Leagold/Brio Gold -- summary under Triangular Amalgamations

Overview

The proposed acquisition of Brio Gold by Leagold under an Ontario Plan of Arrangement would entail Brio Gold first issuing 2-year warrants on its shares for nil consideration to all its shareholders (with that issuance not being a shareholder benefit based on the s. 15(1)(c) safe harbour) and then the Brio Gold shareholders exchanging their shares and warrants for shares of Leagold on a rollover basis under ss. 87(4) and (5) under a s. 87(9) triangular amalgamation (also occurring under the Arrangement) of Brio Gold with a Newco sub of Leagold. The Circular estimated that the warrants of Leagold would represent about 3.7% of the combined package of Leagold shares and warrants to be received by the Brio Gold shareholders. The U.S. tax disclosure was reasonably comfortable that this would qualify as a “D” reorg.

Brio Gold

Brio Gold is a mid-tier Canadian mining company with significant gold producing, development and exploration stage properties in Brazil whose commons shares (“Brio Share”) are listed on the TSX.

Leagold

Leagold is a new mid-tier gold producer with a focus on opportunities in Latin America, that is listed on the TSX and trades on the OTCOX.

Amalgamation Sub

A wholly-owned subsidiary of Leagold incorporated under the OBCA.

Goldcorp Anti-Dilution Right

An investor agreement between Goldcorp and Leagold provides Goldcorp with a right to maintain its current percentage ownership of the issued and outstanding Leagold Shares in the event that Leagold issues any equity securities, including warrants, pursuant to a non-cash transaction such as the Arrangement.

Plan of Arrangement

1. Each Brio Share held by a Dissenting Shareholder shall be transferred to the Company.
2. Half of the historical Brio RSUs shall be transferred to the Company in exchange for a cash payment.
3. Brio Gold will issue for no consideration to the Shareholders in respect of each Brio Share held, one transferable warrant (a “Brio Warrant”), which entitles the holder to purchase one Brio Share at a price of $3.70 for two years following the Effective Date.
4. The amalgamation of Amalgamation Sub and Brio Gold shall occur, upon which:
   
   1. each Amalgamation Sub Share outstanding immediately prior to the Effective Time shall be exchanged for one Amalco Share;
   2. the issued and outstanding Brio Shares and the Brio Warrants (other than those Brio Warrants that were issued in respect of Brio Restricted Stock) will be exchanged for Leagold Shares and “Consideration Warrants” (each entitling the holder to purchase one Leagold Share at a price of $3.70 for two years following the Effective Date provided, in the case of a U.S. Person, a U.S. securities exemption is available), which will be issued in the amounts of 0.922 of a Leagold Share for each whole Brio Share and 0.4 of a Consideration Warrant for each whole Brio Warrant held;
   3. each issued and outstanding Brio Warrant issued in respect of a Brio Share that was formerly Brio Restricted Stock will be exchanged for Leagold Shares; and
   4. in consideration for such Leagold Shares and Consideration Warrants issued by Leagold, Amalco will issue to Leagold one Amalco Share;
   5. the stated capital of the issued and outstanding Amalco Shares shall be equal to the sum of (i) the aggregate "paid-up capital" (for the purposes of the Tax Act) of the Amalgamation Sub Shares immediately prior to the amalgamation and (ii) the aggregate fair market value of the Leagold Shares issued in exchange for Brio Shares in b. above; and
   6. each option that had been issued under the Brio Incentive Plan shall be exchanged for a an option to acquire Leagold Shares (with an exercise price and number of subject shares adjusted for the exchange ratio);
5. Each unvested Brio RSU and Brio DSU shall be surrendered to Leagold in exchange for Leagold Shares.

Consequences of Arrangement

Brio Gold shareholders will receive an approximate 42% ownership interest in Leagold post-Arrangement (assuming that Goldcorp does not exercise the Goldcorp Anti-Dilution Right in connection with the Arrangement). Yamana is expected to hold approximately 22% of the outstanding Leagold Shares upon completion of the Plan of Arrangement and 29% assuming Yamana’s exercise of the consideration Warrants and assuming Goldcorp does not exercise the Goldcorp Anti-Dilution Right.

Canadian tax consequences

Issuance and exchange of Brio Warrants

The issuance to a Resident Holder of a Brio Warrant under the Arrangement will not give rise to a shareholder benefit, a dividend or a deemed dividend, and such Brio Warrant will be acquired by such Resident Holder at a nil cost. A Resident Holder will not realize any capital gain (or capital loss) as a result of the exchange of their Brio Shares or Brio Warrants for Leagold Shares or Consideration Warrants under the amalgamation.

Exercise of Consideration Warrant

No gain or loss will be realized by a Resident Holder upon the exercise of a Consideration Warrant to acquire a Leagold Share. When a Consideration Warrant is exercised, the Resident Holder's cost of the Leagold Share acquired thereby will be equal to the aggregate of the Resident Holder's adjusted cost base of such Consideration Warrant and the exercise price paid for the Leagold Share.

U.S. tax consequences

Qualification as D reorg

(i) The issuance of Brio Warrants to Shareholders, (ii) the exchange of Brio Shares and Brio Warrants for Consideration Securities, and (iii) the amalgamation of Amalgamation Sub and Brio Gold, each pursuant to the Arrangement likely will be treated as an integrated transaction that qualifies as a reorganization within the meaning of ss. 368(a) and 368(a)(2)(D) of the Code.

PFIC rules

Brio Gold believes that it was not a PFIC during its taxable year ended December 2017 and, based on its current operations and financial expectations, Brio Gold expects it would not be a PFIC for its current taxable year if such taxable year were to end on the Effective Date.