The complete proposal is posted on Sedar. Warning... It's quite lengthy and I appologize for the formatting of the copy/paste but it's too much to clean it up.

http://www.sedar.com/CheckCode.do;jsessionid=0000hrnvZYgy_Mmuba-n4rCa9MA:-1

Dear Sirs:
Re: Proposed Business Combination of KWG Resources Inc. (“KWG”) and Spider
Resources Inc. (“Spider”)
This letter agreement (the “Letter Agreement”) sets out the principal terms upon which it is
proposed that KWG and Spider will complete a business combination (the “Merger”). It is
anticipated that the ongoing public corporation will continue to be named “KWG Resources
Inc.” and will continue to be listed on the TSX Venture Exchange (“TSXV”) and the Canadian
National Stock Exchange (the “CNSX”). This Letter Agreement is intended to be and shall be
binding upon the parties hereto.
1. Structure
It is anticipated that the Merger will be effected by way of a three-cornered amalgamation under
the Canada Business Corporations Act (the “CBCA”), pursuant to which Spider (a corporation
formed under the CBCA) will amalgamate with a newly-incorporated, wholly owned CBCA
formed subsidiary of KWG, to be become a wholly-owned subsidiary of KWG. It is anticipated
that after completion of the Merger, the board of directors of KWG will endeavour to effect a
change of corporate name to “Spider-KWG Resources Inc.”.
Prior to the completion of the Merger, KWG will transfer its interest in the railway right of way,
its 50% interest in the 2% net smelter returns royalty granted by Freewest Resources Canada Inc.
to Richard Nemis pursuant to an agreement entered into on June 30, 2003, as amended by
agreement among such persons and KWG made as of July 21, 2009, and cash in an amount to be
agreed upon between KWG and Spider to Debuts Diamonds Inc. (“Debuts”) in exchange for
Debut’s interest in various diamond exploration projects and a number of common shares of
Debuts to be specified, on a tax-free rollover basis, and will distribute all of the outstanding
common shares of Debuts to the shareholders of record of KWG as a return of capital (the
“Railway Spinoff”).
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Under the terms of the Merger:
(a) all of the common shares of Spider (the “Spider Shares”) outstanding will be
exchanged for common shares of KWG (the “KWG Shares”) at the ratio of one
(1) Spider Share for that number of KWG Shares equal to:
(i) the number of outstanding KWG Shares, divided by
(ii) 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 (the “Exchange Ratio”);
(b) each of the outstanding warrants to purchase one Spider Share (“Spider
Warrant”) will, subject to regulatory approval, be exchanged for a warrant of
KWG (“KWG Warrant”) 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;
(c) 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 (as defined below);
(d) each of the outstanding compensation options of Spider (“Spider Unit
Compensation Options”) to acquire a unit of Spider (each, a “Spider Unit”),
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 (each, a “KWG Unit Compensation Option”)
exercisable to acquire a number of units of KWG equal to the Exchange Ratio
(each, a “KWG Unit”), 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; and
(e) KWG shall continue with its listings on the TSXV and the CNSX.
KWG and Spider shall cooperate 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. The effective
date of the Merger is referred to herein as the “Effective Date”.
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The Merger will be submitted to the shareholders of Spider (the “Spider Shareholders”) for
consideration and approval at a special meeting to be convened by Spider (the “Spider
Meeting”) as soon as possible following the completion, to the satisfaction of Spider and KWG,
as applicable, of all due diligence investigations contemplated below. Spider shall mail the
requisite proxy circular to its shareholders no later than June 21, 2010 or such other date as the
parties may agree, acting reasonably, failing which, KWG shall be entitled to terminate this
Letter Agreement on written notice to Spider. Spider covenants and agrees to prepare the
requisite proxy circular as soon as practicable and KWG covenants and agrees to cooperate in the preparation thereof and provide to Spider the level of disclosure regarding KWG which is required under applicable securities laws. Each of the parties covenants and agrees that it shall act in good faith to use its commercially reasonable best efforts to obtain all required regulatory approvals for the Merger.
On completion of the Merger, existing options held by directors of KWG and Spider who will
not be continuing as directors of KWG will expire on the first anniversary of the Effective Date, subject to the approval of the TSXV.
2. Board and Management
On completion of the Merger, the board of directors of KWG shall be comprised of Neil Novak,
Bruce Reid, Frank Smeenk, Rene Galipeau, Norman Brewster and Bryan Wilson, and Frank
Smeenk and Neil Novak will be appointed Executive Chairman and President, respectively.
All existing employment and consulting agreements between KWG or its subsidiaries and their
respective directors, officers and employees will remain in full force and effect following
completion of the Merger.
All existing employment and consulting agreements between Spider or its subsidiaries and their
respective directors, officers and employees will remain in full force and effect following
completion of the Merger.
