TORONTO, ONTARIO -- (Marketwire) -- 12/27/12 -- Cline Mining Corporation ("Cline" or the "Company") (TSX: CMK) announced today that it has entered into an agreement with Marret Asset Management Inc. ("Marret"), on behalf of certain funds advised by it, providing for a financial restructuring (the "Restructuring") of the Company. Under the terms of the Restructuring, adjustments will be made to the terms of the Company's outstanding 10% senior secured bonds (the "Bonds") and, subject to approval by the Toronto Stock Exchange (the "TSX"), the exercise price of the company's outstanding share purchase warrants will be changed and additional securities of the Company will be issued as described below.
The Bonds were issued under a trust indenture (the "Trust Indenture") dated as of December 13, 2011 between Cline, Computershare Trust Company of Canada (the "Trustee") and Marret. In connection with the execution of the Trust Indenture and the issuance of the Bonds, the Company issued 10 million warrants (the "Existing Warrants") to certain bondholders. Each Existing Warrant currently entitles the holder to purchase one common share of the Company at a price of CDN$1.15 until May 14, 2015.
Ken Bates, the President and Chief Executive Officer of the Company, commented: "This restructuring is an important step in the Company's efforts in developing a long-term financial solution to address the uncertainty regarding the magnitude and extent of the downturn in the coal markets."
As previously announced on December 18, 2012, the Company was unable to make the semi-annual payment of interest on the Bonds in the amount of US$2,500,000 that was due on December 17, 2012 (the "Interest Default"). The principal reason for Cline's present financial difficulties was the suspension of operations at Cline's New Elk metallurgical coal mine in Los Animas County, Colorado, as announced by Cline on July 11, 2012. Due to economic and recessionary pressures, demand for production from the mine, which was the only revenue generating mining asset of Cline, had dropped to such an extent that a temporary suspension of production was necessary in order to manage costs. The suspension is still in effect pending improved market conditions.
To address these issues, Cline, the Trustee and Marret, on behalf of the bondholders as applicable, have agreed to the following principal terms of the Restructuring:
-- the Trustee will forbear from taking any action to enforce certain of its rights under the Trust Indenture, subject to the Restructuring being carried out within specified time limits;-- the Trust Indenture will be amended to permit the issuance of additional Bonds, which will rank equally with the existing Bonds;-- Marret, on behalf of the bondholders, will purchase US$7,000,000 of new Bonds which will have the same terms as the existing Bonds (as amended), with US$2,500,000 to be used to satisfy in full the amount of the Interest Default;-- Cline will pay the bondholders a forbearance and restructuring fee in the amount of US$2,500,000, which will be satisfied by issuing additional Bonds;-- the exercise price for the Existing Warrants will be amended to 100% of the weighted average trading price of Cline's common shares on the TSX for the five trading days preceding December 24, 2012, the date of the agreement providing for the Restructuring;-- Cline will pay all out-of-pocket expenses properly incurred by Marret, the Trustee and the bondholders in connection with the Restructuring, including the legal fees, costs and expenses of the legal counsel to Marret, the Trustee and the bondholders;-- the price payable by Cline to the bondholders in the event of a change of control of Cline (which includes, among other things, a sale of all or substantially all of the assets of Cline and its subsidiaries) will be increased from 104.5% to 110% of the principal and interest owing on the Bonds;-- Cline will be required to pay to the bondholders a fee of 10% of the principal and unpaid interest owing on the Bonds if an event of default occurs prior to the completion of a Cline Transaction or Marret Plan (as defined below);-- the interest rate on the Bonds will increase by 2% per annum after the occurrence of an event of default;-- Cline will pay the bondholders a commitment fee in the amount of US$350,000 in respect of the purchase of the US$7,000,000 of new Bonds; and-- Cline will issue 1,400,000 new warrants (the "New Warrants") to the bondholders as an additional commitment fee, with the New Warrants having the same terms as the Existing Warrants (as amended).