-----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, HY9tMkseec3mnZqMBemfIs3px7p+YzxqIjd/Db4e0zaLbp+7sfQ92VIN0EJQ3NmW 2ULprBuc9w5CSrNsLZL5Lg== 0000945234-03-000431.txt : 20030724 0000945234-03-000431.hdr.sgml : 20030724 20030724150306 ACCESSION NUMBER: 0000945234-03-000431 CONFORMED SUBMISSION TYPE: F-10 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20030724 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAN AMERICAN SILVER CORP CENTRAL INDEX KEY: 0000771992 STANDARD INDUSTRIAL CLASSIFICATION: SILVER ORES [1044] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: F-10 SEC ACT: 1933 Act SEC FILE NUMBER: 333-107303 FILM NUMBER: 03800840 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 o10346fv10.txt FORM F-10 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 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. [X] 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. [ ] 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. [ ] 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 AMOUNT TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION FEE SECURITIES TO BE REGISTERED OFFERING PRICE - ------------------------------------------------------------------------------------------------------------------------------------ COMMON SHARES - (1) - (1) - (1) DEBT SECURITIES WARRANTS - ------------------------------------------------------------------------------------------------------------------------------------
(1) $100 million aggregate principal amount of common shares, debt securities and warrants were registered under the Registrant's Registration Statement on Form F-10 (File No. 333-106858) (the "Initial Registration Statement"), which became effective on July 18, 2003 pursuant to Rule 467(a) under the Securities Act. No new securities are being registered under this registration statement, which, pursuant to Rule 429 under the Securities Act constitutes a post-effective amendment to the Initial Registration Statement. Since no new securities are being registered under this registration statement, no additional registration fee is required. PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATES TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM F-10 (FILE NO. 333-106858). ================================================================================ PART I INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS I-1 ================================================================================ 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 17, 2003, the closing price of the Common Shares on the TSX was Cdn$10.39 per common share and the closing price of the Common Shares on Nasdaq was US$7.36 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 July 18, 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; (i) a material change report of the Company, dated May 22, 2003, relating to financial and operational results for the first quarter of 2003; and (j) a material change report of the Company, dated July 7, 2003, relating to filing of the preliminary short form base shelf prospectus of the Company dated July 7, 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 17, 2003, the noon buying rate was US$1.00 = Cdn $1.3971. -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. A description of the Company's principal subsidiaries as at its most recent financial year end is set out under the heading "Subsidiaries" on page 3 of the Company's annual information form which is incorporated by reference in this Prospectus. 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 In July of 2003, Pan American initiated a technical and economic evaluation of a possible expansion of the Huaron mine in Peru, which would increase this mine's production. 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. On February 20, 2003, the Company acquired all of the issued and outstanding shares of Corner Bay Silver Inc. ("Corner Bay") pursuant to a plan of arrangement under the Canada Business Corporations Act. Under this plan of arrangement, each Corner Bay share was exchanged for 0.3846 Common Shares of the Company plus 0.1923 warrants of the Company, resulting in the issuance of a total of 7,636,659 Common Shares and 3,818,330 warrants of the Company. Each whole warrant will allow the holder to purchase one Common Share of the Company for a price of Cdn$12.00 at any time over a five-year exercise period. Pan American also issued options to purchase up to 553,846 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. Corner Bay, through its subsidiary corporations, owns the Alamo Dorado silver-gold deposit in Mexico. The Alamo Dorado project is described under the heading "Narrative Description of the Business - Development Projects - Alamo Dorado Project" on pages 32 through 38 of the Company's annual information form which is incorporated by reference in this Prospectus. In May of 2003, Pan American completed a seven-hole drill program on the Alamo Dorado project and is undertaking metallurgical testing to update a 2002 feasibility study completed by AMEC E&C Services, Inc. The updated feasibility study will examine the economic merits of processing ore from the Alamo Dorado deposit in a conventional oxide leaching mill circuit versus heap leach processing. The update will also examine the economic merits of a combination mill for high grade ore and heap leach for low grade ore. The updated study is expected to be completed in the fourth quarter of 2003. Until this study is completed and a production decision made, the acquisition of Corner Bay and the Alamo Dorado project is not expected to have any material effect on the operating results and financial position of Pan American." 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 Supplementary Information About Mineral Property Expenditures For The Six Months Ended December 31, 2002 (Unaudited)......................................................................... F-22 Supplementary Information About General And Administrative Costs For The Six Months Ended December 31, 2002 (Unaudited)................................................................ F-23 Unaudited Pro Forma Consolidated Financial Statements Of Pan American Silver Corp............ F-24 COMPILATION REPORT........................................................................... F-25 PRO FORMA CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2002 (UNAUDITED)..................... F-26 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED)................................................................... F-27 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 (UNAUDITED)................................................................ F-28 NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS..................................... F-29