3. Outstanding Securities
(a) Outstanding Securities of KWG
The authorized capital of KWG consists of an unlimited number of KWG Shares, of
which 577,741,471 KWG Shares are issued and outstanding as at the date hereof. Other
than pursuant to the exercise or conversion of the KWG Convertible Securities (defined
below), no additional KWG Shares are issuable.
As at the date hereof, there are no outstanding securities of KWG convertible into or
exercisable or exchangeable for KWG Shares, and no such securities are otherwise
issuable, other than: (i) options exercisable to acquire an aggregate of up to 56,077,280
KWG Shares, (ii) warrants exercisable to acquire an aggregate of up to 194,002,856
KWG Shares, (iii) compensation options of KWG exercisable to acquire an aggregate of
up to 1,102,373 KWG Shares and (iv) and the option in favour of Cliffs Greene B.V.,
exercisable at $0.10 per KWG Share, to acquire from treasury one quarter of the number
of KWG Shares resulting from any exercise from time to time of convertible securities of
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KWG outstanding as at January 20, 2009 (all such securities, the “KWG Convertible
Securities”).
(b) Outstanding Securities of Spider
The authorized capital of Spider consists of an unlimited number of Spider Shares, of
which 476,366,465 Spider Shares are issued and outstanding as at the date hereof. KWG
owns 250,000 Spider Shares. As at the date hereof, no Spider Shares are issuable, other
than pursuant to the exercise of the stock options, compensation options and warrants set
forth below.
As at the date hereof, there are no outstanding securities of Spider convertible into or
exercisable or exchangeable for Spider Shares, and no such securities are otherwise
issuable, other than: (i) stock options exercisable to acquire an aggregate of up to
30,885,018 Spider Shares, (ii) warrants exercisable to acquire an aggregate of up to
138,692,700 Spider Shares and (iii) 7,624,795 Spider Unit Compensation Options (all
such securities, the “Spider Convertible Securities”).
4. Due Diligence:
During the period commencing on the date of acceptance of this Letter Agreement and ending on
June 7, 2010 or such other date as the parties agree (the “Due Diligence Deadline”), each party
will allow the other and its respective authorized representatives, including legal counsel and
financial advisors, access to all information, books or records and other due diligence materials
relevant for the purpose of completing legal and financial confirmatory due diligence
investigations (but, for greater certainty, no other investigations) relevant to the transactions
contemplated herein, including, but not limited to, all related books, contracts, financial
statements, forecasts, financial projections, records, operating permits and licences and any other
documentation (whether in writing or stored in computerized, electronic, disk, tape, microfilm or
any other form) or materials of any nature whatsoever. Each of the parties acknowledges and
agrees that it has completed to its satisfaction all technical due diligence investigations in respect
of the other party’s properties and assets.
Each of Spider and KWG shall be satisfied, in its sole and absolute discretion, on or before the
Due Diligence Deadline, as to the results of its confirmatory legal and financial due diligence
investigations of the other party and, unless Spider or KWG, as applicable, provides written
notice (a “Termination Notice”) to the other party prior to 5:00 p.m. (Toronto time) on the Due
Diligence Deadline, that it is not satisfied with such due diligence investigations, such party shall
be deemed to be so satisfied. If either Spider or KWG provides a Termination Notice to the
other party in accordance with this paragraph, this Letter Agreement shall automatically
terminate effective the date that the Termination Notice is given (in accordance with
subparagraph 13(d)) and neither party shall have any further obligation to the other with respect
to the matters contained herein.
Each party hereto agrees that all information and documents so obtained will be kept confidential
in accordance with the terms of the confidentiality agreement entered into between the parties
hereto on the date hereof.
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5. Definitive Agreement
Upon acceptance of this Letter Agreement, Spider and KWG shall negotiate in good faith a
definitive agreement (the “Definitive Agreement”) in respect of the Merger and such other
agreements as may be necessary to give effect to the Merger (together with the Definitive
Agreement, the “Merger Documents”), and the Definitive Agreement shall reflect the terms
hereof (including, without limitation, the provisions of paragraph 12 hereof as if the term
“Definitive Agreement” were substituted for the term “Letter Agreement” therein) and include
other customary terms and conditions (including representations and warranties, covenants,
conditions and completion mechanics) for a transaction of the nature of the Merger. The initial
draft of the Definitive Agreement shall be prepared by counsel to KWG.
All Merger Documents shall be in form and content satisfactory to each of Spider and KWG and
subject to the approval of their respective boards of directors. Upon execution, the Definitive
Agreement will supersede this Letter Agreement.
6. Completion Date
Each of Spider and KWG shall use its commercially reasonable best efforts to satisfy the
conditions to be satisfied by it hereunder and to complete the Merger by July 16, 2010 or such
other date as the parties may agree (the “Completion Deadline”). If the Merger has not been
completed by the Completion Deadline, this Letter Agreement may be terminated in accordance
with its terms.
