EXECUTION COPY
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STOCK OPTION AGREEMENT
Between
WESTERN GOLDFIELDS, INC.
and
ROMARCO MINERALS INC.
Dated as of August 25, 2005
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TABLE OF CONTENTS
Page
ARTICLE I
THE STOCK OPTION
SECTION 1.01. Grant of Stock Option.........................................1
SECTION 1.02. Exercise of Stock Option......................................1
SECTION 1.03. Conditions to Closing.........................................4
SECTION 1.04. Closings......................................................4
SECTION 1.05. Adjustments upon Share Issuances, Changes in
Capitalization, Etc...........................................5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF WESTERN
SECTION 2.01. Authority Relative to This Agreement..........................6
SECTION 2.02. Authority to Issue Shares.....................................6
SECTION 2.03. No Conflict; Required Filings and Consents....................6
SECTION 2.04. Board Action; Rights Agreement................................7
ARTICLE III
COVENANTS OF WESTERN
SECTION 3.01. Listing: Other Action.........................................7
SECTION 3.02. Registration..................................................8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ROMARCO
SECTION 4.01. Authority Relative to This Agreement..........................9
SECTION 4.02. No Conflict; Required Filings and Consents...................10
ARTICLE V
COVENANTS OF ROMARCO
SECTION 5.01. Distribution.................................................10
ARTICLE VI
REPURCHASE ELECTION; PROFIT LIMITATION
SECTION 6.01. Repurchase Election..........................................10
SECTION 6.02. Profit Limitation............................................11
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment; No Waiver.........................................12
SECTION 7.02. Fees and Expenses............................................12
SECTION 7.03. Notices......................................................13
SECTION 7.04. Severability.................................................14
SECTION 7.05. Entire Agreement; Assignment.................................14
SECTION 7.06. Parties in Interest..........................................14
SECTION 7.07. Specific Performance.........................................14
SECTION 7.08. Governing Law................................................14
SECTION 7.09. Waiver of Jury Trial.........................................15
SECTION 7.10. Headings.....................................................15
SECTION 7.11. Counterparts.................................................15
STOCK OPTION AGREEMENT, dated as of August 25, 2005 (this "Agreement"),
between ROMARCO MINERALS INC., an Ontario corporation ("Romarco"), and WESTERN
GOLDFIELDS, INC., an Idaho corporation ("Western").
WHEREAS, Romarco and Western propose to enter into an agreement and plan
of merger and reorganization (such agreement, as may be entered into, being
referred to as the "Merger Agreement"), which will provide, upon the terms and
subject to the conditions thereof, for, among other things, the merger of a
wholly-owned subsidiary of Romarco ("Merger Sub") with and into Western; and
WHEREAS, in order to induce Romarco to enter into the Merger Agreement,
Western has agreed to grant Romarco an option to purchase up to such number of
newly issued or treasury shares of common stock, par value $0.01 per share, of
Western ("Western Common Stock") as equals 19.9% of the issued and outstanding
shares of Western Common Stock at the first time of exercise of the Stock Option
(as defined below), in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree as follows:
ARTICLE I
THE STOCK OPTION
SECTION 1.01. Grant of Stock Option. Western hereby grants to Romarco an
irrevocable option (the "Stock Option") to purchase on the terms and subject to
the conditions set forth herein, up to such number of shares of Western Common
Stock as equals 19.9% of the issued and outstanding shares of Western Common
Stock at the first time of exercise of the Stock Option (the "Option Shares") at
a cash purchase price per Option Share equal to US$0.16 (the "Purchase Price").
SECTION 1.02. Exercise of Stock Option. (a) Subject to the conditions set
forth in Section 1.03 and to any additional requirements of any applicable
United States or non-United States statute, law, ordinance, regulation, rule,
code, executive order, injunction, judgment, decree or other order and the
requirements of any stock exchange on which the Western Common Stock may be
listed or traded ("Law"), the Stock Option may be exercised by Romarco, in whole
or in part, at any time or from time to time after the occurrence of an Exercise
Event (as defined below) and prior to the Termination Date (as defined below).