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 CORNER BAY SILVER INC. Supplementary Information about Mineral Property Expenditures for the six months ended December 31, 2002 (Unaudited) Field office expenditures Depreciation $ 11,410 Office vehicles 774 General office 16,963 Office rent 6,629 Professional fees 38,686 Telephone 6,426 Insurance 1,040 Bank charges 88 Travel, food and accommodation 3,824 Field supplies 584 Drafting and reproduction costs 90 Courier 210 ------ Total field office expenditures 86,724 ====== Alamo Dorado expenditures Surveying 198,050 Salaries and benefits 65,450 Temporary labour 58,601 Site vehicles 27,786 General office 21,256 Professional fees 11,410 Telephone 5,611 Insurance 985 Freight 967 Travel, food and accommodation 43,578 Assays 1,881 Field supplies 10,466 Drafting and reproduction costs 1,416 Courier 730 ------- Total Alamo Dorado expenditures 448,187 ======= Deferred mineral property expenditures $534,911 ========
F-22 CORNER BAY SILVER INC. Supplementary Information about General and Administrative costs for the six months ended December 31, 2002 (Unaudited) Salaries and benefits $ 243,383 Insurance 7,439 Bank charges 915 Transfer agent and filing fees 31,305 Accounting and legal 27,843 Office rent 39,977 Telephone 9,322 Meals and entertainment 6,493 Travel 21,597 Advertising and news dissemination 29,336 Recovery of taxes (30,298) General office 8,904 Plan of arrangement costs 212,321 Exchange gain (14,628) ------- 593,909 ======= Provision for plan of arrangement costs Severance 1,128,470 --------- Accounting, legal and other 43,619 --------- Total general and administrative costs $ 1,765,998 ===========
F-23 Unaudited Pro Forma Consolidated Financial Statements of PAN AMERICAN SILVER CORP. F-24 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 18, 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 18, 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 18, 2003 F-25 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-26 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-27 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-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 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-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 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-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 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-31 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-32 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-33 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". (3) 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. (4) 4.7 Material Change Report of the Registrant, dated February 27, 2003, relating to consolidated production figures from 2002. (4) 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. (5) 4.9 Material Change Report of the Registrant, dated May 22, 2003, relating to financial and operational results for the first quarter of 2003. (6) 4.10 Material Change Report of the Registrant, dated July 7, 2003, relating to the filing of the preliminary short form base shelf prospectus of the Registrant dated July 7, 2003. (7) 4.11 Material Change Report of the Registrant dated July 22, 2003, relating to the announcement of the offering of US$75 million aggregate principal amount of 5.25% convertible unsecured senior subordinated debentures due July 31, 2009. (8) 4.12 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. (9) 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) 7.1 Form of Indenture
- --------------- * Previously filed (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 Registration Statement on Form F-10 (File No. 333-106858), filed with the Commission on July 7, 2003. (4) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on February 27, 2003. (5) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on March 3, 2003. (6) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on May 22, 2003. (7) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on July 18, 2003. (8) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on July 22, 2003. (9) 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. (a) Concurrently with the filing of this Registration Statement on Form F-10, the Registrant has filed with the Commission a written irrevocable consent and power of attorney on Form F-X. (b) Concurrently with the filing of this Registration Statement on Form F-10, Computershare Trust Company of Canada, the Trustee under the Indenture, has filed with the Commission a written irrevocable consent and power of attorney on Form F-X. (c) Any change to the name or address of the agent of service for the Registrant or the Trustee will be communicated promptly to the Commission by amendment to Form F-X referencing the file number of this Registration Statement. 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 Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Vancouver, British Columbia, Canada on July 24, 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 24, 2003.
