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May 22, 2009
New Gold Inc.
3110-666 Burrard Street
Vancouver, British Columbia
Re: Arrangement between Western Goldfields Inc. (“WGI”) and New Gold Inc. (“New Gold”)
This letter sets out our agreement with respect to certain matters in connection with the proposed business combination by way of arrangement pursuant to a business combination agreement dated as of March 3, 2009 between WGI and New Gold (the “ Agreement ”) and as amended by letter agreement dated April 8, 2009. For good and valuable consideration (for which receipt is hereby acknowledged by both of us), we agree as follows:
1. The Parties have determined that the Arrangement will not have the U.S. federal income tax consequences described in section 2.10 of the Agreement.
2. Accordingly, and pursuant to section 7.01 of the Agreement and section 6.01 (a) of the Plan of Arrangement, the Plan of Arrangement shall be amended such that the merger of New Gold Subco and Western shall not occur, and the steps described in paragraphs 3.01(e),(f),(g) and (h) of the Plan of Arrangement (in the form attached as Appendix “A” to the Proxy Circular) shall be deleted.
3. The Plan Arrangement, as amended in accordance with Section 2 above, shall be in the form attached hereto as Schedule “A”.
4. Terms that are not otherwise defined herein shall have the meanings ascribed thereto in the Agreement.
Accepted as of the date above.
PLAN OF ARRANGEMENT
UNDER SECTION 182 OF THE
BUSINESS CORPORATIONS ACT (ONTARIO)
In this Plan of Arrangement, unless the context otherwise requires, the following words and terms with the initial letter or letters thereof capitalized shall have the meanings ascribed to them below:
(a) “ Arrangement ” means the arrangement under the provisions of the OBCA on the terms and subject to the conditions set forth in this Plan of Arrangement, subject to any amendment or supplement hereto made in accordance with the Business Combination Agreement , the provisions hereof or at the direction of the Court in the Final Order;
(b) “ Business Combination Agreement ” means the business combination arrangement agreement dated as of March 3, 2009 between New Gold Inc. and Western Goldfields Inc., as amended, amended and restated or supplemented prior to the Effective Date;
(c) “ Business Day ” means any day other than a Saturday, a Sunday or a statutory holiday in Toronto, Ontario or Vancouver, British Columbia;
(d) “ Canadian Resident ” means a beneficial owner of Western Common Shares immediately prior to the Effective Time who is a resident of Canada for purposes of the Tax Act (other than a Tax Exempt Person), or a partnership any member of which is a resident of Canada for the purposes of the Tax Act (other than a Tax Exempt Person);
(e) “ Court ” means the Ontario Superior Court of Justice (Commercial List);
(f) “ CRA ” means the Canada Revenue Agency;
(g) “ Depositary ” means Computershare Investor Services Inc. or any other trust company, bank or financial institution agreed to in writing between New Gold and Western for the purpose of, among other things, exchanging certificates representing Western Common Shares for New Gold Common Shares in connection with the Arrangement;
(h) “ Dissent Right ” shall have the meaning ascribed thereto in Article 4.01;
(i) “ Dissenting Shareholder ” means a registered holder of Western Common Shares who dissents in respect of the Arrangement in strict compliance with the Dissent Rights and who is ultimately entitled to be paid fair value for their Western Common Shares;
(j) “ Effective Date ” means the date shown on the certificate of arrangement issued under the OBCA giving effect to the Arrangement;
(k) “ Effective Time ” means 12:01 am (Toronto Time) on the Effective Date;
(l) “ Electing Holdco Shareholder ” means a Qualifying Holdco Shareholder who has elected the Holdco Alternative in accordance with the Business Combination Agreement;
(m) “ Eligible Holder ” means: (i) a Canadian Resident, or (ii) an Eligible Non-Resident or (iii) an Electing Holdco Shareholder;
(n) “ Eligible Non-Resident ” means a beneficial owner of Western Common Shares immediately prior to the Effective Time who is not, and is not deemed to be, a resident of Canada for purposes of the Tax Act and whose Western Common Shares are “taxable Canadian property” and not “treaty-protected property”, in each case as defined in the Tax Act;
(o) “ Final Order ” means the final order of the Court made in connection with the approval of the Arrangement, including all amendments thereto made prior to the Effective Time;
(p) “ Former Western Shareholders ” means the holders of Western Common Shares immediately prior to the Effective Time;
(q) “ Holdco Alternative ” shall have the meaning ascribed thereto in the Business Combination Agreement;
(r) “ In-The-Money Amount ” in respect of a stock option means the amount, if any, by which the aggregate fair market value at that time of the securities subject to the option exceeds the aggregate exercise price under the option;
(s) “ Interim Order ” means the interim order of the Court made pursuant to Section 182(5) of the OBCA in connection with the Arrangement, including any amendment thereto;
(t) “ New Gold ” means New Gold Inc., a corporation existing under the Business Corporations Act (British Columbia);
(u) “ New Gold Common Shares ” means the common shares in the capital of New Gold;
(v) “ New Gold Replacement Option ” shall have the meaning ascribed thereto in Section 3.01(d);
(w) “ OBCA ” means the Business Corporations Act (Ontario);
(x) “ Plan of Arrangement ” means this plan of arrangement, as amended, modified or supplemented from time to time in accordance herewith, and with the Business Combination Agreement and any order of the Court;
(y) “ Qualifying Holdco ” shall have the meaning ascribed thereto in the Business Combination Agreement;
(z) “ Qualifying Holdco Shareholder ” shall have the meaning ascribed thereto in the Business Combination Agreement;
(aa) “ Section 85 Election ” shall have the meaning ascribed thereto in Section 3.02(c);
(bb) “ Share Consideration ” means the Share Exchange Ratio plus $0.0001 in cash for each Western Common Share;
(cc) “Share Exchange Ratio ” means 1.0 of a New Gold Common Share for each Western Common Share;
(dd) “ Tax Act ” means the Income Tax Act (Canada) and the regulations thereunder, as amended from time to time;
(ee) “ Tax Exempt Person ” means a person who is exempt from tax under Part I of the Tax Act;
(ff) “ Western &rdq