The Stock Option shall terminate and be of no further force and effect (A) if
the Merger Agreement has not been executed by September 15, 2005 (or such other
date, if any, agreed to by the parties in writing extending the termination date
set forth in that certain
letter agreement between the parties, dated June 22, 2005, as amended on August
18, 2005), upon the later of (i) the close of business on March 15, 2006 and
(ii) the close of business on the day 12 months after the occurrence of an
Exercise Event, so long as the Exercise Event occurs prior to March 15, 2006, or
(B) if the Merger Agreement has been executed by September 15, 2005 (or such
other date, if any, agreed to by the parties in writing extending the
termination date set forth in that certain letter agreement between the parties,
dated June 22, 2005, as amended on August 18, 2005), upon the earliest to occur
of (i) the filing of a certificate of merger, evidencing the merger of a
wholly-owned subsidiary of Romarco with and into Western, with the Secretary of
State of the State of Idaho in such form as is required by, and in accordance
with, the Idaho Business Corporation Act (the "Effective Time"), (ii) the close
of business on the day 12 months after the occurrence of an Exercise Event,
(iii) the close of business on the day 180 days after the date full payment is
made by Western to Romarco under any Break Fee Provisions (as defined below) and
(iv) the close of the business on the date that Romarco is no longer potentially
entitled to receive any payment pursuant to any Break Fee Provisions if the
Merger Agreement has been executed (such date as described in (A) and (B) above
being referred to herein as the "Termination Date"). Notwithstanding the
termination of the Stock Option, Romarco shall be entitled to purchase those
Option Shares with respect to which it has exercised the Stock Option in
accordance with the terms hereof prior to the Termination Date. The periods
related to the exercise of the Stock Option and the other rights of Romarco
hereunder shall be extended (i) to the extent necessary to obtain all regulatory
approvals required for the exercise of such rights, and for the expiration of
all statutory waiting periods, and (ii) to the extent necessary to avoid
liability under section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), by reason of such exercise. Notwithstanding anything to
the contrary contained in this Section 1.02, a portion of the Stock Option may
be exercised pursuant to Section 1.02(c) hereof and a portion may be exercised
pursuant to Section 1.02(d) hereof at the Closing (as defined below).
(b) An "Exercise Event" shall occur for purposes of this Agreement upon
the occurrence of (i) if the Merger Agreement has not been executed, public
announcement of a Competing Transaction or (ii) if the Merger Agreement has been
executed, any event as a result of which Romarco is entitled to receive fees
from Western pursuant to any Break Fee Provisions.
(c) In the event Romarco wishes to exercise the Stock Option, Romarco
shall send a written notice (a "Stock Exercise Notice") to Western specifying
the total number of Option Shares it wishes to purchase, the denominations of
the certificate or certificates evidencing such Option Shares that Romarco
wishes to receive, a date (subject to the earlier satisfaction or waiver of the
conditions set forth in Section 1.03), that shall be a business day that is not
later than 10 business days and not earlier than the fifth business day after
delivery of such notice, and place for the closing of such purchase (a
"Closing").
(d) If at any time the Stock Option is then exercisable pursuant to the
terms of Section 1.02(a), Romarco may elect, in lieu of exercising the Stock
Option to purchase Option Shares as provided in Section 1.02(a), to send a
written notice to Western (a "Cash Exercise Notice") specifying a date not later
than 10 business days and not earlier than the fifth business day after delivery
of such notice, on which date Western shall pay to Romarco an amount in cash
equal to the Spread (as defined below) multiplied by such number of Option
Shares as Romarco shall specify in the Cash Exercise Notice. As used in this
Agreement, "Spread" shall mean the excess, if any, over the Purchase Price of
the higher of (x) if applicable, the highest price per share of Western Common
Stock paid or to be paid by any person upon consummation of an Acquisition
Proposal (as defined below) (the "Competing Purchase Price") and (y) the closing
price of the shares of Western Common Stock on the OTC Bulletin Board on the
last trading day immediately prior to the date of the Cash Exercise Notice (for
purposes of this Section 1.02) or the Repurchase Notice (for purposes of Section
6.01) (the "Closing Price"). If the Competing
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Purchase Price includes any property other than cash, the Competing Purchase
Price shall be the sum of (i) the fixed cash amount, if any, included in the
Competing Purchase Price plus (ii) the fair market value of such other property.