SIGNATURE TITLE --------- ----- /s/ ROSS J. BEATY - ------------------------------------ Chairman and Chief Executive Officer and Director Ross J. Beaty (Principal Executive Officer) /s/ ANTHONY HAWKSHAW - ------------------------------------ Chief Financial Officer (Principal Financial Officer Anthony Hawkshaw and Principal Accounting Officer) /s/ WILLIAM A. FLECKENSTEIN - ------------------------------------ Director William A. Fleckenstein - ------------------------------------ Director John M. Willson - ------------------------------------ Director Michael Larson - ------------------------------------ Director Michael J.J. Maloney /s/ PAUL B. SWEENEY - ------------------------------------ Director Paul B. Sweeney /s/ JOHN W. WRIGHT - ------------------------------------ Director John H. Wright /s/ GEOFF BURNS - ------------------------------------ Director Geoff Burns
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 Amendment No. 1 to 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 24, 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". (3) 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. (4) 4.7 Material Change Report of the Registrant, dated February 27, 2003, relating to consolidated production figures from 2002. (4) 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. (5) 4.9 Material Change Report of the Registrant, dated May 22, 2003, relating to financial and operational results for the first quarter of 2003. (6) 4.10 Material Change Report of the Registrant, dated July 7, 2003, relating to the filing of the preliminary short form base shelf prospectus of the Registrant dated July 7, 2003. (7) 4.11 Material Change Report of the Registrant dated July 22, 2003, relating to the announcement of the offering of US$75 million aggregate principal amount of 5.25% convertible unsecured senior subordinated debentures due July 31, 2009. (8) 4.12 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. (9) 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) 7.1 Form of Indenture
- --------------- * Previously filed (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 Registration Statement on Form F-10 (File No. 333-106858), filed with the Commission on July 7, 2003. (4) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on February 27, 2003. (5) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on March 3, 2003. (6) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on May 22, 2003. (7) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on July 18, 2003. (8) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on July 22, 2003. (9) Incorporated by reference to the Registrant's Report on Form 6-K, furnished to the Commission on July 3, 2003. EX-5.1 4 o10346exv5w1.txt AUDITORS CONSENT -- DELOITTE & 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 24, 2003 EX-5.2 5 o10346exv5w2.txt AUDITORS CONSENT -- 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 23, 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 Form F-10 registration statement under the Securities Act of 1933 (the "Form F-10") filing of Pan American Silver Corp. (the "Company") to be dated JULY 24, 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. EX-7.1 6 o10346exv7w1.txt TRUST INDENTURE Exhibit 7.1 PAN AMERICAN SILVER CORP. - AND - COMPUTERSHARE TRUST COMPANY OF CANADA TRUST INDENTURE 5.25% CONVERTIBLE UNSECURED SENIOR SUBORDINATED DEBENTURES DUE 2009 DATED AS OF JULY 30, 2003 - 1 - TABLE OF CONTENTS ARTICLE 1 INTERPRETATION..................................................................................... 1 1.1 Definitions.......................................................................................... 1 1.2 Number, gender and entities.......................................................................... 7 1.3 Meaning of "Outstanding"............................................................................. 7 1.4 Headings, Etc........................................................................................ 8 1.5 Applicable Law....................................................................................... 8 1.6 Monetary References.................................................................................. 8 1.7 Calculation of Dates................................................................................. 8 1.8 Schedules............................................................................................ 8 ARTICLE 2 THE DEBENTURES..................................................................................... 9 2.1 Issue of Debentures.................................................................................. 9 2.2 Terms of Debentures.................................................................................. 9 2.3 Forms and Signature of Debentures.................................................................... 9 2.4 Issue of Debentures.................................................................................. 10 2.5 Interest Obligations................................................................................. 10 2.6 Certificate as to Interest Payable................................................................... 10 2.7 Payment of Interest in Cash.......................................................................... 11 2.8 Interest Election Notice............................................................................. 12 2.9 Company to Indemnify Trustee and Debenture Holders................................................... 14 2.10 Entitlements Preserved............................................................................... 14 2.11 Creation and Issue of Additional Debentures.......................................................... 14 2.12 Certification........................................................................................ 15 2.13 Registration of Debentures........................................................................... 15 2.14 Mutilation, loss, theft or destruction of Debentures................................................. 16 2.15 Exchanges of Debentures.............................................................................. 16 2.16 Place of Payment..................................................................................... 