RE: RE: RE: RE: RE: RE: offer
KWG and Spider sign merger agreement
2010-05-26 00:22 ET - News Release
Also News Release (C-SPQ) Spider Resources Inc
Mr. Frank Smeenk of KWG reports
KWG RESOURCES INC. AND SPIDER RESOURCES INC. ENTER INTO BINDING LETTER AGREEMENT REGARDING PROPOSED MERGER
KWG Resources Inc. and Spider Resources Inc. have entered into a binding letter agreement, which sets out the principal terms upon which it is proposed that the two corporations will complete a business combination, at the conclusion of which the shareholders of each corporation will hold 50 per cent of the outstanding shares of the continuing public corporation. The combined company will hold a current interest of 53 per cent in the Big Daddy deposit, with the option to earn a further 7 per cent to achieve a 60-per-cent interest in the project. It is anticipated that the continuing public corporation will continue to be named KWG Resources Inc. for a period of time after the merger, and will continue to be listed on the TSX Venture Exchange and on the Canadian National Stock Exchange. Following the merger, it is proposed that the name of the continuing public company will be changed to Spider-KWG Resources Inc., subject to shareholder and regulatory approvals.
Rationale for the merger
KWG and Spider have decided to combine as the logical next step of the continued exploration and development of their jointly held mineral projects in Northern Ontario. The merger has been initiated in order to combine the companies' respective assets and experienced management teams, facilitate future financings and rationalize operations, all with a view to enhancing shareholder value. In particular, the merger will result in the combined company having a majority interest in the Big Daddy deposit, with the continuing right to operate the continued exploration, development and mining activities thereon.
Frank Smeenk, president of KWG, stated, "We are delighted to have finally achieved an agreement to combine the majority operating interest in what has the potential to be one of the world's pre-eminent chromite deposits."
Neil Novak, president of Spider, stated: "After 18 years of exploring the James Bay Lowlands area of Northern Ontario as co-venturers, this merger places all of our exploration successes into one corporation. A corporation which will be poised for the development of its main asset, the Big Daddy deposit, while maintaining an enviable portfolio of exploration projects covering a range of minerals."
Highlights of the merger
It is anticipated that the merger will be effected by way of a three-cornered amalgamation under the Canada Business Corporations Act, pursuant to which Spider (a corporation formed under the CBCA) will amalgamate with a newly incorporated, wholly owned CBCA-formed subsidiary of KWG, to become a wholly owned subsidiary of KWG.
Prior to the completion of the merger, KWG will transfer its interest in the railway right of way, in its 1-per-cent net smelter returns royalty covering the Big Daddy deposit, the Black Thor deposit and the Black Label deposit granted by Freewest Resources Canada Inc., and cash in an amount to be agreed upon between KWG and Spider to KWG's wholly owned subsidiary, Debuts Diamonds Inc., in exchange for Debut's interest in various diamond exploration projects and a number of common shares of Debuts to be specified, and will distribute all of the outstanding common shares of Debuts to the shareholders of record of KWG.
Under the terms of the merger:
All of the common shares of Spider outstanding will be exchanged for common shares of KWG at the ratio of one Spider share for that number of KWG shares equal to the number of outstanding KWG shares, divided by the number of outstanding Spider shares, in each case calculated as at the close of business on the date immediately preceding the effective date of the merger.
Each of the outstanding warrants to purchase one Spider share will, subject to regulatory approval, be exchanged for a warrant of KWG, exercisable to acquire that number of KWG shares equal to the exchange ratio. All other terms of such KWG warrant, including the exercise price and the expiry date thereof, shall be the same as the Spider warrant.
Each of the outstanding options (whether or not vested) to acquire one Spider share will, subject to regulatory approval, be exchanged for an option of KWG exercisable to acquire that number of KWG shares equal to the exchange ratio at an exercise price per KWG share and on other terms to be agreed upon and included in the definitive agreement in respect of the merger.
