EX-1 3 o09914exv1.txt NOTICE OF MEETING AND INFORMATION CIRCULAR EXHIBIT 1 [PAN AMERICAN SILVER CORP. LOGO] NOTICE OF 2003 ANNUAL GENERAL MEETING ------------ INFORMATION CIRCULAR
TABLE OF CONTENTS LETTER FROM THE CHAIRMAN ................................................................................. ii NOTICE OF ANNUAL GENERAL MEETING ......................................................................... iii INFORMATION CIRCULAR ..................................................................................... 1 Solicitation of Proxies ................................................................................ 1 Appointment of Proxyholder ............................................................................. 1 Revocation of Proxy .................................................................................... 2 Voting of Proxies ...................................................................................... 2 Exercise of Discretion ................................................................................. 2 Voting Securities and Principal Holders of Voting Securities ........................................... 3 Quorum and Votes Necessary ............................................................................. 3 Voting by Beneficial Shareholders ...................................................................... 3 Particular Matters to be Acted Upon .................................................................... 4 Appointment of Auditors .............................................................................. 4 Election of Directors ................................................................................ 4 Corporate Governance ................................................................................... 6 Mandate of the Board of Directors .................................................................... 6 Composition of the Board ............................................................................. 6 Board Independence ................................................................................... 7 Board Committees ..................................................................................... 7 Decisions Requiring Prior Approval by the Board ...................................................... 10 Recruitment of New Directors and Assessment of Board Performance ..................................... 10 Shareholder Feedback and Concerns .................................................................... 10 Expectations of Management ........................................................................... 11 Standards of Ethical Conduct ......................................................................... 11 Summary of Attendance of Directors ................................................................... 11 Executive Compensation ................................................................................. 12 Summary Compensation Table ........................................................................... 12 Long-Term Incentive Plan ............................................................................. 12 Stock Options ........................................................................................ 12 Termination of Employment, Change in Responsibilities and Employment Contracts ....................... 15 Compensation Committee ............................................................................... 15 Report on Executive Compensation ..................................................................... 15 Compensation of Directors ............................................................................ 16 Performance Graph .................................................................................... 17 Interest of Insiders in Material Transactions .......................................................... 17 Management Contracts ................................................................................... 17 Interest of Certain Persons in Matters to be Acted Upon ................................................ 17 Other Matters .......................................................................................... 17 Availability of Documents .............................................................................. 18 Approval of this Circular .............................................................................. 18 APPENDIX "A" - Standards of Ethical Conduct ............................................................. A-1
-i- [PAN AMERICAN SILVER CORP. LETTERHEAD] April 9, 2003 Dear Shareholder: It is my pleasure to invite you to attend the Company's Annual General Meeting of shareholders. The meeting will be held on Monday, May 12, 2003 at 2:00 p.m., Vancouver time, in the Connaught Room of the Metropolitan Hotel, 645 Howe Street, Vancouver, British Columbia. I enclose the formal Notice of the meeting, the Information Circular and the Company's 2002 Annual Report. If you are unable to attend the meeting in person, please complete, date, sign and return the enclosed proxy form in the envelope provided to ensure that your vote is counted. 2002 was a year of many significant accomplishments by Pan American. We began construction on the expansion of La Colorada and this should be our most profitable mine when it opens to full-scale production in July. Huaron had an excellent performance in 2002 and we added a new source of cashflow from the Peru silver stockpiles operation late in the year. We also added major growth projects at Manantial Espejo in Argentina and, early in 2003, at Alamo Dorado in Mexico following our acquisition of Corner Bay Silver Inc. These accomplishments have set the stage for what I expect to be much improved results in 2003, as our silver production increases significantly and, as I fully expect, the silver price rises. I look forward to updating our 2003 plans and accomplishments at our Annual General Meeting and, as they unfold, during the year to come. Yours sincerely, PAN AMERICAN SILVER CORP. (Signed) ROSS J. BEATY, Chairman and Chief Executive Officer 1500-625 HOWE STREET, VANCOUVER, BC CANADA V6C 2T6 . TEL 604.684.1175 FAX 604.684.0147 WWW.PANAMERICANSILVER.COM PAN AMERICAN SILVER CORP. NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the annual general meeting (the "Meeting") of the members (the "shareholders") of PAN AMERICAN SILVER CORP. (the "Company") will be held in the Connaught Room of the Metropolitan Hotel, 645 Howe Street, Vancouver, British Columbia on Monday, May 12, 2003 at 2:00 p.m. (Vancouver time) for the following purposes: 1. to receive and consider the report of the directors of the Company to the shareholders; 2. to receive and consider the consolidated financial statements of the Company for the financial year ended December 31, 2002, together with the auditors' report thereon; 3. to determine the number of directors of the Company at seven; 4. to elect directors of the Company; 5. to reappoint Deloitte & Touche LLP, Chartered Accountants, as auditors of the Company to hold office until the next annual general meeting; 6. to authorize the directors of the Company to fix the remuneration to be paid to the auditors of the Company; 7. to consider amendments to or variations of any matter identified in this Notice of Meeting; and 8. to transact such further and other business as may be properly brought before the Meeting or any and all adjournments thereof. Accompanying this Notice of Meeting are: (i) a copy of the Company's 2002 Annual Report; (ii) an Information Circular; (iii) an Instrument of Proxy and Notes thereto; and (iv) a reply card for use by shareholders who wish to receive the Company's interim financial statements. If you are a registered shareholder of the Company and are unable to attend the Meeting in person, please date and execute the accompanying form of proxy and deposit it with Computershare Trust Company of Canada, Attention: Stock Transfer Services, 100 University Avenue, 9th Floor, Toronto, Ontario, Canada, M5J 2Y1 not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the Meeting or any adjournment thereof. If you are a non-registered shareholder of the Company and receive these materials through your broker or through another intermediary, please complete and return the materials in accordance with the instructions provided to you by your broker or such other intermediary. IF YOU ARE A NON-REGISTERED SHAREHOLDER AND DO NOT COMPLETE AND RETURN THE MATERIALS IN ACCORDANCE WITH SUCH INSTRUCTIONS, YOU MAY LOSE THE RIGHT TO VOTE AT THE MEETING, EITHER IN PERSON OR BY PROXY. If you have any questions about the procedures to be followed to qualify to vote at the Meeting or about obtaining, completing and depositing the required form of proxy, you should contact Computershare Trust Company of Canada by telephone (toll free) at 1-800-564-6253. This Notice of Meeting, the Information Circular, the Instrument of Proxy and notes thereto and the reply card are first being sent to shareholders of the Company on or about April 11, 2003. DATED at Vancouver, British Columbia, this 9th day of April, 2003. BY ORDER OF THE BOARD (signed) GORDON JANG, Controller and Corporate Secretary - iii - [PAN AMERICAN SILVER CORP. LOGO] INFORMATION CIRCULAR SOLICITATION OF PROXIES This Information Circular is furnished in connection with THE SOLICITATION BY THE MANAGEMENT OF PAN AMERICAN SILVER CORP. (the "Company") of proxies to be voted at the annual general meeting of the members (the "shareholders") of the Company to be held on Monday, May 12, 2003, and any adjournments thereof (the "Meeting"). Management's solicitation of proxies will be conducted by mail and may be supplemented by telephone or other personal contact to be