-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M8zYAfArc5JC2bu4mS2S5ASHN3pVl2SPSqKPjCuTJ9B5V6o42urvHAzjkRtVIeVx MLB1fnRufpunBL0BLXfayA== 0000945234-03-000388.txt : 20030707 0000945234-03-000388.hdr.sgml : 20030704 20030707170443 ACCESSION NUMBER: 0000945234-03-000388 CONFORMED SUBMISSION TYPE: F-10 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20030707 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAN AMERICAN SILVER CORP CENTRAL INDEX KEY: 0000771992 STANDARD INDUSTRIAL CLASSIFICATION: SILVER ORES [1044] IRS NUMBER: 999999999 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: F-10 SEC ACT: 1933 Act SEC FILE NUMBER: 333-106858 FILM NUMBER: 03777379 BUSINESS ADDRESS: STREET 1: 1500-625 HOWE STREET CITY: VANCOUVER BC CANADA STATE: A1 ZIP: V6C 2T6 MAIL ADDRESS: STREET 1: 1500 625 HOWE ST CITY: VANCOUVER BC V6C 2T6 STATE: A1 ZIP: 999999999 FORMER COMPANY: FORMER CONFORMED NAME: PAN AMERICAN MINERALS CORP DATE OF NAME CHANGE: 19950608 F-10 1 o10245fv10.txt F-10 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 2003 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM F-10 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- PAN AMERICAN SILVER CORP. (Exact name of Registrant as specified in its charter) BRITISH COLUMBIA 1044 NOT APPLICABLE (Province or other (Primary Standard Industrial (I.R.S. Employer Jurisdiction of Classification Code Number) Identification No.) Incorporation or Organization) 1500 - 625 HOWE STREET VANCOUVER, BRITISH COLUMBIA CANADA V6C 2T6 (604) 684-1175 (Address and telephone number of Registrant's principal executive offices) PAN AMERICAN MINERALS INC. C/O HARRIS, TRIMMER & THOMPSON 6121 LAKESIDE DRIVE, SUITE 260 RENO, NEVADA 85511 (775) 825-4300 (Name, address and telephone number of agent for service) --------------- Copies to: CHRISTOPHER W. MORGAN, ESQ. FRED R. PLETCHER, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP BORDEN LADNER GERVAIS LLP SUITE 1820, NORTH TOWER 1200 WATERFRONT CENTRE, P.O. BOX 189, ROYAL BANK PLAZA 200 BURRARD STREET TORONTO, ONTARIO M5J 2J4 P.O. BOX 48600, STN. BENTALL CTR. (416) 777-4700 VANCOUVER, BRITISH COLUMBIA V7X 1T2 (604) 687-5744 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: From time to time on or after the effective date of this Registration Statement as determined by market conditions. PROVINCE OF BRITISH COLUMBIA, CANADA (Principal jurisdiction regulating this offering) It is proposed that this filing shall become effective (check appropriate box): A. [ ] Upon filing with the Commission, pursuant to Rule 467(a) (if in connection with an offering being made contemporaneously in the United States and Canada). B. [X] At some future date (check the appropriate box below): 1. [ ] pursuant to Rule 467(b) on ( ) at ( ) (designate a time not sooner than 7 calendar days after filing). 2. [ ] pursuant to Rule 467(b) on ( ) at ( ) (designate a time 7 calendar days or sooner after filing) because the securities regulatory authority in the review jurisdiction has issued a receipt or notification of clearance on ( ). 3. [ ] pursuant to Rule 467(b) as soon as practicable after notification of the Commission by the Registrant or the Canadian securities regulatory authority of the review jurisdiction that a receipt or notification of clearance has been issued with respect hereto. 4. [X] after the filing of the next amendment to this Form (if preliminary material is being filed). If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to the home jurisdiction's shelf prospectus offering procedures, check the following box. [X] --------------- CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE SECURITIES TO BE REGISTERED AMOUNT TO BE REGISTERED OFFERING PRICE AMOUNT OF REGISTRATION FEE - --------------------------- ----------------------- -------------------------- -------------------------- COMMON SHARES DEBT SECURITIES WARRANTS - --------------------------- ----------------------- -------------------------- -------------------------- TOTAL................ US$100,000,000(1) US$100,000,000(2) US$8,090(3) - --------------------------- ----------------------- -------------------------- --------------------------
(1) There are being registered under this registration statement such indeterminate number of common shares of the Registrant, such indeterminate principal amount of debt securities of the registrant and such indeterminate number of warrants of the registrant as shall have an aggregate initial offering price of US$100,000,000. If any debt securities are issued at an original issue discount then the securities registered shall include such debt securities as may be necessary such that the aggregate initial public offering price of all securities issued pursuant to this registration statement will equal US$100,000,000. Any securities registered by this registration statement may be sold separately or as units with other securities registered under this registration statement. The proposed maximum initial offering price per security will be determined, from time to time, by the Registrant in connection with the sale of the securities under this registration statement. (2) In United States dollars or the equivalent thereof in Canadian dollars. (3) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o). Pursuant to Rule 457(p), US$1,523 of the US$8,090 filing fee paid by the Registrant for the Registration Statement on Form F-10 (No. 333-82834) filed with the Commission on February 12, 2002 is offset against the current filing fee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE AS PROVIDED IN RULE 467 UNDER THE SECURITIES ACT OF 1933 OR ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a) OF THE ACT, MAY DETERMINE. ================================================================================ PART I INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS I-1 ================================================================================ Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Subject to Completion. Dated July 7, 2003 PROSPECTUS PAN AMERICAN SILVER CORP. US$100,000,000 COMMON SHARES DEBT SECURITIES WARRANTS Pan American Silver Corp. (the "Company") may offer for sale, from time to time, common shares ("Common Shares"), debt securities ("Debt Securities") or warrants to purchase Common Shares or Debt Securities ("Warrants") of the Company (collectively, the "Securities") or any combination thereof up to an aggregate initial offering price of US$100,000,000 (or its equivalent in Canadian dollars or any other currency or currency unit used to denominate the Securities), during the 25-month period that this short form base shelf prospectus (the "Prospectus"), including any amendments hereto, remains valid. The specific variable terms of any offering of the Securities, will be set forth in a shelf prospectus supplement (a "Prospectus Supplement") including, where applicable: (i) in the case of Common Shares, the number of Common Shares offered, the offering price and any other specific terms; (ii) in the case of Debt Securities, the title of the Debt Securities, aggregate principal amount, currency or the currency unit for which such Debt Securities may be purchased, maturity, interest provisions, authorized denominations, offering price, any redemption terms, any sinking fund provisions, any exchange or conversion terms, whether payment on the Debt Securities will be senior or subordinated to the Company's other liabilities and obligations and any other specific terms; and (iii) in the case of Warrants, the designation, number and terms of the Common Shares or Debt Securities purchasable upon exercise of the Warrants, any procedures that will result in the adjustment of those numbers, the exercise price, dates and periods of exercise, and the currency or the currency unit in which the exercise price must be paid and any other specific terms. The Company reserves the right to include in a Prospectus Supplement specific variable terms pertaining to the Securities that are not within the options and parameters set forth in this Prospectus. All shelf information permitted under applicable laws to be omitted from this Prospectus will be contained in one or more Prospectus Supplements that will be delivered to purchasers together with this Prospectus. Each Prospectus Supplement will be incorporated by reference into this Prospectus for the purposes of securities legislation as of the date of the Prospectus Supplement and only for the purposes of the distribution of the Securities to which the Prospectus Supplement pertains. The Company may offer and sell Securities to or through underwriters or dealers, directly to one or more purchasers pursuant to applicable statutory exemptions, or through agents designated from time to time. The Prospectus Supplement relating to a particular offering of Securities will identify each underwriter, dealer or agent engaged in connection with the offering and sale of Securities and will set forth the plan of distribution for such Securities, including the proceeds to the Company and any fees, discounts, concessions or other compensation payable to the underwriters, dealers or agents, and any other material terms of the plan of distribution. The Common Shares of the Company are listed on the Toronto Stock Exchange (the "TSX") and the Nasdaq National Market ("Nasdaq"). On July 4, 2003, the closing price of the Common Shares on the TSX was Cdn$9.98 per common share. On July 3, 2003 the closing price of the Common Shares on Nasdaq was US$7.39 per common share. THE EARNINGS COVERAGE RATIOS FOR THE COMPANY FOR THE YEAR ENDED DECEMBER 31, 2002 AND THE 12-MONTH PERIOD ENDED MARCH 31, 2003 ARE LESS THAN ONE-TO-ONE. SEE "EARNINGS COVERAGE". -------------- THIS OFFERING IS MADE BY A CANADIAN ISSUER THAT IS PERMITTED, UNDER A MULTIJURISDICTIONAL DISCLOSURE SYSTEM ADOPTED BY THE UNITED STATES, TO PREPARE THIS PROSPECTUS IN ACCORDANCE WITH THE DISCLOSURE REQUIREMENTS OF CANADA. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SUCH REQUIREMENTS ARE DIFFERENT FROM THOSE OF THE UNITED STATES. CERTAIN OF THE FINANCIAL STATEMENTS INCLUDED OR INCORPORATED HEREIN HAVE BEEN PREPARED IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, AND MAY BE SUBJECT TO CANADIAN AUDITING AND AUDITOR INDEPENDENCE STANDARDS, AND THUS MAY NOT BE COMPARABLE TO FINANCIAL STATEMENTS OF UNITED STATES COMPANIES. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THE ACQUISITION OF THE SECURITIES DESCRIBED HEREIN MAY HAVE TAX CONSEQUENCES BOTH IN THE UNITED STATES AND IN CANADA. SUCH CONSEQUENCES FOR INVESTORS WHO ARE RESIDENT IN, OR CITIZENS OF, THE UNITED STATES MAY NOT BE DESCRIBED FULLY HEREIN. THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES LAWS MAY BE AFFECTED ADVERSELY BY THE FACT THAT THE COMPANY IS INCORPORATED OR ORGANIZED UNDER THE LAWS OF BRITISH COLUMBIA, CANADA, THAT SOME OR ALL OF ITS OFFICERS AND DIRECTORS MAY BE RESIDENTS OF CANADA, THAT SOME OR ALL OF THE UNDERWRITERS OR EXPERTS NAMED IN THE REGISTRATION STATEMENT MAY BE RESIDENTS OF CANADA AND THAT A SUBSTANTIAL PORTION OF THE ASSETS OF THE COMPANY AND SAID PERSONS MAY BE LOCATED OUTSIDE THE UNITED STATES. -------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------- The date of this Prospectus is , 2003. ================================================================================ TABLE OF CONTENTS DOCUMENTS INCORPORATED BY REFERENCE...............................................................................3 SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION................................................................4 CERTAIN AVAILABLE INFORMATION.....................................................................................5 PRESENTATION OF FINANCIAL INFORMATION AND EXCHANGE RATE DATA......................................................6 THE COMPANY.......................................................................................................7 BUSINESS OF THE COMPANY...........................................................................................7 RECENT DEVELOPMENTS...............................................................................................7 USE OF PROCEEDS...................................................................................................7 EARNINGS COVERAGE.................................................................................................8 DESCRIPTION OF SHARE CAPITAL......................................................................................9 DESCRIPTION OF WARRANTS...........................................................................................9 DESCRIPTION OF DEBT SECURITIES...................................................................................10 PLAN OF DISTRIBUTION.............................................................................................22 CHANGES TO CONSOLIDATED CAPITALIZATION...........................................................................23 RISK FACTORS.....................................................................................................24 AUDITORS, TRANSFER AGENT AND REGISTRAR...........................................................................24 EXPERTS..........................................................................................................24 DOCUMENTS FILED AS PART OF THE U.S. REGISTRATION STATEMENT.......................................................24 CANADIAN PURCHASERS' STATUTORY RIGHTS............................................................................25 INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
DOCUMENTS INCORPORATED BY REFERENCE INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS FROM DOCUMENTS FILED WITH SECURITIES COMMISSIONS OR SIMILAR AUTHORITIES IN CANADA. Copies of the documents incorporated by reference in this Prospectus may be obtained on request without charge from the Controller and Corporate Secretary of the Company at 1500-625 Howe Street, Vancouver, British Columbia, V6C 2T6 (telephone: (604) 684-1175). These documents are also available through the Internet on the System for Electronic Document Analysis and Retrieval ("SEDAR"), which can be accessed at www.sedar.com. The following documents, filed with the securities commissions or similar regulatory authorities in the Provinces of British Columbia, Alberta, Manitoba, Ontario and Quebec, are specifically incorporated by reference into and form an integral part of this Prospectus: (a) the Annual Information Form of the Company, dated May 20, 2003; (b) the audited consolidated financial statements of the Company and the notes thereon as at and for the years ended December 31, 2001 and 2002, together with the auditors' report thereon as set out in the Company's annual report; (c) the unaudited consolidated financial statements of the Company and the notes thereto as at and for the three months ended March 31, 2003, together with management's discussion and analysis of financial condition and results of operations for the three months ended March 31, 2003; (d) management's discussion and analysis of financial condition and results of operations for the financial year ended December 31, 2002 as set out in the Company's annual report; (e) the information circular of the Company, dated April 9, 2003, in connection with the Company's May 12, 2003 annual general meeting of members, other than the sections entitled "Corporate Governance", "Executive Compensation - Compensation Committee", "Executive Compensation - Report on Executive Compensation" and "Executive Compensation - Performance Graph"; (f) a material change report of the Company, dated February 27, 2003, relating to the completion of its acquisition of Corner Bay Silver Inc. ("Corner Bay"); (g) a material change report of the Company, dated February 27, 2003, relating to consolidated production figures from 2002; (h) a material change report of the Company, dated March 13, 2003, relating to financial and operational results for the fourth quarter and year ended December 31, 2002; and (i) a material change report of the Company, dated May 22, 2003, relating to financial and operational results for the first quarter of 2003. Any documents of the types referred to above, including any material change reports (excluding confidential material change reports), interim unaudited consolidated financial statements of the Company (including management's discussion and analysis of financial condition and results of operations in the quarterly reports for such periods), annual audited consolidated financial statements of the Company, including the auditors' report on and the notes to such financial statements, any exhibits to interim or -3- annual consolidated financial statements and information circulars (excluding the sections entitled "Corporate Governance", "Executive Compensation - Compensation Committee", "Executive Compensation - Report of the Compensation Committee" and "Executive Compensation - Performance Graph" or similar sections permitted to be excluded under National Instrument 44-101 - Short Form Prospectus Distributions), filed by the Company with a securities commission or similar authority in Canada after the date of this Prospectus and prior to the termination of the offering under any Prospectus Supplement shall be deemed to be incorporated by reference into this Prospectus. Any document filed by the Company with the United States Securities and Exchange Commission (the "SEC") or Report of Foreign Private Issuer on Form 6-K furnished to the SEC pursuant to the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the date of this Prospectus shall also be deemed to be incorporated by reference into this Prospectus if and to the extent provided in such document. In addition, the audited consolidated financial statements of the Company and the notes thereon as at and for the years ended December 31, 2001 and 2002, together with the auditors' report thereon, including a reconciliation to United States generally accepted accounting principles in accordance with Item 18 of Form 20-F, filed on SEDAR on July 3, 2003, are incorporated by reference in this Prospectus. ANY STATEMENT CONTAINED IN THIS PROSPECTUS OR IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY REFERENCE IN THIS PROSPECTUS SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED FOR THE PURPOSES OF THIS PROSPECTUS TO THE EXTENT THAT A STATEMENT CONTAINED IN THIS PROSPECTUS OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE IN THIS PROSPECTUS MODIFIES OR SUPERSEDES THAT STATEMENT. THE MODIFYING OR SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS MODIFIED OR SUPERSEDED A PRIOR STATEMENT OR INCLUDE ANY OTHER INFORMATION SET FORTH IN THE DOCUMENT THAT IT MODIFIES OR SUPERSEDES. THE MAKING OF A MODIFYING OR SUPERSEDING STATEMENT IS NOT TO BE DEEMED AN ADMISSION FOR ANY PURPOSES THAT THE MODIFIED OR SUPERSEDED STATEMENT, WHEN MADE, CONSTITUTED A MISREPRESENTATION, AN UNTRUE STATEMENT OF MATERIAL FACT OR AN OMISSION TO STATE A MATERIAL FACT THAT IS REQUIRED TO BE STATED OR IS NECESSARY TO MAKE A STATEMENT NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE. ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT CONSTITUTE A PART OF THIS PROSPECTUS, EXCEPT AS SO MODIFIED OR SUPERSEDED. A Prospectus Supplement containing the specific terms of an offering of Securities and other information in relation to such offering will be delivered to purchasers of such Securities together with this Prospectus and will be deemed to be incorporated by reference into this Prospectus as of the date of such Prospectus Supplement solely for the purposes of the offering of Securities covered by that Prospectus Supplement. Upon a new annual information form and the related annual financial statements being filed by the Company with, and where required, accepted by, the applicable securities regulatory authorities during the currency of this Prospectus, the previous annual information form, the previous annual financial statements and all interim financial statements, material change reports and information circulars and all Prospectus Supplements filed prior to the commencement of the Company's financial year in which the new annual information form was filed shall be deemed no longer to be incorporated into this Prospectus for purposes of future offers and sales of Securities hereunder. SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION Some of the statements included or incorporated by reference in this Prospectus constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995. When used in this Prospectus, the words "anticipate", "believe", "estimate", -4- "expect", "target", "plan", "budget", "may", "schedule" and similar words or expressions, identify forward-looking statements. These forward-looking statements relate to, among other things: o the sufficiency of the Company's current working capital and anticipated operating cash flow; o the sufficiency of the mineral reserves and resources at Quiruvilca, Huaron, La Colorada, Alamo Dorado and other properties; o the estimated cost of and availability of funding for ongoing capital improvement programs; o the estimated cost of the proposed development of the La Colorada and Alamo Dorado projects; o estimated exploration expenditures to be incurred on the Company's various silver exploration properties; o compliance with environmental standards; o forecast capital and non-operating spending; and o levels of silver and other metals production, production costs and metal prices. These statements reflect the Company's current views with respect to future events and are necessarily based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements including, without limitation, the factors identified in the Company's Annual Information Form, dated May 20, 2003, under the caption "Trends and Uncertainties." Investors are cautioned against attributing undue certainty to forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update these forward-looking statements to reflect changes in assumptions or changes in circumstances or any other events affecting such statements, other than as required by applicable law. CERTAIN AVAILABLE INFORMATION The Company has filed with the SEC a registration statement on Form F-10 (the "Registration Statement") under the United States Securities Act of 1933, as amended (the "1933 Act"), with respect to the Securities. This Prospectus, which constitutes a part of that Registration Statement, does not contain all of the information set forth in such Registration Statement and its exhibits, to which reference is made for further information. See "Documents Filed as Part of the U.S. Registration Statement". The Company is subject to the informational reporting requirements of the Exchange Act, and in accordance therewith files reports and other information with the SEC. Under a multijurisdictional disclosure system adopted by the United States, the Company is permitted to prepare such reports and other information in accordance with the disclosure requirements of Canada, which are different from those of the United States. As a foreign private issuer, the Company is exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and its officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery rules contained in Section 16 of the Exchange Act. Under the Exchange Act, the Company is not required to publish financial statements as frequently or as promptly as U.S. companies. -5- The Company files annual reports with the SEC on Form 40-F, which includes: o the Company's Annual Information Form; o management's discussion and analysis of financial condition and results of operations; o the Company's consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in Canada ("Canadian GAAP") and reconciled to generally accepted accounting principles in the United States ("U.S. GAAP"); and o other information specified by the Form 40-F. The Company also furnishes the following types of information to the SEC under cover of Form 6-K: o material information the Company otherwise makes publicly available in reports that it files with securities regulatory authorities in Canada; o material information that the Company files with, and which is made public by, the TSX; and o material information that the Company distributes to its shareholders in Canada. Investors may read and copy any document the Company files with, or furnishes to, the SEC at the SEC's public reference room at Room 1024, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of the material can also be obtained from the SEC's public reference room in Washington, D.C. by paying a fee. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a website (www.sec.gov) that makes available reports and other information that the Company files or furnishes electronically with it. PRESENTATION OF FINANCIAL INFORMATION AND EXCHANGE RATE DATA IN THIS PROSPECTUS, REFERENCES TO "US$" ARE TO UNITED STATES DOLLARS AND REFERENCES TO "CDN $" ARE TO CANADIAN DOLLARS. ALL DOLLAR AMOUNTS SET FORTH IN THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY INCORPORATED BY REFERENCE INTO THIS PROSPECTUS ARE STATED IN UNITED STATES DOLLARS, EXCEPT WHERE OTHERWISE INDICATED. The following table sets forth, for each period indicated, the exchange rates of the Canadian dollar to the U.S. dollar for the end of each period indicated and the high, low and average exchange rates for each of such periods (such rates, which are expressed in Canadian dollars are based on the noon buying rates for U.S. dollars reported by the Bank of Canada).
YEAR ENDED DECEMBER 31, THREE MONTHS ------------------------------------------------------ ENDED MARCH 31, 2003 2002 2001 2000 -------------------- ---------- ---------- ---------- High Cdn$1.5747 Cdn$1.6155 Cdn$1.6021 Cdn$1.5590 Low 1.4656 1.5123 1.4936 1.4341 Average 1.5102 1.5704 1.5484 1.4850 End of Period 1.4693 1.5776 1.5926 1.5002
On July 4, 2003, the noon buying rate was US$1.00 = Cdn $1.3409. -6- THE COMPANY Pan American Silver Corp. is a company incorporated under the Company Act (British Columbia). The Company's head office is located at 1500 - 625 Howe Street, Vancouver, British Columbia, V6C 2T6 and its registered and records office is located at 900 Waterfront Centre, 200 Burrard Street, Vancouver, British Columbia, V7X 1T2. In this Prospectus, the term "Pan American" refers to the Company and its principal subsidiaries. BUSINESS OF THE COMPANY Pan American is principally engaged in the exploration for, and the acquisition, development and operation of silver properties. Pan American: (i) owns and operates the producing Quiruvilca silver mine in Peru; (ii) owns and operates the producing Huaron silver mine in Peru; (iii) owns and operates the producing La Colorada silver mine and development project located in Mexico (Pan American completed a significant expansion of the La Colorada mine in June of 2003 and silver production is expected to increase over the balance of 2003); and (iv) mines and sells silver-rich pyrite stockpiles at a small-scale operation in central Peru. Pan American also either holds an interest in or may earn an interest in non-producing silver resource and silver exploration properties in Peru, Argentina, the United States, Russia and Mexico, including the significant Alamo Dorado deposit in Mexico on which the Company is preparing a feasibility study. RECENT DEVELOPMENTS Pan American substantially completed a major expansion at its La Colorada silver mine in Mexico during June of 2003. The expansion included the construction of a 600 tonne per day oxide mill, which will add to the mine's current production from the existing 200 tonne per day sulphide mill. Production is expected to reach design capacity within a few months following the end of June of 2003. The expansion was completed ahead of schedule and approximately 5% under the original US$20 million budget. A 6,000 metre infill drilling program has been completed on Pan American's 50%-owned Manantial Espejo silver-gold exploration property in Argentina. The results have confirmed the size of the deposit and increased Pan American's confidence in its geological model, leading Pan American and its joint venture partner, Silver Standard Resources Inc., to accelerate the commissioning of a feasibility study on the property. The study will be initiated in the fourth quarter of 2003 for completion in the fall of 2004. Over the remainder of 2003, geotechnical and environmental work will proceed on the project to facilitate permitting. USE OF PROCEEDS Unless otherwise indicated in the applicable Prospectus Supplement, the net proceeds from the sale of Securities will be used by the Company to fund development of the Alamo Dorado project, the expansion of the Huaron mine, other ongoing development and exploration programs and working capital requirements and for other general corporate purposes. The Company may, from time to time, issue Common Shares and other securities otherwise than through the offering of Securities pursuant to this Prospectus. -7- EARNINGS COVERAGE The following consolidated financial earnings deficiency figures and cash flow coverage ratios are calculated for the year ended December 31, 2002 and the 12-month period ended March 31, 2003 and give effect to all long-term financial liabilities of Pan American and the repayment, redemption or retirement thereof since those dates, respectively. The earnings coverage deficiencies, cash flow ratios and the amount of earnings, cash flow and interest expense set forth below do not purport to be indicative of earnings coverage deficiencies or ratios or cash flow coverage ratios for any future periods. The deficiency figures and coverage ratios have been calculated based on Canadian GAAP. These coverage deficiencies, coverage ratios, earnings, cash flow or interest expense do not give effect to the issuance of any Debt Securities that may be issued pursuant to this Prospectus and any Prospectus Supplement, since the aggregate principal amounts and the terms of such Debt Securities are not presently known.
YEAR ENDED 12 MONTHS ENDED DECEMBER 31, 2002 MARCH 31, 2003 ----------------- -------------- Earnings coverage deficiency (1)..................... $(33,658,000) $(33,699,000) Earnings coverage deficiency before $ (6,440,000) $ (7,247,000) unusual items (2)................................. Cash flow coverage/(deficiency) (3) (4).............. 7.94(3) $ (7,360,000)(4)
- --------------------------- (1) Earnings coverage deficiency is the dollar amount of earnings required to attain an earnings coverage ratio of one-to-one. Earnings coverage ratio is equal to net income before interest expense and income taxes divided by interest expense on all debt. (2) Earnings coverage deficiency before unusual items is the dollar amount of earnings required to attain an earnings coverage ratio before unusual items of one-to-one. Earnings coverage ratio before unusual items is equal to net income before interest expense, income taxes and write-down of the Company's investment in the Quiruvilca mine and accrual for future reclamation costs for the Quiruvilca Mine divided by interest expense on all debt. (3) Cash flow coverage is equal to cash flow from operating, financing and investment activities before interest expense and income taxes divided by interest expense on all debt. (4) Cash flow deficiency is the dollar amount of cash flow required to attain a cash flow coverage ratio of one-to-one. Cash flow coverage ratio is equal to cash flow from operating, financing and investment activities before interest expense and income taxes divided by interest expense on all debt. The Company's interest expense requirements amounted to approximately $988,000 for the year ended December 31, 2002. The Company's losses before interest expense and income tax for the year ended December 31, 2002 were approximately $32,670,000, which is a deficiency of approximately $33,658,000 of the earnings amount necessary to attain a earnings coverage ratio of one-to-one for this period. The Company's interest expense requirements amounted to approximately $881,000 for the 12 months ended March 31, 2003. The Company's losses before interest expense and income tax for the 12 months ended March 31, 2003 were approximately $32,818,000, which is a deficiency of approximately $33,699,000 of the earnings amount necessary to attain a earnings coverage ratio of one-to-one for this period. -8- If the Company offers any Debt Securities having a term to maturity in excess of one year under this Prospectus and a Prospectus Supplement, the Prospectus Supplement will include earnings coverage ratios giving effect to the issuance of such Debt Securities. DESCRIPTION OF SHARE CAPITAL The Company is authorized to issue 100,000,000 Common Shares, without par value, of which 52,127,284 are issued and outstanding as at the date of this Prospectus. There are options outstanding to purchase up to 2,398,036 Common Shares at prices ranging from $3.10 to $8.18 and warrants outstanding to purchase up to 4,355,439 Common Shares at prices ranging from Cdn$3.26 to Cdn$12.00. Holders of Common Shares are entitled to one vote per common share at all meetings of shareholders, to receive dividends as and when declared by the directors of the Company and to receive a pro rata share of the assets of the Company available for distribution to the shareholders in the event of the liquidation, dissolution or winding-up of the Company. There are no pre-emptive, conversion or redemption rights attached to the Common Shares. DESCRIPTION OF WARRANTS GENERAL The Company may issue Warrants to purchase Common Shares or Debt Securities. The Company may issue Warrants independently or together with other Securities, and Warrants sold with other Securities may be attached to or separate from the other Securities. Warrants will be issued under and governed by the terms of one or more warrant indentures (each a "Warrant Indenture") between the Company and a warrant trustee (the "Warrant Trustee") that the Company will name in the relevant Prospectus Supplement. Each Warrant Trustee will be a financial institution organized under the laws of Canada or any province thereof and authorized to carry on business as a trustee. Selected provisions of the Warrants and any Warrant Indenture are summarized below. The statements made in this Prospectus relating to any Warrant Indenture and Warrants to be issued thereunder are summaries of certain anticipated provisions thereof and are subject to, and are qualified in their entirety by reference to, all provisions of the applicable Warrant Indenture and the Prospectus Supplement describing such Warrant Indenture. The Prospectus Supplement relating to any Warrants the Company offers will describe the Warrants and include specific terms relating to their offering. All such terms will comply with the requirements of the TSX and Nasdaq relating to Warrants. The Prospectus Supplement will include some or all of the following: o the title of the Warrants; o the aggregate number of Warrants offered; o the price, if any, at which the Warrants will be offered; o the designation, number and terms of the Common Shares or Debt Securities purchasable upon exercise of the Warrants, and the procedures that will result in the adjustment of those numbers; o the exercise price of the Warrants; -9- o the dates or periods during which the Warrants are exercisable; o the designation and terms of any securities with which the Warrants are issued; o if the Warrants are issued as a unit with another security, the date on and after which the Warrants and the other security will be separately transferable; o if the exercise price is not payable in U.S. dollars, the currency or currency units in which the exercise price is denominated; o any minimum or maximum amount of Warrants that may be exercised at any one time; o any terms, procedures and limitations relating to the transferability, exchange or exercise of the Warrants; o the identity of the Warrant Trustee; o whether the Warrants will be listed on any exchange; and o any other terms of the Warrants. Warrant certificates will be exchangeable for new Warrant certificates of different denominations at the office or offices indicated in the Warrant Indenture and the Prospectus Supplement. Prior to the exercise of their Warrants, holders of Warrants will not have any of the rights of holders of the Common Shares or Debt Securities issuable upon exercise of the Warrants. MODIFICATIONS The Company may amend any Warrant Indenture and the Warrants, without the consent of the holders of the Warrants, to cure any ambiguity, to cure, correct or supplement any defective or inconsistent provision, or in any other manner that will not materially and adversely affect the interests of holders of outstanding Warrants. ENFORCEABILITY The Warrant Trustee will act solely as the Company's agent. The Warrant Trustee will not have any duty or responsibility if the Company defaults under the Warrant Indenture or the Warrant certificates. A Warrant holder may, without the consent of the Warrant Trustee, enforce by appropriate legal action on its own behalf the holder's right to exercise the holder's Warrants. DESCRIPTION OF DEBT SECURITIES The Company may issue Debt Securities in one or more series under one or more indentures (each, a "Trust Indenture"), each to be entered into between the Company and a trustee (each, a "Debt Securities Trustee"). Each Debt Securities Trustee will be a financial institution organized under the laws of Canada or any province thereof and authorized to carry on business as a trustee. Each Trust Indenture will be subject to and governed by the Company Act (British Columbia) and the United States Trust Indenture Act of 1939, as amended. A copy of the form of Trust Indenture will be filed with Canadian securities regulatory authorities and as an exhibit to the Registration Statement. The following description sets forth certain general terms and provisions of Debt Securities and is not intended to be -10- complete. The statements made in this Prospectus relating to any Trust Indenture and Debt Securities to be issued thereunder are summaries of certain anticipated provisions thereof and are subject to, and are qualified in their entirety by reference to, all provisions of the applicable Trust Indenture and the Prospectus Supplement describing such Trust Indenture. The Prospectus Supplement relating to any Debt Securities the Company offers will describe the Debt Securities and include specific terms relating to their offering. All such terms will comply with the requirements of the TSX and Nasdaq relating to Debt Securities. GENERAL The Company may issue Debt Securities that may consist of debentures, convertible debentures, notes, bonds