7. Terms and Conditions in Favour of Spider
Spider’s obligation to complete the Merger described herein will be subject to the following
conditions (the “Spider Closing Conditions”):
(a) receipt by Spider of all required regulatory approvals and receipt of approval by
the Spider Shareholders for the Merger;
(b) execution and delivery by KWG of the Merger Documents on substantially the
same terms as described herein, together with such other terms as are customary
in a transaction of this nature, including execution and delivery by KWG of the
Definitive Agreement on or before June 18, 2010 or such other date as the parties
may agree, acting reasonably;
(c) receipt by KWG of all required regulatory approvals for the Merger;
(d) Spider being satisfied, acting reasonably, that no Material Adverse Change (as
hereinafter defined) in respect of KWG (on a consolidated basis) has occurred
prior to the Effective Date;
(e) all of the representations and warranties of KWG which are set forth in the
Merger Documents will be true and correct as at the date made and, in all material
respects, as at the Effective Date;
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(f) all of the covenants, obligations and requirements of KWG described in this
Letter Agreement and the Merger Documents will have been satisfied and
complied with;
(g) the Merger shall have been completed on or before the Completion Deadline; and
(h) the Railway Spinoff shall have been completed.
The Spider Closing Conditions are for the exclusive benefit of Spider and may be waived in
whole or in part by it at any time.
8. Terms and Conditions in Favour of KWG
KWG’s obligation to complete the Merger will be subject to the following conditions (the
“KWG Closing Conditions”):
(a) receipt by Spider of all required regulatory approvals and receipt of approval by
the Spider Shareholders for the Merger;
(b) execution and delivery by Spider of the Merger Documents on substantially the
same terms as described herein, together with such other terms as are customary
in a transaction of this nature, including execution and delivery by Spider of the
Definitive Agreement on or before June 18, 2010 or such other date as the parties
may agree, acting reasonably;
(c) receipt by KWG of all required regulatory approvals for the Merger;
(d) KWG being satisfied, acting reasonably, that no Material Adverse Change in
respect of Spider (on a consolidated basis) has occurred prior to the Effective
Date;
(e) all of the representations and warranties of Spider which are set forth in the
Merger Documents will be true and correct as at the date made and, in all material
respects, as at the Effective Date;
(f) all of the covenants, obligations and requirements of Spider described in this
Letter Agreement and the Merger Documents will have been satisfied and
complied with;
(g) the Merger shall have been completed by the Completion Deadline;
(h) holders of no more than 7.5% of the outstanding common shares of Spider
exercising any right of dissent in connection with the Merger;
(i) the board of directors of Spider shall have received an opinion from its financial
advisors that the Merger is fair, from a financial point of view, to the Spider
Shareholders and all of the directors of Spider who shall have attended the
meeting at which the Merger was considered shall have:
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(i) determined that the Merger is fair to the Spider Shareholders and the
Merger is in the best interests of Spider; and
(ii) recommended that the Spider Shareholders vote in favour of the Merger;
and
(j) the Railway Spinoff shall have been completed.
The KWG Closing Conditions are for the exclusive benefit of KWG and may be waived in
whole or in part by it at any time.
9. No Solicitation
(a) During the period commencing on the date hereof and ending on the Termination
Date (as defined in paragraph 12), each party agrees that it will not without the
written consent of the other, directly or indirectly, through any officer, director,
employee, advisor, representative, agent or otherwise, take any direct or indirect
action to: (a) solicit, initiate, encourage, engage in or respond to any inquiries,
submissions, proposals or offers regarding any merger, amalgamation, share
exchange, business combination, take-over 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 hereof and, in the case of Spider,
except in the circumstances described in subparagraph 11(a)(ii)) 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 (each an “Alternative Proposal”), (b)
encourage or participate in any discussions or negotiations regarding any
Alternative Proposal, (c) agree to, approve or recommend an Alternative
Proposal, or (d) enter into any agreement related to an Alternative Proposal. Each
of Spider and KWG represents and warrants to the other that it is not currently in
any discussions or negotiations with any person (other than with the other party)
with respect to any potential Alternative Proposal. Each party shall promptly
notify the other of any future Alternative Proposal of which any director, senior
officer or agent of it is or becomes aware of, any amendment to any of the
foregoing or any request for non-public information relating to it. Such notice
shall include a description of the material terms and conditions of any such
proposal and the identity of the person making such proposal, inquiry, request or
contact.