made without special compensation by directors, officers and employees of the Company or by the Company's registrar and transfer agent. THE COMPANY MAY RETAIN OTHER PERSONS OR COMPANIES TO SOLICIT PROXIES ON BEHALF OF MANAGEMENT, IN WHICH EVENT CUSTOMARY FEES FOR SUCH SERVICES WILL BE PAID. ALL COSTS OF SOLICITATION WILL BE BORNE BY THE COMPANY. Unless the context otherwise requires, references herein to the "Company" mean the Company and its subsidiaries. The principal executive office of the Company is located at 1500 - 625 Howe Street, Vancouver, British Columbia, Canada, V6C 2T6. The telephone number is (604) 684-1175 and the facsimile number is (604) 684-0147. The Company's website address is www.panamericansilver.com. The registered and records office of the Company is located at 900 Waterfront Centre, 200 Burrard Street, Vancouver, British Columbia, Canada, V7X 1T2. Advance notice of the Meeting inviting nominations for directors of the Company as required by Section 135 of the Company Act (British Columbia) was delivered to the British Columbia Securities Commission and the Toronto Stock Exchange (the "TSX") and was published in the Vancouver Sun and Vancouver Province newspapers on March 12, 2003. Unless otherwise indicated, all currency amounts stated in this Information Circular are stated in United States Dollars. The date of this Information Circular is April 9, 2003, and it is first being sent to shareholders on or about April 11, 2003. APPOINTMENT OF PROXYHOLDER The persons named in the enclosed form of proxy for the Meeting are directors or officers of the Company, or both. A SHAREHOLDER HAS THE RIGHT TO APPOINT SOME OTHER PERSON, WHO NEED NOT BE A SHAREHOLDER, TO REPRESENT THE SHAREHOLDER AT THE MEETING BY STRIKING OUT THE NAMES OF THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF PROXY AND BY INSERTING THAT OTHER PERSON'S NAME IN THE BLANK SPACE PROVIDED. IF A SHAREHOLDER APPOINTS ONE OF THE PERSONS DESIGNATED IN THE ACCOMPANYING FORM OF PROXY AS A NOMINEE AND DOES NOT DIRECT THE SAID NOMINEE TO VOTE EITHER FOR OR AGAINST OR WITHHOLD FROM VOTING ON A MATTER OR MATTERS WITH RESPECT TO WHICH AN OPPORTUNITY TO SPECIFY HOW THE SHARES REGISTERED IN THE NAME OF SUCH SHAREHOLDER SHALL BE VOTED, THE PROXY SHALL BE VOTED FOR SUCH MATTER OR MATTERS. - 1 - The instrument appointing a proxyholder must be signed in writing by the shareholder, or such shareholder's attorney authorized in writing. If the shareholder is a corporation, the instrument appointing a proxyholder must be in writing signed by an officer or attorney of the corporation duly authorized by resolution of the directors of such corporation, which resolution must accompany such instrument. An instrument of proxy will only be valid if it is duly completed, signed, dated and received at the office of the Company's registrar and transfer agent, Computershare Trust Company of Canada, 100 University Avenue, 9 th Floor, Toronto, Ontario, Canada, M5J 2Y1, Attention: Stock Transfer Department, not less than 48 hours (excluding Saturdays, Sundays and holidays) before the time set for the holding of the Meeting or any adjournments thereof, unless the Chairman of the Meeting elects to exercise his discretion to accept proxies received subsequently. If you have any questions about the procedures to be followed to vote at the Meeting or about obtaining, completing and depositing the required form of proxy, you should contact Computershare Trust Company of Canada by telephone (toll free) at 1-800-564-6253. REVOCATION OF PROXY A shareholder may revoke a proxy by delivering an instrument in writing executed by the shareholder or by the shareholder's attorney authorized in writing, or where the shareholder is a corporation, by a duly authorized officer or attorney of the corporation either at the registered office of the Company at any time up to and including the last business day preceding the day of the Meeting, or any adjournment thereof, or with the Chairman of the Meeting on the day of the Meeting, or any adjournment thereof, before any vote in respect of which the proxy is to be used shall have been taken. A shareholder may also revoke a proxy by depositing another properly executed instrument appointing a proxyholder bearing a later date with the Company in the manner described above, or in any other manner permitted by law. VOTING OF PROXIES Shares represented by properly executed proxies in the accompanying form will be voted or withheld from voting in accordance with the instructions of the shareholder on any ballot that may be called for and, if the shareholder specifies a choice with respect to any matter to be acted upon at the Meeting, the shares represented by such proxies will be voted accordingly. IF NO CHOICE IS SPECIFIED, THE PERSON DESIGNATED IN THE ACCOMPANYING FORM OF PROXY WILL VOTE FOR ALL MATTERS PROPOSED BY MANAGEMENT AT THE MEETING. IF FOR ANY REASON THE INSTRUCTIONS OF A SHAREHOLDER IN A PROXY ARE UNCERTAIN AS THEY RELATE TO THE ELECTION OF DIRECTORS, THE PROXYHOLDER WILL NOT VOTE THE SHARES REPRESENTED BY THAT PROXY FOR ANY DIRECTOR. EXERCISE OF DISCRETION The enclosed form of proxy when properly completed and delivered and not revoked confers discretionary authority upon the person appointed proxy thereunder to vote with respect to amendments or variations of matters identified in the Notice of Meeting, and with respect to other matters which may properly come before the meeting. In the event that amendments or variations to matters identified in the Notice of Meeting are properly brought before the meeting or any further or other business is properly brought before the Meeting, it is the intention of the person designated in the enclosed form of proxy to vote in accordance with their best judgment on such matters of business. At the date of this Information Circular, management of the Company knows of no such amendment, variation or other matter which may be presented to the Meeting. - 2 - VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES VOTING SECURITIES The Company is authorized to issue 100,000,000 common shares without par value ("Common Shares"), of which 51,684,728 fully paid and non-assessable Common Shares are issued and outstanding as of April 9, 2003. The holders of Common Shares are entitled to one vote for each Common Share held. The Company has no other classes of voting securities. Any holder of Common Shares of record at the close of business on Friday, April 4, 2003 will be entitled to receive notice of the Meeting and any such shareholder who either personally attends the Meeting or has completed and delivered a form of proxy in the manner and subject to the provisions described above shall be entitled to vote or to have his or her Common Shares voted at the Meeting. The failure of any shareholder to receive the Notice of Meeting does not deprive such shareholder of his or her entitlement to vote at the Meeting. PRINCIPAL HOLDERS OF VOTING SECURITIES To the knowledge of the directors and senior officers of the Company, no person beneficially owns, directly or indirectly, or exercises control or direction over, more than ten percent of the issued and outstanding Common Shares of the Company as at April 9, 2003. QUORUM AND VOTES NECESSARY Under the Company's Articles, the quorum for the transaction of business at the Meeting consists of one shareholder, or one proxyholder representing a shareholder or shareholders, holding not less than one-twentieth of the issued Common Shares entitled to be voted at the Meeting. With respect to the proposed determination of the number of directors of the Company, the reappointment of the Company's auditors and the authorization of the board of directors of the Company (the "Board") to fix the remuneration to be paid to the Company's auditors, the Company Act (Brit ish Columbia) and the Company's Memorandum and Articles require that shareholders approve the proposed actions by ordinary resolution. An ordinary resolution means that the resolution must be approved by not less than a simple majority of the votes cast by the shareholders of the Company who voted in person or by proxy at the Meeting. VOTING BY BENEFICIAL SHAREHOLDERS THE INFORMATION IN THIS SECTION IS IMPORTANT TO MANY SHAREHOLDERS AS A SUBSTANTIAL NUMBER OF SHAREHOLDERS DO NOT HOLD THE COMMON SHARES IN THEIR OWN NAME. Shareholders who hold Common Shares through their brokers, intermediaries, trustees, or other nominees (such shareholders being collectively called "Beneficial Shareholder") should note that only proxies deposited by shareholders whose names appear on the share register of the Company may be recognized and acted upon at the Meeting. If Common Shares are shown on an account statement provided to a Beneficial Shareholder by a broker, then in almost all cases the name of such Beneficial Shareholders WILL NOT appear on the share register of the Company. Such shares will most likely be registered in the name of the broker or an agent of the broker. In Canada, the vast majority of such shares will be registered in the name of "CDS & Co.", the registration name of The Canadian Depository for Securities Limited, which acts as a nominee for many brokerage firms. Such shares can only be voted by brokers, agents, or nominees and can only be voted by them in accordance with instructions received from Beneficial Shareholders. AS A RESULT, BENEFICIAL SHAREHOLDERS SHOULD CAREFULLY REVIEW THE VOTING - 3 - INSTRUCTIONS PROVIDED BY THEIR BROKER, AGENT OR NOMINEE WITH THIS INFORMATION CIRCULAR AND ENSURE THAT THEY DIRECT THE VOTING OF THEIR COMMON SHARES IN ACCORDANCE WITH THOSE INSTRUCTIONS. Applicable regulatory policies require brokers and intermediaries to seek voting instructions from Beneficial Shareholders in advance of