and/or other similar evidences of indebtedness from time to time in separate series. The Prospectus Supplement for any series of Debt Securities the Company offers will describe the specific terms of the Debt Securities and may include, but is not limited to, any of the following: o the title of the Debt Securities; o any limit on the aggregate principal amount of the Debt Securities; o the price at which the Debt Securities will be issued (or the manner of determination thereof, if offered on a non-fixed price basis and whether at par, at a discount or at a premium); o the date or dates on which the Company may issue the Debt Securities; o the currency of issue of the Debt Securities; o whether payment on the Debt Securities will be senior or subordinated to the Company's other liabilities or obligations and the terms and provisions of such subordination; o whether the payment of the Debt Securities will be guaranteed by any other person and the terms and provisions of any such guarantee; o whether the Debt Securities will be secured by assets of Pan American or any other person and the terms of such security; o the date or dates on which the Company will pay the principal and any premium on the Debt Securities and the portion (if less than the principal amount) of Debt Securities to be payable upon a declaration of acceleration of maturity; o whether and under what circumstances the date or dates on which the Company will pay the principal and any premium on the Debt Securities may be extended; o whether the Debt Securities will bear interest, whether the interest is payable in cash, securities or a combination thereof, the interest rate or the method of determining the interest rate (which may be fixed or variable), the date from which interest will accrue, the dates on which the Company will pay interest and the record dates for interest payments; o the place or places the Company will pay principal, any premium and interest and the place or places where Debt Securities can be presented for registration of transfer or exchange; -11- o whether and under what circumstances the Company will be required to pay any additional amounts for withholding or deduction for Canadian taxes with respect to the Debt Securities, and whether the Company will have the option to redeem the Debt Securities rather than pay the additional amounts; o whether and under what circumstances the Company will be obligated to redeem or repurchase the Debt Securities pursuant to any sinking or purchase fund or other provisions, or at the option of a holder; o whether and under what circumstances the Company may redeem the Debt Securities at its option; o the terms and conditions, if any, upon which the Company may redeem or repurchase the Debt Securities prior to maturity and the price or prices at which the Debt Securities will be redeemed or repurchased; o the denominations in which the Company will issue any Debt Securities; o whether the Company will make payments on the Debt Securities in a currency or currency unit other than United States dollars or by delivery of Common Shares or other property; o whether payments on the Debt Securities will be payable with reference to any index or formula; o whether the Company will issue the Debt Securities as global securities and, if so, the identity of the depositary for the global securities; o whether the Company will issue the Debt Securities as bearer securities, registered securities or both; o any changes or additions to events of default or covenants; o the applicability of, and any changes or additions to, the provisions for defeasance described under "Defeasance" below; o whether the holders of any series of Debt Securities have special rights if specified events occur; o the terms for any conversion or exchange of the Debt Securities for any other securities; o provisions as to modification, amendment or variation of any rights or terms attaching to the Debt Securities; o the identity of the Debt Securities Trustee; o whether the Debt Securities will be listed on any exchange; and o any other terms of the Debt Securities. Unless stated otherwise in the applicable Prospectus Supplement, no holder will have the right to require the Company to repurchase the Debt Securities and there will be no increase in the interest rate if the Company becomes involved in a highly leveraged transaction or if there is a change of control of the Company. -12- The Company may issue Debt Securities bearing no interest or interest at a rate below the prevailing market rate at the time of issuance, and offer and sell these Debt Securities at a discount below their stated principal amount. The Company may also sell any of the Debt Securities for a currency or currency unit other than United States dollars, and payments on the Debt Securities may be payable in a currency or currency unit other than United States dollars. In any of these cases, the Company will describe any Canadian and United States federal income tax consequences and other special considerations in the applicable Prospectus Supplement. The Company may issue Debt Securities with terms different from those of Debt Securities previously issued and, without the consent of the holders thereof, the Company may reopen a previous issue of a series of Debt Securities and issue additional Debt Securities of such series (unless the reopening was restricted when such series was created). FORM, DENOMINATIONS AND EXCHANGE Debt Securities of a series may be issuable solely as registered securities, solely as bearer securities or as both registered securities and bearer securities. The Trust Indenture may also provide that Debt Securities of a series will be issuable in global form. Unless otherwise indicated in the Prospectus Supplement, bearer securities will have interest coupons attached. Registered Debt Securities of any series will be exchangeable for other registered Debt Securities of the same series and of a like aggregate principal amount and tenor in different authorized denominations. If (but only if) provided in the Prospectus Supplement and Trust Indenture, bearer Debt Securities (with all unmatured coupons, except as provided below, and all matured coupons in default) of any series may be exchanged for registered Debt Securities of the same series in any authorized denominations and of a like aggregate principal amount and tenor. In such event, bearer Debt Securities surrendered in a permitted exchange for registered Debt Securities between a regular record date or a special record date and the relevant date for payment of interest shall be surrendered without the coupon relating to such date for payment of interest, and interest will not be payable on such date for payment of interest in respect of the registered security issued in exchange for such bearer security, but will be payable only to the holder of such coupon when due in accordance with the terms of the Trust Indenture. The applicable Prospectus Supplement may indicate the place or places to register a transfer of Debt Securities. Except for certain restrictions set forth in the Trust Indenture, no service charge will be made for any registration of transfer or exchange of the Debt Securities, but the Company may, in certain instances, require a sum sufficient to cover any tax or other governmental charges payable in connection with these transactions. The Company shall not be required to: (i) issue, register the transfer of or exchange Debt Securities of any series during a period beginning at the opening of business 15 days before any selection of Debt Securities of that series is to be redeemed and ending at the close of business on: (A) if Debt Securities of the series are issuable only as registered securities, the day of mailing of the relevant notice of redemption; or (B) if Debt Securities of the series are issuable as bearer securities, the day of the first publication of the relevant notice of redemption or, if Debt Securities of the series are also issuable as registered securities and there is no publication, the mailing of the relevant notice of redemption; (ii) register the transfer of or exchange any registered Debt Security, or a portion thereof, called for redemption, except the unredeemed portion of any registered security being redeemed in part; (iii) exchange any bearer Debt Security selected for redemption, except that, to the extent provided with respect to such bearer security, such bearer security may be exchanged for a registered Debt Security of that series and like tenor, provided that such registered security shall be immediately surrendered for redemption with written instruction for payment consistent with the provisions of the Trust Indenture; or -13- (iv) issue, register the transfer of or exchange any Debt Securities which have been surrendered for repayment at the option of the holder, except the portion, if any, thereof not to be so repaid. PAYMENT Unless stated otherwise in the Prospectus Supplement and the Trust Indenture, the Company will make payments on the Debt Securities at the relevant office or agency of the Debt Securities Trustee or the Company can make payments by: (i) cheque mailed or delivered to the person entitled at the address appearing in the security register of the Debt Securities Trustee; or (ii) wire transfer to an account in the United States or Canada of the person entitled to receive payments. Unless stated otherwise in the applicable Prospectus Supplement, the Company will make payment to the persons in whose names the Debt Securities are registered on the close of business on the day or days specified in the Trust Indenture. The Company will make Debt Securities payments in other forms at a place designated by the Company and specified in the applicable Prospectus Supplement and Trust Indenture. GLOBAL SECURITIES The registered Debt Securities of a series may be issued in whole or in part in global form (a "Global Security") and will be registered in the name of and be deposited with a depositary (the "Depositary"), or its nominee, each of which will be identified in the Prospectus Supplement. Unless and until exchanged, in whole or in part, for Debt Securities in definitive registered form, a Global Security may not be transferred except as a whole by the Depositary for such Global Security to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor of the Depositary or a nominee of the successor. The specific terms of the depositary arrangement with respect to any portion of a particular series of Debt Securities to be represented by a Global Security will be described in the Prospectus Supplement relating to such series and the Trust Indenture. The Company anticipates that the following provisions will apply to all depositary arrangements. Upon the issuance of a Global Security, the Depositary therefor or its nominee will credit, on its book entry and registration system, the respective principal amounts of the Debt Securities represented by the Global Security to the accounts of such persons having accounts with such Depositary or its nominee ("Participants"). Such accounts shall be designated by the underwriters, dealers or agents participating in the distribution of the Debt Securities or by the Company if such Debt Securities are offered and sold directly by the Company. Ownership of beneficial interests in a Global Security will be limited to participants or persons that may hold beneficial interests through participants. Ownership of beneficial interests in a Global Security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the Depositary therefor or its nominee (with respect to interest of Participants) or by Participants or persons that hold through Participants (with respect to interests of persons other than Participants). The laws of some states in the United States may require that certain purchasers of securities take physical delivery of such securities in definitive form. So long as the Depositary for a Global Security or its nominee is the registered owner of the Global Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Debt Securities represented by the Global Security for all purposes under the Trust Indenture. Except as provided below, owners of beneficial interests in a Global Security will not be entitled to have Debt Securities of the series represented by the Global Security registered in their names, will not receive or be entitled to receive physical delivery of Debt Securities of such series in definitive form and will not be considered the owners or holders thereof under the Trust Indenture. -14- Any payments of principal of, premium, if any, and interest on Global Securities registered in the name of a Depositary or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner of the Global Security representing such Debt Securities. None of the Company, the Debt Securities Trustee or any paying agent for Debt Securities represented by the Global Securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that the Depositary for a Global Security or its nominee, upon receipt of any payment of principal, premium or interest, will immediately credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Security as shown on the records of such Depositary or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in a Global Security held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in "street name", and will be the responsibility of such Participants. If a Depositary for a Global Security representing a particular series of Debt Securities is at any time unwilling or unable or no longer qualified to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Company will issue Debt Securities of such series in definitive form in exchange for a Global Security representing such series of Debt Securities. In addition, the Company may at any time and in its sole discretion determine not to have Debt Securities of a series represented by a Global Security and, in such event, will issue Debt Securities of a series in definitive form in exchange for all of the Global Securities representing the series of Debt Securities. MERGER, AMALGAMATION OR CONSOLIDATION The Trust Indenture will provide that the Company may not consolidate with or amalgamate or merge with or into any other person or convey, transfer or lease its properties and assets substantially as an entirety to another person, unless among other items: o the Company is the surviving person, or the resulting, surviving or transferee person, if other than the Company, is organized and existing under the laws of Canada, any province or territory thereof, the United States, any state thereof or the District of Columbia, or, if the amalgamation, merger, consolidation or other transaction would not impair the rights of holders, any other country; o the successor person assumes all obligations of the Company under the Debt Securities and the Trust Indenture; and o the Company or such successor person will not be in default under the Trust Indenture immediately after the transaction. When such a person assumes the Company's obligations in such circumstances, subject to certain exceptions, the Company shall be discharged from all obligations under the Debt Securities and the Trust Indenture. TAX REDEMPTION If and to the extent specified in an applicable Prospectus Supplement and Trust Indenture, the Debt Securities of a series will be subject to redemption at any time, in whole but not in part at a -15- redemption price equal to the principal amount thereof together with accrued and unpaid interest to the date fixed for redemption, upon the giving of a notice as described below: if (i) the Company determines that (A) as a result of any change in or amendment to the laws (or any regulations or rulings promulgated thereunder) of Canada or of any political subdivision or taxing authority thereof or therein affecting taxation, or any change in official position regarding application or interpretation of such laws, regulations or rulings (including a holding by a court of competent jurisdiction), which change or amendment is announced or becomes effective on or after a date specified in the applicable Prospectus Supplement and Trust Indenture if any date is so specified, the Company has or will become obligated to pay, on the next succeeding date on which interest is due, Additional Amounts with respect to any Debt Security of such series as described below under "Canadian Withholding Taxes"; or (B) on or after a date specified in the applicable Prospectus Supplement, any action has been taken by any taxing authority of, or any decision has been rendered by a court of competent jurisdiction in, Canada or any province or territory thereof, including any of those actions specified in (A) above, whether or not such action was taken or decision was rendered with respect to the Company, or any change, amendment, application or interpretation shall be officially proposed, which, in any such case, in the written opinion to the Company of legal counsel of recognized standing, will result in the Company becoming obligated to pay, on the next succeeding date on which interest is due, Additional Amounts with respect to any Debt Securities of such series; and (ii) in any such case, the Company in its business judgment determines that such obligation cannot be avoided by the use of reasonable measures available to the Company; provided however, that (a) no such notice of redemption may be given earlier than 90 days prior to the earliest date on which the Company would be obligated to pay such Additional Amounts were a payment in respect of the Debt Securities then due, and (b) at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. In the event that the Company elects to redeem the Debt Securities of such series pursuant to the provisions set forth in the preceding paragraph, the Company shall deliver to the Debt Securities Trustee a certificate, signed by an authorized officer, stating that the Company is entitled to redeem the Debt Securities of such series pursuant to their terms. CANADIAN WITHHOLDING TAXES If and to the extent specified in an applicable Prospectus Supplement and Trust Indenture, all payments made by or on behalf of the Company under or with respect to the Debt Securities will be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other government charge (including penalties, interest and other liabilities related thereto) imposed or levied by or on behalf of the Government of Canada or of any province or territory thereof or by any authority or agency therein or thereof having power to tax ("Canadian Taxes") unless the Company is required to withhold or deduct Canadian Taxes by law or by the interpretation or administration thereof by the relevant government authority or agency. If the Company is so required to withhold or deduct any amount for or on account of Canadian Taxes from any payment made under or with respect to the Debt Securities, the Company will pay as additional interest such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each holder of Debt Securities after such withholding or deduction (including with respect to Additional Amounts) will not be less than the amount the holder of Debt Securities would have received if such Canadian Taxes had not been withheld or deducted (a similar payment will also be made to holders of Debt Securities (other than Excluded Holders as