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Castillian Resources to Acquire All Outstanding Shares of Ridgemont Iron Ore

Castillian Resources Corp. ("Castillian") and Ridgemont Iron Ore Corp. ("Ridgemont") have signed a definitive arrangement agreement (the "Agreement") pursuant to which Castillian will acquire all of the outstanding shares of Ridgemont by way of a plan of arrangement under the Business Corporations Act (British Columbia) (the "Transaction").

The Agreement contains the principal terms and conditions set out in the binding letter of intent (the "Letter of Intent") between Castillian and Ridgemont (see news release dated April 11, 2013) and other customary terms and conditions, except Mr. Brian Penney, President and CEO of Ridgemont, has agreed to waive any severance payments that could be triggered by the Transaction in consideration for Castillian agreeing to increase the consideration under the Transaction to shareholders of Ridgemont from 0.574 to 0.593 of a Castillian common share for each common share of Ridgemont held. The board of directors of each company has unanimously approved the Transaction. Upon completion of the Transaction, existing Castillian and Ridgemont shareholders will own approximately 57.8% and 42.2% of the combined company, respectively, on a basic shares outstanding basis (assuming the issuance by Castillian of (a) 8,000,000 common shares to Ryan Gold Corp. to repurchase Ryan Gold's 10% interest in the Hope Brook gold project (see news release dated February 6, 2013) and (b) the Severance Shares (as defined below)).

Based on the 20-day volume weighted average price ("VWAP") of Castillian's common shares on the TSX Venture Exchange (the "TSXV") of $0.0590 and the 20-day VWAP of Ridgemont's common shares on the TSXV of $0.0209, each as of April 10, 2013 (the last trading day prior to the announcement of the Letter of Intent), the Transaction represents a premium of approximately 67% to Ridgemont (based on the increased exchange ratio of 0.593). On April 10, 2013, the closing prices of the Castillian common shares and the Ridgemont common shares were $0.05 and $0.025, respectively.

Highlights of the Transaction:

  • The merger will result in an advanced stage gold exploration company with a stronger balance sheet focused on Castillian's Hope Brook project in Newfoundland;
  • Flow through commitments from Ridgemont's balance sheet will be used to fund 5,100 meters of additional diamond drilling, designed to expand the existing mineral resource and conduct technical and engineering work required for a preliminary economic assessment (PEA) at the Hope Brook project;
  • Based on the results of this work, the merged entity anticipates being in a position to deliver a Hope Brook PEA by early 2014;
  • Hope Brook has significant indicated and inferred mineral resources in a politically favourable jurisdiction with strong upside potential and access to existing infrastructure; and
  • The proposed share exchange ratio provides Ridgemont shareholders with a 42.2% ownership stake in an asset with strong potential.

Management and Directors:

Following the completion of the Transaction, it is anticipated that Mr. Adrian Bray, P.Geo., will join Castillian's board of directors and that the current executive management team of Castillian will be unchanged.

Mr. Brian Penney is a director of both of Castillian and Ridgemont and the President and Chief Executive Officer of Ridgemont and, therefore, Castillian and Ridgemont are non-arm's length parties with respect to each other under the policies of the TSX Venture Exchange.

Transaction Details

Pursuant to the terms of the Agreement, the Transaction will be conducted by way of a court-approved plan of arrangement under the Business Corporations Act (British Columbia), resulting in Ridgemont becoming a wholly-owned subsidiary of Castillian. Each Ridgemont common share issued and outstanding immediately prior to closing of the Transaction will be exchanged for 0.593 of a Castillian common share.

All options and warrants of Ridgemont outstanding immediately prior to closing of the Transaction will, following closing and subject to regulatory approval, be exercisable for that number of shares of Castillian using the same exchange ratio applicable to the common shares of Ridgemont under the Transaction, with corresponding adjustment to the exercise prices on the basis of such exchange ratio.

