"According to KWG, this pre-emptive right does not apply under the terms of a purchase for shares, so the increase of outstanding shares will have the effect of diluting Cliffs to about 10%, post merger."
Correct, Lar. Cliffs will be diluted as to the votes, as all other shareholders, but theorically not as to the capital (given that pre-merger Spider's value is equivalent to pre-mergerKWG's.) Did the intent of the preemptive rights clause was to allow Cliffs to keep the 19,9 % ratio for the votes, the capital, or both of them? Cliffs' and KWG's attorneys may give you opposite answers...
"KWG will be transferring the Big Daddy asset into a wholly-owned subsidiary, which will be the same repository for the SPQ assets being merged."
Am I wrong, but I don't think the Big Daddy assets will be trasferred to the merged subsidiary. The net smelter (BT, BD, BL) yes, but not the assets. My understanding is that they will remain in KWG. It is not mentioned in the NRs, but usually, the last step of a 3 -cornered amalgamation is the winding-up of the assets of the merged entity (ie Spider's assets becaused the numbered Canada Inc corp had no pre-merging assets except 100$ or so as the initial subscription price) into the parent issuer (KWG). SO the end result would be that KWG owns all its pre-merging assets (minus those rollovered to DDI) + all Spider's pre-merging assets. And KWG will have doubled its float by issuing shares to pre-merging Spider's shareholders.
Does that not mean that the pre-emptive rights assigned by the parent KWG remain with the parent? In other words, wouldn't the subsidiary be liberated from any and all of those terms? So long as the parent ceases financings to run its operations, Cliffs would be frozen out?"
KWG will remain intact as to its rights and obligation, because it didn't merge, it only issued shares in the course of an Amalgamation Agreement between two other entities (KWG is a 'third party' to that Agreement). When the winding-up of the merged subsiduary (owning Spider's pre-merging rights and obligation) will occur, KWG Resources Inc (which stayed the very same corporation during all the process and kept trading as KWG.V as usual) will own all assets (minus DDI assets, but plus DDI shares) and all rights and obligations belonging to it, and to Spider.
Hope I was not too technical... Illustrations, arrows and graphics would help, but I don't have a chalk-stick available...
GLTA.
BaBe.