defined herein) that are exempt from withholding but required to pay tax under Part XIII of the Income Tax Act (Canada) (the "Tax Act") directly on amounts otherwise subject to withholding); provided, however, that no Additional Amounts will be payable with respect to a payment made to a holder of Debt Securities (an "Excluded Holder") in respect of the beneficial owner thereof: -16- (1) with which the Company does not deal at arm's length (for purposes of the Tax Act) at the time of the making of such payment; (2) which is subject to such Canadian Taxes by reason of its failure to comply with any certification, identification, information, documentation or other reporting requirement if compliance is required by law, regulation, administrative practice or an applicable treaty as a precondition to exemption from, or a reduction in the rate of deduction or withholding of, such Canadian Taxes; or (3) which is subject to such Canadian Taxes by reason of its carrying on business in or being connected with Canada or any province or territory thereof otherwise than by the mere holding of Debt Securities or the receipt of payment thereunder. The Company will make such withholding or deduction and remit the full amount deducted or withheld to the relevant authority as and when required in accordance with applicable law. The Company will pay all taxes, interest and other liabilities which arise by virtue of any failure of the Company to withhold, deduct and remit to the relevant authority on a timely basis the full amounts required in accordance with applicable law. The Company will furnish to the holder of the Debt Securities, within 30 days after the date the payment of any Canadian Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Company. The foregoing obligations shall survive any termination, defeasance or discharge of the Trust Indenture. PROVISION OF FINANCIAL INFORMATION Unless stated otherwise in an applicable Prospectus Supplement and Trust Indenture, the Company will file with the Debt Securities Trustee and mail to all holders of Debt Securities, as their names and addresses appear in the security register, copies of its annual report or the information, documents and other reports that the Company is required to provide to its shareholders pursuant to the applicable Canadian securities legislation and the Company Act (British Columbia) and information filed by the Company with the SEC. The Company will agree to continue to provide the Debt Securities Trustee and holders (a) within 140 days after the end of each financial year, an annual report; and (b) within 60 days after the end of each of the first three financial quarters of each financial year, quarterly reports, even if the Company is no longer required to do so under the Canadian securities legislation or the Company Act (British Columbia) and information filed by the Company with the SEC. The information contained in these reports will be, at a minimum, the information required to be provided in annual and quarterly reports by law in Canada to security holders of a corporation with securities listed on the TSX whether or not the Company has any of its securities listed on such stock exchange. EVENTS OF DEFAULT When the Company uses the term "event of default" in this Prospectus, the Company means: o the Company fails to pay principal of, or any premium on, any Debt Securities of that series when it is due; o the Company fails to pay interest or any additional amounts on any Debt Securities of that series for 30 days from the date such amounts are due; -17- o the Company fails to comply with any of its other agreements in the Trust Indenture that affect or are applicable to the Debt Securities for 60 days after the Company receives written notice from the Debt Securities Trustee or after the Company and the Debt Securities Trustee receive written notice from the holders of at least 25% in aggregate principal amount of the outstanding Debt Securities; o certain events involving its bankruptcy, insolvency or reorganization; and o any other event of default provided for that series of Debt Securities in the Trust Indenture. An event of default under one series of Debt Securities will not necessarily be an event of default under another series. The Debt Securities Trustee may withhold notice to the holders of Debt Securities of any event of default (except in the payment of principal or interest) if in good faith it considers it in the interests of the holders to do so. If an event of default for any series of Debt Securities occurs and continues, the Debt Securities Trustee or the holders of at least 25% in aggregate principal amount of the Debt Securities of that series, subject to any subordination provisions, may require the Company to repay immediately: o the entire principal of the Debt Securities of the series; or o if the Debt Securities are discounted securities, that portion of the principal as is described in the applicable Prospectus Supplement and Trust Indenture. If an event of default relates to events involving the Company's bankruptcy, insolvency or reorganization, the principal of all Debt Securities will become immediately due and payable without any action by the Debt Securities Trustee or any holder. Subject to certain conditions, the holders of a majority of the aggregate principal amount of the Debt Securities of the affected series can rescind this accelerated payment requirement. If Debt Securities are discounted securities, the applicable Prospectus Supplement will contain provisions relating to the acceleration of maturity of a portion of the principal amount of the discounted securities upon the occurrence or continuance of an event of default. Other than its duties in case of an event of default, the Debt Securities Trustee is not obligated to exercise any of its rights or powers under the Trust Indenture at the request, order or direction of any holders, unless the holders offer the Debt Securities Trustee reasonable indemnity. If they provide this reasonable indemnity, the holders of a majority in principal amount of any series of Debt Securities may, subject to certain limitations, direct the time, method and place of conducting any proceeding or any remedy available to the Debt Securities Trustee, or exercising any power conferred upon the Debt Securities Trustee, for any series of Debt Securities. The Company will be required to furnish to the Debt Securities Trustee a statement annually as to its compliance with all conditions and covenants under the Trust Indenture and, if the Company is not in compliance, the Company must specify any events of default. No holder of Debt Securities of any series will have any right to institute any proceeding with respect to the Trust Indenture, or for the appointment of a receiver or a trustee, or for any other remedy, unless: -18- (1) the holder has previously given to the Debt Securities Trustee written notice of a continuing event of default with respect to the Debt Securities of the affected series; (2) the holders of at least 25% in principal amount of the outstanding Debt Securities of the series affected by an event of default have made a written request, and the holders have offered reasonable indemnity, to the Debt Securities Trustee to institute a proceeding as trustee; and (3) the Debt Securities Trustee has failed to institute a proceeding, and has not received from the holders of a majority in aggregate principal amount of the outstanding Debt Securities of the series affected by an event of default a direction inconsistent with the request, within 60 days after their notice, request and offer. However, the above limitations do not apply to a suit instituted by a holder of Debt Securities for the enforcement of payment of principal of, or any premium or interest on, the Debt Securities on or after the applicable due date specified in the Debt Securities. DEFEASANCE When the Company uses the term "defeasance" in this Prospectus, the Company means discharge from some or all of its obligations under a Trust Indenture. If the Company deposits with the Debt Securities Trustee sufficient cash or government securities to pay the principal, interest, any premium and any other sums due to the stated maturity date or a redemption date of the Debt Securities of a series, then at its option: o the Company will be discharged from its obligations with respect to the Debt Securities of that series; or o the Company will no longer be under any obligation to comply with certain restrictive covenants under the Trust Indenture, and certain events of default will no longer apply to the Company. If this happens, the holders of the Debt Securities of the affected series will not be entitled to the benefits of the Trust Indenture except for registration of transfer and exchange of Debt Securities and the replacement of lost, stolen or mutilated Debt Securities. These holders may look only to the deposited fund for payment on their Debt Securities. To exercise its defeasance option, the Company must deliver to the Debt Securities Trustee: (1) an opinion of counsel in Canada or a ruling from the Canada Customs and Revenue Agency to the effect that the holders of the outstanding Debt Securities of the affected series will not recognize income, gain or loss for Canadian federal, provincial or territorial income or other tax purposes as a result of a defeasance and will be subject to Canadian federal or provincial income tax and other tax on the same amounts, in the same manner and at the same times as would have been the case had the defeasance not occurred; (2) an opinion of counsel in the United States to the effect that the holders of the outstanding Debt Securities of the affected series will not recognize gain or loss for United States federal income tax purposes as a result of a defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the defeasance had not occurred; and -19- (3) a certificate of an officer of the Company and an opinion of counsel, each stating that all conditions precedent provided for relating to defeasance have been satisfied. If the Company will be discharged from its obligations with respect to the Debt Securities, and not just from its covenants, the U.S. opinion must be based upon a ruling from or published by the United States Internal Revenue Service or a change in law to that effect. In addition to the delivery of the opinions described above, the following conditions must be met before the Company may exercise its defeasance option: o no event of default or event that, with the passing of time or the giving of notice, or both, shall constitute an event of default shall have occurred and be continuing for the Debt Securities of the affected series; o the Company is not an "insolvent person" within the meaning of applicable bankruptcy and insolvency legislation; and o other customary conditions precedent are satisfied. MODIFICATION AND WAIVER The Company may modify a Trust Indenture with the consent of the holders of a majority in aggregate principal amount of the outstanding Debt Securities of each series affected by the modification. However, without the consent of each holder affected, no modification may: o change the stated maturity of the principal of (or premium, if any), or any installment of interest, if any, on any Debt Securities; o reduce the principal, premium, if any, or interest rate or any obligation to pay any additional amounts; o reduce the amount of principal of a Debt Security payable upon acceleration of its maturity; o change the place or currency of any payment; o affect the holder's right, if any, to require the Company to repurchase the Debt Securities at the holder's option; o impair the right of the holders to institute a suit to enforce their rights to payment; o adversely affect any conversion or exchange right related to a series of Debt Securities; o change the percentage of Debt Securities required to modify the Trust Indenture or to waive compliance with certain provisions of the Trust Indenture; or o reduce the percentage in principal amount of outstanding Debt Securities necessary to take certain actions. The holders of a majority in principal amount of outstanding Debt Securities of any series may on behalf of the holders of all Debt Securities of that series waive, in so far as only that series is concerned, past defaults under the Trust Indenture and the Company's compliance with certain restrictive provisions -20- of the Trust Indenture. However, these holders may not waive a default in any payment on any Debt Securities or compliance with a provision that cannot be modified without the consent of each holder affected. The Company may modify the Trust Indenture without the consent of the holders to: o evidence its successor under the Trust Indenture; o add to covenants or surrender any right or power for the benefit of holders; o add events of default; o provide for bearer securities to become registered securities under the Trust Indenture and make other such changes to bearer securities that in each case do not materially and adversely affect the interests of holders of outstanding Debt Securities; o establish the forms of the Debt Securities; o appoint a successor trustee under the Trust Indenture; o add provisions to permit or facilitate the defeasance or discharge of the Debt Securities as long as there is no adverse affect on the holders; o cure any ambiguity, correct or supplement any defective or inconsistent provision, make any other provisions in each case that would not materially and adversely affect the interests of holders of outstanding securities and related coupons, if any; or o to change or eliminate any provisions where such change takes effect when there are no securities outstanding under the Trust Indenture. GOVERNING LAW The Trust Indenture and the Debt Securities will be governed by and construed in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable in British Columbia. THE TRUSTEE The Debt Securities Trustee under the Trust Indenture or its affiliates may provide banking, registrar and transfer agency and other services to the Company in the ordinary course of their business. The Trust Indenture will contain certain limitations on the rights of the Debt Securities Trustee, as long as it or any of its affiliates remains the Company's creditor, to obtain payment of claims in certain cases or to realize on certain property received on any claim as security or otherwise. If the Debt Securities Trustee or any affiliate acquires any conflicting interest and an event of default occurs with respect to the Debt Securities, the Debt Securities Trustee must eliminate the conflict or resign. -21- PLAN OF DISTRIBUTION GENERAL The Company may offer and sell the Securities, separately or together: (i) to one or more underwriters or dealers; (ii) through one or more agents; or (iii) directly to one or more other purchasers. The Securities offered pursuant to any Prospectus Supplement may be sold from time to time in one or more transactions at: (i) a fixed price or prices, which may be changed from time to time; (ii) market prices prevailing at the time of sale; (iii) prices related to such prevailing market prices; or (iv) other negotiated prices. The Company may only offer and sell the Securities pursuant to a Prospectus Supplement during the 25-month period that this Prospectus, including any amendments hereto, remains valid. The Prospectus Supplement for any of the Securities being offered thereby will set forth the terms of the offering of such Securities, including the type of Security being offered, the name or names of any underwriters, dealers or agents, the purchase price of such Securities, the proceeds to the Company from such sale, any underwriting commissions or discounts and other items constituting underwriters' compensation and any discounts or concessions allowed or re-allowed or paid to dealers. Only underwriters so named in the Prospectus Supplement are deemed to be underwriters in connection with the Securities offered thereby. BY UNDERWRITERS OR DEALERS If underwriters are used in the sale, the Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Unless otherwise set forth in the Prospectus Supplement relating thereto, the obligations of underwriters to purchase the Securities will be subject to certain conditions, but the underwriters will be obligated to purchase all of the Securities offered by the Prospectus Supplement if any of such Securities are purchased. The Company may agree to pay the underwriters a fee or commission for various services relating to the offering of any Securities. Any such fee or commission will be paid out of the general corporate funds of the Company. If dealers are used, and if so specified in the applicable Prospectus Supplement, the Company will sell such Securities to the dealers as principals. The dealers may then resell such Securities to the public at varying prices to be determined by such dealers at the time of resale. Any public offering price and any discounts or concessions allowed or re-allowed or paid to dealers may be changed from time to time. BY AGENTS The Securities may also be sold through agents designated by the Company. Any agent involved will be named, and any fees or commissions payable by the Company to such agent will be set forth, in the applicable Prospectus Supplement. Any such fees or commissions will be paid out of the general corporate funds of the Company. Unless otherwise indicated in the Prospectus Supplement, any agent will be acting on a best efforts basis for the period of its appointment. DIRECT SALES Securities may also be sold directly by the Company at such prices and upon such terms as agreed to by the Company and the purchaser. In this case, no underwriters, dealers or agents would be involved in the offering. -22- GENERAL INFORMATION Underwriters, dealers or agents who participate in the distribution of Securities may be entitled under agreements to be entered into with the Company to indemnification by the Company against certain liabilities, including liabilities under Canadian provincial and United States securities legislation, or to contribution with respect to payments which such underwriters, dealers or agents may be required to make in respect thereof. Such underwriters, dealers or agents may be customers of, engage in transactions with, or perform services for, the Company in the ordinary course of business. In connection with any offering of Securities, underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Securities offered at a level above that which might otherwise prevail in the open market. Such transactions may be commenced, interrupted or discontinued at any time. In accordance with the rules of the National Association of Securities Dealers, Inc., the Company will not pay a commission to a broker-dealer in connection with any sale of Securities under this Prospectus that is in excess of 6%. CHANGES TO CONSOLIDATED CAPITALIZATION Since December 31, 2002, the following changes have occurred to the share and loan capital of the Company, on a consolidated basis: o on February 20, 2003, the Company completed the acquisition of Corner Bay Silver Inc. by issuing 7,636,659 Common Shares and 3,818,329 warrants to purchase Common Shares (having an exercise price of Cdn$12.00 for a five-year period ending February 20, 2008). The Company also granted 553,846 stock options to purchase Common Shares (having exercise prices of between Cdn$4.55 and Cdn.