Primero/Brigus

Overview

Brigus will be spinning-off a newly-established exploration CBCA subsidiary (Fortune) (per the s. 86 rules) under a CBCA Plans of Arrangement, with each Brigus share then being transferred to Primero for 0.175 of a Primero common share and cash of $0.000001 (so that no rollover treatment obtains unless a s. 85 election is filed). Brigus then will be amalgamated with a newly-incorporated CBCA subsidiary of Primero (Primero NewCo) with nominal assets. Code s. 368(a) reorg treatment is anticipated.

Brigus

A CBCA company which is listed on the TSX and NYSE MKT whose principal asset is an Ontario gold mine.

Primero

A B.C. company which is listed on the TSX and NYSE. Its head office is in Toronto and it has Mexican precious metal mines.

Post-merger picture

Fortune is expected to be listed on the TSXV, with Brigus holding 9.9% of its shares. Brigus shareholders will hold approximately 27% of the Primero common shares and an amalgamated Brigus will be a wholly-owned subsidiary of Primero.

Brigus Pre-Spinout Reorganization

1. Brigus will transfer various Canadian exploration properties and shares of non-resident subsidiaries to Fortune in consideration for the issuance of common shares.
2. The Brigus shareholders will approve a stated capital reduction to $217 million to take effect immediately prior to the Arrangement, subject to the Board determining not to proceed.

Plan of Arrangement

1. The Brigus Rights Plan will be terminated.
2. The Brigus DSUs will vest and the DSUs will be satisfied through Brigus issuing common shares.
3. Each Brigus common share of a dissenter will be transferred to Primero in exchange for a debt claim against Primero.
4. Primero will lend $10M to Brigus by way of non-interest-bearing promissory note.
5. Brigus will use such loan proceeds to subscribe for additional Fortune common shares.
6. Each of the other Brigus common shares will be exchanged for one Brigus Class A share and 1/10 of an Fortune common share, with the stated capital of the Brigus Class A shares being equal to the paid-up capital of the exchanged Brigus common shares minus the fair market value of the Fortune common shares. As a result, the Brigus shareholders will hold all the Fortune shares other than 9.9% of the shares which are retained by Brigus.
7. Each Brigus common share will be transferred to Primero for "an indivisible combination" of 0.175 of a Primero common share and cash of $0.000001 (with the total cash entitlement of each shareholder rounded up to the nearest nickel).
8. Each employee stock option to acquire an Brigus common share will be exchanged for an option to acquire 0.175 new Primero common shares, with the old exercise price divided by 0.175.
9. Primero NewCo and Brigus will amalgamate under s. 192 of the CBCA to form Amalco (named "Brigus Gold Corp"), with the Class A shares (of Brigus) continuing as common shares of Amalco and the common shares of Amalco (its only class of shares) being equal to the paid-up capital of all the shares of Brigus before the amalgamation.

U.S. securities laws

The Brigus Class A, Primero and Fortune shares will be issued in reliance on the s. 3(a)(10) exemption. Shares issuable on the exercise of Brigus warrants and options in the U,S. or by or on behalf of a U.S. person after the Effective Date may not be issued in reliance on the s. 3(a)(10) exemption.

Canadian tax consequences

S. 86 reorg. Description of s. 86 rules. No deemed dividend is anticipated.

Exchange of Brigus Class A shares

Eligible Shareholders (non-exempt Canadian residents, and partnerships of such persons) who use Primero's web-based system to complete a s. 85 election and who provide the election to Primero within 90 days of the Arrangement effective date will have those election forms completed and returned by Primero. Those who do not make and timely-file a valid election will be considered to have disposed of their shares on a non-rollover basis.

Qualified investments

If the Fortune shares are not listed before the due date for Fortune's first income tax return, they will not be qualified investments.

Non-residents

Standard taxable Canadian property disclosure.

U.S. tax consequences (from Summary)

[S. 368(a) reorg.]

[I]t is anticipated that the Arrangement will be treated as a partially tax-deferred reorganization under Section 368(a) of the Code. As a result, U.S. Holders…should recognize gain, but not loss, as a result of the Arrangement. The gain, if any, recognized will equal the lesser of (a) the fair market value, at the time of the Arrangement, of the Fortune Shares and cash received pursuant to the Arrangement and (b) the amount of gain realized in the Arrangement. The amount of gain that is realized by a U.S. Holder in the Arrangement will equal the excess, if any, of (i) the sum of the cash plus the fair market value, at the time of the Arrangement, of the Primero Shares and Fortune Shares received pursuant to the Arrangement over (ii) such U.S. Holder's adjusted tax basis in the Brigus Shares surrendered in the Arrangement.

[PFIC rules.]

Based on its current and projected income, assets and business, it is expected that Fortune will be classified for U.S. federal income tax purposes as a PFIC for the current taxable year and in future taxable years. As a consequence, the complex U.S. federal income tax rules relating to PFICs would apply to U.S. Holders of Fortune Shares, potentially resulting in gains realized on the disposition of such shares being treated as ordinary income rather than as capital gains, and the application of interest charges to those gains as well as to certain distributions.