Each of the outstanding compensation options of Spider to acquire a unit of Spider, each Spider unit consisting of one Spider share and one common share purchase warrant of Spider, will, subject to regulatory approval, be exchanged for one compensation option of KWG, exercisable to acquire a number of units of KWG equal to the exchange ratio, each KWG unit consisting of one KWG Share and one common share purchase warrant of KWG. All other terms of the KWG unit compensation options, including the expiry dates thereof, shall be the same as the Spider unit compensation options for which they are exchanged, and all terms of the common share purchase warrants of KWG comprising part of the KWG unit, including the exercise price and expiry date thereof, shall be the same as the common share purchase warrant of Spider comprising part of the Spider unit.
KWG shall continue with its listing on the TSX Venture Exchange and the CNSX.
KWG and Spider will co-operate in structuring the merger, which may vary from the foregoing structure on the basis of tax, securities, corporate law and other advice in order to ensure the most efficient structure for each of the parties and their respective securityholders.
Completion of the merger is subject to a number of conditions, including, but not limited to, confirmatory due diligence, the negotiation and execution of the definitive agreement, the receipt of all required regulatory approvals, including the approval of the TSX-V, and approval of the shareholders of Spider.
The merger will be submitted to the shareholders of Spider for consideration and approval at a special meeting to be convened by Spider as soon as possible following the completion, to the satisfaction of Spider and KWG, as applicable, of their due diligence investigations and execution of definitive documentation.
Each party will pay its own costs and expenses (including all legal, accounting and financial advisory fees and expenses) in connection with the merger, including expenses related to the preparation, execution and delivery of the letter agreement, the definitive agreement and such other required documents.
In addition, the parties have agreed that each party will pay the other a break fee of $2.3-million if, among other things, the merger is not completed as a result of such party completing an alternative transaction, including but not limited to a merger, amalgamation, share exchange, business combination, takeover bid, sale or other disposition of material assets, recapitalization, reorganization, liquidation, sale or issuance of a material number of treasury securities (except upon the due exercise of convertible securities outstanding on the date of this news release) or rights or interests therein or thereto, or rights or options to acquire any material number of treasury securities, or any type of similar transaction involving it or any of its subsidiaries other than with the other party to the letter agreement, the board of directors of such party withdraws or modifies, in a manner materially adverse to the other party to the letter agreement, its approval or recommendation of the merger or otherwise fails to make such approval or recommendation, such party enters into a letter of intent or definitive written agreement with respect to a superior proposal (as defined in the letter agreement), or if such party is subject to a takeover bid initiated by a third party. This break fee will also be payable by Spider to KWG if KWG terminates the letter agreement following the failure by Spider to mail a proxy circular and related documents in respect of the merger to its shareholders on or before June 21, 2010. The parties have further agreed that, in certain other circumstances, Spider will pay a break fee to KWG of $1.1-million, or KWG will pay a break fee to Spider of $1.4-million.
Proposed takeover bids for KWG and/or Spider by Cliffs Natural Resources Inc.
On May 24, 2010, Cliffs Natural Resources Inc. announced that it intended to make takeover bids for all of the issued and outstanding common shares (not already owned by Cliffs or its affiliates) of KWG and/or Spider for cash consideration of 13 cents per share. Cliffs advised that neither bid would be conditional upon the completion of the other. The board of directors of each of Spider and KWG has formed an independent special committee to consider the bid by Cliffs.
As at the date of this news release, the outstanding share capital of KWG is 577,741,471 common shares on an undiluted basis, and 828,923,980 common shares on a fully diluted basis, and the outstanding share capital of Spider is 476,336,465 common shares on an undiluted basis, and 653,538,978 common shares on a fully diluted basis. KWG owns 250,000 Spider shares.
For further details regarding the merger, see the letter agreement which will be filed on the respective SEDAR profiles of KWG and Spider.
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