If such other property consists of securities with an existing public trading
market, the average of the closing prices (or the average of the closing bid and
asked prices if closing prices are unavailable) for such securities in their
principal public trading market on the five trading days ending five days prior
to the date of the Cash Exercise Notice (for purposes of this Section 1.02) or
the Repurchase Notice (for purposes of Section 6.01) shall be deemed to equal
the fair market value of such property. If such other property consists of
something other than cash or securities with an existing public trading market
and, as of the payment date for the Spread, agreement on the value of such other
property has not been reached, the Competing Purchase Price shall be deemed to
be the amount of any cash included in the Competing Purchase Price plus the fair
market value of such other property (as determined by a nationally recognized
investment banking firm jointly selected by Romarco and Western). For this
purpose, the parties shall use their reasonable best efforts to cause any
determination of the fair market value of such other property to be made within
three business days after the date of delivery of the Cash Exercise Notice (for
purposes of this Section 1.02) or the Repurchase Notice (for purposes of Section
6.01). Upon exercise of its right to receive the Spread pursuant to this Section
1.02(d), the obligations of Western to deliver Option Shares pursuant to Section
1.03 shall be terminated with respect to such number of Option Shares subject to
the Cash Exercise Notice.
(e) "Break Fee Provisions" means any provisions of the Merger Agreement
which provide for Western paying Romarco a fee (which fee must include more than
solely the reimbursement of expenses) upon the occurrence of the termination of
the Merger Agreement, with any conditions or restrictions as such provisions may
provide.
(f) A "Competing Transaction" means any of the following (other than any
transaction contemplated in the Merger Agreement): (i) any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or other similar transaction involving Western or any
Western subsidiary; (ii) any sale, lease, exchange, transfer or other
disposition of assets or businesses of Western that constitutes or represents
15% or more of the assets of Western and its subsidiaries, taken as a whole;
(iii) any sale, exchange, transfer or other disposition of 20% or more of any
class of equity securities of Western or any Western subsidiary, other than any
issuance by Western in a bona fide financing transaction on an underwritten or
agency basis with an investment bank or other institutional investor which will
not result in a change of control; (iv) any tender offer or exchange offer that,
if consummated, would result in any person beneficially owning 20% or more of
any class of equity securities of Western or any Western subsidiary; (v) any
solicitation in opposition to approval and adoption of the Merger Agreement by
Western's shareholders; or (vi) any other transaction the consummation of which
would reasonably be expected to impede, interfere with, prevent or materially
delay any of the transactions contemplated by the Merger Agreement.
(g) An "Acquisition Proposal" means any proposal involving any of the
following transactions (other than any transaction contemplated by the Merger
Agreement): (i) a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Western pursuant to
which the shareholders of Western immediately preceding such transaction hold
less than fifty percent (50%) of the aggregate equity interests in
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the surviving or resulting entity of such transaction or of any direct or
indirect parent thereof; (ii) a sale or other disposition by Western of assets
representing in excess of fifty percent (50%) of the aggregate fair market value
of the business of Western immediately prior to such sale or other disposition;
(iii) an acquisition by any person or group (including by way of a tender offer
or an exchange offer or an issuance of capital stock by Western), directly or
indirectly, of beneficial ownership of fifty percent (50%) or more of the voting
power of the then outstanding shares of capital stock of Western; (iv) the
adoption by Western of a plan of liquidation or the declaration or payment of an
extraordinary dividend; or (v) the repurchase by Western or any of their
subsidiaries of 50% or more of the outstanding shares of capital stock of
Western.
SECTION 1.03. Conditions to Closing. The obligation of Western to deliver
Option Shares or pay the Spread, as applicable, upon any exercise of the Stock
Option is subject to the conditions that:
(a) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any United States federal,
state, county or local or non-United States government, governmental,
regulatory or administrative authority, agency, instrumentality or
commission or any court, tribunal, or judicial or arbitral body and or any
stock exchange on which the Western Common Stock may be listed or traded
(a "Governmental Authority"), if any, required in connection with the
issuance of Option Shares hereunder, shall have been obtained or made, as
the case may be; and
(b) there shall be no preliminary or permanent injunction or other
final, non-appealable judgment by a court of competent jurisdiction
preventing or prohibiting such exercise of the Stock Option, the delivery
of the Option Shares or payment of the Spread in respect of such exercise.
SECTION 1.04. Closings. At each Closing, (i) in the event of a Closing
pursuant to Section 1.02(c), Western shall deliver to Romarco a certificate or
certificates evidencing the applicable number of Option Shares (in the
denominations specified in the Stock Exercise Notice), and Romarco shall
purchase each such Option Share from Western at the Purchase Price, or (ii) in
the event of a Closing pursuant to Section 1.02(d), Western shall deliver to
Romarco cash in an amount determined pursuant to Section 1.02(d), net of any
required tax withholding. All payments made pursuant to this Agreement shall be
made by wire transfer of immediately available funds to an account designated in
writing not later than one business day prior to such Closing by Romarco to
Western or by Western to Romarco, as the case may be; provided, however, that
the failure or refusal of Western to designate such bank account shall not
preclude Romarco from exercising its Stock Option. Upon delivery by Romarco to
Western of the Stock Exercise Notice and the tender of the applicable cash as
described above in this Section 1.04, Romarco shall be deemed to be the holder
of record of the shares of Western Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Western shall then be closed or
that certificates representing such shares of Western Common Stock shall not
then be actually delivered to Romarco. Certificates evidencing Option Shares
delivered hereunder may, at Western's election, contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE
WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933, AS AMENDED, OR AN EXEMPTION THEREFROM.