17 2.17 Partnership not created.............................................................................. 17 2.18 Issue of Global Debentures........................................................................... 17 2.19 Payment of Additional Amounts........................................................................ 19 ARTICLE 3 REDEMPTION AND PURCHASE FOR CANCELLATION OF DEBENTURES............................................. 20 3.1 Redemption of Debentures............................................................................. 20 3.2 Redemption for Changes in Canadian Tax Law........................................................... 21 3.3 Partial Redemption of Debentures..................................................................... 21 3.4 Redemption Notice.................................................................................... 21 3.5 Debentures Due on Redemption Dates................................................................... 22 3.6 Deposit of Redemption Moneys......................................................................... 22 3.7 Surrender of Debentures for Cancellation............................................................. 22 3.8 Purchase of Debentures............................................................................... 22 3.9 Redemption of Debentures on Maturity Date............................................................ 23 3.10 Optional Repayment upon Redemption or Maturity....................................................... 23 3.11 No Other Redemption of Debentures.................................................................... 24
- i - ARTICLE 4 CONVERSION......................................................................................... 24 4.1 Conversion Privilege and Conversion Price............................................................ 24 4.2 Conversion Procedure................................................................................. 24 4.3 No Fractional Shares................................................................................. 25 4.4 Adjustment of the Conversion Price................................................................... 25 4.5 Certificate as to Adjustment......................................................................... 29 4.6 Voluntary Decrease................................................................................... 29 4.7 Notice to Debenture Holders of Certain Events........................................................ 29 4.8 Right of Conversion Ceases on Redemption............................................................. 30 4.9 Reclassifications, Reorganizations, Etc.............................................................. 30 4.10 Overriding Limitation on Conversion Right............................................................ 31 4.11 Cancellation of Debentures........................................................................... 31 ARTICLE 5 CHANGE OF CONTROL.................................................................................. 31 5.1 Change of Control Offer.............................................................................. 31 5.2 Change of Control.................................................................................... 32 5.3 Change of Control Redemption Notice.................................................................. 33 5.4 Effect of Change of Control Redemption Notice........................................................ 34 5.5 Third Party May Satisfy.............................................................................. 35 5.6 90% Redemption Right................................................................................. 35 5.7 Deposit of Total Offer Price......................................................................... 36 5.8 Redemption in Part................................................................................... 36 5.9 Debentures Due on Expiry of Offer.................................................................... 36 5.10 Covenant to Comply with Securities Laws Upon Redemption of Debentures................................ 36 5.11 Cancellation of Debentures........................................................................... 36 ARTICLE 6 SUBORDINATION OF DEBENTURES........................................................................ 37 6.1 Subordination of Debentures.......................................................................... 37 6.2 Definition........................................................................................... 37 6.3 Effect of Dissolution, Winding-up, Liquidation or Reorganization..................................... 37 6.4 Subrogation of Debentures............................................................................ 38 6.5 No Payment to Debenture Holders if Senior Indebtedness Due or in Default............................. 38 6.6 Payment of Debentures Permitted...................................................................... 39 6.7 Subordination Not to be Impaired..................................................................... 40 6.8 Authorization of Debenture Holders to Trustee to Effect Subordination................................ 40 6.9 Survival............................................................................................. 40 6.10 Further Assurances................................................................................... 41 ARTICLE 7 COVENANTS OF THE COMPANY........................................................................... 41 7.1 To Pay Principal and Interest........................................................................ 41 7.2 To Carry on Business................................................................................. 41 7.3 To Maintain Reservation of Common Shares............................................................. 41 7.4 To Qualify Common Shares and Maintain a Listing...................................................... 41 7.5 To Pay Trustee's Remuneration........................................................................ 41 7.6 Not to Extend Time for Payment of Interest or Principal.............................................. 42 7.7 Audit................................................................................................ 42 7.8 Trustee May Perform Covenants........................................................................ 42
