STOCK OPTION AGREEMENT Between ROMARCO MINERALS INC. and WESTERN GOLDFIELDS, INC. Dated as of August 25, 2005
EXECUTION
COPY
Between
ROMARCO
MINERALS INC.
and
WESTERN
GOLDFIELDS, INC.
Dated
as
of August 25, 2005
TABLE
OF CONTENTS
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Article
I
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THE
STOCK OPTION
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SECTION
1.01. Grant of Stock Option
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1
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SECTION
1.02. Exercise of Stock Option
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1
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SECTION
1.03. Conditions to Closing
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4
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SECTION
1.04. Closings
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4
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SECTION
1.05. Adjustments upon Share Issuances, Changes in Capitalization,
Etc.
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5
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Article
II
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REPRESENTATIONS
AND WARRANTIES OF ROMARCO
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SECTION
2.01. Authority Relative to This Agreement
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6
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SECTION
2.02. Authority to Issue Shares
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6
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SECTION
2.03. No Conflict; Required Filings and Consents.
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7
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SECTION
2.04. Board Action; Rights Agreement
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8
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Article
III
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COVENANTS
OF ROMARCO
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SECTION
3.01. Listing: Other Action
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8
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SECTION
3.02. Registration
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8
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Article
IV
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REPRESENTATIONS
AND WARRANTIES OF WESTERN
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SECTION
4.01. Authority Relative to This Agreement
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10
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SECTION
4.02. No Conflict; Required Filings and Consents
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10
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Article
V
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COVENANTS
OF WESTERN
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SECTION
5.01. Distribution
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11
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Article
VI
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REPURCHASE
ELECTION; PROFIT LIMITATION
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SECTION
6.01. Repurchase Election
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11
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SECTION
6.02. Profit Limitation
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12
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Article
VII
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MISCELLANEOUS
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SECTION
7.01. Amendment; No Waiver
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12
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SECTION
7.02. Fees and Expenses
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13
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SECTION
7.03. Notices
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13
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SECTION
7.04. Severability
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14
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SECTION
7.05. Entire Agreement; Assignment
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14
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SECTION
7.06. Parties in Interest
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14
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SECTION
7.07. Specific Performance
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15
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SECTION
7.08. Governing Law
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15
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SECTION
7.09. Waiver of Jury Trial
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15
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SECTION
7.10. Headings
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15
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SECTION
7.11. Counterparts
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15
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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 with and
into
Western; and
WHEREAS,
in order to induce Western to enter into the Merger Agreement, Romarco has
agreed to grant Western an option to purchase up to such number of newly
issued
or treasury shares of common stock, without par value, of Romarco (“Romarco
Common Stock”)
as
equals 19.9% of the issued and outstanding shares of Romarco 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.
Romarco
hereby grants to Western 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 Romarco Common Stock as equals 19.9% of the issued and
outstanding shares of Romarco 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 Cdn$0.175 (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 Romarco Common
Stock may be listed or traded (“Law”),
the
Stock Option may be exercised by Western, 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 Romarco to Western under any Break Fee Provisions (as
defined
below) and (iv) the
close
of the business on the date that Western 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, Western 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
Western 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 Western is entitled to receive fees from Romarco pursuant to any Break
Fee
Provisions.
(c) In
the
event Western wishes to exercise the Stock Option, Western shall send a written
notice (a “Stock
Exercise Notice”)
to
Romarco specifying the total number of Option Shares it wishes to purchase,
the
denominations of the certificate or certificates evidencing such Option Shares
that Western 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), Western 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
Romarco (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 Romarco shall pay
to
Western an amount in cash equal to the Spread (as defined below) multiplied
by
such number of Option Shares as Western 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 Romarco 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 Romarco 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 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 Western and Romarco). 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
Romarco 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.