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Western shall, upon the written request of the holder thereof, issue such holder
a new certificate evidencing such Option Shares without such legend in the event
(x) such Option Shares have been registered pursuant to the Securities Act of
1933, as amended (the "Securities Act"), (y) such Option Shares have been sold
in reliance on and in accordance with Rule 144 under the Securities Act or (z)
such holder shall have delivered to Western an opinion of counsel, which opinion
shall, in Western's reasonable judgment, be satisfactory in form and substance
to Western, to the effect that subsequent transfers of such Option Shares may be
effected without registration under the Securities Act.
SECTION 1.05. Adjustments upon Share Issuances, Changes in Capitalization,
Etc. (a) In the event of any change in Western Common Stock or in the number of
outstanding shares of Western Common Stock by reason of a stock dividend,
split-up, recapitalization, combination, exchange of shares or similar
transaction or any other extraordinary change in the corporate or capital
structure of Western (including, without limitation, the declaration or payment
of an extraordinary dividend of cash, securities or other property), the type
and number of shares or securities to be issued by Western upon exercise of the
Stock Option shall be adjusted appropriately, and proper provision shall be made
in the agreements governing such transaction, so that Romarco shall receive upon
exercise of the Stock Option the number and class of shares or other securities
or property that Romarco would have received in respect of Western Common Stock
if Romarco had exercised the Stock Option immediately prior to such event or the
record date therefor, as applicable, and had elected (to the fullest extent it
would have been permitted to elect) to receive such securities, cash or other
property.
(b) In the event that Western shall enter into an agreement (other than
the Merger Agreement) (i) to consolidate with or merge into any person, other
than Romarco or Merger Sub and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person, other
than Romarco or Merger Sub, to merge into Western and Western shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of Western Common Stock shall be changed into or
exchanged for stock or other securities of Western or any other person or cash
or any other property or then outstanding shares of Western Common Stock shall
after such merger represent less than 50% of the outstanding shares and share
equivalents of the surviving corporation or (iii) to sell or otherwise transfer
assets representing more than 50% of its assets to any person, other than
Romarco or any of its subsidiaries, then, and in each such case, proper
provision shall be made in the agreements governing such transaction so that
Romarco shall receive upon exercise of the Stock Option the number and class of
shares or other securities or property that Romarco would have received in
respect of Western Common Stock if Romarco had exercised the Stock Option
immediately prior to such transaction or the record date therefor, as
applicable, and had elected (to the fullest extent it would have been permitted
to elect) to receive such securities, cash or other property.
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(c) The provisions of this Agreement, including, without limitation,
Sections 1.01, 1.02, 1.04, 3.01 and 3.02, shall apply with appropriate
adjustments to any securities for which the Stock Option becomes exercisable
pursuant to this Section 1.05.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF WESTERN
Western hereby represents and warrants to Romarco as follows:
SECTION 2.01. Authority Relative to This Agreement. Western is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Idaho. Western has all necessary corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Western and the consummation by Western of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Western are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Western and, assuming the due authorization, execution and delivery by Romarco,
constitutes the legal, valid and binding obligation of Western, enforceable
against Western in accordance with its terms, subject to the effect of any
applicable bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar laws
affecting creditors' rights generally and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding at law or
in equity).
SECTION 2.02. Authority to Issue Shares. Western has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof until such time as the obligation to deliver Option
Shares upon the exercise of the Stock Option terminates, will have reserved, all
the Option Shares issuable pursuant to this Agreement, and Western will take all
necessary corporate action to authorize and reserve and permit it to issue all
additional shares of Western Common Stock or other securities that may be issued
pursuant to Section 1.05, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, and shall be delivered free and clear of
all claims, liens, charges, encumbrances and security interests of any kind
whatsoever and not subject to any preemptive rights.
