The consideration for the proposed Pan American acquisition of Tahoe includes future contingent Pan American share deliveries

Under the proposed acquisition of Tahoe Resources by Pan American Silver pursuant to a B.C. Plan of Arrangement, Tahoe shareholders would be provided with a choice between, for each Tahoe share held, US$3.40 in cash or 0.2403 of a Pan American common share, subject to proration based on a maximum cash and share consideration of US$275M and 56M Pan American share, respectively. In addition, Tahoe shareholders will receive, for each Tahoe Share, one contingent value right (a “CVR”), that will represent the right to the automatic delivery of 0.0497 of a Pan American treasury share payable upon first commercial shipment of concentrate following restart of operations at Tahoe’s Escobal mine in Guatemala, provided this occurs within 10 years. Each CVR has an implied value of US$0.70 (US$221M in total). Tahoe Shareholders will own approximately 27% of Pan American, or 32% upon delivery under the CVRs.

Taxable resident shareholders are permitted to elect under s. 85. Because the right to receive Pan American shares under the CVRs is not absolute, the CVRs are considered to represent “boot” rather than share consideration for s. 85 election purposes. The cost of a Pan American share received under a CVR is considered to be equal to the FMV of a CVR received under the Plan of Arrangement.

Pan American will drop all of its Tahoe shares into a Newco as part of the Plan of Arrangement, and then Tahoe will be merged into Newco under the Plan of Arrangement with the same effect as an amalgamation except that Newco will be the sole survivor of the amalgamation (see 2006-0178571R3). The U.S. tax disclosure treats the Arrangement as a “D” reorg, The CVRs are likely just deferred share consideration.

Neal Armstrong. Summary of Tahoe Resources Circular under Mergers & Acquisitions – Mergers – Shares for CVRs, and Shares or Cash.