KWG Resources

Reason for s. 86 reorg

"The Corporation intends to create two new classes of shares, namely Subordinate Voting Shares and Multiple Voting Shares, to replace its outstanding Common Shares. Currently, given the current trading price of the Common Shares on the TSX Venture Exchange, the Common Shares are not marginable. The Corporation has determined that it would be better positioned to take advantage of opportunities to acquire additional assets in exchange for its securities if the Common Shares were marginable, as any such acquisition or other similar transaction would be more attractive to any potential counterparty. By virtue of creating the new classes of shares, the Corporation expects that the completion of any such transactions could be facilitated and therefore beneficial to the Corporation."

Capital Reorganization

"The Corporation proposes to reorganize the capital structure of the Corporation as follows (the "Capital Reorganization"):

(a) by converting each outstanding Common Share into one share of a newly-created class of shares to be designated as "Subordinate Voting Shares" (the "Conversion"), such Conversion becoming effective concurrently with, and being subject to, the creation of the Subordinate Voting Shares; and

(b) by amending the Articles to (i) create a new class of shares to be designated as "Multiple Voting Shares" and a new class of shares to be designated as "Subordinate Voting Shares"; and (ii) immediately upon the Conversion becoming effective, remove the authorized Common Shares, none of which will be issued and outstanding and repeal the provisions regarding the rights and restrictions attaching to the Common Shares set out in the Articles… ."

Listing

Both new classes are expected to be listed on the TSX-V.

Voting rights

Each holder of Subordinate Voting Shares being entitled to one vote per Subordinate Voting Share held and each holder of Multiple Voting Shares being entitled to 50 votes per Multiple Voting Share held at all such meetings.

Conversion rights

Holders of Subordinate Voting Shares shall be entitled to convert their Subordinate Voting Shares into Multiple Voting Shares, at their option, at any time from time to time, on the basis of 50 Subordinate Voting Shares for one Multiple Voting Share and Holders of the Multiple Voting Shares shall be entitled to convert their Multiple Voting Shares into fully paid and non-assessable Subordinate Voting Shares at their option, at any time from time to time, on the basis of one Multiple Voting Share for 50 Subordinate Voting Shares.

Dividend/liquidation rights

Subject to any preferred share preferences, the holders of Subordinate Voting Shares and Multiple Voting Shares shall be entitled to participate equally with each other on a pro-rata basis, based on the number of votes attaching to each such share, as to dividends. A comparable vote-weighted sharing occurs on the liquidation, dissolution or winding-up of the Corporation.

Canadian tax consequences

S. 86 reorg. "On the Capital Reorganization, a shareholder will be deemed to have disposed of the Common Shares for proceeds of disposition equal to their adjusted cost base to such shareholder and will be considered to have acquired the Subordinate Voting Shares for proceeds of disposition at a cost equal to the same amount. Accordingly, the shareholder will not realize a capital gain or incur a capital loss on the conversion of Common Shares into Subordinate Voting Shares under the Capital Reorganization."

Conversion

"On the conversion of Subordinate Voting Shares held by a shareholder into Multiple Voting Shares pursuant to the terms of the Subordinate Voting Shares, no disposition will be considered to occur and therefore the shareholder will not realize a capital gain or incur a capital loss…."