shareholders' meetings. Each broker or intermediary has its own mailing procedures and provides its own return instructions to clients. The purpose of the form of proxy or voting instruction form provided to a Beneficial Shareholder by such shareholder's broker, agent, or nominee is limited to instructing the registered holder of the relevant Common Shares on how to vote such Common Shares on behalf of the Beneficial Shareholder. Most brokers in Canada now delegate responsibility for obtaining instructions from clients to ADP Investor Communications ("ADP"). ADP typically supplies a voting instruction form, mails those forms to Beneficial Shareholders and asks those Beneficial Shareholder to return the forms to ADP or follow specific telephone or other voting procedures. ADP then tabulates the results of all instructions received by it and provides appropriate instructions respecting the voting of Common Shares at the Meeting. A BENEFICIAL SHAREHOLDER RECEIVING A VOTING INSTRUCTION FORM FROM ADP CANNOT USE THAT FORM TO VOTE COMMON SHARES DIRECTLY AT THE MEETING. INSTEAD, THE VOTING INSTRUCTION FORM MUST BE RETURNED TO ADP OR THE ALTERNATE VOTING PROCEDURES MUST BE COMPLETED WELL IN ADVANCE OF THE MEETING IN ORDER TO ENSURE THAT SUCH COMMON SHARES ARE VOTED. PARTICULAR MATTERS TO BE ACTED UPON APPOINTMENT OF AUDITORS Unless otherwise instructed, the proxies given pursuant to this solicitation will be voted for: (a) the reappointment of Deloitte & Touche LLP, Chartered Accountants, of Vancouver, British Columbia, as the auditors of the Company to hold office until the close of the next annual general meeting of the Company; and (b) the authorization of the Board to fix the remuneration to be paid to the auditors of the Company. Deloitte & Touche LLP were first appointed auditors of the Company on October 26, 1993. ELECTION OF DIRECTORS Unless otherwise instructed, the proxies given pursuant to this solicitation will be voted for determining the number of directors of the Company at seven. The term of office of each of the present directors expires at the close of the Meeting. Persons named below will be presented for election at the Meeting as management's nominees and the persons named in the accompanying form of proxy intend to vote for the election of these nominees. IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, THE ENCLOSED PROXY WILL BE VOTED FOR THE NOMINEES HEREIN LISTED. Management does not contemplate that any of these nominees will be unable to serve as a director, but if that should occur for any reason prior to the Meeting, the persons named in the enclosed form of proxy reserve the right to vote for another nominee in their discretion, unless the shareholder has specified in the accompanying form of proxy that such shareholder's Common Shares are to be withheld from voting on the election of directors. Each director elected will hold office until the close of the next annual general meeting of the Company or until his successor is elected or appointed, unless his office is earlier vacated in accordance with the Articles of the Company or with the provisions of the Company Act (British Columbia). The following table sets out the names of management's nominees for election as directors, the municipality and province or state in which each is ordinarily resident, all offices of the Company now held by each of them, each nominee's principal occupation, business or employment, the period of time for which each nominee has served as a director of the Company and the number of common shares of the Company or any of its subsidiaries - 4 - beneficially owned by each nominee, directly or indirectly, or over which each nominee exercises control or direction as at April 9, 2003.
NUMBER OF PRINCIPAL OCCUPATION, COMMON SHARES NAME, RESIDENCE AND POSITION BUSINESS OR EMPLOYMENT DIRECTOR SINCE HELD ---------------------------- ---------------------- --------------- -------------- ROSS J. BEATY(2)(3)(4) Chairman and Chief Sept. 30, 1988 3,085,300(5) Vancouver, B.C. Executive Officer of the Chairman, Chief Executive Officer Company and Director WILLIAM A. FLECKENSTEIN(3)(4) President of Fleckenstein May 9, 1997 549,800(6) Seattle, Washington Capital, Inc. (investment Director counselling firm) MICHAEL LARSON(4) Investment Manager with November 29, 1999 5,105,000(7) Seattle, Washington Cascade Investment, LLC (a private investment company) MICHAEL J.J. MALONEY(1)(2)(3)(4) Private Investor Sept. 11, 1995 to 75,000 Seattle, Washington November 29, 1999; Director Re-elected May 15, 2000 PAUL B. SWEENEY(1)(4) Chief Financial Officer of August 6, 1999 Nil Surrey, B.C. Canico Resource Corp. Director (a mining company) JOHN M. WILLSON(1)(2) Retired since April 2000; May 10, 2002 Nil Vancouver, B.C. formerly Chief Executive Officer of Placer Dome Inc. (a mining company) JOHN H. WRIGHT(4) President and Chief Sept. 30, 1988 33,310(5) Vancouver, B.C. Operating Officer of the President, Chief Operating Officer Company and Director
_________________ (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Nominating and Governance Committee. (4) Member of the Environmental Committee. (5) Messrs. Beaty and Wright each hold directly, in trust for the Company, one share in the capital of Pan American Silver S.A.C. Mina Quiruvilca, an indirect subsidiary of the Company. (6) Mr. Fleckenstein holds a portion of these Common Shares directly, a portion indirectly and exercises control or direction over a portion on behalf of a fund. (7) Mr. Larson exercises control or direction over these common shares on behalf of Cascade Investment LLC. The information as to the municipality and province or state of residence, principal occupation, business or employment and the number of shares beneficially owned by each nominee or over which each nominee exercises control or direction set out in the above table is not within the knowledge of the directors or senior officers of the Company and has been furnished by the individual nominees as at April 9, 2003. - 5 - CORPORATE GOVERNANCE Both the TSX and the Nasdaq National Market ("Nasdaq") have established guidelines for effective governance of listed companies. The Board is of the view that the Company's system of corporate governance meets or exceeds these guidelines. In addition, the Company is aware that the TSX has proposed certain changes to its corporate governance guidelines. Although these changes are not yet in effect, the Company believes that, upon the appointment of directors to the various committees of the Board immediately following the Meeting on May 12, 2003, its system of corporate governance will fully satisfy all the proposed changes to the TSX guidelines if they are implemented. The Company is also aware that certain additional corporate governance protections, including a code of ethics, will be required under the Sarbanes-Oxley Act of 2002 and certain proposed changes to the Nasdaq's corporate governance guidelines. Although these changes are not currently effective, it is anticipated that they will become effective sometime in 2003. The Company anticipates that it will comply with such proposed changes, except where contrary to Canadian law. MANDATE OF THE BOARD OF DIRECTORS Pursuant to the Company Act (British Columbia), the Board is required to manage, or supervise the management of, the affairs and business of the Company. In February 1996 the Board adopted a formal written mandate which defines its stewardship responsibilities in light of this statutory obligation. This mandate was revised amended and restated in April 2003 in light of proposed changes to the TSX's corporate governance guidelines, as well as the provisions of the Sarbanes-Oxley Act of 2002 and proposed changes to the Nasdaq's corporate governance requirements. The Board's principal responsibilities are to supervise and evaluate management, to oversee the conduct of the Company's business, to set policies appropriate for the business of the Company and to approve corporate strategies and goals. The Board is to carry out its mandate in a manner consistent with the fundamental objective of enhancing shareholder value. In discharging its duty of stewardship over the Company, the Board expressly undertakes the following specific duties and responsibilities: (i) adopting, supervising and providing guidance on the Company's strategic planning process and approving a strategic plan which takes into account, among other things, the opportunities and risks of the Company's business; (ii) identifying the principal risks of the Company's business and ensuring the implementation of appropriate risk management systems; (iii) ensuring that the Company has management of the highest calibre and maintaining adequate and effective succession planning for senior management; (iv) placing limits on management's authority; (v) overseeing the integrity of the Company's internal control and management information systems; (vi) overseeing the Company's communications policy with its shareholders and with the public generally; (vii) providing for the independent functioning of the Board; and (viii) adopting, monitoring and, where appropriate, granting waivers from a formal code of business ethics that governs the behaviour of directors, officers and employees of the Company. COMPOSITION OF THE BOARD The Board currently consists of seven directors, five of whom, William A. Fleckenstein, Michael Larson, Michael J.J. Maloney, Paul B. Sweeney and John M. Willson, qualify as unrelated directors who are independent of management and free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with their ability to act in the best interests of the Company. Ross J. Beaty and John H. Wright qualify as related directors due to their management positions with the Company. - 6 - The