2
(e) “Break
Fee Provisions”
means
any provisions of the Merger Agreement which provide for Romarco paying Western
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 Romarco or any Romarco subsidiary; (ii) any sale, lease, exchange,
transfer or other disposition of assets or businesses of Romarco that
constitutes or represents 15% or more of the assets of Romarco 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 Romarco or
any
Romarco subsidiary, other than any issuance by Romarco 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 Romarco
or
any Romarco subsidiary; (v) any solicitation in opposition to approval and
adoption of the Merger Agreement by Romarco’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 Romarco pursuant to which the shareholders of Romarco
immediately preceding such transaction hold less than fifty percent (50%)
of the
aggregate equity interests in the surviving or resulting entity of such
transaction or of any direct or indirect parent thereof; (ii) a sale or other
disposition by Romarco of assets representing in excess of fifty percent
(50%)
of the aggregate fair market value of the business of Romarco 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 Romarco), 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 Romarco; (iv) the adoption by Romarco of a plan of
liquidation or the declaration or payment of an extraordinary dividend; or
(v)
the repurchase by Romarco or any of their subsidiaries of 50% or more of
the
outstanding shares of capital stock of Romarco.
3
SECTION
1.03. Conditions
to Closing.
The
obligation of Romarco 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 Romarco 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), Romarco
shall deliver to Western a certificate or certificates evidencing the applicable
number of Option Shares (in the denominations specified in the Stock Exercise
Notice), and Western shall purchase each such Option Share from Romarco at
the
Purchase Price, or (ii) in the event of a Closing pursuant to Section
1.02(d), Romarco shall deliver to Western 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 Western to Romarco or by Romarco to Western,
as the
case may be; provided,
however,
that
the failure or refusal of Romarco to designate such bank account shall not
preclude Western from exercising its Stock Option. Upon delivery by Western
to
Romarco of the Stock Exercise Notice and the tender of the applicable cash
as
described above in this Section 1.04, Western shall be deemed to be the holder
of record of the shares of Romarco Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Romarco shall then be closed
or
that certificates representing such shares of Romarco Common Stock shall
not
then be actually delivered to Western. Certificates evidencing Option Shares
delivered hereunder may, at Romarco’s election, contain the following
legend:
4
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.
Romarco
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 Romarco
an
opinion of counsel, which opinion shall, in Romarco’s reasonable judgment, be
satisfactory in form and substance to Romarco, to the effect that subsequent
transfers of such Option Shares may be effected without registration under
the
Securities Act.
In
addition, certificates evidencing Option Shares issued hereunder shall contain
the following additional legends. The date to be inserted in such legends
shall
be four months and one day after the date of issue of the Option
Shares:
WITHOUT
PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL
APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED
ON OR
THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA
TO OR
FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL [________].
UNLESS
PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL
NOT
TRADE THE SECURITIES BEFORE [________].
SECTION
1.05. Adjustments
upon Share Issuances, Changes in Capitalization, Etc. (a)
In the
event of any change in Romarco Common Stock or in the number of outstanding
shares of Romarco 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 Romarco
(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 Romarco upon exercise of the Stock Option shall
be
adjusted appropriately, and proper provision shall be made in the agreements
governing such transaction, so that Western shall receive upon exercise of
the
Stock Option the number and class of shares or other securities or property
that
Western would have received in respect of Romarco Common Stock if Western
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.
5
(b) In
the
event that Romarco or any Romarco subsidiary shall enter into an agreement
(other than the Merger Agreement) (i) to consolidate with or merge
into any
person other than Western and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person,
other than Western, to merge into Romarco and Romarco shall be the continuing
or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Romarco Common Stock shall be changed into or exchanged for stock
or
other securities of Romarco or any other person or cash or any other property
or
then outstanding shares of Romarco 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 Western
or
any of its subsidiaries, then, and in each such case, proper provision shall
be
made in the agreements governing such transaction so that Western shall receive
upon exercise of the Stock Option the number and class of shares or other
securities or property that Western would have received in respect of Romarco
Common Stock if Western 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.
(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 ROMARCO
Romarco
hereby represents and warrants to Western as follows:
SECTION
2.01. 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 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 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 executed and delivered
by
Romarco and, assuming the due authorization, execution and delivery by Western,
constitutes the legal, valid and binding obligation 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).
SECTION
2.02. Authority
to Issue Shares.
Romarco
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 Romarco will take all necessary corporate action to authorize
and
reserve and permit it to issue all additional shares of Romarco 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.