$12.00 and having exercise periods of between one and five years from the date of grant) in consideration for the termination of 960,000 fully vested stock options held by employees and shareholders of Corner Bay; o the Company issued 507,171 Common Shares pursuant to the exercise of stock options; o the Company issued 100,000 Common Shares pursuant to the exercise of warrants; o the Company reduced its $5.15 million loan on the Huaron property from Banco de Credito del Peru by $812,000. The Huaron loan bears interest at six-month LIBOR plus 3% and is repayable at the rate of $135,417 per month; o Pan American drew down $8,000,000 of its $10,000,000 La Colorada project loan facility with International Finance Corporation ("IFC"). The IFC loan bears interest at six-month LIBOR plus 3.50% until certain technical and financial tests are achieved and six-month LIBOR plus 3.25% thereafter. The IFC loan is repayable in semi-annual instalments of $1,000,000 commencing November 14, 2004. In addition to the interest payments on the outstanding balance of the IFC loan, Pan American will be required to make additional payments to IFC if the average price of silver for a year exceeded $4.75 per ounce. Such payment would be equal to 20% of the positive difference between the average price per ounce of silver for a year and $4.75 multiplied by the number of ounces of silver produced by the La Colorada mine divided by $10,000,000 and multiplied by the greater of the loan balance at the end of the year or the originally scheduled loan balance at the end of a year; and -23- o Pan American has sold forward 11,400 tonnes of zinc. These sales were designated as a hedge and represent sales of 1,100 tonnes per month for each of the months of June 2003 through and including February 2004 at a price of $824 per tonne and sales of 500 tonnes per month for each of the months of March 2004 through and including May 2004 at a price of $817 per tonne. The difference between the average monthly London zinc cash settlement price and the forward sales price will be credited or charged to Pan American's revenue during the June 2003 through May 2004 period. RISK FACTORS Prospective investors in a particular offering of the Securities should consider, in addition to information contained in the Prospectus Supplement relating to that offering or in other documents incorporated by reference herein, the risks described in the Company's Annual Information Form under the heading "Narrative Description of the Business - Trends and Uncertainties" and in the Company's management's discussion and analysis of financial condition and results of operations that are incorporated by reference herein as at the date of the Prospectus Supplement relating to the particular offering of Securities. AUDITORS, TRANSFER AGENT AND REGISTRAR The auditors of the Company are Deloitte & Touche LLP, Four Bentall Centre, 2800 - 1055 Dunsmuir Street, Vancouver, British Columbia, V7X 1P4. The transfer agent and registrar for the Common Shares of the Company is Computershare Trust Company of Canada at its principal offices in Vancouver and Toronto. EXPERTS The consolidated financial statements of the Company for the years ended December 31, 2002 and 2001 which are incorporated in this Prospectus by reference have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated balance sheets of Corner Bay Silver Inc. as at June 30, 2002 and 2001 and the consolidated statements of operations and deficit and cash flow of Corner Bay Silver Inc. for each of the years in the three year period ended June 30, 2002 which are included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent auditors, given on the authority of said firm as experts in accounting and auditing. DOCUMENTS FILED AS PART OF THE U.S. REGISTRATION STATEMENT The following documents have been filed with the SEC as part of the Registration Statement of which this Prospectus forms a part: the documents referred to under the heading "Documents Incorporated by Reference", the consent of Deloitte & Touche LLP and the consent of PricewaterhouseCoopers LLP. If debt securities are offered by a Prospectus Supplement, there will be -24- filed with the SEC a form of Trust Indenture and a Debt Securities Trustee's Statement of Eligibility on Form T-1. CANADIAN PURCHASERS' STATUTORY RIGHTS Securities legislation in certain of the provinces provides purchasers with the right to withdraw from an agreement to purchase the Securities offered hereby within two business days after receipt or deemed receipt of a prospectus, a Prospectus Supplement (including a pricing supplement) relating to Securities purchased by a purchaser and any amendments thereto. In several of the provinces, Securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, damages where the prospectus, a Prospectus Supplement relating to Securities purchased by a purchaser and any amendments thereto contain a misrepresentation or are not delivered to the purchaser but such remedies must be exercised by the purchaser within the time limit prescribed by the Securities legislation of the purchaser's province. The purchaser should refer to any applicable provisions of the Securities legislation of the purchaser's province for the particulars of these rights or consult with a legal adviser. -25- INDEX TO FINANCIAL STATEMENTS
PAGE ---- CONSOLIDATED FINANCIAL STATEMENTS OF CORNER BAY SILVER INC. Auditors' Report............................................................................. F-3 Consolidated Balance Sheet as at December 31, 2002 (unaudited) and as at June 30, 2002 and June 30, 2001 (audited)........................................................................... F-4 Consolidated Statements of Operations and Deficit for the six months ended December 31, 2002 and December 31, 2001 (unaudited) and for the years ended June 30, 2002, June 30, 2001 and June 30, 2000 (audited)............................................................................... F-5 Consolidated Statements of Cash Flows for the six months ended December 31, 2002 and December 31, 2001 (unaudited) and for the years ended June 30, 2002, June 30, 2001, and June 30, 2000 (audited).................................................................................... F-6 Notes to Consolidated Financial Statements................................................... F-7 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF PAN AMERICAN SILVER CORP. Compilation Report........................................................................... F-23 Pro Forma Consolidated Balance Sheet as at December 31, 2002 (unaudited)..................... F-24 Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2003 (unaudited)................................................................ F-25 Pro Forma Consolidated Statement of Operations for the year ended December 31, 2002 (unaudited)............................................................. F-26 Notes to the Pro Forma Consolidated Financial Statements..................................... F-27
F-1 Unaudited and Audited Consolidated Financial Statements of CORNER BAY SILVER INC. F-2 AUDITORS' REPORT September 6, 2002 To the Directors of Corner Bay Silver Inc. We have audited the consolidated balance sheets of Corner Bay Silver Inc. as at June 30, 2002 and 2001 and the consolidated statements of operations and deficit and cash flows for each of the years in the three-year period ended June 30, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at June 30, 2002 and 2001 and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2002 in accordance with Canadian generally accepted accounting principles. (Signed) PRICEWATERHOUSECOOPERS LLP Chartered Accountants Toronto, Ontario COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCES In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company's ability to continue as a going concern, such as those described in note 1 to the consolidated financial statements. Our report to the shareholders dated September 6, 2002 is expressed in accordance with Canadian reporting standards, which do not permit a reference to such events and conditions in the auditors' report when they are adequately disclosed in the financial statements. (Signed) PRICEWATERHOUSECOOPERS LLP Chartered Accountants Toronto, Ontario F-3 CORNER BAY SILVER INC. Consolidated Balance Sheets As at December 31, 2002, June 30, 2002 and 2001 (expressed in Canadian dollars, unless otherwise stated)
DECEMBER 31 JUNE 30 JUNE 30 2002 2002 2001 -------------- -------------- -------------- (UNAUDITED) ASSETS Current Cash $ 4,831,220 $ 5,323,564 $ 4,022,422 Accounts receivable 163,965 197,673 176,912 Prepaid expenses and deposits 2,595 16,887 27,389 -------------- -------------- -------------- 4,997,780 5,538,124 4,226,723 Deposits- reclamation bonds 30,000 30,000 30,000 Investments - quoted market value of $nil (2001 - $61,933) (note 8) - - 43,353 Deferred exploration expenditure (note 3) 8,781,564 7,705,865 4,551,072 Property, plant and equipment (note 4) 3,893,658 3,896,461 96,870 -------------- -------------- -------------- $ 17,703,002 $ 17,170,450 $ 8,948,018 ============== ============== ============== LIABILITIES Current Accounts payable and accrued liabilities $ 1,355,103 $ 316,914 $ 387,963 -------------- -------------- -------------- SHAREHOLDERS' EQUITY Capital stock (note 5) 25,499,004 24,314,504 14,813,154 Contributed surplus 537,005 537,005 537,005 Deficit (9,688,110) (7,997,973) (6,790,104) -------------- -------------- -------------- 16,347,899 16,853,536 8,560,055 -------------- -------------- -------------- $ 17,703,002 $ 17,170,450 $ 8,948,018 ============== ============== ==============
Nature of operations and going concern (note 1) Commitments (note 10) APPROVED BY THE BOARD OF DIRECTORS (signed) John H. Wright, Director (signed) Ross J. Beaty, Director F-4 CORNER BAY SILVER INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT (expressed in Canadian dollars, unless otherwise stated)
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, -------------------------------- ------------------------------------------- 2002 2001 2002 2001 2000 -------------- ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) OTHER INCOME Interest $ 61,361 $ 49,739 $ 94,013 $ 127,474 $ 48,611 Other 14,500 73,001 201,831 97,500 64,900 ------------ ------------ ------------ ------------ ------------ 75,861 122,740 295,844 224,974 113,511 OTHER EXPENSES General and administrative 1,765,998 497,925 1,467,007 798,073 521,338 Amortization - 9,109 - 25,312 19,251 ------------ ------------ ------------ ------------ ------------ 1,765,998 507,034 1,467,007 823,385 540,589 Gain on disposal of assets - - - - (14,465) Gain on disposal of investments - - (5,805) - - Writedown of investments - - - - 22,606 Write-down of property, plant and equipment - - 42,511 95,833 - Write-down of deferred exploration expenditure - - - 373,627 1,088,239 ------------ ------------ ------------ ------------ ------------ 1,765,998 507,034 1,503,713 1,292,845 1,636,969 ------------ ------------ ------------ ------------ ------------ Loss for the period (1,690,137) (384,294) (1,207,869) (1,067,871) (1,523,458) Deficit, beginning of period (7,997,973) (6,790,104) (6,790,104) (5,722,233) (4,198,775) ------------ ------------ ------------ ------------ ------------ Deficit, end of period $ (9,688,110) $ (7,174,398) $ (7,997,973) $ (6,790,104) $ (5,722,233) ============ ============ ============ ============ ============ Basic and diluted loss per share ($0.09) ($0.02) ($0.07) ($0.08) ($0.14) Weighted average number of shares outstanding 19,385,808 15,876,053 16,697,807 13,912,182 10,760,945
F-5 CORNER BAY SILVER INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (expressed in Canadian dollars, unless otherwise stated)
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, JUNE 30, ---------------------------- ------------------------------------------ 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------- ------------ (Unaudited) (Unaudited) CASH PROVIDED BY (USED IN) Operating activities Loss for the period $ (1,690,137) $ (384,294) $ (1,207,869) $ (1,067,871) $ (1,523,458) Write-off of deferred exploration expenditure - - - 373,627 1,088,239 Writedown of investments - - - - 22,606 Amortization - 9,109 - 25,312 19,251 Write-off of property, plant and equipment - - 42,511 95,833 - Gain on disposal of investments - - (5,805) - - Gain on disposal of assets - - - - (14,465) ------------ ------------ ------------ ------------- ------------ (1,690,137) (375,185) (1,171,163) (573,099) (407,827) Net (increase) decrease in non-cash working capital balances related to operations (note 11) 1,086,189 (184,805) (81,308) 82,054 237,610 ------------ ------------ ------------ ------------- ------------ (603,948) (559,990) (1,252,471) (491,045) (170,217) ------------ ------------ ------------ ------------- ------------ Investing activities Deferred exploration expenditure and property, plant and equipment Expenditures (1,072,896) (1,415,279) (3,147,522) (1,460,057) (2,185,566) Option receipts - - - 5,975 25,000 Proceeds on disposal of assets - - - - 28,057 Proceeds on disposal of investments - - 49,158 - 73,486 Purchase of assets under construction - - (400,000) - - Purchase of equipment - - (6,873) - - ------------ ------------ ------------ ------------- ------------ (1,072,896) (1,415,279) (3,505,237) (1,454,082) (2,059,023) ------------ ------------ ------------ ------------- ------------ Financing activities Issue of common shares 1,184,500 350,849 6,058,850 5,038,397 2,499,391 ------------ ------------ ------------ ------------- ------------ Increase (decrease) in cash during the period (492,344) (1,624,420) 1,301,142 3,093,270 270,151 Cash, beginning of the period 5,323,564 4,022,422 4,022,422 929,152 659,001 ------------ ------------ ------------ ------------- ------------ Cash, end of the period $ 4,831,220 $ 2,398,002 $ 5,323,564 $ 4,022,422 $ 929,152 ============ ============ ============ ============= ============
Supplemental cash flow information (note 11) F-6 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) 1. NATURE OF OPERATIONS AND GOING CONCERN The Company is in the process of exploring its mineral properties and is establishing the amount of ore reserves that are economically recoverable from the Mexico property. The recoverability of amounts shown for these properties and related deferred exploration expenditures are dependent upon the discovery of economically recoverable reserves, the preservation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain the financing necessary to complete the development of the properties, and future profitable production or, alternatively, upon the Company's ability to dispose of its interest on an advantageous basis. Changes in future conditions could require material writedowns of the carrying amounts of deferred exploration expenditure. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Significant differences from United States accounting principles are disclosed in Note 15. BASIS OF CONSOLIDATION These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Corner Bay Resources Inc. and Pan MacKenzie Resources Inc. (including its wholly owned subsidiary Minera Corner Bay S.A. de C.V.). DEFERRED EXPLORATION EXPENDITURE The deferred exploration expenditure is recorded at cost, net of incidental revenues generated from the particular properties. These net costs are deferred until the properties to which they relate are placed into production, sold or abandoned. In March 2000, the Accounting Standards Board of the Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline No. 11 entitled, "Enterprises in the Development Stage" (AcG 11), and subsequently, on March 12, 2002, issued Emerging Issues Committee (EIC) 126 "Accounting by Mining Enterprises for Exploration Costs." These guidelines address three distinct issues: (i) capitalization of costs/expenditures (ii) impairment and (iii) disclosure. Prior to their issuance, development state entities were exempt from following certain aspects of Canadian generally accepted accounting principles (GAAP). EIC 126 and AcG 11 require that all companies account for transactions based on the underlying characteristics of the transactions rather than the maturity of the enterprise. In addition, EIC 126 and AcG 11 require specific disclosure of information by development stage companies. These guidelines were effective for financial periods beginning on or after April 1, 2000, which affects the Company's financial years ended on or after June 30, 2001. F-7 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) EIC 126 and AcG 11 affect mining companies with respect to the deferral of exploration costs. The appropriate accounting guidance is contained in Section 3061, "Property, Plant and Equipment" of the CICA Handbook which permits, but does not require, exploration costs to be capitalized as part of a mining property, if the Company considers that such costs have the characteristics of property, plant and equipment. Under this view, deferred exploration expenditure would not automatically be subject to regular assessment of recoverability, unless conditions such as those discussed in EIC 126 and AcG 11 exist. There would need to be an assessment of deferred exploration expenditure. Assessment of the probability of recoverability of deferred exploration expenditure from future operations will require the preparation of a projection based on objective evidence of economic reserves such as a feasibility study. The status of the Company's operations is such that, like most mining companies in the exploration stage, it would not be practical to obtain a feasibility study or provide other information that could be used to support capitalization of deferred exploration expenditure under the alternative view. EIC 126 and AcG 11 did not have a significant impact on the Company's consolidated financial statements. PROPERTY, PLANT AND EQUIPMENT Land and exploration equipment are recorded at cost. Exploration equipment is amortized on a reducing balance basis at various rates from 14% to 33%. Amortization relating to equipment used on the mineral properties is capitalized as part of the deferred exploration expenditure balance. ASSETS UNDER CONSTRUCTION Assets under construction consist of equipment to be commissioned at the Mexico property site. The assets will be included as part of the equipment balance once refurbished and transferred to the site. These assets are not being amortized, as they are not currently ready for use. FINANCIAL INSTRUMENTS The carrying amounts of cash, receivables, prepaid expenses and deposits, accounts payable and accrued liabilities approximate the fair values of those financial instruments due to the short-term maturities of such instruments. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company places its cash with high credit quality financial institutions. F-8 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) INCOME TAXES The provision for future income taxes is based on the liability method. Future income taxes arise from the recognition of the tax consequences of temporary differences by applying statutory income tax rates applicable to future years to differences between the financial statements' carrying amounts and the income tax bases of certain assets and liabilities. The Company records a valuation allowance against any portion of those future income tax assets that it believes is not, more likely than not, to be realized. STOCK-BASED COMPENSATION PLAN The Company has one stock option plan, which is described in note 5. No compensation expense is recognized for this plan when stock or stock options are issued to employees. Any consideration paid on exercise of stock options or purchase of stock is credited to capital stock. Effective July 1, 2002, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants Handbook Section 3870, Stock-based Compensation and Other Stock-based Payments. This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments in exchange for goods and services. The section requires that all stock-based awards made to non-employees be measured and recognized using a fair-value based method. The section encourages a fair-value based method for all awards granted to directors, officers and employees, but only requires the use of a fair value based method for direct awards of stock, stock appreciation rights and awards that call for settlement in cash or other assets. For stock options granted to directors, officers and employees, the Company has adopted the intrinsic value method of accounting for stock-based compensation. Under this method compensation expense is recognized for the excess, if any, of the quoted market price of the Company's common shares over the common share option exercise price on the day that options are granted. LOSS PER SHARE Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year, including contingently issuable shares that are included when the conditions necessary for issuance have been met. Diluted earnings per share are calculated in a manner similar to basic earnings per share, except the weighted average number of shares outstanding are increased to include potential common shares from the assumed exercise of options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options and warrants and on the as if converted method for convertible securities. During the year ended June 30, 2001, the Company changed its method of accounting for earnings per share to comply with the revised standard issued by the CICA Handbook, Section 3500, "Earnings per share". There was no difference between the loss per share calculated under the new standard and the amount that would have been calculated using the previous standard. F-9 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) USE OF ESTIMATES The preparation of financial statements in conformity with Canadian generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses during the reporting period. Actual results could differ from these estimates. TRANSLATION OF FOREIGN CURRENCIES As the Company considers all of its foreign operations to be fully integrated, all items denominated in foreign currencies have been translated using the temporal method. Under this method, monetary assets and liabilities and non-monetary items carried at market values are translated at the year and period end exchange rate. Other non-monetary items and revenue and expenses are translated at approximate rates in effect at the dates of the transactions, except depletion and amortization, which are translated at the same rates as the related assets. 3. MINERAL PROPERTIES
MEXICO MARITIMES CHIBOUGAMAU TOTAL ------------ ---------- ------------- ------------ Balance - June 30, 1999 $ 1,018,492 $ 401,611 $ 1,097,825 $ 2,517,928 Expenditures 2,114,901 1,411 - 2,116,312 Option receipts - (25,000) (9,586) (34,586) Writedown - - (1,088,239) (1,088,239) ------------ ---------- ------------- ------------ Balance - June 30, 2000 3,133,393 $ 378,022 $ - $ 3,511,415 Expenditures 1,388,451 1,580 - 1,390,031 Option receipts - (5,975) - (5,975) Amortization of equipment capitalized 29,228 - - 29,228 Writedown - (373,627) - (373,627) ------------ ---------- ------------- ------------ Balance - June 30, 2001 4,551,072 - - 4,551,072 Expenditures 3,147,522 - - 3,147,522 Amortization of equipment capitalized 7,271 - - 7,271 ------------ ---------- ------------- ------------ Balance - June 30, 2002 7,705,865 - - 7,705,865 Expenditures (Unaudited) 534,911 - - 534,911 Purchase of concessions (Unaudited) 537,985 - - 537,985 Amortization of equipment capitalized (Unaudited) 2,803 - - 2,803 ------------ ---------- ------------- ------------ Balance - December 31, 2002 (Unaudited) $ 8,781,564 $ - $ - $ 8,781,564 ============ ========= ============ ============
The Alamo Dorado silver/gold property is located in the northwestern state of Sonora, Mexico. Paved roads connect the state capital of Hermosillo to the town of Alamos, which is 67 kilometers northwest of the Alamo Dorado Project. The 5,369 hectare property consists of the 504 hectare Alamo Ocho concession held under option by the Company, and the 4,865 hectare Alamo Dorado concession, which is owned 100% by the Company and surrounds the Alamo Ocho concession. The Company can earn a 100% interest in Alamo Ocho by paying US$800,000 over six years. Payments are made semi-annually, of which US$441,000 (unaudited) was paid to December 31, 2002 (June 30, 2002, 2001 and 2000 were US$450,000, $325,000 and $nil, respectively). F-10 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) During the year ended June 30, 2002, the Company incurred $131,147 (2001 and 2000 - $nil) in rental payments, and is committed to annual rental payments of $114,150. During the six-month periods ended December 31, 2002 and 2001, the Company incurred $35,906 and $23,491 (unaudited), respectively, in rental payments. 4. PROPERTY, PLANT AND EQUIPMENT
JUNE 30 JUNE 30 ACCUMULATED 2002 ACCUMULATED 2001 COST AMORTIZATION NET COST AMORTIZATION NET ------------ ------------ ------------ ------------ ------------ ------------ Equipment $ 66,683 $ 14,722 $ 53,961 $ 129,415 $ 32,545 $ 96,870 Assets under Construction 3,842,500 - 3,842,500 - - - ------------ ------------ ------------ ------------ ------------ ------------ $ 3,911,183 $ 14,722 $ 3,896,461 $ 129,415 $ 32,545 $ 96,870 ============ ============ ============ ============ ============ ============
DECEMBER 31 ACCUMULATED 2002 (UNAUDITED) COST AMORTIZATION NET ----------- ------------ ------------ ------------ Equipment $ 139,917 $ 88,759 $ 51,158 Assets under Construction 3,842,500 - 3,842,500 ------------ ------------ ------------ $ 3,982,417 $ 88,759 $ 3,893,658 ============ ============ ============
During the six months ended December 31, 2002, the Company wrote off $nil (December 31, 2001 - $nil; years ended June 30, 2002, 2001 and 2000 of $42,511, $95,833 and $nil, respectively) of property, plant and equipment. During the six months ended December 31, 2002, the Company recorded amortization of $2,803 (years ended June 30, 2002, 2001 and 2000 of $7,271, $29,228 and $nil, respectively), which were capitalized as deferred exploration expenditure. F-11 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (Unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) 5. CAPITAL STOCK AUTHORIZED Unlimited number of common shares, without nominal or par value. ISSUED AND OUTSTANDING - COMMON SHARES
NUMBER OF SHARES NET OUTSTANDING PROCEEDS ----------- ------------ Balance - June 30, 1999 9,899,115 $ 7,275,366 Shares issued for cash in private placement September 21, 1999 596,540 773,976 December 20, 1999 400,000 1,198,435 Warrants exercised for cash during the year 545,454 409,080 Options exercised for cash during the year 393,000 117,900 ---------- ------------ Balance - June 30, 2000 11,834,109 9,774,757 Shares issued in prospectus offering - December 14, 2000 3,666,667 4,978,397 Options exercised for cash 200,000 60,000 ---------- ------------ Balance - June 30, 2001 15,700,776 14,813,154 Shares issued for cash in private placement - February 19, 2002 1,830,000 4,575,000 Warrants exercised for cash 183,333 275,000 Options exercised for cash 612,000 1,208,850 Shares issued for assets under construction purchased - June 18, 2002 (note 11) 850,000 3,442,500 ---------- ------------ Balance - June 30, 2002 19,176,109 24,314,504 Options exercised for cash (unaudited) 465,000 1,184,500 ---------- ------------ Balance - December 31, 2002 (unaudited) 19,641,109 $ 25,499,004 ========== ============
On September 21, 1999, the Company completed a private placement of 596,540 shares at a price of $1.30 per share. On December 20, 1999, the Company completed a private placement of 400,000 units. Each unit consists of one common share at $3.00 and one-half common share purchase warrant. Each whole purchase warrant entitles the holder to purchase one additional common share at a price of $4.00 per common share at anytime until December 20, 2001. Effective December 20, 2001, all options that had not been exercised prior to this date expired. On December 14, 2000, the Company publicly offered 3,666,667 units. Each unit consisted of one common share at $1.50 and one-half common share purchase warrant. Each whole purchase warrant entitles the holder to purchase one additional common share at $2.25 per share at anytime until December 14, 2001. In connection with the December 14, 2000 offering, the underwriters received 183,333 warrants of the Company. Each warrant entitles the underwriter to purchase one common share for $1.50 at any time until December 14, 2001. Effective December 14, 2001, all warrants that had not been exercised prior to this date expired. Refer to the following warrants table. On February 19, 2002, the Company completed a private placement of 1,830,000 shares at a price of $2.50 per share. F-12 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) WARRANTS
WEIGHTED NUMBER OF AVERAGE WARRANTS PRICE ---------- -------- Balance - June 30, 1999 - $ - Issued - December 20, 1999 200,000 4.00 ---------- -------- Balance - June 30, 2000 200,000 4.00 Issued - December 14, 2000 2,016,666 2.18 ---------- -------- Balance - June 30, 2001 2,216,666 2.34 Expired (2,033,333) 2.42 Exercised (183,333) 1.50 ---------- -------- Balance - June 30, 2002 - - Expired - - Exercised - - ---------- -------- Balance - December 31, 2002 (unaudited) - $ - ========== ========
OPTIONS On December 15, 1995, the shareholders of the Company approved the amended stock option plan (dated November 1, 1995) (the Plan) which provides for the issuance of 1.0 million stock options under the terms of the Plan. On December 20, 1999 and December 15, 2000, the shareholders approved an amendment to provide for the further issuance of an additional 1.4 and 2.0 million common share options, respectively, under the terms of the Plan. Under the Plan, the Company provides options to buy common shares of the Company to directors, officers and service providers. The board of directors grants such options for periods of up to ten years at prices not lower than the market price at the date of granting. No compensation expense is recognized when stock options are issued to employees and directors. All consideration paid by employees from the exercise of stock options or purchase of stock is credited to capital stock. Compensation expense is recorded when stock options are issued to non-employees and is recognized over the vesting period of the options. Compensation expense is determined as the fair value of the options at the date of grant using an option-pricing model. During the six months ended December 31, 2002 and year ended June 30, 2002, no stock options were issued to non-employees. F-13 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) As at June 30, 2002, the Company had outstanding and exercisable stock options as follows:
EXERCISE EXPIRY PRICE DATE -------- -------- 500,000 $2.65 12/20/02 660,000 3.00 06/30/03 380,000 1.75 10/02/04 40,000 1.80 12/12/04 60,000 $3.00 02/28/05
As at June 30, 2002, the Company had outstanding and exercisable stock options as follows:
2002 2001 2000 NUMBER WEIGHTED NUMBER WEIGHTED NUMBER WEIGHTED OF AVERAGE OF AVERAGE OF AVERAGE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE --------- -------- ------- -------- ------- -------- Outstanding - Beginning of year 1,607,000 $2.60 1,707,000 $2.38 700,000 $0.30 Granted 645,000 1.95 100,000 1.70 1,400,000 2.84 Exercised (612,000) 1.98 (200,000) 0.30 (393,000) 0.30 -------- ---- -------- ---- -------- ---- Outstanding - End of year 1,640,000 $2.57 1,607,000 $2.60 1,707,000 $2.38 ========= ===== ========= ===== ========= =====
As at December 31, 2002, the Company had outstanding and exercisable stock options as follows:
DECEMBER 31, 2002 --------------------------- NUMBER WEIGHTED OF AVERAGE OPTIONS PRICE --------- -------- Outstanding - Beginning of period 1,640,000 $2.57 Exercised (unaudited) (465,000) 2.55 -------- ---- Outstanding - End of period (unaudited) 1,175,000 $2.59 ========= =====
6. INCOME TAXES As at December 31, 2002, the Company has non-capital loss carry-forwards of approximately $4,200,000, unaudited, (June 30, 2002 - $2,500,000) available to reduce future taxable income. These losses will expire between 2003 and 2009. In addition, the Company has $7,300,000 in unclaimed exploration and development expenses in Canada. No recognition is given in these consolidated financial statements to any potential benefit from the utilization of these non-capital losses or unclaimed exploration and development expenses. F-14 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) 7. RELATED PARTY TRANSACTIONS Certain geological, consulting and corporate services were provided to the Company and its subsidiaries by seven directors and/or officers, and/or companies controlled by directors and/or officers. The cost of such services (including salaries) for the six months ended December 31, 2002 was $nil, unaudited, (years ended June 30, 2002, 2001 and 2000 were $680,213, $354,989 and $230,279, respectively). The services provided were at rates similar to those charged to non-related parties. The Company, as prime tenant of share corporate offices with the above-mentioned related party companies, charge rent of $nil (unaudited) for the six months ended December 31, 2002 (years ended June 30, 2002, 2001 and 2000 were $6,000, $51,400 and $46,800, respectively) and had overhead recoveries of $nil for the six months ended December 31, 2002 (years ended June 30, 2002, 2001 and 2000 were $7,500, $97,575 and $71,913, respectively). 8. INVESTMENT As at December 31, 2002, the Company held nil (unaudited) (June 30, 2002, 2001 and 2000 - nil, 309,665 and 309,665, respectively) shares of MSV Resources Inc. The investment was disposed of during the year ended June 30, 2002. 9. SEGMENT INFORMATION Working capital balances are retained in Canada and principal property balances are located as described in note 3. 10. COMMITMENTS The Company leases office space under leases expiring November 30, 2004. Future minimum lease payments are as follows:
YEAR ENDED JUNE 30 ------------------ 2003 $ 69,660 2004 69,660 2005 29,025 ------------ $ 168,345 ============
11. SUPPLEMENTAL CASH FLOW INFORMATION During the six months ended December 31, 2002 and 2001 and the years ended June 30, 2002, 2001 and 2000, the Company paid no income taxes or interest. F-15 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) Net (increase) decrease in non-cash working capital balances related to operations:
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31, --------------------------- --------------------------------------- 2002 2001 2002 2001 2000 ------------ ------------ ---------- ---------- ------------ (Unaudited) (Unaudited) (Audited) (Audited) (Audited) Receivables $ 33,708 $ (150,298) $ (20,761) $ (17,438) $ 32,625 Prepaid expenses and deposits 14,292 18,147 10,502 (1,452) (21,502) Accounts payable and accrued liabilities 1,038,187 (52,654) (71,049) 100,944 226,487 ------------ ------------ ---------- ---------- ------------ $ 1,086,189 $ (184,805) $ (81,308) $ 82,054 $ 237,610 ============ ============ ========== ========== ============
On June 18, 2002, assets under construction were acquired for $3,442,500, through issuance of common shares (note 4). The purchase price was based on the value of the common shares. 12. ACQUISITION OF COMPANY BY PAN AMERICAN SILVER CORP. On May 21, 2002, the Company and Pan American Silver Corp. (Pan American) announced a proposed plan of arrangement whereby Pan American would acquire all of the issued and outstanding shares of the Company. On June 28, 2002, both companies announced amended terms to the proposed plan of arrangement. The amended proposal for a plan of arrangement is subject to approval of the shareholders of the Company and Pan American and approval by the Ontario Superior Court of Justice and various regulatory authorities. The shareholders of the Company and Pan American approved the plan of arrangement on September 4 and 5, 2002, respectively. If remaining approvals are obtained and all material covenants are satisfied in a timely fashion, the plan of arrangement would become effective in September 2002. Under the terms of the amended plan of arrangement, each Corner Bay Silver Inc. common share would be exchanged for 0.3846 of a Pan American common share and 0.1923 of a Pan American common share purchase warrant. Each whole Pan American common share purchase warrant (the Pan American Warrant) provides the holder with the rights to purchase a Pan American common share at CAN$12 for a five-year period after the effective date of the plan of arrangement ("Plan of Arrangement"). The Pan American Warrants will trade on the Toronto Stock Exchange. 13. SUBSEQUENT EVENT In July 2002, the principal mineral concession, which hosts the Alamo Dorado concession, was purchased outright from the concession owners by paying the remaining option payments in a final lump sum payment of US$345,000 (US$300,000 plus Impuesto Al Valor Agregado (IVA) taxes). SUBSEQUENT EVENT (UNAUDITED) The Company received regulatory approval on the plan on arrangement and on February 20, 2003 the Company and Pan American Silver Corp. completed the Plan of Arrangement. F-16 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) 14. COMPARATIVES Certain prior years' comparative numbers have been restated to reflect the current year's presentation. 15. DIFFERENCE BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Canadian GAAP varies in certain significant respects from the principles and practices generally accepted in the United States ("U.S. GAAP"). The effect of these principal measurement differences on the Company's consolidated financial statements are quantified below and described in the accompanying notes. CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31 YEARS ENDED JUNE 30, ---------------------------- ------------------------------------------- 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) Loss for the period reported under Canadian GAAP $ (1,690,137) $ (384,294) $ (1,207,869) $ (1,067,871) $ (1,523,458) Exploration expenses adjustment (537,714) (1,415,279) (3,154,793) (1,039,657) (993,487) ------------ ------------ ------------ ------------ ------------ Loss for the period reported under U.S. GAAP $ (2,227,851) $ (1,799,573) $ (4,362,662) $ (2,107,528) $ (2,516,945) ============ ============ ============ ============ ============