(b) Notwithstanding the preceding subparagraph 9(a) and any other provisions of this
Letter Agreement, the board of directors of KWG or Spider may, prior to the
approval of the Merger by the Spider Shareholders, consider, participate in any
discussions or negotiations with, or provide information to, any person who has
delivered or issued a bona fide Alternative Proposal which was not solicited or
encouraged after the date of this Letter Agreement and did not otherwise result
from a breach of this paragraph 9 and that the board of directors of KWG or
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Spider, as the case may be, determines in good faith, after consultation with its
outside legal counsel, would, if consummated in accordance with its terms, result
in a transaction more favourable to the Spider Shareholders or the shareholders of
KWG, as the case may be, from a financial point of view, than the terms of the
Merger (any such Alternative Proposal a “Superior Proposal”), provided that
any such determination shall only be made if the board of directors of KWG or
Spider, as the case may be, has received advice of outside legal counsel to the
effect that the board of directors is required to do so in order to properly discharge
its fiduciary duties, and provided further that, immediately upon receipt of such
advice, the party receiving such advice advises the other party in writing that it
has received such advice and provides written details thereof.
(c) Notwithstanding the preceding subpararaphs 9(a) and 9(b), KWG or Spider, as the
case may be, may respond to an Alternative Proposal that is not a Superior
Proposal, provided that such proposal has not been solicited or initiated by it.
(d) Notwithstanding any other provision of this Letter Agreement, each party (for the
purposes of this subparagraph 9(d), the “Receiving Party”) agrees that it will not
enter into any agreement (other than a confidentiality agreement) regarding a
Superior Proposal (a “Proposed Agreement”) or release the person making the
Superior Proposal from any standstill agreements without providing the other
party hereto (for the purposes of this subparagraph 9(d), the “Other Party”) with
an opportunity of not less than five (5) Business Days (as defined below) to
amend this Letter Agreement to provide at least as favourable terms than those to
be included in the Proposed Agreement. In particular, the Receiving Party
covenants to provide the Other Party with all material terms and conditions of any
Proposed Agreement at least five (5) Business Days prior to the proposed date of
execution of such Proposed Agreement by the Receiving Party. The board of
directors of the Receiving Party will review any offer by the Other Party to amend
the terms of this Letter Agreement in good faith in order to determine, acting
reasonably and exercising its fiduciary duties, whether the Other Party’s offer,
upon acceptance by the Receiving Party, would result in the Proposed Agreement
not being a Superior Proposal. If the board of directors of the Receiving Party so
determines, it will enter into an amended Letter Agreement (or Definitive
Agreement) with the Other Party reflecting the Other Party’s amended proposal.
In the event that the Other Party agrees to amend this Letter Agreement as
provided above within such five (5) Business Day period, the Receiving Party
covenants to not enter into the Proposed Agreement or release the party making
the Superior Proposal from any standstill agreements.
(e) Each of the parties hereto acknowledges and agrees that, in the event that it
acquires any securities of the other party prior to the Completion Deadline, it will
provide prompt written notice thereof to such other party.
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10. Representations, Warranties and Covenants of KWG
As of the date hereof, KWG represents, warrants and covenants to Spider as follows:
(a) Business in the Ordinary Course
From the date hereof until the earlier of the Termination Date and the Effective Date,
KWG shall and shall cause its subsidiaries (the “Subsidiaries”) to, except as otherwise
consented to by Spider: (i) conduct its business only, and to not take any action except, in
the ordinary course consistent with its past practices; (ii) not issue, or take any actions
which may require it to issue, any securities, other than as permitted in connection with
the Merger, pursuant to the exercise or conversion of KWG Convertible Securities
outstanding on the date hereof or other than in connection with the creation of a
shareholders rights plan; (iii) not sell, pledge, dispose of or encumber any assets; (iv) not
incur any indebtedness for borrowed money or any other material liability or obligation
or issue any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other individual or entity,
or make any loans or advances; and (v) notify Spider as soon as practicable following the
occurrence of any Material Adverse Change in respect of it.
(b) Properties
KWG or one of the Subsidiaries is the legal and beneficial owner of and has good and
marketable title to the properties, business and assets or the interests in the properties,
business or assets referred to in the financial statements, annual information forms (if
applicable), information circulars, material change reports, technical reports, press
releases and all documents filed by or on behalf of KWG under its corporate profile at
www.sedar.com (collectively, the “KWG Information Record”), all agreements by
which each of KWG or any of the Subsidiaries holds an interest in a material property,
business or assets are in good standing in all material respects according to their terms
and the properties are in good standing under the applicable laws of the jurisdictions in
which they are situated and all filings and work commitments required to maintain the
properties in good standing have been properly recorded and filed in a timely manner
with the appropriate regulatory body and there are no mortgages, liens, charges,
encumbrances or any other interests in or on such properties except as disclosed in the
KWG Information Record.
(c) No Rights
Except as disclosed in the KWG Information Record or in this Letter Agreement, no
person (which word shall be given the broadest interpretation possible in this Letter
Agreement) has any agreement or option or any right or privilege capable of becoming an
agreement or option to purchase from KWG or any of the Subsidiaries any of its material
assets, to require KWG or any of the Subsidiaries to issue any of its securities, or to
acquire any of its outstanding securities.
