Hecla/Aurizon -- summary under Canadian Buyco

Summary Under
Tax Topics - Public Transactions - Mergers & Acquisitions - Cross-Border Acquisitions - Inbound - Canadian Buyco
Acquisition of Aurizon by Hecla for share and cash consideration: potentially a forward triangular merger for Code purposes
Overview

All the shares of Aurizon (a TSX- and NYSE-listed B.C. company with Quebec gold properties and no significant foreign subsidiaries) are to be acquired under a B.C. Plan of Arrangement by Acquireco (a B.C. wholly-owned subsidiary of Hecla) followed by their amalgamation. Hecla is a Delaware corporation listed on the NYSE. The consideration for each Aurizon share is (i) cash of $4.75 per share (the "Cash Consideration"), or (ii) 0.9953 of a Hecla share (the "Share Consideration"), or (iii) $3.11 in cash and 0.3446 of a Hecla share (the "Cash and Share Consideration"). This consideration represents a premium of 40% to the Aurizon share price before the previous Alamos offer. Although Aurizon shareholders will be able to elect between consideration alternatives, the total cash and share consideration will be limited to $513.6M and 57M Hecla shares (so that if all shareholders elected for the Cash Alternative or the Share Alternative, each shareholder would effectively receive the Cash and Share Consideration). The cash consideration appears to be paid directly by Hecla.

Alamos

The competing Alamos offer expired on March 19, 2013.

U.S. Securities law

The Hecla shares will be issued in reliance on the s. 3(a)(10) exemption.

Break fee

$27.2M.

Plan of Arrangement

Under the Plan of Arrangement:

  • each Aurizon stock option will be surrendered to Aurizon for Aurizon shares equal to the options' in-the-money value (based on the Cash Consideration)
  • outstanding Aurizon RSUs and DSUs will be cash-surrendered based on the Cash Consideration
  • Aurizon shares of dissenting shareholders will be transferred to Acquireco for their fair value
  • Hecla will subscribe for shares of Acquireco, with such subscription to be satisfied by Acquireco directing Hecla to deliver Hecla shares to Aurizon shareholders as the Share Consideration
  • each outstanding Aurizon share (not held by Hecla) will be transferred to Acquireco for the Cash, Share, or Cash and Share, Consideration, at the election of the Aurizon shareholder, but subject to proration in light of the maximum cash and share consideration – with Acquireco being deemed to have directed Hecla to deliver the Share Consideration on its behalf
  • each Aurizon share held by Hecla will be contributed to Acquireco in consideration for an Acquireco common share
  • Aurizon will file an election to cease to be a private corporation
  • the stated capital of the Aurizon shares will be reduced in aggregate to $1.00
  • Aurizon and Acquireco will amalgamate under s. 288 of the Business Corporations Act (B.C.) "to form one corporate entity" (Amalco), with Hecla receiving one Amalco common share for each Acquireco common share, and the Aurizon shares being cancelled
Canadian tax consequences

Taxable exchange for Canadian residents. Taxable Canadian property disclosure for non-residents. Cautionary disclosure re offshore investment fund rules.

U.S. tax consequences

Exchange. Whether a U.S. holder will recognize full gain for Code purposes depends on whether the exchange qualifies as a reorganization under Code s. 368(a)(2)(D) (a forward triangular merger) which, in turn, depends largely on whether the transaction preserves a large part of the target shareholders' proprietary interest in the target (the continuity of interest requirement). Regulations provide that the continuity of interest requirement is satisfied where 40% by value of the total consideration provided to all target shareholders consists of share consideration, but do not establish a minimum percentage to satisfy the continuity of interest requirement. Under the Arrangement, the consideration will consist of approximately 35% share consideration and 65% cash consideration. Such amount of share consideration is not sufficient to establish with certainty that the continuity of interest requirement is satisfied, so that there is a significant risk that a U.S. holder will recognize gain in full on the exchange. Aurizon understands that Hecla intends to take the position that the exchange is a taxable transaction. If the exchange qualifies as a forward traingular merger, a U.S. holder will not recognize gain except to the extent of the cash received.

PFIC rules

Aurizon does not believe that it was a PFIC for it 2012 taxable year.

USRPC status

Based on its public statements, Hecla is not believed to be a U.S. real property holding corporation.