SECTION 2.03. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Western do not, and the performance
of this Agreement by Western will not, (i) conflict with or violate the
Certificate of Incorporation or By-laws or equivalent organizational documents
of Western or any subsidiary, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 2.03(b) have been obtained
and all filings and obligations described in Section 2.03(b) have been made,
conflict with or violate any Law applicable to Western or any subsidiary or by
which any property or asset of Western or any subsidiary is bound or affected,
or (iii) result in any breach of or constitute a default (or an event which,
with notice or lapse of time or both, would become a default) under, or give to
others any right of termination, amendment, acceleration or
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cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Western or any subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation, except, with respect to clauses (ii) and (iii),
for any such conflicts, violations, breaches, defaults or other occurrences as
would not materially impair the ability of Western to consummate the
transactions contemplated by this Agreement and would not, individually or in
the aggregate, have a Material Adverse Effect (defined below).
(b) The execution and delivery of this Agreement by Western do not, and
the performance of this Agreement by Western will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), Blue Sky Laws
and state takeover laws and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not materially impair the ability of Western to consummate the
transactions contemplated by this Agreement, and would not, individually or in
the aggregate, have a Material Adverse Effect.
(c) A "Material Adverse Effect" means any event, circumstance, change or
effect that, individually or in the aggregate with all other events,
circumstances, changes and effects, is or is reasonably likely to be materially
adverse to (i) the business, prospects, condition (financial or otherwise),
assets, liabilities or results of operations of Western and its subsidiaries
taken as a whole or (ii) the ability of Western to perform its obligations under
this Agreement or the Merger Agreement; provided, however, that clause (i) shall
not include any event, circumstance, change or effect resulting from (x) changes
in general economic conditions or changes in securities markets in general, (y)
general changes in the industries in which Western and its subsidiaries operate,
except those events, circumstances, changes or effects that adversely affect
Western and its subsidiaries to a materially greater extent than they affect
other entities operating in such industries or (z) the public announcement or
pendency of the transactions contemplated by the Merger Agreement.
SECTION 2.04. Board Action; Rights Agreement. To the knowledge of Western,
no state takeover statute is applicable to the purchase by Romarco pursuant to
this Agreement of shares of Western Common Stock.
ARTICLE III
COVENANTS OF WESTERN
SECTION 3.01. Listing; Other Action. (a) Western shall, at its sole
expense, use its best efforts to cause the Option Shares to be approved for
listing or quotation on the OTC Bulletin Board, subject to notice of issuance,
as promptly as practicable following an Exercise Event, and shall provide prompt
notice to the OTC Bulletin Board of the issuance of each Option Share, except to
the extent the delivery of the Option Shares can be satisfied with shares of
Western Common Stock held in treasury by Western.
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(b) Western shall use its reasonable best efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Law to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, using its reasonable best efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of Governmental
Authorities. Without limiting the generality of the foregoing, Western shall,
when required in order to effect the transactions contemplated by this
Agreement, make all necessary filings, and thereafter make any other required or
appropriate submissions, under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and shall supply as promptly as practicable
to the appropriate Governmental Authority any additional information and
documentary material that may be requested pursuant to the HSR Act.
SECTION 3.02. Registration. (a) In the event that Romarco shall desire to
sell any of the Option Shares within two years after the purchase of such Option
Shares pursuant hereto, and such sale requires, in the opinion of counsel to
Romarco (which opinion shall be, in the reasonable judgment of Western and its
counsel, satisfactory in form and substance to Western and its counsel)
registration of such Option Shares under the Securities Act, Western shall
cooperate with Romarco and any underwriters in registering such Option Shares
for resale, including, without limitation, promptly filing a registration
statement which complies with the requirements of applicable federal and state
securities laws and entering into an underwriting agreement with such
underwriters upon such terms and conditions as are customarily contained in
underwriting agreements with respect to secondary distributions; provided,
however, that Western shall not be required to file such registration statement
if, at the time, Western is not obligated to file periodic reports under the
Exchange Act; provided further, that Western shall not be required to have
declared effective more than three registration statements hereunder and shall
be entitled to delay the filing or effectiveness of any registration statement
or suspend the availability of any registration statement for a period not to
exceed 90 days in the aggregate for valid business reasons, to be determined by
Western in its sole judgment (which shall not include the avoidance of Western's
obligations hereunder), including, without limitation, if the offering would
require premature disclosure of any material corporate development or otherwise
interfere with or adversely affect any pending or proposed offering of
securities of Western or any other material transaction involving Western.