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(d) Fees
KWG has not entered into any agreement that would entitle any person to any valid claim
against it or Spider for a broker’s commission, finder’s fee or any similar payment in
respect of the Merger or any other matter contemplated by this Letter Agreement, other
than pursuant to its financial advisory services agreement with Canaccord Genuity Corp.
or another financial services agreement which may be entered into with a financial
advisor engaged by KWG in connection with the Proposed Merger.
(e) Liabilities
KWG (on a consolidated basis) does not have any material liability or obligation, whether
accrued, absolute, contingent or otherwise, not reflected in the KWG Information Record
or disclosed in this Letter Agreement.
(f) Litigation
There are no claims, actions, suits, judgements, litigation or proceedings pending or, to
the knowledge of KWG, threatened against or affecting KWG or any of the Subsidiaries
which will or may have a material adverse affect upon KWG, on a consolidated basis, or
which may prevent the completion of the Merger, and KWG is not aware of any existing
ground on which any such claim, action, suit, judgement, litigation or proceeding might
be commenced with any reasonable likelihood of success.
(g) Regulatory Approvals
Other than the approval of the directors of KWG and Spider, the Spider Shareholders and
the TSXV, no permit, authorization or consent of any party is necessary for the
consummation by KWG of the Merger, and the execution and delivery of this Letter
Agreement and the consummation by KWG of the Merger will not result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a default
under any indenture, agreement or other instrument to which KWG or any of the
Subsidiaries is a party or by which it is bound.
11. Representations, Warranties and Covenants of Spider
As of the date hereof, Spider represents, warrants and covenants to KWG as follows:
(a) Business in the Ordinary Course
From the date hereof until the earlier of the Termination Date and the Effective Date,
Spider shall and shall cause its subsidiaries to, except as otherwise consented to by
KWG: (i) conduct its business only, and to not take any action except, in the ordinary
course consistent with its past practices; (ii) not issue, or take any actions which may
require it to issue, any securities, other than as permitted in connection with the Merger,
pursuant to the exercise or conversion of Spider Convertible Securities outstanding on the
date hereof, pursuant to option agreements existing on the date hereof or pursuant to the
proposed financing of up to $750,000 with the Mineralfields group of companies; (iii) not
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sell, pledge, dispose of or encumber any assets; (iv) not incur any indebtedness for
borrowed money or any other material liability or obligation or issue any debt securities
or assume, guarantee, endorse or otherwise as an accommodation become responsible for,
the obligations of any other individual or entity, or make any loans or advances; and (v)
notify KWG as soon as practicable following the occurrence of any Material Adverse
Change in respect of it.
(b) Properties
Spider, or a subsidiary of Spider, is the legal and beneficial owner of and has good and
marketable title to the properties, business and assets or the interests in the properties,
business or assets referred to in the financial statements, annual information forms,
information circulars, material change reports, technical reports, press releases and all
documents filed by or on behalf of Spider under its corporate profile at www.sedar.com
(collectively, the “Spider Information Record”), all agreements by which each of
Spider or a subsidiary holds an interest in a material property, business or assets are in
good standing in all material respects according to their terms and the properties are in
good standing under the applicable laws of the jurisdictions in which they are situated
and all filings and work commitments required to maintain the properties in good
standing have been properly recorded and filed in a timely manner with the appropriate
regulatory body and there are no mortgages, liens, charges, encumbrances or any other
interests in or on such properties except as disclosed in the Spider Information Record.
(c) No Rights
Except as disclosed in the Spider Information Record or in this Letter Agreement, no
person (which word shall be given the broadest interpretation possible in this Letter
Agreement) has any agreement or option or any right or privilege capable of becoming an
agreement or option to purchase from Spider or any of its subsidiaries any of its material
assets, to require Spider or any of its subsidiaries to issue any of its securities, or to
acquire any of the outstanding securities of any of its subsidiaries.
(d) Fees
Spider has not entered into any agreement that would entitle any person to any valid
claim against it or KWG for a broker’s commission, finder’s fee or any similar payment
in respect of the Merger or any other matter contemplated by this Letter Agreement, other
than pursuant to its financial advisory services agreement with IBK Capital Corp. or
another financial services agreement which may be entered into with a financial advisor
engaged by Spider in connection with the Proposed Merger.
(e) Liabilities
Spider (on a consolidated basis) does not have any material liability or obligation,
whether accrued, absolute, contingent or otherwise, not reflected in the Spider
Information Record.