a) In accordance with U.S. GAAP, the Company would be required to charge all costs of deferred exploration expenditures to earnings as operating expenses as incurred until proven economic reserves are established. As a result of accounting for these expenditures in this manner, the unaudited loss for the six months ended December 31, 2002 and 2001 would be increased by $537,714 and $1,415,279, respectively, and loss for the years ended June 30, 2002, 2001 and 2000 would be increased by $3,154,793, $1,039,657 and $993,487, respectively. b) The Company accounts for its share options using the intrinsic value method, which in the Company's circumstances amounts does not result in different from the amounts that would be determined under the provisions of the Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25) and related interpretations. Accordingly, no compensation expense for its share option plan has been recognized or recorded in the consolidated statement of operations and deficit for any of the years presented. A company that does not adopt the fair value method must disclose the cost of the stock compensation awards at their fair value at the date the award is granted. The unaudited value of the Company's options that were granted during six months ended December 31, 2002 was $nil (2001 - $17,846) (three years ended June 30, 2002 were $447,952, $37,605 and $878,747, respectively). The fair value for 2002 was estimated using the Black-Scholes model with assumptions of a three-year expected term volatility ranging from 50% to 56% and interest rates from 3.75% to 4.04%. The fair value for 2001 and 2000 was estimated using the Black-Scholes model with assumptions of a two-year expected term, 60% volatility and interest rates ranging from 6.0% to 6.5%. F-17 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) BASIC LOSS PER SHARE
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED JUNE 30, ---------------------------- ------------------------------------------- 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) Loss for the period under U.S. GAAP $ (2,227,851) $ (1,799,573) $ (4,362,662) $ (2,107,528) $ (2,516,945) Weighted average number of Common shares outstanding 19,385,808 15,876,053 16,697,807 13,912,182 10,760,945 ------------ ------------ ------------ ------------ ------------ Loss per share under U.S. GAAP ($0.11) ($0.11) ($0.26) ($0.15) ($0.23) ====== ====== ====== ====== ======
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED JUNE 30, ---------------------------- ------------------------------------------- 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) Loss for the period under U.S. GAAP $ (2,227,851) $ (1,799,573) $ (4,362,662) $ (2,107,528) $ (2,516,945) Other comprehensive earnings, net of income taxes Unrealized gain on marketable securities - - - 18,580 9,290 Realized (gain) loss on sale of marketable securities - - (18,580) - 33,948 Writedown to fair value - - - - 22,606 ------------ ------------ ------------ ------------ ------------ Comprehensive loss for the period $ (2,227,851) $ (1,799,573) $ (4,381,242) $ (2,088,948) $ (2,451,101) ============ ============ ============ ============ ============
The consolidated statements of comprehensive loss provide a measure of all changes in equity of the Company that result from transactions, other than those with shareholders, and other economic events that occurred during the period. Under U.S. GAAP, the Company's holding of marketable securities with quoted market values that would be marked to market with the resulting unrealized gain or loss being taken to the consolidated statement of comprehensive loss in the relevant period. F-18 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED JUNE 30, ---------------------------- ------------------------------------------- 2002 2001 2002 2001 2000 ------------ ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) Operating activities $ (1,138,859) $ (1,975,269) $(4,399,993) $ (1,900,413) $(2,258,579) Investing activities (537,985) - (357,715) (44,714) 29,339 Financing activities 1,184,500 350,849 6,058,850 5,038,397 2,499,391 ----------- ----------- ----------- ----------- ----------- Increase (decrease) in cash and cash equivalent during the period (492,344) (1,624,420) 1,301,142 3,093,270 270,151 Opening cash and cash equivalents 5,323,564 4,022,422 4,022,422 929,152 659,001 ----------- ----------- ----------- ----------- ----------- Closing cash and cash equivalents $ 4,831,220 $ 2,398,002 $ 5,323,564 $ 4,022,422 $ 929,152 =========== =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31 ------------------------------- 2002 2002 2001 ------------- -------------- -------------- (Unaudited) Investments under Canadian GAAP $ - $ - $ 43,353 Unrealized gain on marketable securities - - 18,580 ------------- -------------- -------------- Investments under US GAAP $ - $ - $ 61,933 ============= ============== ============== Deferred exploration expenditure under Canadian GAAP $ 8,781,564 $ 7,705,865 $ 4,551,072 Deferred exploration expenditure (8,243,579) (7,705,865) (4,551,072) ------------- -------------- -------------- Deferred exploration expenditure under U.S. GAAP $ 537,985 $ - $ - ============= ============== ============== Deficit under Canadian GAAP $ (9,688,110) $ (7,997,973) $ (6,790,104) Exploration expenditures (8,243,579) (7,705,865) (4,551,072) ------------- -------------- -------------- Deficit under U.S. GAAP $ (17,931,689) $ (15,703,838) $ (11,341,176) ============= ============== ============== Cumulative comprehensive other income under Canadian GAAP $ - $ - $ - Unrealized gain (loss) on marketable securities - - 18,580 ------------- -------------- -------------- Cumulative comprehensive other income under U.S. GAAP $ - $ - $ 18,580 ============= ============== ==============
F-19 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) NEW STANDARDS FOR U.S. GAAP In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets". This new standard features new accounting rules for goodwill and intangible assets. The Company does not foresee any impact on a cumulative effect of an accounting change or on the carrying value of assets and liabilities recorded in the consolidated balance sheets upon adoption. SFAS No. 142 will be adopted on July 1, 2002. Also issued in June 2001 was SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of a fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company is analyzing the impact of SFAS No. 143 and will adopt this standard on July 1, 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." This statement supersedes SFAS No. 121 and the accounting and reporting provisions of APB 30, and also amends ARB 51. This statement will require one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and will broaden the presentation of discontinued operations to include more disposal transactions. The Company is analyzing the impact of SFAS No. 144 and will adopt this standard on July 1, 2002. Effective July 1, 2002, the Company will adopt, for United States reporting purposes, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendments of SFAS No. 13, and Technical Corrections as of April 2002." This statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that statement, SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements". This statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." This statement amends SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The adoption of the new standard is not currently expected to have a significant impact on the Company's results of operations or financial position. NEW STANDARDS FOR U.S. GAAP, UNAUDITED TO DECEMBER 31, 2002 The Company adopted the following standards on July 1, 2002: i) the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, did not have a material affect on the Company's consolidated financial position or results of operations. F-20 CORNER BAY SILVER INC. Notes to the consolidated financial statements December 31, 2002 and 2001 (unaudited) and June 30, 2002, 2001 and 2000 (expressed in Canadian dollars) ii) the adoption of SFAS No. 143, Accounting for Asset Retirement Obligations, did not have a material impact on the Company's results of operations or shareholders' equity. iii) the adoption of SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, did not have a material affect on the Company's consolidated financial position or results of operations. iv) the adoption of SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendments of SFAS No. 13, and Technical Corrections as of April 2002, did not have a material affect on the Company's results of operations or its financial position. FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 is to be applied retroactively to exit or disposal activities initiated after December 31, 2002. The adoption of the new standard is not currently expected to have a significant impact on the Company's result of operations or financial position. NEW STANDARD FOR CANADIAN GAAP The CICA approved a new Handbook Section 3062, "Goodwill and Other Intangible Assets," which require intangible assets with an indefinite life and goodwill to be tested for impairment on annual basis. Goodwill and indefinite life intangible assets will no longer be amortized. Intangible assets with definite lives will continue to be amortized over their useful lives. The new section is consistent with those recently approved by the FASB (SFAS No. 142). The adoption of this new standard is not expected to have any material effect on the Company's financial position, results of operations or cash flows. Section 3026 was adopted on July 1, 2002 and the Company does not expect this adoption to have a significant impact on the Company's results of operations or financial position. F-21 Unaudited Pro Forma Consolidated Financial Statements of PAN AMERICAN SILVER CORP. F-22 PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF PAN AMERICAN SILVER CORP. The following pro forma consolidated balance sheet of Pan American Silver Corp. as at December 31, 2002 and the pro forma consolidated statements of operations for the three months ended March 31, 2003 and the year ended December 31, 2002 illustrate on a pro forma basis the effects of certain transactions more fully described under "The Arrangement" included elsewhere herein and give effect to significant assumptions described in the notes to the pro forma consolidated financial statements. COMPILATION REPORT We have reviewed, as to compilation only, the accompanying pro forma consolidated balance sheet of Pan American Silver Corp. as at December 31, 2002 and the pro forma consolidated statement of operations for the three months ended March 31, 2003 and the year ended December 31, 2002, which have been prepared for inclusion in the Short Form Base Shelf Prospectus dated July 7, 2003. In our opinion, the pro forma consolidated balance sheet and consolidated statements of operations have been properly compiled to give effect to the transactions and the assumptions described in the notes thereto. (Signed) DELOITTE & TOUCHE LLP Chartered Accountants Vancouver, British Columbia July 7, 2003 COMMENTS TO READERS IN THE UNITED STATES OF AMERICA Under Canadian securities regulations, when pro forma financial statements are included in a prospectus, an auditors' compilation report on the financial statements is required to be included in the prospectus. Under applicable securities regulations in the United States of America, such compilation reports would not be included in such a prospectus. (Signed) DELOITTE & TOUCHE LLP Chartered Accountants Vancouver, British Columbia July 7, 2003 F-23 PAN AMERICAN SILVER CORP. Pro Forma Consolidated Balance Sheet DECEMBER 31, 2002 (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
Pro Forma Pan American Corner Bay Note Pro forma Pan American Silver Corp. Silver Inc. 4 adjustments Silver Corp. ------------ ----------- --- ----------- ------------ (Unaudited) (Unaudited) ASSETS Cash and cash equivalents $ 10,185 $ 3,212 $ - $ 13,397 Accounts receivable 4,598 109 - 4,707 Inventories 4,637 - - 4,637 Prepaid expenses and other 3,210 2 - 3,212 --------- --------- --------- ---------- 22,630 3,323 - 25,953 PROPERTY, PLANT AND EQUIPMENT 59,447 2,588 - 62,035 MINERAL PROPERTIES 4,193 5,838 (a) 53,360 82,769 (b) 18,858 (c) 520 DIRECT SMELTING ORE 4,303 - - 4,303 OTHER ASSETS 4,393 20 - 4,413 --------- --------- --------- ---------- $ 94,966 $ 11,769 $ 72,738 $ 179,473 ========= ========= ========= ========== LIABILITIES CURRENT Operating line of credit $ 125 $ - $ - $ 125 Accounts payable and accrued liabilities 15,227 901 (c) 520 16,648 Advances for metal shipments 2,158 - - 2,158 Current portion of bank loans and capital lease 1,638 - - 1,638 Current portion of severance indemnity and commitments 953 - - 953 Current portion of deferred revenue 130 - - 130 ----------- ---------- --------- ---------- 20,231 901 520 21,652 DEFERRED REVENUE 923 - - 923 FUTURE INCOME TAXES - - (b) 18,858 18,858 BANK LOANS AND CAPITAL LEASE 3,942 - - 3,942 PROVISION FOR RECLAMATION 12,971 - - 12,971 SEVERANCE INDEMNITIES AND COMMITMENTS 1,407 - - 1,407 ----------- ---------- --------- ---------- 39,474 901 19,378 59,753 ----------- ---------- --------- ---------- SHAREHOLDERS' EQUITY Share capital 161,024 16,952 (a) 46,140 224,116 Additional paid in capital 1,092 357 (a) 1,136 2,585 Contributed surplus - - (a) (357) (357) Deficit (106,624) (6,441) (a) 6,441 (106,624) ---------- --------- --------- ---------- 55,492 10,868 53,360 119,720 ---------- --------- --------- ---------- $ 94,966 $ 11,769 $ 72,738 $ 179,473 ========== ========= ========= ==========
(Signed) Paul B. Sweeney, Director (Signed) Ross J. Beaty, Director F-24 PAN AMERICAN SILVER CORP. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
Pro Forma Pan American Corner Bay Pan American Silver Corp. Silver Inc. Silver Corp. --------------- ----------------- ------------------ (Note 5) REVENUE $ 7,822 $ 12 $ 7,834 ---------- ---------- ---------- EXPENSES Operating 7,429 - 7,429 General and administration 401 297 698 Depreciation and amortization 471 - 471 Reclamation 79 - 79 Exploration 496 - 496 Interest expense 159 - 159 ---------- ---------- 9,035 297 9,332 ---------- ---------- ---------- LOSS FROM OPERATIONS (1,213) (285) (1,498) OTHER INCOME 109 - 109 ---------- ---------- NET LOSS FOR THE YEAR $ (1,104) $ (285) $ (1,389) ========== ========== ========== LOSS PER SHARE Basic and fully diluted $ (0.02) $ (0.01) $ (0.03) ========== ========== ========== WEIGHTED-AVERAGE SHARES OUTSTANDING 50,597,399 19,755,498 58,195,667 ========== ========== ==========
F-25 PAN AMERICAN SILVER CORP. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002 (UNAUDITED) (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
Pro Forma Pan American Corner Bay Note Pro Forma Pan American Silver Corp. Silver Inc. 4 Adjustments Silver Corp. ------------- ----------- ----- ----------- ------------ (Note 5) REVENUE $ 45,093 $ - $ - $ 45,093 ---------- ---------- ------ ---------- EXPENSES Operating 43,161 - - 43,161 General and administration 1,698 997 - 2,695 Depreciation and amortization 4,872 - - 4,872 Reclamation 860 - - 860 Exploration 1,206 - (d) 343 1,549 Interest expense 988 - - 988 Write-down of mineral properties and reclamation 27,218 28 - 27,246 ---------- ---------- ------ ---------- 80,003 1,025 343 81,371 ---------- ---------- ------ ---------- LOSS FROM OPERATIONS (34,910) (1,025) (343) (36,278) INTEREST INCOME 269 - OTHER INCOME 983 160 GAIN ON DISPOSAL OF INVESTMENTS - 4 - 4 ---------- ---------- ------ ---------- NET LOSS FOR THE YEAR $ (33,658) $ (861) $ (343) $ (36,274) ========== ========== ====== ========== LOSS PER SHARE Basic and fully diluted $ (0.80) $ (0.04) $ - $ (0.76) ========== ========== ====== ========== WEIGHTED-AVERAGE SHARES OUTSTANDING 41,849,413 19,385,808 - 49,481,072 ========== ========== ====== ==========
F-26 PAN AMERICAN SILVER CORP. NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND DECEMBER 31, 2002 (UNAUDITED) EXPRESSED IN UNITED STATES DOLLARS 1. BASIS OF PRESENTATION The unaudited pro forma consolidated financial statements of Pan American Silver Corp. ("Pan American") as at December 31, 2002 and for the three months ended March 31, 2003 and the year ended December 31, 2002 have been prepared by management after giving effect to the acquisition by Pan American of Corner Bay Silver Inc. ("Corner Bay") These unaudited pro forma consolidated financial statements have been compiled from and include: (a) A pro forma balance sheet combining the audited balance sheet of Pan American as at December 31, 2002 with the unaudited balance sheet of Corner Bay as at December 31, 2002; and (b) A pro forma statement of operations combining the audited statement of operations of Pan American for the year ended December 31, 2002 with the unaudited statement of operations of Corner Bay for the twelve month period ended December 31, 2002. (c) A pro forma statement of operations combining the unaudited statement of operations of Pan American for the three months ended March 31, 2003 with the unaudited statement of operations of Corner Bay for the three month period ended March 31, 2003. The pro forma balance sheet at December 31, 2002 has been prepared as if the transactions described in Note 3 had occurred on December 31, 2002. The pro forma statement of operations for the year ended December 31, 2002 and the three months ended March 31, 2003 have been prepared as if the transactions described in Note 3 had occurred on the first day of the respective financial periods. In addition to disclosures required under Canadian security regulations to comply with the Securities and Exchange Commission regulations, the Company has reconciled the pro forma information to US GAAP (see Note 6). It is management's opinion that these pro forma consolidated financial statements include all adjustments necessary for the fair presentation of the transactions described in Note 3 in accordance with Canadian generally accepted accounting principles applied on a basis consistent with Pan American's accounting policies. The pro forma consolidated financial statements are not intended to reflect the results of operations or the financial position of Pan American which would have actually resulted had the proposed transactions been effected on the dates indicated. Further, the pro forma financial information is not necessarily indicative of the results of operations that may be obtained in the future. The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto of Pan American and Corner Bay described above. F-27 PAN AMERICAN SILVER CORP. NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND DECEMBER 31, 2002 (UNAUDITED) EXPRESSED IN UNITED STATES DOLLARS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited pro forma financial statements have been compiled using the significant accounting policies as set out in the audited financial statements of Pan American for the year ended December 31, 2002. The significant accounting policies of Corner Bay conform in all material respects to those of Pan American, except as described in and adjusted for in Note 4 (d). 3. BUSINESS COMBINATION Acquisition of Corner Bay On February 20, 2003, Pan American completed its proposed merger with Corner Bay. Under the terms of the acquisition common shares of Corner Bay were, directly or indirectly, exchanged for common shares of Pan American and warrants to purchase Pan American common shares, on the basis of one Pan American common share for every 2.60 Corner Bay shares and one Pan American warrant for every 5.20 Corner Bay common shares. Pan American also agreed to issue 553,846 stock options to replace 960,000 fully vested stock options currently held by Corner Bay employees and directors. Each whole Pan American warrant will allow the holder to purchase a Pan American common share for a price of Cdn.$12.00 for a five-year period ended February 20, 2008. As a result, Pan American issued 7,636,659 common shares to the shareholders of Corner Bay, and 3,818,329 warrants to purchase common shares. The common shares issued were valued at $54,203,000 which was derived from an issue price of $11.30 translated at $0.6595 for each U.S. dollar, less a deemed 5% issue cost of $2,707,000. The share purchase warrants were valued at $8,889,000, which was derived from a warrant valued at $2.328 per warrant. The warrants were valued using an option pricing model assuming a weighted average volatility of the Company's share price of 35% and a weighted average annual risk free rate of 4.16%. The value of the stock options granted was determined to be $1,136,000. F-28 PAN AMERICAN SILVER CORP. NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND DECEMBER 31, 2002 (UNAUDITED) EXPRESSED IN UNITED STATES DOLLARS 3. BUSINESS COMBINATION (CONTINUED) Acquisition of Corner Bay (continued) The business combination will be accounted for as an acquisition by Pan American of Corner Bay and the purchase method of accounting will be applied. The consideration given has been allocated to the fair value of net assets acquired as follows:
As at December 31, 2002 ------------ Fair value of net assets acquired Current assets $ 3,323,000 Mineral properties 81,164,000 Other assets 20,000 ----------- 84,507,000 Less: Current liabilities (901,000) Provision for future income tax liability (18,858,000) ----------- $64,748,000 ----------- Consideration given by Pan American Issue of 7,636,659 common shares $54,203,000 Issue of 3,818,329 share purchase warrants 8,889,000 Issue of 553,846 replacement stock options 1,136,000 ----------- 64,228,000 Add: Estimated costs of acquisition 520,000 ----------- $64,748,000 -----------
The purchase consideration of $64,748,000 for 100% of Corner Bay exceeds the carrying value of the net assets at December 31, 2002 by $53,880,000 which has been applied to increase the carrying value of mineral properties. The resulting future income tax liability of $18,858,000 has also been applied to increase the carrying value of mineral properties. This allocation is preliminary. The value of the common shares to be issued by Pan American was estimated based on the average closing price of Pan American's common shares for the period before and after the date that the terms of the transaction were agreed and announced. F-29 PAN AMERICAN SILVER CORP. NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND DECEMBER 31, 2002 (UNAUDITED) EXPRESSED IN UNITED STATES DOLLARS 4. ADJUSTMENTS TO THE PRO FORMA FINANCIAL STATEMENTS Adjustments to the pro forma balance sheet as at December 31, 2002 and the pro forma consolidated statement of operations for the year then ended are as follows: (a) Effect the terms of the Plan of Arrangement, thereby eliminating the shareholders' equity in Corner Bay and recording the cost of acquisition. (b) Record future income tax on the acquisition of the mineral properties of $18,858,000. (c) To accrue for acquisition costs of $520,000. (d) Write off deferred exploration expenditures in Corner Bay to comply with Pan American's accounting policy. 5. CORNER BAY SILVER INC. The amounts used to complete the pro forma operating statements of Corner Bay, which has a historical year end of June 30, have been determined as follows: (a) Year ended December 31, 2002
Six months Six months Twelve months Twelve months ended Year ended ended ended ended December 31, June 30, December 31, December 31, December 31, 2002 2002 2001 2002 2002 ------------ ---------- ----------- ------------- -------------- (Cdn.$) (Cdn.$) (Cdn.$) (Cdn.$) (U.S.$) Expenses General and administrative $ 593,909 $ 1,467,007 $ 507,034 $ 1,553,882 $ 997,126 Write-off of mineral properties -- 42,511 -- 42,511 27,279 ----------- ----------- ----------- ----------- ----------- 593,909 1,509,578 507,034 1,596,393 1,024,405 Other income (75,861) (295,844) (122,740) (248,965) (159,761) Gain on disposal of investments -- (5,805) -- (5,805) (3,725) ----------- ----------- ----------- ----------- ----------- Net loss for the period $ 518,048 $ 1,207,869 $ 384,294 $ 1,341,623 $ 860,919 =========== =========== =========== =========== ===========
F-30 PAN AMERICAN SILVER CORP. NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND DECEMBER 31, 2002 (UNAUDITED) EXPRESSED IN UNITED STATES DOLLARS 5. CORNER BAY SILVER INC. (CONTINUED) (b) Three months ended March 31, 2003 The period from the acquisition date of February 20, 2003 to March 31, 2003 are included in the unaudited financial statements of Pan American for the three months ended March 31, 2003. The pro forma adjustments include revenue and expenses for the period from January 1, 2003 to February 20, 2003. (c) The financial statements of Corner Bay are denominated in Canadian dollars ("Cdn.$") and have been translated into United States dollars using the following exchange rates:
Exchange Rate ---------------------- Pro forma statements of operations for the year ended December 31, 2002 and the three month period ended March 31, 2003 1 Cdn.$ = U.S.$0.6417 Pro forma balance sheet as at December 31, 2002 1 Cdn.$ = U.S.$0.6648
6. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The pro forma consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP") which differ in certain respects with accounting principles generally accepted in the United States ("US GAAP"). The differences between Canadian GAAP and US GAAP as they relate to Pan American and Corner Bay are disclosed in the historical financial statements and notes thereto of the companies. F-31 PART II INFORMATION NOT REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS INDEMNIFICATION. Section 128 of the Company Act (British Columbia) (the "BCCA") authorizes a company, with the approval of the court, to indemnify past and present directors and officers of the company and past and present directors and officers of a corporation of which the company is or was a shareholder, against liabilities incurred in connection with the provision of their services as such if the director or officer acted honestly and in good faith with a view to the best interests of the company and, in the case of a criminal or administrative proceeding, if he or she had reasonable grounds for believing that his or her conduct was lawful. Section 128 of the BCCA provides that a company may purchase and maintain liability insurance for the benefit of such directors and officers. In accordance with the BCCA, the Articles of the Registrant provide that the Registrant will indemnify its directors, former directors, Secretary or Assistant Secretary, and may indemnify its officers, employees or agents and those of its subsidiaries, and directors and former directors of its subsidiaries, and each of their respective heirs and representatives, against all losses, charges and expenses howsoever incurred by them as a result of their actions in such capacities. The Registrant has entered into agreements with each of its directors confirming this indemnity. The failure of a director or officer of the Registrant to comply with the provisions of the BCCA or the Registrant's Memorandum or Articles, however, will invalidate any indemnity which he or she is entitled to. A policy of directors' and officers' liability insurance is maintained by the Registrant which insures directors and officers for losses as a result of claims against the directors and officers of the Registrant in the indemnity provisions under the Articles and the BCCA. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the U.S. Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. II-1 EXHIBITS. The following exhibits have been filed or incorporated by reference as part of the Registration Statement:
EXHIBIT NUMBER DESCRIPTION ------ ----------- 4.1 Annual Information Form of the Registrant, dated May 20, 2003. (1) 4.2 Audited Consolidated Financial Statements of the Registrant and the notes thereon as at and for the years ended December 31, 2001 and 2002, together with the auditors' report thereon as set out in the Registrant's annual report. (1) 4.3 Unaudited Consolidated Financial Statements of the Registrant and the notes thereto as at and for the three months ended March 31, 2003, together with management's discussion and analysis of financial condition and results of operations for the three months ended March 31, 2003. (2) 4.4 Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2002 as set out in the Registrant's annual report. (1) 4.5 Information Circular of the Registrant, dated April 9, 2003, in connection with the Registrant's May 12, 2003 annual meeting of members, other than the sections titled "Corporate Governance", "Executive Compensation - Compensation Committee", " Executive Compensation - Report on Executive Compensation" and " Executive Compensation - Performance Graph". 4.6 Material Change Report of the Registrant, dated February 27, 2003, relating to the completion of the Registrant's acquisition of Corner Bay Silver Inc. (3) 4.7 Material Change Report of the Registrant, dated February 27, 2003, relating to consolidated production figures from 2002. (3) 4.8 Material Change Report of the Registrant, dated March 13, 2003, relating to financial and operational results for the fourth quarter and year ended December 31, 2002. (4) 4.9 Material Change Report of the Registrant, dated May 22, 2003, relating to financial and operational results for the first quarter of 2003. (5) 4.10 Audited Consolidated Financial Statements of the Registrant and the notes thereon as at and for the years ended December 31, 2001 and 2002, together with the auditors' report thereon, including a reconciliation to United States generally accepted accounting principals in accordance with Item 18 of Form 20-F. (6) 5.1 Consent of Deloitte & Touche LLP 5.2 Consent of PricewaterhouseCoopers LLP 6.1 Powers of Attorney (included on page III-3 of this Registration Statement)
- --------------- (1) Incorporated by reference to the Registrant's Annual Report on Form 40-F, filed with the Commission on May 20, 2003. (2) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on May 23, 2003. (3) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on February 27, 2003. (4) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on March 3, 2003. (5) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on May 22, 2003. (6) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on July 3, 2003. II-2 PART III UNDERTAKING AND CONSENT TO SERVICE OF PROCESS ITEM 1. UNDERTAKING. The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to Form F-10 or to transactions in such securities. ITEM 2. CONSENT TO SERVICE OF PROCESS. Concurrently with the filing of this Registration Statement on Form F-10, the Registrant is filing with the Commission a written irrevocable consent and power of attorney on Form F-X. III-1 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-10 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Vancouver, British Columbia, Canada on July 7, 2003. PAN AMERICAN SILVER CORP. By: /s/ ROSS J. BEATY ------------------------------------ Ross J. Beaty Chairman and Chief Executive Officer III-2 POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each officer or director of Pan American Silver Corp. whose signature appears below constitutes and appoints Ross J. Beaty and Anthony Hawkshaw, and each of them, with full power to act without the other, his or her true and lawful attorneys-in-fact and agents, with full and several power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments, including post-effective amendments, and supplements to this Registration Statement on Form F-10, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they or he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or his or her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by or on behalf of the following persons in the capacities indicated, on July 7, 2003. SIGNATURE TITLE --------- ----- /s/ ROSS J. BEATY - --------------------------- Ross J. Beaty Chairman and Chief Executive Officer and Director (Principal Executive Officer) /s/ ANTHONY HAWKSHAW - --------------------------- Anthony Hawkshaw Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ WILLIAM A. FLECKENSTEIN - --------------------------- William A. Fleckenstein Director - --------------------------- John M. Willson Director - --------------------------- Michael Larson Director - --------------------------- Michael J.J. Maloney Director /s/ PAUL B. SWEENEY - --------------------------- Paul B. Sweeney Director /s/ JOHN H. WRIGHT - --------------------------- John H. Wright Director /s/ GEOFF BURNS - --------------------------- Geoff Burns Director III-3 AUTHORIZED REPRESENTATIVE Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, the Authorized Representative has duly caused this Registration Statement to be signed on its behalf by the undersigned, solely in its capacity as the duly authorized representative of Pan American Silver Corp. in the United States, in the City of Reno, State of Nevada on July 7, 2003. PAN AMERICAN MINERALS INC. (Authorized Representative) By: /s/ ROSS J. BEATY --------------------------------------------- Ross J. Beaty Director III-4 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE NO. ------ ----------- -------- 4.1 Annual Information Form of the Registrant, dated May 20, 2003. (1) 4.2 Audited Consolidated Financial Statements of the Registrant and the notes thereon as at and for the years ended December 31, 2001 and 2002, together with the auditors' report thereon as set out in the Registrant's annual report. (1) 4.3 Unaudited Consolidated Financial Statements of the Registrant and the notes thereto as at and for the three months ended March 31, 2003, together with management's discussion and analysis of financial condition and results of operations for the three months ended March 31, 2003. (2) 4.4 Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2002 as set out in the Registrant's annual report. (1) 4.5 Information Circular of the Registrant, dated April 9, 2003, in connection with the Registrant's May 12, 2003 annual meeting of members, other than the sections titled "Corporate Governance", "Executive Compensation - Compensation Committee", " Executive Compensation - Report on Executive Compensation" and " Executive Compensation - Performance Graph". 4.6 Material Change Report of the Registrant, dated February 27, 2003, relating to the completion of the Registrant's acquisition of Corner Bay Silver Inc. (3) 4.7 Material Change Report of the Registrant, dated February 27, 2003, relating to consolidated production figures from 2002. (3) 4.8 Material Change Report of the Registrant, dated March 13, 2003, relating to financial and operational results for the fourth quarter and year ended December 31, 2002. (4) 4.9 Material Change Report of the Registrant, dated May 22, 2003, relating to financial and operational results for the first quarter of 2003. (5) 4.10 Audited Consolidated Financial Statements of the Registrant and the notes thereon as at and for the years ended December 31, 2001 and 2002, together with the auditors' report thereon, including a reconciliation to United States generally accepted accounting principals in accordance with Item 18 of Form 20-F. (6) 5.1 Consent of Deloitte & Touche LLP 5.2 Consent of PricewaterhouseCoopers LLP 6.1 Powers of Attorney (included on page III-3 of this Registration Statement)
- --------------- (1) Incorporated by reference to the Registrant's Annual Report on Form 40-F, filed with the Commission on May 20, 2003. (2) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on May 23, 2003. (3) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on February 27, 2003. (4) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on March 3, 2003. (5) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on May 22, 2003. (6) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on July 3, 2003. EX-4.5 4 o10245exv4w5.txt INFORMATION CIRCULAR DATED APRIL 9, 2003 EXHIBIT 4.5 [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 [Intentionally Deleted] - 6 - [Intentionally Deleted] - 7 - [Intentionally Deleted] - 8 - [Intentionally Deleted] - 9 - [Intentionally Deleted] - 10 - [Intentionally Deleted] - 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 [Intentionally Deleted] REPORT ON EXECUTIVE COMPENSATION [Intentionally Deleted] - 15 - [Intentionally Deleted] 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 [Intentionally Deleted] 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 EX-5.1 5 o10245exv5w1.txt CONSENT OF DELOITTE AND TOUCHE LLP EXHIBIT 5.1 Deloitte & Touche LLP P.O. Box 49279 Four Bentall Centre 2800 - 1055 Dunsmuir Street Vancouver, British Columbia V7X 1P4 [DELOITTE & TOUCHE LOGO] Tel: (604) 669 4466 Fax: (604) 685 0395 www.deloitte.ca INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Pan American Silver Corp. on Form F-10 of our report addressed to the Directors of the Company dated February 20, 2003, except for Note 9, which is at March 7, 2003 for the year ended December 31, 2002 and to the reference to us under the heading "Auditors, Transfer Agent and Registrar" and "Experts" in the Prospectus, which is part of this Registration Statement. /s/ Deloitte & Touche LLP CHARTERED ACCOUNTANTS Vancouver, British Columbia, Canada July 7, 2003 EX-5.2 6 o10245exv5w2.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 5.2 (PRICEWATERHOUSECOOPERS-LOGO) ________________________________________________________________________________ PRICEWATERHOUSECOOPERS LLP CHARTERED ACCOUNTANTS PO Box 82 Royal Trust Tower, Suite 3000 Toronto Dominion Centre Toronto, Ontario July 7, 2003 Canada M5K 1G8 Telephone +1 416 863 1133 Facsimile +1 416 365 8215 Securities and Exchange Commission We refer to the Short Form Base Shelf Prospectus (the "Prospectus") and the Form F-10 registration statement under the Securities Act of 1933 (the "Form F-10") filing of Pan American Silver Corp. (the "Company") dated JULY 7, 2003 relating to the sale and issue of common shares, debt securities or warrants to purchase common shares or debt securities of the Company or any combination thereof up to an aggregate initial offering price of US$100,000,000, during the 25 month period that the Prospectus remains valid. We consent to the use in the above-mentioned Prospectus and Form F-10 of our report dated September 6, 2002 relating to the following consolidated financial statements of Corner Bay Silver Inc.: o Balance sheets as at June 30, 2002 and 2001; and o Statements of operations and deficit and cash flows for each of the years in the three-year period ended June 30, 2002. We also consent to the reference to our Firm under the heading "Experts" in the Prospectus and Form F-10. Yours very truly, /s/ PricewaterhouseCoopers LLP - ---------------------------------------- Chartered Accounts PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. -----END PRIVACY-ENHANCED MESSAGE-----