Company does not have a significant shareholder with the ability to vote a majority of the outstanding shares of the Company for the election of directors. BOARD INDEPENDENCE The Chairman and Chief Executive Officer is an active and central member of management of the Company. The Board believes that adequate structures and processes are in place to facilitate the functioning of the Board independently of the Company's management. The Audit Committee is entirely composed of directors who are unrelated to the Company's management. Furthermore, at present each of the Compensation Committee, Environmental Committee and Nominating and Governance Committee of the Board are composed of a majority of directors who are unrelated to the Company's management. These committees will be reconstituted immediately following the Meeting, at which time the Company expects that all members of the Compensation Committee and the Nominating and Governance Committee of the Board will be entirely composed of directors who are unrelated to the Company's management. The written mandates of both the Board and the Nominating and Governance Committee require procedures to be put in place at such times as are desirable or necessary to enable the Board to function independently of management. Such procedures include: (i) the appointment of a committee of directors independent of management; (ii) the appointment of a "lead director" of the Board who is independent of management of the Company; and (iii) the institution of mechanisms to allow directors who are independent of management an opportunity to discuss issues in the absence of management. Furthermore, individual directors may, in appropriate circumstances and subject to the approval of the Nominating and Governance Committee, engage independent advisors at the expense of the Company. BOARD COMMITTEES The Board has established four committees: the Audit Committee, the Compensation Committee, the Environmental Committee and the Nominating and Governance Committee. Each committee operates in accordance with the Board's formal written mandate which defines its stewardship responsibilities. Committee members are appointed annually following the Company's annual general meeting. The following is a description of the composition and mandate for each of the committees of the Board. Audit Committee The Audit Committee is composed of three directors, all of whom are unrelated directors. The Chairman of the Audit Committee, Paul B. Sweeney, is an unrelated director. All members of the Audit Committee are required to be financially literate and at least one member is required to have accounting or related financial expertise. The Company considers "financial literacy" to be the ability to read and understand a balance sheet, an income statement and a cash flow statement and considers "accounting or related financial expertise" to be the ability to analyse and interpret a full set of financial statements, including the notes thereto, in accordance with Canadian Generally Accepted Accounting Principles. The Audit Committee assists the Board in its oversight functions as they relate to the Company's accounting, financial reporting, auditing, risk management and internal controls. The Audit Committee has the following duties and responsibilities: (a) reviewing the audited financial statements of the Company and recommending whether such statements should be approved by the Board; (b) reviewing and approving unaudited interim financial statements of the Company; (c) recommending to the Board the firm of independent auditors to be nominated for appointment by shareholders at each annual general meeting of the Company and, where necessary, the removal of the Company's independent auditors; (d) reviewing the scope and adequacy of audits to be conducted - 7 - by the Company's independent auditors; (e) adopting and annually reassessing formal terms of reference for the Company's independent auditors; (f) monitoring and evaluating the independence and performance of the Company's independent auditors; (g) pre-approving all non-audit services to be provided to the Company by its independent auditors prior to the commencement of such services; (h) reviewing all post-audit management letters containing the recommendations of the Company's independent auditors and management's response or follow-up thereto; (i) reviewing and monitoring the integrity, adequacy and timeliness of the Company's financial reporting and disclosure practices; (j) monitoring the Company's compliance with legal and regulatory requirements related to financial reporting and disclosure; (k) monitoring and evaluating the adequacy of the Company's internal accounting and audit procedures; (l) reviewing and ensuring the acceptability of the Company's accounting principles; (m) identifying the principal financial risks of the Company; (n) overseeing management's reporting on internal controls and ensuring that management has designed and implemented an effective system of internal controls; (o) establishing procedures for the receipt, retention, confidentiality and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; (p) annually reviewing and reassessing the adequacy of the duties and responsibilities of the Audit Committee set out in the Board's formal written mandate; and (q) any other matters that the Audit Committee feels are important to its mandate or that the Board chooses to delegate to it. In addition, the Audit Committee has prohibited the use of the Company's independent auditors for the following non-audit services: o bookkeeping or other services related to the accounting records or financial statements of the Company; o financial information systems design and implementation, exc ept for services provided in connection with the assessment, design and implementation of internal account controls and risk management controls; o appraisal or valuation services, fairness opinions or contribution-in-kind reports, where the results of any valuation or appraisal would be material to the Company's financial statements or where the accounting firm providing the appraisal, valuation, opinion or report would audit the results; o actuarial services; o internal audit outsourcing services; o management functions or human resources functions; o broker-dealer, investment advisor or investment banking services; o legal services; and o expert services unrelated to audits. As described above under the heading "Particular Matters to be Acted Upon - Appointment of Auditors", the auditors of the Company are Deloitte & Touche LLP. Fees paid or accrued by the Company and its material subsidiaries for audit and other services provided by Deloitte & Touche LLP and its related entities during the year ended December 31, 2002 were as follows: - 8 -
AUDIT FEES AUDIT-RELATED FEES TAX-RELATED FEES OTHER FEES ---------- ------------------ ---------------- ---------- $107,730 - $7,360 $77,810(1)
___________________ (1) Fees relate to services performed in connection with: quarterly reviews of consolidated financial statement; the review and preparation of documents and financial statements in connection with a public offering of Common Shares; the review and preparation of documents and financial statements in connection with the Company's acquisition of Corner Bay Silver Inc.; certifications required by the lenders to the Company's expansion of the La Colorada mine; and a payroll audit. The Audit Committee approved all non-audit services provided by Deloitte & Touche LLP to the Company in 2002. It is the responsibility of the Audit Committee to maintain an open avenue of communication between itself, the independent auditors and management of the Company. In performing its role, the Audit Committee is empowered to investigate any matter brought to its intention, with full access to all books, records, accounts, facilities and personnel of the Company. The Audit Committee is also empowered to instruct and retain outside counsel or other experts as necessary. The Audit Committee meets regularly, and not less than annually, with the independent auditors of the Company in the absence of management. Compensation Committee The Compensation Committee is comprised of three directors, two of whom are unrelated directors independent of management of the Company. The Chairman of the Compensation Committee, John M. Willson, is an unrelated director. The Compensation Committee will be reconstituted immediately following the Meeting, at which time the Company expects that all members of the Compensation Committee will be unrelated directors independent of management of the Company. The Compensation Committee determines the salary and benefits of the executive officers of the Company, determines the general compensation structure, policies and programs of the Company, administers the Company's stock option plan, and delivers an annual report to shareholders on executive compensation. Environmental Committee The Environmental Committee consists of seven directors (which represents all of the members of the Board), five of whom are unrelated directors independent of management of the Company. The Chairman of the Environmental Committee, Ross J. Beaty, is a related director. The Company recognizes that proper care of the environment is integral to its existence, its employees, the communities in which it operates and all of its operations. Accordingly, the Company has directed its operating subsidiaries to conduct all operations in an environmentally ethical manner having regard to local laws, requirements and policies (the "Global Statement"). The Company's operating subsidiaries have responsibility for compliance with the Global Statement and in connection therewith have established policies, programs and