RE: RE: RE: RE: Why the ValuationThe option agreement Cliffs entered into with KWG last year (2009) excludes them from receiving any distribution of DDI shares to shareholders of KWG. Their interest was in the chrome deposit, not diamonds.
Mineral Exploration Company KWG Enters Into An Option Agreement WithCliffs Natural Resources Inc.
Montréal, Canada - January 21, 2009 - KWG Resources Inc. ("KWG" or the"Company") (TSXV: KWG; OTCBB: KWGBF) is pleased toannounce that it has entered into a an option agreement (the "OptionAgreement") with Cliffs Natural Resources Inc.("Cliffs") (NYSE: CLF) an Ohio Corporation. The OptionAgreement grants Cliffs an irrevocable option (the "Option")to purchase and acquire certain securities of KWG in the aggregateamount of US$3,500,000.
KWG indicated that Cliffs has expressed interest in KWG's potentialclaims to ferro chromium deposits and that the Option Agreement providesthat Cliffs will not participate in any distribution by KWG of theequity of Debuts Diamonds Inc.
Under the Option Agreement, in consideration of Cliff's payment ofUS$150,000, Cliffs may subscribe for 50,448,987 units of KWG (each a "Unit"),such number being equal to 14.9% of the number of outstanding commonshares of KWG (the "Common Shares") as at the date ofexecution of the Option Agreement (the "Execution Date")after giving effect to the issuance of the Units, at a subscriptionprice of US
.048893 per Unit (the "Subscription Price").Each Unit will be comprised of one (1) Common Share and approximately0.44 of a non-transferable Common Share purchase warrant of KWG (eachsuch whole common share purchase warrant, a "Warrant"),such that the total number of Warrants to be issued will equal22,224,784 Warrants or 14.9% of the aggregate number of warrants,options and other rights to purchase or obligations to issue CommonShares outstanding (the "Outstanding Options") as atthe Execution Date, after giving effect to the issuance of the Units.Each Warrant will entitle Cliffs to purchase one (1) Common Share atUS
.05 during the first year after issuance thereofand US
.10 thereafter and will be exercisable for an agreed-upon periodfollowing the issuance by KWG of 5 Common Shares upon the exercise ofthe Outstanding Options, and, in any event, will terminate no later thanthe fifth anniversary of the date of issuance of the Warrants.
In the event the Option is exercised, Cliffs will also purchase asecured convertible debenture of KWG (the "Debenture")in a principal amount of approximately US$1 million, suchamount being equal to the difference between US$3.5 million and theaggregate Subscription Price payable for the Units described above. TheDebenture will be non-transferable and non-interest bearing, and willnot be convertible unless and until all conditions prescribed by theTSXV, including the approval of the shareholders of KWG to the issuanceof the Units upon conversion of the Debenture to be obtained inaccordance with the policies of the TSXV (the "ShareholderApproval"), have been satisfied or waived. In the event thatall of such conditions have not been satisfied or waived on or beforeApril 15, 2009, Cliffs will have the right to demand repayment thereof,in which event KWG shall also pay to Cliffs a credit facilitytermination fee of US$50,000 (the "Termination Fee")provided, however that if the Shareholder Approval is not obtained, KWGshall immediately repay, in full, the principal amount of the Debentureand pay to Cliffs the Termination Fee.
Upon satisfaction or waiver of such conditions, all of the principalamount of the Debenture will be converted automatically and without anyfurther action on the part of KWG or Cliffs into Units at the rate ofUS
.048894 per Unit resulting in a further issuance to Cliffs of21,135,069 Units comprised of 21,135,069 Common Shares and 9,310,839Warrants. The security to be granted by KWG will be comprised of cashin an amount equal to the principal amount of the Debenture plus theamount of the Termination Fee to be held by a security agent to bemutually selected by KWG and Cliffs.
As a condition to Cliffs' exercise of the Option for the Units andits purchase of the Debenture, KWG will enter into a subscriptionagreement and a shareholder agreement.
In the event the Option is exercised and the conditions set forthabove have been satisfied or waived, the number of Common Sharescomprising the Units and issuable upon the conversion of the Debentureand the exercise of the Warrants (including the Warrants issuable uponthe conversion of the Debenture) will total 103,119,679 Common Shares.