Newmarket/Kirkland Lake -- summary under Triangular Amalgamations

Overview

Kirkland is to be amalgamated with Subco on a triangular amalgamation occurring as part of a CBCA Plan of Arrangement, so that the Kirkland shareholders will have their shares cancelled on the amalgamation in consideration for receiving shares of Newmarket (to be renamed Kirkland Lake Gold Ltd.) Existing Kirkland Shareholders and Newmarket Shareholders will own approximately 57% and 43% of the post-Arrangement Newmarket (having a market cap of $2.4B), on a fully-diluted in-the-money basis. The Kirkland option holders will have their options exchanged on a s. 7(1.4) non-disposition basis for replacement options on Newmarket shares.

Kirkland

A TSX-listed CBCA corporation holding the Macassa Mine Complex in the Kirkland Lake gold camp, as well as the Holt Mine Complex situated along the Porcupine-Destor Fault Zone (held through its wholly-owned subsidiary, St. Andrew Goldfields Ltd.), both located in northeastern Ontario. Kirkland Shareholders holding 6.77% of the outstanding Kirkland Shares on a non-diluted basis have entered into a lock-up agreement.

Newmarket

An Ontario corporation whose shares trade on the TSX and the OTCZX. Through indirect Australian subsidiaries, it holds the Fosterville Gold Mine located in the state of Victoria, Australia and its other gold producing Cosmo and Stawell mines. Eric Sprott, Chairman of the Kirkland Board, owns 23,941,896 Newmarket Shares representing approximately 13.45% of the issued and outstanding Newmarket Shares.

Subco

A wholly-owned newly-incorporated CBCA subsidiary of Newmarket.

Plan of Arrangement

Under a CBCA Plan of Arrangement (the “Arrangement”), the following events will occur sequentially commencing at 12:01 am (Toronto time) (the Effective Time”) on the date shown on the Arrangement certificate (the "Effective Date"):

1. The Kirkland Shares held by dissenting Kirkland Shareholders will be transferred to Newmarket;
2. Subco and Kirkland will be amalgamated under the CBCA. Pursuant to the Amalgamation: (i) each Kirkland Share (other than Kirkland Shares held by Newmarket) will be cancelled in exchange for the “Consideration” of 2.1053 Newmarket Shares; (ii) each Kirkland Share held by Newmarket and each Subco Share will be converted into one share of the amalgamated corporation (“Amalco”); (iii) as consideration for the issuance of the Consideration by Newmarket in connection with the Amalgamation, Amalco will issue to Newmarket one Amalco Share for each Newmarket Share issued pursuant to (i) above; and (iv) there will be added to the stated capital of the Newmarket Shares an amount equal to the paid-up capital of the Kirkland Shares described in (i).
3. Each option to acquire Kirkland shares that was outstanding before the Effective Time (a “Kirkland Option”) will be exchanged for an option (a “Replacement Option”) to acquire from Newmarket the number of Newmarket Shares equal to the product of (A) the number of Kirkland Shares subject to the Kirkland Option immediately before the Effective Time, and (B) 2.1053 (subject to adjustments for fractional shares.) The exercise price per Newmarket Share will equal the quotient of (A) the exercise price per Kirkland Share under the exchanged Kirkland Option immediately prior to the Effective Time divided by (B) 2.1053. It is intended that ITA s. 7(1.4) will apply to any such exchange and that such exchange will be effected consistently with Code s. 409A. Therefore, in the event that the Replacement Option “In-The-Money Amount” would otherwise exceed the Kirkland Option In-The-Money Amount, the number of Newmarket Shares which may be acquired on exercise of the Newmarket Replacement Option at and after the Effective Time will be adjusted accordingly with effect at and from the Effective Time.;
4. Each “SAS Option” (issued under the St. Andrew Goldfield stock option plan) will be exchanged on a similar basis.
5. Newmarket will file Articles of Amendment to change its name to Kirkland Lake Gold Ltd. and to effect a 0.475 to 1 share consolidation.
6. The size of the Newmarket Board will be increased from six to nine directors and a new board will be elected which will be comprised of two current directors of Newmarket and seven nominees of Kirkland.
7. All unvested Newmarket Options and PSUs will automatically vest on the Effective Date

Kirkland Debentures

The 6% and 7.5% convertible debentures of Kirkland maturing in 2017 will continue to be listed on the TSX. Newmarket will issue Newmarket Shares to a holder of Kirkland Debentures upon the conversion of any Kirkland Debentures. Additionally, following the Effective Time, a change of control offer will be made for the Kirkland Debentures in accordance with the Kirkland Indenture.

Canadian tax consequences

Shares

A Resident Holder or Non-Resident Holder who receives Newmarket Shares in exchange for Kirkland Shares on the Amalgamation will not realize any capital gain (or capital loss) as a result of the exchange.

Options

A Resident Holder who exchanges Kirkland Options and SAS Options for Replacement Securities will be deemed not to dispose of their Kirkland Options and SAS Options and not to have acquired the Replacement Securities received on the exchange. A Non-Resident Holder who exchanges Kirkland Options and SAS Options for Replacement Securities should consult its own tax advisor.

U.S. tax consequences

Reorganization

The Arrangement should qualify as a tax-deferred reorganization under Code s. 368(a).

PFIC Status of Kirkland

Kirkland believes that it should not constitute a PFIC for its current taxable year. Kirkland also believes that it was not a PFIC for its taxable years ended April 30, 2010 to 2015 and for its short taxable year ended December 31, 2015. Kirkland has not determined whether it was a PFIC during its taxable years beginning prior to May 1, 2009.