practices for conducting mining operations and mineral exploration and exploitation in an environmentally sound and locally acceptable manner. The Environmental Committee will ensure that an audit is made, not less than annually, of all exploration, construction, exploitation, remediation and mining activities undertaken by the Company's operating subsidiaries to assess consistency with the Global Statement. Nominating and Governance Committee The Nominating and Governance Committee consists of three directors, two of whom are unrelated directors independent of the Company's management. The Chairman of the Nominating and Governance Committee, Michael J.J. Maloney, is an unrelated director. The Nominating and Governance Committee will be reconstituted immediately following the Meeting, at which time the Company expects that all of the members of the Nominating and Governance Committee will be unrelated directors independent of the Company's management. - 9 - The Nominating and Governance Committee oversees the effective functioning of the Board, oversees the relationship between the Board and management of the Company, ensures that the Board can function independently of management at such times as is desirable or necessary, assists the Board in providing efficient and effective corporate governance for the benefit of shareholders, identifies possible nominees for the Board, and reviews the qualifications of possible nominees for, and current members, of the Board. The Nominating and Governance Committee also annually reviews and makes recommendations to the Board with respect to: (i) the size and composition of the Board; (ii) the appropriateness of the committees of the Board, their mandates and responsibilities and the allocation of directors to the committees; (iii) the appropriateness of the terms of the mandate and responsibilities of the Board; (iv) the compensation of the directors of the Company; (v) the directorships held by the Company's directors and officers in other corporations; (vi) the Company's nominees on the boards of directors of its subsidiaries and other corporations; and (vii) the corporate objectives which the Chairman and Chief Executive Officer of the Company is responsible for meeting, the assessment of the Chairman and Chief Executive Officer of the Company by the Board against these objectives and the appropriateness of the duties and responsibilities of the Chairman and Chief Executive Officer. DECISIONS REQUIRING PRIOR APPROVAL BY THE BOARD The Board has delegated the day-to-day management of the business and affairs of the Company to the Chairman and Chief Executive Officer and the President and Chief Operating Officer, subject to compliance with capital plans approved from time to time by the Board. All capital plans, any transactions for hedging arrangements or forward sales or purchases of silver or other metals, and any policies for management of foreign currency risk require the prior approval of the Board or a committee thereof appointed by the Board for such purpose. Prior approval by the Board is also required in many specific instances under the Company Act (British Columbia), securities legislation and the by-laws, rules and policies of the TSX and Nasdaq. RECRUITMENT OF NEW DIRECTORS AND ASSESSMENT OF BOARD PERFORMANCE The Nominating and Governance Committee, which meets at least once each year, is required to identify, review the qualifications of and recommend to the Board possible nominees for the Board to be proposed in management's information circular for election or re-election at each annual general meeting of the Company and to identify, review the qualifications of and recommend to the Board possible candidates to fill vacancies on the Board between annual general meetings. Each new director is, on joining the Board, given an outline of the nature of the Company's business, its corporate strategy, current issues within the Company, the expectations of the Company concerning input from directors and the general responsibilities of the Company's directors. New directors will be required to meet with management of the Company to discuss and better understand the business of the Company and will be advised by counsel to the Company of their legal obligations as directors of the Company. Directors have been and will continue to be given tours of the Company's silver mines and development sites to give such directors additional insight into the Company's business. SHAREHOLDER FEEDBACK AND CONCERNS The Company presently conducts an active shareholder relations program, under the direction of its Vice-President of Corporate Relations, Rosalie Moore. The program involves meeting with a broad spectrum of investors, including conference calls for analysts, investment fund managers and interested members of the public with respect to reported financial results and other announcements by the Company, as well as meetings with individual investors, members of the press and the public. Shareholders are informed of developments in the Company by the issuance of timely press releases. - 10 - Management of the Company and the Vice-President of Corporate Relations, in particular, routinely make themselves available to shareholders to respond to questions and concerns. Shareholder concerns are dealt with on an individual basis, usually by providing requested information. Significant shareholders concerns are brought to the attention of management of the Company or the Board. Under its written mandate, the Board is required to oversee the Company's communications policy. The Board monitors the policies and procedures that are in place to provide for effective communication by the Company with its shareholders and with the public generally, including effective means to enable shareholders to communicate with senior management and the Board. The Board also monitors the policies and procedures that are in place to maintain a cohesive and positive image of the Company with shareholders, the mining industry, governments and the public generally. EXPECTATIONS OF MANAGEMENT The Board expects management of the Company to conduct the business of the Company in accordance with the Company's ongoing strategic plan and to meet or surpass the annual and long-term goals of the Company set by the Board in consultation with management. As part of its annual strategic planning process, the Board specifies its expectations of management both over the next financial year and in the context of the Company's long-term goals. The Board reviews management's progress in meeting these expectations at Board meetings normally held every quarter. STANDARDS OF ETHICAL CONDUCT As part of its stewardship responsibilities, the Board has approved formal "Standards of Ethical Conduct" that govern the behaviour of the Company's directors, officers and employees. The full text of these standards is set out in Appendix "A" hereto. The Board monitors compliance with these standards and is responsible for the granting of any waivers from these standards to directors or executive officers. Disclosure will be made by the Company of any waiver from these standards granted to the Company's directors or executive officers in the Company's quarterly report that immediately follows the grant of such waiver. SUMMARY OF ATTENDANCE OF DIRECTORS The following table sets out the attendance of directors at Board meetings and meetings of the committees of the Board of which they were members during the year ended December 31, 2002:
NOMINATING AND DIRECTOR BOARD AUDIT COMPENSATION GOVERNANCE ENVIRONMENTAL -------- ----- ----- ------------ -------------- ------------- 10 meetings 3 meetings 2 meetings 1 meeting 1 meeting ROSS J. BEATY 10/10 - 2/2 1/1 1/1 WILLIAM A. FLECKENSTEIN 10/10 - - 1/1 1/1 MICHAEL LARSON 8/10 - - - 1/1 MICHAEL J.J. MALONEY 10/10 3/3 2/2 1/1 1/1 PAUL B. SWEENEY 9/10 3/3 - - 1/1 JOHN M. WILLSON(1) 6/8 1/2 1/2 - - JOHN H. WRIGHT 10/10 - - - 1/1
__________________ (1) Elected as a director on May 10, 2002. - 11 - EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth a summary of the total compensation paid to, or earned by, the Company's Chairman and Chief Executive Officer and the four other most highly paid executive officers of the Company and its subsidiaries (each a "Named Executive Officer") during the three most recently completed financial years. