent of the Collateral Agent (acting at the direction of the Trustee or the holders of the Notes as provided in the Collateral Agency Agreement).
For the purposes of this Section, a "material Mining Right" means any Mining Right that is material to the business, operations, or financial condition of any Grantor or that is necessary for the continued operation of the Wolverine Lake mine.
Section 4.5 — Delivery of Collateral
(a) Each Grantor shall, promptly upon request by the Collateral Agent following the occurrence and during the continuance of an Event of Default, deliver to the Collateral Agent (or its designated custodian) all certificated Securities, Instruments, Chattel Paper, and Documents of Title constituting Collateral, duly endorsed or accompanied by duly executed instruments of transfer or assignment in favour of the Collateral Agent or in blank, in form and substance satisfactory to the Collateral Agent.
(b) On or prior to the date hereof, Torchlight Mining Corp. shall deliver (or cause to be delivered) to the Collateral Agent all share certificates representing its equity interests in Wolverine Lake Mining Ltd. and Torchlight Milling & Processing Inc., together with undated stock transfer powers of attorney duly executed in blank by Torchlight Mining Corp., in form and substance satisfactory to the Collateral Agent. In the event that any such equity interests are uncertificated, Torchlight Mining Corp. shall cause the Security Interest to be registered on the books and records of the applicable subsidiary, and shall deliver to the Collateral Agent evidence of such registration reasonably satisfactory to the Collateral Agent.
Section 4.6 — Intellectual Property Covenants
Each Grantor shall:
(a) maintain and renew all material intellectual Property registrations in a timely manner and take all actions necessary to preserve and protect such registrations, including the filing of renewal applications, maintenance fees, and affidavits of use;
(b) not abandon, dedicate to the public, or fail to maintain or renew any material intellectual Property without providing at least thirty (30) days' prior written notice to the Collateral Agent and obtaining the prior written consent of the Collateral Agent (not to be unreasonably withheld) if such abandonment or failure to maintain would reasonably be expected to have a material adverse effect on the business, operations, or financial condition of any Grantor;
(c) promptly notify the Collateral Agent of any infringement, misappropriation, or unauthorized use of any material intellectual Property by any third party of which such Grantor becomes aware, and take commercially reasonable steps to protect and enforce its rights therein; and
(d) not enter into any licence, sublicence, or other agreement with respect to any material intellectual Property that would be inconsistent with or prejudicial to the Security Interest, without the prior written consent of the Collateral Agent.
Section 4.7 — Notification Requirements
Each Grantor shall promptly (and in any event within five (5) business days after obtaining knowledge thereof) notify the Collateral Agent in writing of:
(a) any material loss of, damage to, or diminution in the value of any Collateral (being a loss, damage, or diminution in value in excess of CAD $1,000,000 in the aggregate);
(b) any lien, claim, charge, or encumbrance on any Collateral (other than Permitted Liens) of which such Grantor becomes aware;
(c) any change in the information set forth in any Schedule hereto, including changes in the location of tangible Collateral, changes in trade names, and changes in intellectual Property registrations;
(d) any pending or, to the knowledge of such Grantor, threatened expropriation, condemnation, environmental order, or governmental taking of any Mining Rights or other material Collateral;
(e) any Event of Default or any event that, with the giving of notice, lapse of time, or both, would constitute an Event of Default; and
(f) any material litigation, arbitration, or administrative proceeding that could reasonably be expected to result in a judgment, order, or liability in excess of CAD $5,000,000 or that could reasonably be expected to have a material adverse effect on the value of the Collateral or the enforceability of the Security Interest.
ARTICLE 5 — PERFECTION
Section 5.1 — PPSA Registrations
Each Grantor hereby irrevocably authorizes the Collateral Agent (and its counsel) to file, register, and record financing statements, financing change statements, and other registrations under the PPSA in all jurisdictions where such filing, registration, or recording is necessary or desirable to perfect, protect, and maintain the first-priority Security Interest in the Collateral, and to file any amendments, continuations, and renewals thereof. Such filings shall include, without limitation:
(a) filings under the PPSA (Ontario), as the province in which the Wolverine Lake mine, the Mining Rights, and the principal tangible Collateral are located and the province of incorporation of each of Wolverine Lake Mining Ltd. and Torchlight Milling & Processing Inc.;
(b) filings under the Personal Property Security Act (British Columbia), S.B.C. 1996, c. 359, as the province in which the registered office and headquarters of Torchlight Mining Corp. are located; and
(c) such additional filings in any other province or territory of Canada as the Collateral Agent may determine to be necessary or desirable to perfect the Security Interest.
With respect to Torchlight Mining Corp. (a federal corporation incorporated under the Canada Business Corporations Act), the appropriate PPSA filing jurisdiction shall include the province of its registered office and/or principal place of business, as determined in accordance with the conflict of laws rules of the applicable PPSA. Each Grantor agrees to provide all information and cooperation necessary to facilitate such filings, including providing its legal name, date of birth or date of incorporation, registration number, and such other information as may be required under the applicable PPSA.
Section 5.2 — Mining Act Registrations
The parties shall make, or cause to be made, all filings, registrations, and recordings under the Ontario Mining Act, R.S.O. 1990, c. M.14, and the regulations thereunder, as may be required or advisable to register, record, or note the Security Interest against the Mining Rights, including Ontario Mining Claim Nos. WL-4492-01 through WL-4492-47 and all surface rights associated with the Wolverine Lake property. Each Grantor shall cooperate fully with the Collateral Agent in making any such filings, registrations, and recordings, including providing any required consents, authorizations, and documentation, and shall bear all costs and expenses associated therewith.
Section 5.3 — Other Registrations
The Grantors shall cooperate with the Collateral Agent in making such filings, registrations, and recordings as the Collateral Agent may determine to be necessary or desirable to perfect the Security Interest in all categories of Collateral, including without limitation:
(a) filings under the Bank Act (Canada), S.C. 1991, c. 46, to the extent applicable;
(b) registrations with the Canadian intellectual Property Office ("CIPO") of the Security Interest in registered or pending patents, trademarks, copyrights, and industrial designs, including the filing of notices of security interests or charges with the Patent Office, the Trade-marks Office, and the Copyright Office, as applicable;