6
SECTION
2.03. 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
Certificate of Incorporation or By-laws or equivalent organizational documents
of Romarco 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 Romarco or any subsidiary
or by
which any property or asset of Romarco 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 cancellation
of, or
result in the creation of a lien or other encumbrance on any property or
asset
of Romarco 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 Romarco 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 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 Securities
Exchange Act of 1934, as amended (the “Exchange
Act”),
Blue
Sky Laws and state takeover laws, (ii) for applicable requirements of Canadian
securities legislation, (iii) for acceptance by the TSX Venture Exchange
(“TSXV”) as set forth in Section 3.01 below and (iv) 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, 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
Romarco and its subsidiaries taken as a whole or (ii) the ability of Romarco
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 Romarco and its
subsidiaries operate, except those events, circumstances, changes or effects
that adversely affect Romarco 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.
7
SECTION
2.04. Board
Action; Rights Agreement.
To the
knowledge of Romarco, no state takeover statute is applicable to the purchase
by
Western pursuant to this Agreement of shares of Romarco Common
Stock.
ARTICLE
III
COVENANTS
OF ROMARCO
SECTION
3.01. Listing;
Other Action.
(a) Romarco
shall, at its sole expense, make application to the TSXV for acceptance of
granting of the Stock Option as soon as reasonably practicable following
the
date hereof and use its best efforts to cause the Option Shares to be approved
for listing on the TSXV, subject to notice of issuance and filing of customary
documents.
(b) Romarco
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, Romarco 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 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 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 Western 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 Western (which opinion shall be, in
the
reasonable judgment of Romarco and its counsel, satisfactory in form and
substance to Romarco and its counsel) registration of such Option Shares
under
the Securities Act, Romarco shall cooperate with Western 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
Romarco shall not be required to file such registration statement if, at
the
time, Romarco is not obligated to file periodic reports under the Exchange
Act;
provided
further,
that
Romarco 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 Romarco or any other material
transaction involving Romarco. Romarco 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 Western in
connection with such registration, Romarco 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.
8
(b) If
Romarco at any time after the exercise of the Stock Option proposes to register
any shares of Romarco Common Stock under the Securities Act in connection
with
an underwritten public offering of such Romarco Common Stock, Romarco will
promptly give written notice to Western of its intention to do so and, upon
the
written request of Western given within 30 days after receipt of any such
notice
(which request shall specify the number of shares of Romarco Common Stock
intended to be included in such underwritten public offering by Western),
Romarco will cause all such shares for which Western requests participation
in
such registration, to be so registered and included in such underwritten
public
offering; provided,
however,
that
Romarco may elect not to cause any such shares to be so registered (i) if
the 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
Romarco may make an election pursuant to clause (i) not more than one
time.
(c) If
the
Romarco Common Stock is registered pursuant to the provisions of this Section
3.02, Romarco agrees (i) to furnish copies of the registration statement
and
prospectus relating to the Option Shares covered thereby in such numbers
as
Western 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 Romarco Common Stock
meeting the requirements of such securities laws, and to furnish Western
such
numbers of copies of the registration statement and prospectus as amended
or
supplemented as may reasonably be requested. Romarco 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 Romarco, except that Western shall pay the fees and disbursements of
its
counsel and the underwriting fees and selling commissions applicable to the
shares of Romarco Common Stock sold by Western. Romarco shall indemnify and
hold
harmless Western, 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 Romarco by Western,
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.
9
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF WESTERN
Western
hereby represents and warrants to Romarco as follows:
SECTION
4.01. Authority
Relative to This Agreement.
Western
is a corporation duly organized, validly existing and in good standing under
the
laws of Idaho. Western 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 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 and validly executed and
delivered by Western and, assuming due authorization, execution and delivery
by
Romarco, constitutes legal, valid and binding obligations 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
4.02. 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
Articles of Incorporation or By-laws of Western, (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 Western or by which any property
or
asset of Western 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 Western pursuant to, any
note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Western is a party or
by
which Western or any property or asset of Western 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 Western to consummate the transactions contemplated by this
Agreement.
(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 Canadian
securities legislation, 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 Western to consummate the transactions
contemplated by this Agreement.
10
(c) Western
is an “accredited investor” within the meaning of Ontario Rule 45-501 and
Alberta and British Columbia Multilateral Instrument 45-103.