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(f) Litigation
There are no claims, actions, suits, judgements, litigation or proceedings pending or, to
the knowledge of Spider, threatened against or affecting Spider or any of its subsidiaries
which will or may have a material adverse affect upon Spider, on a consolidated basis, or
which may prevent the completion of the Merger, and Spider is not aware of any existing
ground on which any such claim, action, suit, judgement, litigation or proceeding might
be commenced with any reasonable likelihood of success.
(g) Regulatory Approvals
Other than the approval of the directors of KWG and Spider, the Spider Shareholders and
the TSXV, no permit, authorization or consent of any party is necessary for the
consummation by Spider of the Merger, and the execution and delivery of this Letter
Agreement and the consummation by Spider of the Merger will not result in a violation
or breach of, or constitute (with or without due notice or lapse of time or both) a default
under any indenture, agreement or other instrument to which Spider is a party or by
which it is bound.
12. Termination:
(a) Grounds for termination
This Letter Agreement may be terminated and be of no further force or effect:
(i) by mutual written agreement between Spider and KWG;
(ii) by Spider, provided that Spider is not in default of any provision of this
Letter Agreement, if the Merger is not completed by the Completion
Deadline;
(iii) by KWG, provided that KWG is not in default of any provision of this
Letter Agreement, if the Merger is not completed by the Completion
Deadline;
(iv) by Spider upon delivery to KWG of a Termination Notice in accordance
with paragraph 4;
(v) by KWG upon delivery to Spider of a Termination Notice in accordance
with paragraph 4;
(vi) by Spider if any condition in paragraph 7 is not satisfied or waived on or
prior to the closing date of the Merger;
(vii) by KWG if any condition in paragraph 8 is not satisfied or waived on or
prior to the closing date of the Merger;
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(viii) by Spider, if the board of directors of KWG withdraws or modifies, in a
manner materially adverse to Spider, its approval or recommendation of
the Merger or otherwise fails to make such approval or recommendation
or approves or recommends a Superior Proposal, if KWG enters into a
letter of intent or definitive written agreement with respect to a Superior
Proposal, or if KWG is subject to a take-over bid initiated by a third party
in accordance with applicable securities laws which is completed in whole
or in part;
(ix) by KWG in order to enter into a letter of intent or definitive written
agreement with respect to a Superior Proposal or otherwise approve or
recommend a Superior Proposal, subject to compliance with paragraph 9;
(x) by KWG pursuant to paragraph 1;
(xi) by KWG, if the board of directors of Spider withdraws or modifies, in a
manner materially adverse to KWG, its approval or recommendation of
the Merger or otherwise fails to make such approval or recommendation
or approves or recommends a Superior Proposal, if Spider enters into a
letter of intent or definitive written agreement with respect to a Superior
Proposal, or if Spider is subject to a take-over bid initiated by a third party
in accordance with applicable securities laws which is completed in whole
or in part; or
(xii) by Spider in order to enter into a letter of intent or definitive written
agreement with respect to a Superior Proposal or otherwise approve or
recommend a Superior Proposal, subject to compliance with paragraph 9.
The date upon which this Letter Agreement is terminated pursuant to this subparagraph
12(a) is referred to herein as the “Termination Date”.
For the purpose of this Letter Agreement, a “Material Adverse Change” means any
event or change that has had or would be reasonably likely to have a “Material Adverse
Effect” on the applicable party and, for the purposes hereof, “Material Adverse Effect”
means any change, effect, event or occurrence that individually or in the aggregate with
other such changes, effects, events or occurrences, is or would reasonably be expected to
be material and adverse to the business, properties, operations, results of operations or
financial condition of the applicable party and its subsidiaries, taken as a whole, except
any change, effect, event or occurrence resulting from or relating to: (i) the
announcement of the execution of this Letter Agreement or the transactions contemplated
hereby or the performance of any obligation hereunder or communication by the
applicable party of its plans or intentions with respect to the other party and/or any of its
subsidiaries; (ii) changes in the U.S. or Canadian economies in general or the Canadian or
U.S. securities markets in general; (iii) the threat, commencement, occurrence or
continuation of any war, armed hostilities, acts of environmental or First Nations groups,
civil strife, or acts of terrorism; (iv) any change in applicable laws or in the interpretation
thereof by any Governmental Entity (as defined below) provided that it does not have a
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materially disproportionate effect on the applicable party relative to comparable mineral
exploration companies; (v) any change in Canadian generally accepted accounting
principles; (vi) any natural disaster, provided that it does not have a materially
disproportionate affect on the applicable party relative to comparable mineral exploration
companies; (vii) any change in the price of base metals, precious metals, chromite or
diamonds; (viii) any change relating to foreign currency exchange rates; (ix) changes
affecting the mining industry generally, provided that such changes do not have a
materially disproportionate effect on the applicable party relative to comparable mineral
exploration companies; or (x) any decrease in the market price or any decline in the
trading volume of the common shares of the applicable party on the TSXV (it being
understood that the causes underlying such change in market price or trading volume may
be taken into account in determining whether a Material Adverse Effect has occurred).