Western shall use its reasonable best efforts to cause such registration
statement first to become effective and then to remain effective for such period
not in excess of 90 days from the day such registration statement first becomes
effective. If requested by Romarco in connection with such registration, Western
shall become a party to any underwriting agreement relating to the sale of such
Option Shares on terms and including obligations and indemnities that are
customary in secondary distributions.
(b) If Western at any time after the exercise of the Stock Option proposes
to register any shares of Western Common Stock under the Securities Act in
connection with an underwritten public offering of such Western Common Stock,
Western will promptly give written notice to Romarco of its intention to do so
and, upon the written request of Romarco given within 30 days after receipt of
any such notice (which request shall specify the number of shares of Western
Common Stock intended to be included in such underwritten public offering by
Romarco), Western will cause all such shares for which Romarco requests
participation in such registration, to be so registered and included in such
underwritten public offering; provided, however, that Western may elect not to
cause any such shares to be so registered (i) if the
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underwriters in good faith object for valid business reasons or (ii) in the case
of a registration solely to implement an employee benefit plan or a registration
statement filed on Form S-4 of the Securities Act (or any successor form
thereto); provided further that Western may make an election pursuant to clause
(i) not more than one time.
(c) If the Western Common Stock is registered pursuant to the provisions
of this Section 3.02, Western agrees (i) to furnish copies of the registration
statement and prospectus relating to the Option Shares covered thereby in such
numbers as Romarco may from time to time reasonably request and (ii) if any
event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
applicable securities laws such amendments and supplements as may be necessary
to keep available for at least 90 days a prospectus covering the Western Common
Stock meeting the requirements of such securities laws, and to furnish Romarco
such numbers of copies of the registration statement and prospectus as amended
or supplemented as may reasonably be requested. Western shall bear the entire
cost of the registration, including, but not limited to, all registration and
filing fees, printing expenses, and fees and disbursements of counsel and
accountants for Western, except that Romarco shall pay the fees and
disbursements of its counsel and the underwriting fees and selling commissions
applicable to the shares of Western Common Stock sold by Romarco. Western shall
indemnify and hold harmless Romarco, its affiliates and its officers and
directors from and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation, reasonable attorney's fees) arising out
of or based upon any statements contained in, omissions or alleged omissions
from, each registration statement filed pursuant to this Section 3.02; provided,
however, that this provision shall not apply to any loss, liability, claim,
damage or expense to the extent it arises out of any untrue statement or
omission made in reliance upon and in conformity with written information
furnished to Western by Romarco, its affiliates and its officers and other
representatives expressly for use in any registration statement (or any
amendment thereto) or any preliminary prospectus filed pursuant to this Section
3.02.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ROMARCO
Romarco hereby represents and warrants to Western as follows:
SECTION 4.01. Authority Relative to This Agreement. Romarco is a
corporation duly organized, validly existing and in good standing under the laws
of Ontario. Romarco has all necessary power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Romarco and the consummation by Romarco of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action,
and no other corporate proceedings on the part of Romarco are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Romarco and,
assuming due authorization, execution and delivery by Western, constitutes
legal, valid and binding obligations of Romarco enforceable against Romarco in
accordance with its terms, subject to the effect of any applicable bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting creditors'
rights generally and subject to the effect of general principles of equity
(regardless of whether considered in a proceeding at law or in equity).
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SECTION 4.02. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Romarco do not, and the performance
of this Agreement by Romarco will not, (i) conflict with or violate the Articles
of Incorporation or By-laws of Romarco, (ii) assuming that all consents,
approvals, authorizations and other actions described in Section 4.02(b) have
been obtained and all filings and obligations described in Section 4.02(b) have
been made, conflict with or violate any law, rule, regulation, order, judgment
or decree applicable to Romarco or by which any property or asset of Romarco is
bound or affected, or (iii) result in any breach of, or constitute a default (or
an event that, with notice or lapse of time or both, would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Romarco pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Romarco is a party or by which Romarco or any property or
asset of Romarco is bound or affected, except, with respect to clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences would not materially impair the ability of Romarco to consummate the
transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by Romarco do not, and
the performance of this Agreement by Romarco will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Authority, except (i) for applicable requirements, if any, of the
Exchange Act, Blue Sky Laws and state takeover laws and the HSR Act and (ii)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not materially impair the
ability of Romarco to consummate the transactions contemplated by this
Agreement.
ARTICLE V
COVENANTS OF ROMARCO
SECTION 5.01. Distribution. Romarco shall acquire the Option Shares for
investment purposes only and not with a view to any distribution thereof in
violation of the Securities Act, and shall not sell any Option Shares purchased
pursuant to this Agreement except in compliance with the Securities Act and
applicable Blue Sky Laws.
