Molycorp/Neo Material -- summary under Exchangeable Share Acquisitions

Overview

Under a proposed CBCA plan of arrangement, a BC subsidiary (Exchangeco) of Molycorp, a Delaware NYSE-listed corporation, will acquire all of the common shares of NEM, a CBCA TSX-listed corporation producing rare earth products and valued under the Arrangement at $1.3 billion, in consideration for cash or Molycorp shares at the option of the NEM shareholder (but subject to proration adjustments to ensure that the total cash and share consideration are 71.24% and 28.76%, respectively, of the total) - provided that Canadian-resident taxable shareholders may elect to receive their share consideration in the form of exchangeable shares of Exchangeco. The exchange ratio is .4242 of a Molycorp share (or exchangeable share) for each NEM share.

Retraction right

The exchangeable shares are retractable by their holders on a one-for one basis for Molycorp shares, subject to Molycorp or a BC subsidiary of Molcorp ("Callco") exercising their "Retraction Call Right" to purchase the retracted shares in exchange for Molycorp shares (which they presumably would do in order to avoid Part VI.1 tax to Exchangeco). Molycorp issues special voting shares to a voting trustee for the exchangeable holders. There is a sunset date for the exchangeables of their 6th anniversary.

Options/break fee

Employee stock options are cash-surrendered as the first step in the plan of arrangement. Break fee of C$30 million.

Canadian tax consequences

NEM considers the voting rights granted on the issue of the exchangeable shares, and the Molcorp/Callco call rights, to have a nominal fair market value. Eligible NEM shareholders who wish a potential rollover under s. 85(1) (or 85(2) if a partnership) must provide a signed and completed election form (in duplicate) to Exchangeco within 90 days of the effective date of the Arrangement. Depending on the cash (or other boot) received and the shareholder's ACB, full rollover treatment will not be available. Retraction of the exchangeable shares, but not their acquisition by Molycorp or Callco pursuant to the Retraction Call Right, will give rise to deemed dividend treatment.

U.S. tax consequences

The exchange will occur on a taxable basis. NEM, Exchangeco and Molcorp intend to take the position that the exchangeable shares are stock of Exchangeco and not of Molycorp for purposes of the Code, so that no US withholding tax will be withheld on dividends on those shares.