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION (US$) COMPENSATION ------------------------------------------ ------------- NUMBER OF COMMON SHARES NAME AND OTHER ANNUAL UNDER OPTION ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED COMPENSATION ------------------ ---- ------ ----- ------------ ------------- ------------ ROSS J. BEATY 2002 101,424 - - 100,000 - Chairman and Chief 2001 98,600 33,375(2) - - - Executive Officer 2000 105,300 - - 235,000 - JOHN H. WRIGHT 2002 126,780 - - 100,000 - President and Chief 2001 122,300 33,375(2) - - - Operating Officer 2000 133,400 - - 232,500 - ANTHONY HAWKSHAW(1) 2002 110,933 - - 35,000 - Chief Financial Officer 2001 108,000 33,375(2) - 80,000 - 2000 116,700 - - 10,000 - ANDRES DASSO 2002 160,000 - - 25,000 - Executive Director of Pan 2001 160,000 33,375(2) - 20,000 - American Silver Peru, S.A. 2000 142,858 - - 70,000 - RAMON DAVILA 2002 122,400 - - - - Executive Director of Plata 2001 122,400 - - - - Panamericana S.A. de C.V. 2000 122,400 - - 10,000 -
__________________ (1) Mr. Hawkshaw also receives certain perquisites as described under the heading "Termination of Employment, Change in Responsibilities and Employment Contracts" of this Information Circular. (2) Represents the cash value of Common Shares issued to certain executive officers and employees of the Company and its subsidiaries in respect of the year ended December 31, 2001. These Common Shares were issued in May of 2002 following shareholder approval of this issuance. LONG-TERM INCENTIVE PLAN The Company does not presently have a long-term incentive plan for its executive officers. STOCK OPTIONS The Company's current stock option plan (the "Current Plan") was established by the Board on March 26, 1998 (and approved by shareholders on May 5, 1998 and amended as approved by shareholders on May 20, 1999, May 11, 2000 and September 5, 2002). The Current Plan provides for the granting of options to purchase Common Shares to executive officers, directors and "Service Providers" of the Company. A "Service Provider" is defined as: - 12 - (i) an employee of the Company; (ii) a person or company engaged to provide ongoing management or consulting services for the Company or for any entity controlled by the Company; and (iii) a person who provides ongoing management or consulting services to the Company or any entity controlled by the Company indirectly through a company that is itself a Service Provider. The purpose of granting such options is to assist the Company in attracting, retaining, and motivating executive officers, directors, employees and consultants of the Company and its subsidiaries and to more closely align the personal interests of such executive officers, directors, employees and consultants to those of the shareholders. The Current Plan is intended to be competitive with the benefit programs of other companies in the mining industry. The Current Plan complies with the rules set forth for such plans by the TSX. The term of any options granted under the Current Plan will be at the discretion of the Board, but will not be in excess of ten years in accordance with the rules and policies of any stock exchange or securities market on which Common Shares are listed. Any grant of options under the Current Plan will be within the discretion of the Board, subject to the condition that the maximum number of Common Shares which may be issuable under the Current Plan shall be 4,846,084 Common Shares or such additional amount as the Company's shareholders may approve from time to time. In addition, the number of Common Shares issuable under the Current Plan to any one optionee or in the aggregate to insiders of the Company must not, when combined with all of the Company's previously established or proposed share compensation arrangements, exceed 5% and 10%, respectively, of the total number of issued and outstanding Common Shares on a non-diluted basis. The numb er of Common Shares which may be issuable under the Current Plan, together with all the Company's other previously established or proposed share compensation arrangements, within a one year period: (i) to insiders of the Company in aggregate, shall not exc eed 10% of the outstanding issue; and (ii) to one optionee who is an insider of the Company or any associates of such insider, shall not exceed 5% of the outstanding issue. The exercise price of options granted under the Current Plan will be set as the weighted average trading price of Common Shares on the TSX or, if the Common Shares are no longer listed on the TSX, on such other market on which the Common Shares are listed which the Board may select, for the five trading days (in which at least one board lot of the Common Shares were traded) prior to the date the option was granted. Under the Current Plan options will be non-assignable and non-transferable. The options granted under the Current Plan will terminate on the earlier of the expiry date of the options or 30 days after termination of employment, office or the date the individual ceases to be a Service Provider, where the reason for termination of the individual was otherwise than for cause or by reason of death or disability. In the event of termination for cause, the options granted under the Current Plan will terminate immediately upon the date which the individual ceases to be a director, officer or Service Provider. In the event the individual ceases to be a director, officer or Service Provider due to death or disability, the options granted under the Current Plan will terminate upon the earlier of the expiry date and 12 months after the date of death or disability. The Current Plan also contains an adjustment mechanism to alter, as appropriate, the option price or number of shares issuable under the Current Plan upon a share reorganization, corporate reorganization or other such event not in the ordinary course of business which alters share price or number of Common Shares outstanding. As at April 9, 2003 there were options outstanding under the Current Plan to acquire up to 2,085,791 Common Shares. As at April 9, 2003, there were options granted pursuant to the Company's previous employee incentive stock option plan (the "Prior Plan") that was established on March 26, 1995 (and amended on May 2, 1996 and May 9, 1997) to purchase up to 100,000 Common Shares outstanding and held by directors, officers and employees of the Company and its subsidiaries. The options granted under the Prior Plan are not assignable and terminate 30 days after the termination of employment or office. In the event of death, each option is fully exercisable by the optionee's heirs upon the earlier of: - 13 - (i) 60 days after the grant of probate of the will or letters of administration of the estate of the optionee; (ii) one year after the date of death; or (iii) ten years from the date of the initial grant of the option. In the event of retirement, each option granted under the Prior Plan is fully exercisable by the optionee at any time during the unexpired term of the option. As at April 9, 2003, there were Options granted other than pursuant to the Prior Plan and the Current Plan (the "Non-Plan Options") to purchase up to 4,800 Common Shares outstanding and held by an officer of the Company. These Non-Plan Options were granted outside of the Current Plan or the Prior Plan. The grant of the Non-Plan Options was approved by an ordinary resolution of the shareholders on May 2, 1996. The Non-Plan Options comply with the terms and conditions of options granted under the Prior Plan. The total number of Common Shares that may be issued pursuant to options granted under the Current Plan, together with options outstanding under the Prior Plan and outstanding Non-Plan Options, could exceed 10% of the issued and outstanding Common Shares. The Company has, however, undertaken to limit the number of Common Shares which may be issued pursuant to all outstanding options to more than 10% of the issued and outstanding Common Shares from time to time. The Company provides no financial assistance to facilitate the purchase of Common Shares to directors, officers or employees who hold options granted under the Current Plan or the Prior Plan, or who hold Non-Plan Options. The following table sets forth information concerning options granted to the Named Executive Officers during the Company's most recently completed financial year. No stock appreciation rights are outstanding and it is currently intended that none be issued. OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
MARKET VALUE OF SECURITIES % OF TOTAL UNDERLYING NUMBER OF OPTIONS GRANTED EXERCISE OR OPTIONS ON THE SECURITIES TO EMPLOYEES IN BASE PRICE DATE OF GRANT NAME UNDER OPTIONS FINANCIAL YEAR ($/SECURITY) ($/SECURITIES) EXPIRY DATE ------------- ------------- --------------- ------------ --------------- ------------- ROSS J. BEATY 100,000 13.5% Cdn. $10.10 Cdn. $11.39 Dec. 13, 2007 JOHN H. WRIGHT 100,000 13.5% Cdn. $10.10 Cdn. $11.39 Dec. 13, 2007 ANTHONY HAWKSHAW 35,000 5.5% Cdn. $10.10 Cdn. $11.39 Dec. 13, 2007 ANDRES DASSO 25,000 3.4% Cdn. $10.10 Cdn. $11.39 Dec. 13, 2007
The following table sets forth information concerning the exercise of options under the Current Plan and the Prior Plan and the exercise of Non-Plan Options during the financial year ended December 31, 2002 and the value at December 31, 2002 of unexercised in-the-money options under the Current Plan and the Prior Plan and unexercised in-the-money Non-Plan Options held by each of the Named Executive Officers. - 14 - OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
UNEXERCISED OPTIONS VALUE OF UNEXERCISED AT FINANCIAL YEAR IN-THE-MONEY OPTIONS SECURITIES END AT FINANCIAL YEAR END ACQUIRED AGGREGATE REALIZED EXERCISABLE/ EXERCISABLE (US$)/ NAME ON EXERCISE VALUE (US$) UNEXERCISABLE UNEXERCISABLE (US$) ------------------ ----------- ------------------ -------------------- ---------------------- ROSS J. BEATY Nil Nil 275,000/Nil 1,161,331/Nil JOHN H. WRIGHT 119,700 344,795 159,000/Nil 630,157/Nil ANTHONY HAWKSHAW 169,700 369,016 105,100/Nil 202,680/Nil ANDRES DASSO 50,000 148,366 20,000/Nil 92,298/Nil RAMON DAVILA 60,000 (7,928) Nil Nil