- ii - 7.9 Certificates of no Default........................................................................... 42 7.10 Further Assurances................................................................................... 42 7.11 Trustee Indemnification.............................................................................. 42 7.12 Reports.............................................................................................. 43 7.13 Future Issuances of Debt............................................................................. 43 7.14 Restrictions on Dividends............................................................................ 43 7.15 Conversion of Currency............................................................................... 43 ARTICLE 8 DEFAULT............................................................................................ 44 8.1 Acceleration of Maturity............................................................................. 44 8.2 Notice of Events of Default.......................................................................... 47 8.3 Waiver of Default.................................................................................... 47 8.4 Enforcement by the Trustee........................................................................... 47 8.5 Suits by Debenture Holders........................................................................... 48 8.6 Application of Moneys by Trustee..................................................................... 49 8.7 Distribution of Proceeds............................................................................. 49 8.8 Remedies Cumulative.................................................................................. 50 8.9 Judgment Against the Company......................................................................... 50 8.10 Immunity of Shareholders............................................................................. 50 8.11 Trustee Appointed Attorney........................................................................... 50 ARTICLE 9 SATISFACTION AND DISCHARGE......................................................................... 50 9.1 Cancellation and Destruction......................................................................... 50 9.2 Non-Presentation of Debentures....................................................................... 50 9.3 Repayment of Unclaimed Moneys........................................................................ 51 9.4 Discharge............................................................................................ 51 ARTICLE 10 SUCCESSOR CORPORATIONS............................................................................ 51 10.1 Certain Requirements................................................................................. 51 10.2 Vesting of Powers in Successor....................................................................... 52 ARTICLE 11 MEETINGS OF DEBENTURE HOLDERS..................................................................... 52 11.1 Right to Convene Meeting............................................................................. 52 11.2 Notice of Meetings................................................................................... 52 11.3 Chairman............................................................................................. 52 11.4 Quorum............................................................................................... 53 11.5 Power to Adjourn..................................................................................... 53 11.6 Show of Hands........................................................................................ 53 11.7 Poll................................................................................................. 53 11.8 Voting............................................................................................... 53 11.9 Regulations.......................................................................................... 53 11.10 Company and Trustee May be Represented............................................................... 54 11.11 Powers Exercisable by Extraordinary Resolution....................................................... 54 11.12 Meaning of "Extraordinary Resolution"................................................................ 56 11.13 Powers Cumulative.................................................................................... 57 11.14 Minutes.............................................................................................. 57 11.15 Instruments in Writing............................................................................... 57
- iii - 11.16 Binding Effect of Resolutions........................................................................ 57 11.17 Evidence of Rights of Debenture Holders.............................................................. 57 ARTICLE 12 NOTICES........................................................................................... 57 12.1 Notice to Company.................................................................................... 57 12.2 Notice to Debenture Holders.......................................................................... 58 12.3 Notice to Trustee.................................................................................... 58 12.4 Receipt of Notices................................................................................... 58 12.5 Mail Service Interruption............................................................................ 58 12.6 Waiver of Notice..................................................................................... 59 ARTICLE 13 CONCERNING THE TRUSTEE............................................................................ 59 13.1 Trust Indenture Legislation.......................................................................... 