ARTICLE
V
COVENANTS
OF WESTERN
SECTION
5.01. Distribution.
Western
shall acquire the Option Shares, as principal, 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, applicable Blue Sky Laws and applicable
Canadian securities legislation.
ARTICLE
VI
REPURCHASE
ELECTION; PROFIT LIMITATION
SECTION
6.01. Repurchase
Election.
(a)
Western
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 Romarco 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
Romarco’s 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 Romarco (a “Repurchase
Notice”)
that
it will require Romarco (or any successor entity thereof) to pay to Western
the
Repurchase Fee (as defined below) as provided in Section 6.01(b) below, upon
delivery by Western of the shares of Romarco Common Stock acquired hereunder
with respect to which Western then has beneficial ownership. The date on
which
Western 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 Western for any shares of Romarco Common
Stock
acquired pursuant to the Stock Option with respect to which Western then
has
beneficial ownership; and
(ii) the
Spread, multiplied by the number of shares of Romarco Common Stock with respect
to which the Stock Option has been exercised and with respect to which Western
then has beneficial ownership.
(b) If
Western exercises its rights under this Section 6.01, within five business
days
after the Repurchase Request Date, (i) Romarco shall pay by wire transfer
to
Western the Repurchase Fee in immediately available funds to an account
designated in writing by Western to Romarco, net of any required tax
withholding, and (ii) Western shall surrender to Romarco certificates evidencing
the shares of Romarco Common Stock acquired hereunder with respect to which
Western then has beneficial ownership, and Western 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.
11
(c) Romarco
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 Romarco is unable to perform any of its obligations under
this
Section 6.01 under applicable Law, Romarco 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 Western’s Total Profit
(as defined below) exceed US$1 million (the “Maximum Amount”) and, if it
otherwise would exceed such Maximum Amount, Western, at its sole election,
may
(a) pay cash to Romarco, (b) deliver to Romarco for cancellation
Option Shares previously purchased by Western, (c) waive payment of
any
portion of any fee otherwise payable by Romarco to Western pursuant to any
Break
Fee Provisions, (d) increase the Purchase Price or (e) undertake any
combination thereof, so that Western’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 Western from Romarco in connection with the
termination of the Merger Agreement (other than reimbursement for expenses)
less
any repayment by Western to Romarco 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 Western 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) Western’s purchase price for such Option Shares (or
other securities) (iii) the aggregate amounts received by Western
pursuant
to Sections 6.01(a)(ii) and 1.02(d) hereof; provided,
however,
that if
Western sends a Stock Exercise Notice to Romarco, 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 Western and its
affiliates as of such date, were sold for cash at the closing market price
for
Romarco 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
Romarco and Western or in the case of a waiver, by the party against whom
the
waiver is to be effective.
12
(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
Western exercises its rights under Section 1.02 or Section 6.01, Romarco
shall
pay by wire transfer to Western in immediately available funds to an account
designated in writing by Western to Romarco, an amount equal to Western’s
Expenses. Such payment shall be in addition to any other rights contemplated
under this Agreement and shall be made at the Closing if Western exercises
its
rights under Section 1.02, or within five business days after the Repurchase
Request Date if Western 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 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:
▇▇▇▇▇
▇.
▇▇▇▇▇▇▇
Romarco Minerals Inc.
▇▇▇▇-▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
Romarco Minerals Inc.
▇▇▇▇-▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
13
with
a
copy to:
Shearman
& Sterling LLP
Commerce Court West
Suite 4405, P.O. Box 247
Toronto, Canada ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
Commerce Court West
Suite 4405, P.O. Box 247
Toronto, Canada ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
if
to
Western:
Western
Goldfields, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
with
a
copy to:
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ LLP
The Chrysler Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇.▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
The Chrysler Building
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇.▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
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 Western may assign
all or
any of its rights and obligations hereunder to any affiliate of Western,
provided,
however,
that no
such assignment shall relieve the assigning party of its obligations hereunder
if such assignee does not perform such obligations.
14
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.
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:_______________________________________
Name:
Title:
ROMARCO MINERALS INC.
By:_______________________________________
Name:
Title:
16