Goldcorp/Probe -- summary under Shares for Shares and Nominal Cash

Overview

After rolling its exploration assets (the "New Probe Assets") into a new Ontario subsidiary (New Probe), so that it will still retain the Borden gold project, Probe will distribute its common shares of New Probe to its shareholders as a paid-up capital distribution. Also occurring under an Ontario Plan of Arrangement will be an exchange of all the Probe common shares (other than of dissenters) for Goldcorp common shares (together with nominal cash so as to require a joint s. 85(1) election to achieve Canadian rollover treatment), with Goldcorp then dropping its Probe shares into a wholly-owned subsidiary ("Subco") and causing their amalgamation (with Subco as the survivor.) The former Probe shareholders will now hold 1.6% of the Goldcorp shares (as well as 100% of New Probe). The share exchange and amalgamation is intended to qualify as a forward triangular merger - although Probe is believed to be and have been a PFIC and Goldcorp is believed not to be a PFIC, so that Code rollover treatment generally would not be available as per a proposed retroactive Regulation.

Probe

A TSXV-listed Ontario company with 91M common shares outstanding (representing a market cap of $475M) and with a focus on its Borden gold project near Chapleau, Ontario. Palmer, the CEO, holds 1.3M common shares (a 1.5% interest) and 1.7M options, and somewhat similarly for Peterson, another director. Goldcorp held a 19.8% interest (through common shares and warrants) on 9 February 2015.

Goldcorp

A TSX- and NYSE-listed Canadian-resident corporation and senior gold producer.

New Probe

A wholly-owned CBCA subsidiary of Probe which will apply for a TSXV listing.

Subco

2426854 Ontario Inc., a wholly-owned sub of Goldcorp.

Plan of Arrangement

The first step in the Plan of Arrangement will be the transfer of each Probe common share held by a dissenting shareholder to Goldcorp, with Goldcorp required to pay the fair value therefor. This and the following steps will be deemed to occur at one-minute intervals:

1. Probe will transfer the New Probe Assets and the related liabilities to New Probe in consideration for 100 New Probe common shares, with an ITA s. 85(1) election filed.
2. Goldcorp will lend $15M to Probe by way of non-interest bearing demand note.
3. Probe will subscribe for New Probe common shares for $15M. The New Probe common shares will be subdivided so as to equal 1/3 of the number of outstanding Probe common shares. Each option under the Probe stock option plan will be exchanged for a Probe replacement option and a New Probe option (with the intention that ITA s. 7(1.4) apply.)
4. The New Probe common shares "will be distributed by Probe to the … Probe Shareholders on a return of share capital pursuant to a reorganization of Probe's business and a distribution of proceeds from a disposition of Probe's property outside the ordinary course of Probe's business."
5. Each outstanding Probe common share (if not held by Goldcorp or an affiliate thereof) will be transferred to Goldcorp in exchange for 0.175 of a Goldcorp common share and Cdn.$0.001 in cash; and Probe replacement Options will be exchanged for Goldcorp options (with the intention that ITA s. 7(1.4) apply.)
6. Each Probe common share will be transferred by Goldcorp to Subco in consideration for one Subco common share having a stated capital equal to the paid-up capital of the transferred shares (and with the stated capital of the transferred shares then being reduced to $1.00, and Probe filing an election with the CRA to cease to be a public corporation).
7. Probe and Subco will merge to form Amalco (with the same effect as if they had amalgamated under the OBCA except that Subco will survive and Probe will cease to exist), and with the Probe common shares thereby being cancelled and Goldcorp receiving one Amalco common share on the amalgamation in exchange for each Subco common share.

Canadian tax consequences

New Probe distribution. The fair market value of the New Probe common shares distributed up to the paid-up capital of the Probe common shares should be treated as a return of paid-up capital. Probe expects that such fair market value will not exceed the paid-up capital of the Probe common shares. There are qualified investment and taxable Canadian property risks if the New Probe shares may not be listed on a timely basis.

Share exchange

In the absence of an s. 85 election, the exchange of Probe common shares for Goldcorp common shares will occur on a non-rollover basis. The deadline for providing an s. 85(1) election form to Goldcorp by "Eligible Shareholders" (generally non-exempt residents or partnerships with such a member) is 90 days after the Effective Date of the Plan of Arrangement. Capital gains/loss treatment will apply to dissenters except re interest.

Non-residents

Standard (non-informative) taxable Canadian property disclosure for non-residents.

U.S. tax consequences

Structuring of merger. Probe and Goldcorp intend that the exchange of Probe common shares for Goldcorp common shares and cash will qualify as a reorganization under Code s. 368(a)(2)(D), so that subject to the PFIC rules a U.S. Holder will generally not recognize gain upon receipt of Goldcorp common shares pursuant to the Arrangement (except based on the amount of nominal cash received).

PFIC rules. Probe believes that it is and has been a PFIC, and Goldcorp believes that it is not a PFIC for its current taxable year. On this basis and under proposed retroactive Regulations, a Probe shareholder who has not made a timely and valid QEF election or mark-to-market election with respect to its Probe common shares will be required to recognize gain (but not loss) as a result of the Arrangement, regardless of whether it qualifies as a reorganization, based on the fair market of the Goldcorp shares (and nominal cash) received, with such gain being subject to tax and interest charges under the PFIC excess distribution regime. There can be no assurance that Probe will provide U.S. Holders with the required information (i.e., PFIC annual information statements) in order for QEF elections to be available, and "U.S. Holders should assume that a QEF election will not be available."

New Probe

distribution. Probe intends that the receipt of New Probe common shares pursuant to the Arrangement by a U.S. Holder will be considered to be a taxable distribution in an amount equal to the fair market value of such shares. However, it is possible that the receipt of such shares would be treated instead as additional consideration for the Probe common shares, in which case the receipt of the New Probe common shares would be taxable in a similar manner to the cash consideration. New Probe is likely to be treated as a PFIC for its current taxable year.