For purposes of this Letter Agreement, “Governmental Entity” means any applicable:
(a) multinational, federal, provincial, state, regional, municipal, local or other
government, governmental or public department, central bank, court, tribunal, arbitral
body, commission, board, bureau or agency, domestic or foreign; (b) subdivision, agent,
commission, board or authority of any of the foregoing; (c) quasi-governmental or private
body, including any tribunal, commission, regulatory agency or self-regulatory
organization, exercising any regulatory, expropriation or taxing authority under or for the
account of any of the foregoing; or (d) stock exchange, including the TSXV.
(b) Spider Break Fee
(i) If this Letter Agreement is terminated:
(1) by KWG pursuant to subparagraph 12(a)(ix);
(2) by Spider pursuant to subparagraph 12(a)(viii); or
(3) by Spider pursuant to subparagraph 12(a)(vi) as a result of the
failure by KWG to execute and deliver the Definitive Agreement
in fulfilment of the condition contained in subparagraph 7(b); or
(ii) provided that there is no breach or non-performance by Spider, in any
material respect, of any of its representations, warranties or covenants
made in this Letter Agreement which has not been cured, if at any time
after the execution hereof KWG fails to comply fully with, in all material
respects, or breaches, in any material respect, any of its representations,
warranties or covenants made in this Letter Agreement prior to the
Completion Deadline and does not cure its non-compliance or breach
within a period not exceeding 10 days from the date that notice of the noncompliance
or breach is delivered by Spider to KWG,
then:
(X) in the case of a termination referred to in subparagraph 12(b)(i)(1), as a
condition to the right of KWG to terminate this Letter Agreement, KWG
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shall, on or prior to the Termination Date, pay to Spider a cash payment
equal to $2,300,000,
(Y) in the case of a termination referred to in subparagraph 12(b)(i)(2), within
two (2) Business Days following the Termination Date, KWG shall pay to
Spider a cash payment equal to $2,300,000, or
(Z) in the case of a termination referred to in subparagraph 12(b)(i)(3) or
12(b)(ii), within two (2) Business Days following the Termination Date,
KWG shall pay to Spider a cash payment equal to $1,400,000,
in immediately available Canadian funds. The obligation of KWG to pay the break fee
pursuant to this subparagraph 12(b) shall survive the termination of this Letter
Agreement.
(c) KWG Break Fee
(i) If this Letter Agreement is terminated:
(1) by KWG pursuant to subparagraph 12(a)(xi);
(2) by Spider pursuant to subparagraph 12(a)(xii);
(3) by KWG pursuant to subparagraph 12(a)(vii) as a result of the
failure by Spider to execute and deliver the Definitive Agreement
in fulfilment of the condition contained in subparagraph 8(b); or
(4) by KWG pursuant to subparagraph 12(a)(x); or
(ii) provided that there is no breach or non-performance by KWG, in any
material respect, of any of its representations, warranties or covenants
made in this Letter Agreement which has not been cured, if at any time
after the execution hereof Spider fails to comply fully with, in all material
respects, or breaches, in any material respect, any of its representations,
warranties or covenants made in this Letter Agreement prior to the
Completion Deadline and does not cure its non-compliance or breach
within a period not exceeding 10 days from the date that notice of the noncompliance
or breach is delivered by KWG to Spider,
then:
(X) in the case of a termination referred to in subparagraph 12(c)(i)(1), within
two (2) Business Days following the Termination Date, Spider shall pay to
KWG a cash payment equal to $2,300,000,
(Y) in the case of a termination referred to in subparagraph 12(c)(i)(2), as a
condition to the right of Spider to terminate this Letter Agreement, Spider
shall, on or prior to the Termination Date, pay to KWG a cash payment
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equal to $2,300,000, or
(Z) in the case of a termination referred to in subparagraph 12(c)(i)(3),
12(c)(i)(4) or 12(c)(ii), within two (2) Business Days following the
Termination Date, Spider shall pay to KWG a cash payment equal to
$1,100,000,
in immediately available Canadian funds. The obligation of Spider to pay the break fee
pursuant to this subparagraph 12(c) shall survive the termination of this Letter
Agreement.
13. Miscellaneous
(a) Costs
Each of Spider and KWG shall 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 this Letter
Agreement, the Definitive Agreement and such other documents required hereunder.
(b) Consummation of Merger
Each of Spider and KWG represents and warrants to the other that neither the execution
of this Letter Agreement nor the consummation of the Merger will conflict with or result
in:
(i) a violation, contravention or breach of any of the terms, conditions or
provisions of any agreement or instrument to which it is a party or by
which it is bound or constitute a default by it thereunder, or under any
statute, regulation, judgment, decree or law by which it is subject or
bound, or result in the creation or imposition of any encumbrance upon its
assets; or
(ii) a violation by it of any law or regulation or any applicable order of any
court, arbitrator or governmental authority having jurisdiction over it,
other than any such violations, contraventions, breaches, defaults or encumbrances that
individually or in the aggregate would not reasonably be expected to have a Material
Adverse Effect on it.