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS Of the Named Executive Officers, only Anthony Hawkshaw, the Company's Chief Financial Officer, is currently engaged under an employment contract. This contract is for an indefinite term and provides for base salary, discretionary bonus, grant of 200,000 stock options (which were granted by the Company in 1995), four weeks vacation time and various minor perquisites. This contract also provides that in the event: (i) the current Chairman of the Board of the Company ceases to act as a director, officer or employee of the Company; (ii) Mr. Hawkshaw's employment with the Company is terminated other than for cause; or (iii) more than 50% of the outstanding voting securities of the Company are acquired by any third party (any of which being a "Compensable Event"), the Company will make a lump sum cash payment to Mr. Hawkshaw equal to 24 months salary. COMPENSATION COMMITTEE The Company has a compensation committee comprised of the following directors: John M. Willson, Michael J.J. Maloney and Ross J. Beaty. The Chairman of the compensation committee, John M. Willson is an unrelated director independent of management. The duties and responsibilities of the Compensation Committee are set out in this Information Circular under the heading "Corporate Governance - Board Committees - Compensation Committee". REPORT ON EXECUTIVE COMPENSATION The Company's compensation structure is designed to reward performance and to be competitive with the compensation arrangements of other Canadian resource companies of similar size and scope of operations. Each executive officer's position is evaluated to establish skill requirements and level of responsibility and this evaluation provides a basis for internal and external comparisons of positions. In addition to industry comparables, the Board and the Compensation Committee consider a variety of factors when determining both compensation policies and programs and individual compensation levels. These factors include the long-term interests of the Company and its shareholders, overall financial and operating performance of the Company and the Board's and the Compensation Committee's assessment of each executive's individual performance and contribution towards meeting corporate objectives. Executive officer compensation is composed of three major components: base salary, cash or share bonus and stock options. Base salary ranges are determined following a review of market data for similar positions in Canadian resource companies of comparable size and scope of operations. The salary for each executive officer's position is - 15 - then determined having regard for the incumbent's responsibilities, individual performance factors, overall corporate performance, potential for advancement, and the assessment of the Board and the Compensation Committee of such matters as are presented by management. The second component of the executive officers' compensation is a cash or share bonus. In light of a recommendation from the Compensation Committee, the Board may grant executive officers cash or share bonuses. To date the performance criteria and objectives considered by the Compensation Committee and the Board for determining the availability of such bonuses include the Company's share performance generally and each executive officer's role in (i) increasing the Company's silver production, (ii) co-ordinating the exploration for and development of silver properties for the Company, (iii) expanding the Company's base of silver properties through acquisitions and (iv) improving the Comp any's profitability. For 2002, the Company did not pay any bonuses. For 2001, the Company agreed to issue 69,000 bonus Common Shares to 15 executive officers and employees of the Company and its subsidiaries. (These bonus Common Shares were issued in May of 2002, following shareholder approval of this issuance.) The Company did not pay any bonuses for 2000. The Compensation Committee and the Board will next consider the issuance of cash or share bonuses to executive officers and employees at or about the end of the Company's next financial year. The third component of the executive officers' compensation is stock options. The Compensation Committee or the Board, subject to approval by regulatory authorities, may from time to time grant stock options to executive officers under the Company's Current Plan which was approved by shareholders of the Company on March 26, 1998 and amended as approved by the Shareholders on May 20, 1999, May 11, 2000 and September 5, 2002. The Compensation Committee of the Company may also from time to time grant stock options to executive officers outside of the Current Plan, which options are subject to approval by both regulatory authorities and shareholders. Grants of stock options are intended to emphasize executive officers' commitment to the growth of the Company and the enhancement of Common Share value. Options were last granted to executive officers generally in December 2002 and are granted to newly hired executive officers at the time of their initial employment. The Company places strong reliance on stock options in terms of the total compensation of its executive officers in keeping with overall compensation trends in the Canadian mining industry and to conserve the Company's cash. JOHN M. WILLSON MICHAEL J.J. MALONEY ROSS J. BEATY COMPENSATION OF DIRECTORS Each non-executive director of the Company receives either: (i) a US$13,000 annual cash retainer, paid quarterly, a single US$1,500 annual fee for all meetings of the Board and any committees thereof during the year and options to purchase up to 8,000 Common Shares pursuant to the Current Plan which are fully vested and with a term of five years; or (ii) a single US$1,500 annual fee for all meetings of the Board and any committees thereof during the year and options to purchase up to 22,000 Common Shares under the Current Plan, which are fully vested and with a term of five years. The Company also reimburses its directors for reasonable out-out-pocket expenses related to their attendance at meetings or other expenses incurred for corporate purposes. - 16 - PERFORMANCE GRAPH The following graph compares the yearly percentage change in the Company's cumulative total shareholder return on its Common Shares with the cumulative total return of the S&P/TSX Composite Index, for the financial years ended December 31, 2002, 2001, 2000, 1999, 1998 and 1997: [Performance Graph]
FOR THE FINANCIAL YEARS ENDED -------------------------------------------------------------------- DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, 1997 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- -------- S&P/TSX Composite Index Return 100 96.1 125.6 133.5 114.7 98.9 Company Return 100 51.0 51.7 27.3 44.3 81.9
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS No insider of the Company and no associate or affiliate of any insider has or has had any material interest, direct or indirect, in any transaction since the commencement of the Company's last completed financial year, or in any proposed transaction, which in either such case has materially affected or will materially affect the Company, except as disclosed below. MANAGEMENT CONTRACTS There are no other management functions of the Company which are, to any substantial degree, performed by a person other than the directors or senior officers of the Company. INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON Except as disclosed herein, no director or executive officer of the Company, nor any associate or affiliate of any of the foregoing persons, has any material interest, direct or indirect, by way of beneficial ownership of Common Shares or otherwise, in any matter to be acted on at the Meeting other than the election of directors. OTHER MATTERS Management of the Company knows of no other matters which will be brought before the Meeting, other than those referred to in the Notice of Meeting. Should any other matters properly come before the Meeting, the Common Shares represented by the proxies solicited hereby will be voted on those matters in accordance with the best judgment of the persons voting such proxies. - 17 - AVAILABILITY OF DOCUMENTS The Company will provide to any person or corporation, upon request, one copy of any of the following documents: (a) the Company's latest Annual Information Form, together with any document, or the pertinent pages of any document, incorporated therein by reference; (b) the comparative financial statements of the Company for the Company's most recently completed financial year in respect of which such financial statements have been issued, together with the report of the auditors thereon, and any interim financial statements of the Company subsequent to the financial statements for the Company's most recently completed financial year; and (c) the Information Circular of the Company in respect of the most recent annual meeting of shareholders of the Company which involved the election of directors. Copies of the above documents will be provided, upon request to the Controller and Corporate Secretary of the Company at 1500-625 Howe Street, Vancouver, British Columbia, Canada, V6C 2T6, free of charge to shareholders of the Company. The Company may require the payment of a reasonable charge from any person or corporation who is not a shareholder of the Company and who requests a copy of any such document. APPROVAL OF THIS CIRCULAR The contents of this Information Circular have been approved by the directors of the Company and its mailing has been authorized by the directors of the Company pursuant to resolutions passed April 9, 2003. DATED at Vancouver, British Columbia, this 9th day of April, 2003. BY ORDER OF THE BOARD (Signed) GORDON JANG, Controller and Corporate Secretary - 18 - APPENDIX "A" PAN AMERICAN SILVER CORP. STANDARDS OF ETHICAL CONDUCT THE COMPANY'S BUSINESS In applying these standards the Company's business is described as follows: The Company's mission is to be the best vehicle for investors wanting real exposure to higher silver prices. The Company strives to optimize efficiency at its primary silver mines, to increase its silver production, to have the most successful silver exploration programs, to hold the largest silver reserves and resources, and to be the purest of the world's large silver producers. GENERAL PRINCIPLES OF CONDUCT The Company is committed to: o operate in a responsible manner that complies with applicable laws, rules and regulations; o provide a safe and healthy workplace; o operate free from favoritism, fear, coercion, discrimination or harassment; and o provide full, fair, accurate, timely and understandable disclosure in reports and documents filed with any governing body or publicly