South American Silver acquisition of High Desert would use an alphabet share to funnel contingent expropriation proceeds only to SAS shareholders

High Desert Gold is to be acquired under a joint BC plan of arrangement by South American Silver ("SASC") for SASC shares.  However, to ensure that HDG shareholders do not share significantly in any arbitration award made as a result of the seizure of a Bolivian mine of a subsidiary of SASC, SASC first will undergo a s. 86 reorganization under which its common shares will be exchanged for Class A shares (with rights apparently identical to the common shares), and Class B shares which are redeemable and retractable for 85% of any net arbitration award or settlement, subject to an overriding call right of a SASC subsidiary (Newco) to purchase the shares for the redemption amount.  Thus, the HDG shareholders will receive only Class A shares (which will be promptly redesignated as common shares).

There is no discussion in the Circular as to how the stated capital of the Class B shares will be determined, which might initially trade on the TSX for far less than any ultimate award.  The Newco call right might be intended to avoid tax under Parts IV.1, VI.1 or XIII, although there is no suggestion that the Class B shares are taxable preferred shares nor any specific comment that redemption of the Class B shares could give rise to a deemed dividend.

SASC will be continued to BC before the arrangement, as the corporate incest rules in the CBCA would prohibit Newco from exercising its call right.

Neal Armstrong.  Summary of South American Silver Circular under Public Transactions – Mergers – Share-for-Share.