(c) Public Announcements
Spider and KWG agree to jointly make a press release with respect to the Merger as soon
as practicable after the date on which this Letter Agreement has become effective and to
consult with each other prior to dissemination and to otherwise coordinate the public
disclosure and presentations made by them with respect to the Merger. Spider and KWG
further agree that there will be no public announcement or other disclosure of the Merger
or of the matters dealt with herein unless they have mutually agreed thereto or unless
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otherwise required by applicable law or by regulatory instrument, rule or policy based on
the advice of counsel. If either Spider or KWG is required by applicable law or
regulatory instrument, rule or policy to make a public announcement with respect to the
Merger, such party hereto will provide as much notice to the other of them as reasonably
possible, including the proposed text of the announcement. This subparagraph shall not
apply to any public announcement made by a party in accordance with
subparagraph 9(c).
(d) Notice
Any notice required or permitted to be given under this Letter Agreement shall be given
in writing and transmitted by facsimile or delivered by one party to the other (the
“recipient”) at the address indicated below and shall be deemed to have been given on
the day on which it is delivered or sent by facsimile, provided that such day is a Business
Day and such notice is so delivered or sent by facsimile prior to 5:00 p.m. (local time of
the recipient). If a notice is not delivered or sent on a Business Day or is delivered or
sent on or after 5:00 p.m. on such day, it shall be deemed to be given on the next
Business Day thereafter.
If to Spider:
50 Richmond Street East
Suite 101
Toronto, Ontario, M5C 1N7
Attention: Neil Novak, President and Chief Executive Officer
Fax: (416) 815-1355;
with a copy addressed to (which shall not constitute notice):
McMillan LLP
Suite 440, 181 Bay St.
Toronto, Ontario M5J 2T3
Attention: Carmen Diges
Fax: (416) 865-7048;
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If to KWG:
1000 – 141 Adelaide Street West
Toronto, Ontario M5H 3L5
Attention: Frank Smeenk;
and to:
600 de Maisonneuve Boulevard West
Bureau 2750
Montreal, Quebec, H3A 3J2
Attention: Luce St. Pierre
Fax: (514) 866-6193;
with a copy addressed to (which shall not constitute notice):
Macleod Dixon LLP
79 Wellington Street West
Suite 2300, P.O. Box 128
Toronto, Ontario M5K 1H1
Attention: Marvin Singer and Anthony Shapiro
Fax: (416) 360-8277.
(e) Business Day
For the purposes of this Letter Agreement, “Business Day” shall mean a day, other than a
Saturday or Sunday, on which the principal commercial banks located in the City of
Toronto are open for business during normal banking hours.
(f) Law
This Letter Agreement shall be governed by and be construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable therein. The
parties hereto irrevocably attorn to the non-exclusive jurisdiction of the courts of the
Province of Ontario.
(g) Amendment
This Letter Agreement may, at any time and from time to time, be amended by written
agreement of the parties hereto.
(h) Assignment
Neither party hereto may assign its rights or obligations under this Letter Agreement
without the prior written consent of the other party hereto.
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(i) Binding Effect
This Letter Agreement shall be binding upon and shall enure to the benefit of the parties
hereto and their respective successors and permitted assigns.
(j) Waiver
Any waiver or release of any of the provisions of this Letter Agreement, to be effective,
must be in writing and executed by the party hereto granting such waiver or right.
(k) Entire Agreement
This Letter Agreement contains the entire agreement between the parties hereto with
respect to the subject matter hereof and thereof and supersedes all prior agreements and
understandings with respect thereto.
(l) Time of the Essence
Time shall be of the essence in this Letter Agreement.
(m) Language
It is the express wish of the parties hereto that this Letter Agreement and any related
documentation be drawn up in English. Il est de la volonté expresse de chacune des
parties aux présentes que cette convention ainsi que tout document connexe soient
rédigés en langue anglaise.
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Would you kindly signify your acceptance of the terms contained herein by executing the
enclosed duplicate copy hereof in the place indicated and thereafter returning such executed copy
by fax, email or otherwise to KWG by no later than 10:30 p.m. (Toronto time) on May 25, 2010,
failing which this Letter Agreement shall be of no force or effect.

KWG RESOURCES INC.
By: Frank Smeenk (signed)
Name: Frank C. Smeenk
Title: President and Chief Executive Officer
Accepted and agreed to as of this 25th day of May, 2010.

SPIDER RESOURCES INC.
By: Neil Novak (signed)
Name: Neil Novak
Title: President and Chief Executive Officer