Super-shares --- right of other shareholders (than CLF)

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goldhunter11

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Super-shares --- right of other shareholders (than CLF)

posted on Jul 06, 2014 12:05PM

Question about supershares, from the other side

If a share holder voted against this 50:1 super share, does he have the same right as CLIFF to demand Fair Market Value, if this 50:1 super share does get passed?
Thanks for the explanation

Read more at http://www.stockhouse.com/companies/bullboard/v.kwg/kwg-resources-inc#XyKC2aQ3UzKKQzlF.99

This is an interesting question for which I would throw in a few speculations/interpretations.

- Background: In the last AGM and Special Meeting CLF indicated to KWG management that in the case the supershare resolution got passed, CLF wanted the its monetary investment for the regular shares be refunded, based on a Fair Market Valuation. Question is can other shareholders demand the same treating.

- The short answer for that question is NO.

- Interpretations: The only way CLF could demand that treatment would be that it has a contractual agreement with KWG at the time, when it decided to put in some cash infusion for some 16% of KWG (~110M shares). This could be verfied with KWG IR/Bruce for the exact details. But it would appear that there something in place that would give CLF that right, and Frank appeared to indicate so at the AGM.

However for other shareholders, who had no agreement for any special treatment, would have no chance to demand a return of the monetary value of their shares. Why? If the resolution were passed, this would be in compliance with the 50% + 1 vote requirement, plus the 2/3 of the votes for anything that would change the company operation in a significant way. This is democracy at work.

Shareholders always have a choice to vote for, against, or sell (vote with their feet) the share before and after the vote to get out their money.

- Fair Market Value (FMV): One way to determine that would be the average share price over a period of time, say 45 days? That how the market has decided to put the value on the company (it could be considered unfair by the shareholders, but that is what the market says). Let's speculate an opposite effect, if the supershares resolution has passed (and the shareholders have the option to convert back-and-forth between the regular shares and the supershares and the share prices are equivalent) and the share price for both classes went ballistic. Would CLF and other shareholders demand a return of there original investment (say based on the SP over the previous of 45 days) which is now much below the market price? Not too much of a chance!

Note: The reason for choosing an average SP over a priod of time as a FMV is because a similar scheme has been used to set option and wt pricing (to make sure that they are fair to other investors), e.g. the exercise price would be set at some percentage above the average, or current, SP, depending on the expiry dates. This is just like performance bonus...money in pocket of management only if the company is making money for shareholders.

- Right of First Refusal (ROFR). Don't know if it was given the CLF at the ROFR or not. But, CLF has not participates in some recent financings. This may signal that it does not have this right, or had no desire to increase the stake in KWG (CLF is broke, and it was reducing its stake in at least one company). However, with 110M shares, it has enough to make KWG miserable.

Let's face it, currently CLF is in control, even for thing like KWG proposal to change its status from a provincial to federal corporation (more flexible for KWG to operate). As a control freak, and it does not want to lose this control by giving KWG an opportunity to get money from, and give shares to, financial institutions which are required to invest only in "supershares" (i.e. not penny shares). CLF is afraid of a dilution of its control over KWG destiny. In my opinion, Frank is a more trust worthy person to have the control of KWG, not CLF.

The demand for the return of the money, based on a FMV assessment is just another road block. So how much does it want for KWG shares? More than $0.07/s? Presumably, a number was written on a paper napkin (or in a text message) for Frank to see ($0.50/regular share?) as part of the bullying tactic.

But, things may change for the better for KWG, with a potential new slate of directors and management after proxy fight with Casablanca at the AGM of 29 July. It would be good to receive a call from the Chairman of CLF BoD or the CEO nominated by Casablanca saying "all is good" and they would vote YES, or abstain from voting, for the supershare resolution, and more than willing to discuss their 110 M shares, 70% BD and BT.