ARTICLE VI
REPURCHASE ELECTION; PROFIT LIMITATION
SECTION 6.01. Repurchase Election. (a) Romarco shall have the option, at
any time and from time to time commencing upon the first occurrence of an
Exercise Event in which the consideration to be received by Western or its
stockholders, as the case may be, upon consummation of an Acquisition Proposal
consists in whole or in part of shares of capital stock of a third party and
ending on the tenth business day after the first mailing to Western's
10
stockholders of a proxy statement, tender offer statement or other disclosure or
offering document relating to such Acquisition Proposal, to send a written
notice to Western (a "Repurchase Notice") that it will require Western (or any
successor entity thereof) to pay to Romarco the Repurchase Fee (as defined
below) as provided in Section 6.01(b) below, upon delivery by Romarco of the
shares of Western Common Stock acquired hereunder with respect to which Romarco
then has beneficial ownership. The date on which Romarco delivers the Repurchase
Notice under this Section 6.01 is referred to as the "Repurchase Request Date".
The "Repurchase Fee" shall be equal to the sum of the following:
(i) the aggregate Purchase Price paid by Romarco for any shares of
Western Common Stock acquired pursuant to the Stock Option with respect to
which Romarco then has beneficial ownership; and
(ii) the Spread, multiplied by the number of shares of Western
Common Stock with respect to which the Stock Option has been exercised and
with respect to which Romarco then has beneficial ownership.
(b) If Romarco exercises its rights under this Section 6.01, within five
business days after the Repurchase Request Date, (i) Western shall pay by wire
transfer to Romarco the Repurchase Fee in immediately available funds to an
account designated in writing by Romarco to Western, net of any required tax
withholding, and (ii) Romarco shall surrender to Western certificates evidencing
the shares of Western Common Stock acquired hereunder with respect to which
Romarco then has beneficial ownership, and Romarco shall warrant that it has
sole record and beneficial ownership of such shares and that the same are then
free and clear of all claims, liens, charges, encumbrances and security
interests of any kind whatsoever.
(c) Western shall use reasonable best efforts to ensure that it can fully
perform all of its obligations under this Section 6.01 under applicable Law.
(d) If and to the extent that Western is unable to perform any of its
obligations under this Section 6.01 under applicable Law, Western shall make no
distribution on any of its stock until such time as it has fully performed any
such obligations.
SECTION 6.02. Profit Limitation(a) . Notwithstanding any other provision
of this Agreement, in no event shall Romarco's Total Profit (as defined below)
exceed US$1 million (the "Maximum Amount") and, if it otherwise would exceed
such Maximum Amount, Romarco, at its sole election, may (a) pay cash to Western,
(b) deliver to Western for cancellation Option Shares previously purchased by
Romarco, (c) waive payment of any portion of any fee otherwise payable by
Western to Romarco pursuant to any Break Fee Provisions, (d) increase the
Purchase Price or (e) undertake any combination thereof, so that Romarco's
actually realized Total Profit shall not exceed the Maximum Amount after taking
into account the foregoing actions; provided, however, that nothing in this
sentence shall restrict any exercise of the Stock Option permitted hereby on any
subsequent date at the Purchase Price set forth in Section 1.01 hereof.
"Total Profit" shall mean the aggregate amount (before taxes) of the
following: (i) the cash amount actually received by Romarco from Western in
connection with the termination of the Merger Agreement (other than
reimbursement for expenses) less any
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repayment by Romarco to Western pursuant to this Section 6.02 (including the
value of any Option Shares delivered pursuant to Section 6.02(b) or Section
6.02(e)), (ii) (x) the net cash amounts or the fair market value of any property
received by Romarco pursuant to the sale of Option Shares (or of any other
securities into or for which such Option Shares are converted or exchanged),
less (y) Romarco's purchase price for such Option Shares (or other securities)
(iii) the aggregate amounts received by Romarco pursuant to Sections 6.01(a)(ii)
and 1.02(d) hereof; provided, however, that if Romarco sends a Stock Exercise
Notice to Western, Total Profit shall mean the sum of (i), (ii) and (iii)
determined as of the date of such Stock Exercise Notice, assuming that the Stock
Option were exercised on such date for the number of Option Shares specified in
such Stock Exercise Option, and assuming that such Option Shares, together with
all other Option Shares previously acquired upon exercise of the Stock Option
and held by Romarco and its affiliates as of such date, were sold for cash at
the closing market price for Western Common Stock as of the close of business on
the preceding trading day (less customary brokerage commissions).
