Iao Kun Group Holding Co Ltd fka IKGH

[edjohnson]

Warrant Terms and Redemption Conditions:

Making this a sticky post

http://sec.gov/Archives/edgar/data/1417754/000114420410002441/v170899_ex10-1.htm

Warrants

Each warrant entitles the registered holder to purchase one ordinary share at a price of $5.00 per share, subject to adjustment as discussed below, at any time commencing on the later of the completion of the acquisition or another business combination. However, the warrants will be exercisable only if a registration statement relating to the ordinary shares issuable upon exercise of the warrants is effective and current. The warrants will expire on August 10, 2013 at 5:00 p.m., New York City time.

CS China may call the warrants for redemption (including any Founders’ Warrants and any warrants issued upon exercise of CS China’s unit purchase option), with the prior consent of EarlyBirdCapital,

• in whole and not in part,
• at a price of $.01 per warrant at any time after the warrants become exercisable,
• upon not less than 30 days’ prior written notice of redemption to each warrant holder, and
• if, and only if, the reported last sale price of the ordinary shares equals or exceeds $8.50 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to warrant holders.


Now, the 20 days condition has been satisfied. The warrants are not registered, so that is the only condition remained in order to call the warrants for redemption.

When they do, they will probably try to do the cashless redemption.

From that SEC filing:

If CS China calls its warrants for redemption after the redemption criteria described in the prospectus for CS China’s IPO have been satisfied, CS China’s management will have the option to require any holder that wishes to exercise his warrant to do so on a “cashless basis.” If CS China’s management chooses to require holders to exercise their warrants on a cashless basis, the number of ordinary shares received by a holder upon exercise will be fewer than it would have been had such holder exercised his warrant for cash. This will have the effect of reducing the potential “upside” of the holder’s investment in CS China


Furthermore,

If CS China calls the warrants for redemption as described above, CS China’s management will have the option to require any holder that wishes to exercise his, her or its warrant to do so on a “cashless basis.” If CS China’s management takes advantage of this option, all holders of warrants would pay the exercise price by surrendering his, her or its warrants for that number of ordinary shares equal to the quotient obtained by dividing (x) the product of the number of ordinary shares underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the ordinary shares for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If CS China’s management takes advantage of this option, the notice of redemption will contain the information necessary to calculate the number of ordinary shares to be received upon exercise of the warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption. CS China believes this feature is an attractive option to CS China if CS China does not need the cash from the exercise of the warrants after a business combination.

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So, let's assume possible cashless exercise and the best scenario for the company, that would mean the minimal dilution. That would be when common are traded at around $8.50 for the last 3 days before redemption.

Then, the formula for calculating the common shares all warrant holders will receive when exercising would be as following:

N [warrants] = N * (current_common_price - exercise_price) / current_common_price [shares]

10k warrants = 10k * (8.50 - 5.00) / 8.50 = 4,117 shares

So, your 10k warrants get exchanged for 4,117 shares without any cash from you, assuming the price of common is at 8.50 at a time of redemption call. The higher the price, the more shares you will receive.


Company doesn't get any cash for it, but the dilution is minimal. With normal redemption, they would get cash ($5 for each warrant), but all 10k will be added to O/S.

If the common stays at 9.50, then for your 10k warrants you get 10k * (9.50 - 5.00) / 9.50 = 4,736 shares.


Again, the formula depends only on common_price prior to redemption and exercise price.