59 13.2 No Conflict of Interest.............................................................................. 59 13.3 Replacement of Trustee............................................................................... 59 13.4 Experts, Advisers and Agents......................................................................... 60 13.5 Trustee May Deal in Debentures....................................................................... 60 13.6 Investment of Moneys Held by Trustee................................................................. 60 13.7 Trustee Not Ordinarily Bound......................................................................... 60 13.8 Trustee Not Required to Give Security................................................................ 61 13.9 Acceptance of Trust.................................................................................. 61 13.10 Protection of the Trustee............................................................................ 61 13.11 Trustee Standard of Care............................................................................. 61 13.12 Third Party Interests................................................................................ 62 13.13 Trustee Not Bound to Act............................................................................. 62 ARTICLE 14 SUPPLEMENTAL INDENTURES........................................................................... 62 14.1 Supplemental Indentures.............................................................................. 62 ARTICLE 15 EVIDENCE OF OWNERSHIP............................................................................. 63 15.1 Evidence of Ownership................................................................................ 63 ARTICLE 16 EXECUTION AND FORMAL DATE......................................................................... 64 16.1 Counterpart Execution................................................................................ 64 16.2 Formal Date.......................................................................................... 64 SCHEDULE A Specimen Debenture Certificate................................................................... A-1 SCHEDULE B Redemption Notice................................................................................ B-1 SCHEDULE C Form of Maturity Notice.......................................................................... C-1 SCHEDULE D Form of Notice of Conversion..................................................................... D-1
- iv - THIS INDENTURE is made as of July 30, 2003. BETWEEN: PAN AMERICAN SILVER CORP., a company incorporated under the laws of the Province of British Columbia and having its head office at 1500 - 625 Howe Street, Vancouver, British Columbia, V6C 2T6 (hereinafter referred to as the "COMPANY") AND: COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company incorporated under the laws of Canada and having an office at 510 Burrard Street, Vancouver, British Columbia, V6C 3B9 (hereinafter referred to as the "TRUSTEE") WHEREAS the Company wishes to raise money for its corporate purposes and to do so wishes to create and issue the Debentures pursuant to this indenture; AND WHEREAS the Company, under the laws relating thereto, is duly authorized to create and issue the Debentures to be issued as herein provided; AND WHEREAS when certified by the Trustee and issued as in this indenture provided, all necessary resolutions of the directors of the Company have been duly passed and other proceedings taken and conditions complied with to make the creation and issue of the Debentures proposed to be issued hereunder legal, valid and effective; AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Company and not by the Trustee; THIS INDENTURE WITNESSES THAT in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each of the parties hereto, the parties hereto covenant, agree and declare as follows: ARTICLE 1 INTERPRETATION 1.1 DEFINITIONS. Where used herein or in the Debentures or any amendments or supplemental indentures hereto, except where the context otherwise requires, the following terms shall have the following meanings: 1.1.1 "ADDITIONAL DEBENTURES" means any Debentures issued hereunder other than the Debentures issued on the date hereof; 1.1.2 "AFFILIATE" means, with respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "CONTROL" when used with respect to any specified person means - 1 - the power to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have similar meanings; 1.1.3 "AGGREGATE MARKET CAPITALIZATION" means, at any date, the amount equal to the product of the Current Market Price as of the trading day immediately preceding such date and the number of Common Shares outstanding on such date; 1.1.4 "ASSOCIATE" means, with respect to any specified person (1) any corporation or organization (other than such person or a majority-owned subsidiary of such person) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities, (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and (3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of such person or any of its parents or subsidiaries; 1.1.5 "BANKRUPTCY LAW" means Title 11, United States Code or any similar United States federal or state law for the relief of debtors, or the Bankruptcy and Insolvency Act (Canada) or any other Canadian federal or provincial or foreign law relating to bankruptcy, insolvency, winding up, liquidation, reorganization or relief of debtors; 1.1.6 "BANKRUPTCY ORDER" means any court order made in a proceeding pursuant to or within the meaning of any Bankruptcy Law, containing an adjudication of bankruptcy or insolvency, or providing for liquidation, winding up, dissolution or reorganization, or appointing a Custodian of a debtor or of all or any substantial part of a debtor's property, or providing indebtedness or other relief of a debtor; 1.1.7 "BENEFICIAL HOLDER" means any person who holds a beneficial interest in a Global Debenture as shown on the books of the Depository or a Depository Participant; 1.1.8 "BUSINESS DAY" means any day other than Saturday, Sunday or a statutory holiday in the Province of British Columbia; 1.1.9 "CAPITAL STOCK" means, for any corporation, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) the