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment; No Waiver. (a) Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by Western and Romarco or in the case
of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
SECTION 7.02. Fees and Expenses. (a) Except as otherwise provided herein
or in the Merger Agreement, all Expenses (as defined below) incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the
transactions contemplated hereby are consummated.
(b) If Romarco exercises its rights under Section 1.02 or Section
6.01, Western shall pay by wire transfer to Romarco in immediately
available funds to an account designated in writing by Romarco to Western,
an amount equal to Romarco's Expenses. Such payment shall be in addition
to any other rights contemplated under this Agreement and shall be made at
the Closing if Romarco exercises its rights under Section 1.02, or within
five business days after the Repurchase Request Date if Romarco exercises
its rights under Section 6.01.
(c) "Expenses", as used in this Agreement, shall include all
reasonable out-of-pocket expenses (including, without limitation, all
reasonable fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its affiliates) incurred by
a party or on its behalf in connection with or related to the
12
authorization, preparation, negotiation, execution and performance of this
Agreement, the preparation, printing, filing and mailing of a registration
statement on Form F-4 and a proxy statement to be sent to the shareholders
of Romarco and Western in connection with the Merger Agreement, the
solicitation of shareholder approvals, and all other matters related to
the closing of the transactions contemplated by the Merger Agreement,
including any bona fide financing transaction entered into in connection
with the Merger Agreement.
SECTION 7.03. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or e-mail or by registered or certified mail (postage prepaid, return receipt
requested) to the following addresses:
if to Romarco:
Xxxxx X. Xxxxxxx
Romarco Minerals Inc.
0000-000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxx XX X0X 0X0
Attention: Xxxxx X. Xxxxxxx
Facsimile No. (000) 000-0000
Email: xxxxxxxx@xxxxxxx.xxx
with a copy to:
Shearman & Sterling LLP
Commerce Court West
Suite 4405, P.O. Box 247
Toronto, Canada X0X 0X0
Attention: Xxxxx Xxxxxx
Facsimile No: (000) 000-0000
Email: xxxxxxx@xxxxxxxx.xxx
if to Western:
Western Goldfields, Inc.
000 Xxxxxx Xxxx, Xxxxx 000
Xxxx, XX 00000
Attention: Xxxx Xxxxxxx
Facsimile No: (000) 000-0000
Email: xxxxxxxx@xxxxxxxxxxxxxxxxx.xxx
with a copy to:
Xxxxxxxx Xxxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile No: (000) 000-0000
Email: xxxxx.xxxxxxx@xxxxxxxxxxxxxxx.xxx
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SECTION 7.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated hereby be consummated as
originally contemplated to the fullest extent possible.
SECTION 7.05. Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned (whether pursuant to a merger, by operation of
law or otherwise), except that Romarco may assign all or any of its rights and
obligations hereunder to any affiliate of Romarco, provided, however, that no
such assignment shall relieve the assigning party of its obligations hereunder
if such assignee does not perform such obligations.
SECTION 7.06. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 7.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 7.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined exclusively in any New York state or federal court sitting in the
Borough of Manhattan of The City of New York. The parties hereto hereby (a)
submit to the exclusive jurisdiction of any state or federal court sitting in
the Borough of Manhattan of The City of New York for the purpose of any Action
arising out of or relating to this Agreement brought by any party hereto, and
(b) irrevocably waive, and agree not to assert by way of motion, defense, or
otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that the Action is brought in an
inconvenient forum, that the venue of the Action is improper, or that this
Agreement or the transactions contemplated hereby may not be enforced in or by
any of the above-named courts.
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SECTION 7.09. Waiver of Jury Trial. Each of the parties hereto hereby
waives to the fullest extent permitted by applicable law any right it may have
to a trial by jury with respect to any litigation directly or indirectly arising
out of, under or in connection with this Agreement or the transactions
contemplated hereby. Each of the parties hereto (a) certifies that no
representative, agent or attorney of any other party has represented, expressly
or otherwise, that such other party would not, in the event of litigation, seek
to enforce that foregoing waiver and (b) acknowledges that it and the other
party hereto have been induced to enter into this Agreement and the transactions
contemplated hereby, as applicable, by, among other things, the mutual waivers
and certifications in this Section 7.09.
SECTION 7.10. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 7.11. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
WESTERN GOLDFIELDS, INC.
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President and Chief Executive
Officer
ROMARCO MINERALS INC.
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President and Chief Executive
Officer
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