disclosed; and the Company requires its directors and officers to provide leadership and direction with respect to these principles and standards. The foregoing principles and the following standards apply to all directors and officers of the Company. DUTY OF LOYALTY Directors and officers must act honestly, in good faith, and in the best interests of the Company. In placing the interests of the Company ahead of their own personal or business interests, directors and officers must: o avoid situations that place the director or officer in a conflict of interest (a more comprehensive description of which is set out in Schedule "A"); o be honest and ethical in dealing within the Company and with others on behalf of the Company; o maintain confidentiality of information received in the capacity as a director or officer; and o avoid situations where a director or officer could profit at the expense of the Company, appropriate a business opportunity of the Company, or otherwise put the director or officer in a position of conflict between the director's or officer's own private interests and the best interests of the Company. DUTY OF CARE Directors and officers owe a duty of care to the Company and must exercise the degree of skill and diligence reasonably expected from an ordinary person of his or her knowledge and experience. A-1 DUTY TO DISCLOSE A director has a duty to disclose to the Board his or her private interests in transactions in which the Company is involved or proposes to be involved. An officer must disclose such interests to the Vice President, Legal Affairs. ALLEGATIONS OF WRONGDOING A director has a duty to report to the Board any activity which: o he or she believes contravenes the law; o represents a real or apparent conflict of interest or a breach of these standards; o represents a misuse of the Company's funds or assets; o represents a danger to public health, safety, or the environment; or o might result in a failure by the Company to provide full, fair, accurate and timely disclosure of financial results and material facts. An officer has a duty to report such activities to the Vice President, Legal Affairs. CONFLICT REPORTING AND APPROVAL If a director or officer finds themselves in a conflict or potential conflict of interest, their duties are as follows: - For officers: o Immediately report the conflict or potential conflict to your immediate superior. o If you and your immediate superior cannot avoid or resolve the conflict or potential conflict, advise the Vice President, Legal Affairs. o For non-executive officers, the Vice President, Legal Affairs, together with the CEO, may, in appropriate circumstances as they determine in their best judgment, waive a conflict. Any such waivers must be reported to the Corporate Governance Committee at its next meeting. o For executive officers, only the Board of Directors may waive a conflict. - For directors: o Immediately report the conflict or potential conflict to the Chairman of the Board and Chairman of the Nominating and Governance Committee. o If you and the Chairman cannot avoid or resolve the conflict or potential conflict, you must: - disclose the conflict or potential conflict to all directors; and - abstain or recuse, as the case may be, from any vote or meeting in connection with the subject of the conflict. A-2 SCHEDULE "A" CONFLICT OF INTERESTS CONFLICT OF INTEREST STANDARDS A conflict of interest may be real or apparent. A real conflict of interest occurs when a director or officer exercises an official power or performs an official duty or function and at the same time knows that in the exercise of the official power or the performance of the duty or function there is the opportunity to further his or her private interest. An apparent conflict of interest occurs when a reasonably well-informed person could have a perception, that a director's or officer's ability to exercise an official power or perform an official duty or function was or will be affected by the director's or officer's private interest. Directors and officers must perform their responsibilities in a manner that avoids any real or apparent conflict of interest between private interests and the interests of the Company. Examples of conflict of interests are as follows: - FURTHERING OF PRIVATE INTERESTS If a director or officer is directly or indirectly interested in a proposed activity or transaction with the Company or if the director or officer has discretionary, decision-making power which could bring about financial benefit to the director or officer due to his or her financial holdings or business and property interests, there is potential for a conflict of interest. In these instances at a minimum, these circumstances and these holdings should be disclosed to the Vice President, Legal Affairs. If it is determined there is a conflict of interest, the conflict must be disclosed to the Board. Directors and officers must not engage in such activities or transactions where the activity or transaction may be detrimental to the Company or where the activity is in substantial conflict with the proper discharge of the director's or officer's duties to the Company. - CORPORATE INFORMATION AND OPPORTUNITIES Directors and officers must not engage in any transactions for personal profit which results or may result from the director's or officer's official position or authority or upon confidential or non-public information which the director or officer gains by reason of such position or authority. Confidential information (that is, information that is not generally available to the public) that a director or officer receives through his or her office or employment must not be divulged to anyone other than persons who are authorized to receive the information. Directors and officers must not use confidential information that is gained due to his or her position or authority in order to further the director's or officer's private interests. Directors and officers must also not disclose such information to anyone not authorized to receive such information, including spouses, associates, immediate family, friends, or persons with whom the officer is connected by frequent or close association. A-3 - CORPORATE OPPORTUNITY Directors and officers cannot divert to a third party, themselves, their spouses, their children or a private corporation controlled by any of these individuals, a maturing business opportunity that the Company is pursuing. - PREFERENTIAL TREATMENT OF OTHERS Directors and officers must not assist others in their dealings with the Company if this may result in preferential treatment. A director or officer who exercises regulatory, inspection or other discretionary authority over others, must disqualify themselves from dealing with individuals where the director's or officer's relationship with the individual could bring the director's or officer's impartiality into question. - USE OF CORPORATE PROPERTY FOR PRIVATE INTEREST Directors and officers must not use corporate property to pursue private interests or the interests of a spouse, family members or a private corporation controlled by any of these individuals. Corporate property includes real and tangible items such as land, buildings, furniture, fixtures, equipment supplies, and vehicles and also includes intangible items such as data, computer systems, reports, information, proprietary rights, patents, trademarks, copyrights, logos, name and reputation. The Company may, through prior written approval by an appropriate person within the Company, authorize a director or officer to use corporate property where doing so does not result in additional costs to the Company, does not detract from a director's or officer's performance of duties to the Company, and does not result in a material personal gain. - ACCEPTING SIGNIFICANT GIFTS, BENEFITS AND ENTERTAINMENT Directors and officers must not solicit or accept benefits, entertainment or gifts in exchange for or as a condition of the exercise of duties or as an inducement for performing an act associated with the director's or officer's duties or responsibilities to the Company except within the guidelines set forth below. Directors and officers generally may accept gifts, hospitality or other benefits associated with official duties and responsibilities if such gifts, hospitality or other benefits: o are within the bounds of propriety, a normal expression of courtesy or within the normal standards of hospitality; o would not bring suspicion on the officer's objectivity and impartiality; and o would not compromise the integrity of the Company. An improper gift or benefit should be returned to the person offering it as soon as practicable. If there is no opportunity to return an improper gift or benefit, or where the return may be perceived as offensive for cultural or other reasons, the gift must immediately be disclosed to the Vice President, Legal Affairs and turned over to the Vice President, Legal Affairs who will attend to a suitable disposition of the item. - WORKING RELATIONSHIPS Directors, officers and individuals who are direct relatives or who permanently reside together may not be employed or hold office in situations where: o a reporting relationship exists where a director or officer has influence, input or decision-making power over the relative or cohabitant's performance evaluation, salary, special permissions, conditions of work or similar matters; A-4 o the working relationship affords an opportunity for collusion between the individuals that could have a detrimental effect on the Company's interest. This restriction may be waived if the Vice President, Legal Affairs is satisfied that sufficient safeguards are in place to ensure that the interests of the Company are not compromised. A-5