On April 24, 2013 Ridgemont and Castillian entered into a loan agreement whereby Ridgemont advanced to Castillian $250,000 (the "Loan"). The Loan will accrue interest at the rate of 10% per annum and mature on the earlier of the completion of the Transaction and the date that is twelve months following the termination of either the Agreement (the "Maturity Date"). In the event of the termination of the Definitive Agreement, Ridgemont will have the option to convert the principal amount of the Loan and all interest accrued thereon at any time prior to the Maturity Date into common shares of Castillian at a deemed price of, in the case of the principal amount of the Loan, $0.10 per share, and in the case of interest accrued thereon, subject to TSXV approval, the current market price of the Castillian shares less the maximum discount permitted under the policies of the TSXV. Castillian has the option to prepay the Loan and all interest accrued thereon in full or in part from time to time at any time prior to the Maturity Date.

Certain officers of Ridgemont are contractually entitled to severance payments that could be triggered by the Transaction. Except for Messrs. Mark Morabito and Brian Penney, these officers have agreed to accept, in aggregate, $25,000 in lieu of such severance payments, payable immediately prior to completion of the Transaction in common shares of Ridgemont at a deemed price per share of $0.05 (the "Severance Shares"), subject to the approval of the TSXV. Messrs. Morabito and Penney have agreed to waive any entitlement to any severance payments.

The Transaction is subject to customary conditions, including:

  • approval by a minimum of 66 2/3% of the votes cast by Ridgemont shareholders at a duly called special shareholders' meeting;
  • approval/acceptance of the TSXV of the Transaction and the issuance of the Severance Shares;
  • all of the directors and officers of Ridgemont agreeing to support the Transaction by entering into agreements to vote in favour of the Transaction;
  • Ridgemont shareholders holding collectively not more than five per cent of the outstanding common shares of Ridgemont having exercised their dissent rights; and
  • Ridgemont having working capital upon the closing of the Transaction of not less than $2,900,000, less the sum of (i) expenses incurred by Ridgemont in connection with the Transaction up to a maximum of $100,000 and (ii) the principal amount of the Loan.

The Agreement includes a commitment by each of Castillian and Ridgemont not to solicit alternative transactions to the proposed Transaction. The Agreement provides that if a party terminates the Transaction in certain circumstances such party is obligated to pay to the other party $250,000 on account of costs and expenses in connection with the Transaction. Each party has also been provided with certain other rights, representations and warranties and covenants customary for a transaction of this nature, and each party has the right to match any competing offers made to the other party.

Ridgemont shareholders will be granted dissent rights which, if exercised in accordance with applicable requirements, will provide such shareholders the right to be paid the fair value for their Ridgemont common shares by Ridgemont.

Upon completion of the Transaction, Castillian will have 130.6 million common shares outstanding (153.6 million common shares on a fully-diluted basis), and the ownership of the combined company is expected to be approximately 57.8% by existing Castillian shareholders and 42.2% by former Ridgemont shareholders on a basic shares outstanding basis (assuming the issuance by Castillian of (a) 8,000,000 common shares to Ryan Gold Corp. to repurchase Ryan Gold's 10% interest in the Hope Brook gold project (see news release dated February 6, 2013) and (b) the Severance Shares).

Timing

The terms of the Agreement will be described in detail in the management information circular of Ridgemont to be filed with the regulatory authorities and mailed to Ridgemont shareholders in accordance with applicable securities laws in respect of the annual general and special meeting of Ridgemont shareholders, currently scheduled to be held on June 24, 2013. Subject to shareholder, court and regulatory approvals, the Transaction is expected to close in July 2013.

Recommendation of Boards of Directors

The board of directors of each Ridgemont and Castillian unanimously support the proposed Transaction. The board of directors of Ridgemont established a special committee to review the Transaction and retained Evans & Evans, Inc. to prepare a fairness opinion. The special committee of Ridgemont has received the fairness opinion from Evans & Evans, Inc. which states that the consideration to be received by the Ridgemont shareholders is fair, from a financial point of view, to the Ridgemont shareholders. The board of directors of Ridgemont recommends that Ridgemont shareholders vote in favour of the Transaction at the shareholder meeting to be called to approve the Transaction. The reasons for the board of directors' recommendation will be detailed in the aforementioned management information circular.

Source: http://www.ridgemontiron.com/

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