capital issued by such corporation; 1.1.10 "CASH, PROPERTY OR SECURITIES" for the purposes of Article 6 has the meaning ascribed thereto in section 6.2 hereof; 1.1.11 a "CHANGE OF CONTROL" shall be deemed to have occurred at such time as any of the following events shall occur: (a) there is a report filed on Schedule 13D, 14D-1 or 14D-1F (or any successor schedule, form or report) pursuant to the 1934 Act disclosing that any person, including its Associates and Affiliates (as the term "PERSON" is used in section 13(d)(3) or section 14(d)(2) of the 1934 Act or any successor provision to either of the foregoing), other than the Company, a Subsidiary or any employee benefit plan of either the Company or a Subsidiary, has become the beneficial owner (as the term "BENEFICIAL OWNER" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the 1934 Act) of Voting Shares representing more than 66 2/3 percent of the total voting power attached to all Voting Shares of the Company then outstanding; provided, however, that a person shall not be deemed to be the - 2 - beneficial owner of, or to own beneficially, (A) any securities tendered pursuant to a tender or exchange offer made by or on behalf of such person or any of such person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange thereunder, or (B) any securities if such beneficial ownership (1) arises solely as a result of a revocable proxy delivered in response to a proxy or consent solicitation made pursuant to applicable law, and (2) is not also then reportable on Schedule 13D (or any successor schedule) under the 1934 Act; (b) there is a report filed with any securities commission or securities regulatory authority in Canada, disclosing that any offeror (as the term "OFFEROR" is defined in section 89(1) of the Securities Act for the purposes of section 101 of the Securities Act, or any successor provision to either of the foregoing), other than the Company, a Subsidiary or any employee benefit plan of either the Company or a Subsidiary, has acquired beneficial ownership (within the meaning of the Securities Act) of, or the power to exercise control or direction over, or securities convertible into, any voting or equity shares of the Company, that together with such offeror's securities (as the term "OFFEROR'S SECURITIES" is defined in section 89(1) of the Securities Act or any successor provision thereto in relation to the voting or equity shares of the Company) would constitute Voting Shares of the Company representing more than 66 2/3 percent of the total voting power attached to all Voting Shares of the Company then outstanding; or (c) there is consummated any amalgamation, consolidation, statutory arrangement (involving a business combination) or merger of the Company (i) in which the Company is not the continuing or surviving corporation or (ii) pursuant to which any Voting Shares of the Company would be reclassified, changed or converted into or exchanged for cash, securities or other property, other than (in each case) an amalgamation, consolidation, statutory arrangement or merger of the Company in which either (a) the holders of the Voting Shares of the Company immediately prior to the amalgamation, consolidation, statutory arrangement or merger have, directly or indirectly, more than 66 2/3 percent of the Voting Shares of the continuing or surviving corporation immediately after such transaction or (b)(i) upon such amalgamation, consolidation, statutory arrangement or merger, a majority of the directors on the board of directors of the continuing or surviving corporation are persons who were directors on the board of directors of the Company immediately before the signing of the agreement governing such amalgamation, consolidation, statutory arrangement or merger (the "CONTINUING DIRECTORS"), and no agreement is in place providing for the removal, resignation or other replacement of such Continuing Directors and (ii) immediately after such amalgamation, consolidation, statutory arrangement or merger, no Person or Group (as defined in Rule 13d-5 of the 1934 Act) holds, directly or indirectly, more than 35 percent of the Voting Shares of the continuing or surviving corporation; 1.1.12 "CHANGE OF CONTROL DATE" means the date a Change of Control has occurred; 1.1.13 "CLOSE OF BUSINESS" means the normal closing hour of the local office of the Trustee on the relevant business day; 1.1.14 "COMMON SHARES" means, subject to the provisions of section 4.8, common shares without par value in the capital of the Company; 1.1.15 "COMPANY" means Pan American Silver Corp. and includes any successor corporation to or of Pan American Silver Corp. which shall have complied with the provisions of Article 10; - 3 - 1.1.16 "COMPANY'S AUDITORS" or "AUDITORS OF THE COMPANY" means an independent firm of chartered accountants duly appointed as auditors of the Company; 1.1.17 "CONVERSION DATE" has the meaning ascribed thereto in subsection 4.2.2; 1.1.18 "CONVERSION PRICE" means, subject to any adjustment as provided for in section 4.4 hereof, the price per Common Share at which the Debentures shall from time to time be convertible into Common Shares in accordance with the provisions of Article 4, being $9.57 as at the date hereof; 1.1.19 "CONVERSION RATE" means the rate at which the Debentures may be converted into Common Shares pursuant to the terms hereof and is equal to the principal amount of the Debentures divided by the Conversion Price which, subject to any adjustment as provided for in section 4.4 hereof, is equal to approximately 104.4932 Common Shares per each $1,000 principal amount Debenture as at the date hereof; 1.1.20 "COUNSEL" means a barrister or solicitor or firm of barristers or solicitors retained by the Trustee or retained or employed by the Company and acceptable to the Trustee; 1.1.21 "CURRENT MARKET PRICE" means the weighted average trading price (or, if no trades occur on any relevant particular day, the mean between the closing bid and asked quotations on such day) of the Common Shares on the Nasdaq National Market during a period of 20 consecutive trading days ending on the fifth trading day prior to the relevant Interest Payment Date, Conversion Date, Redemption Date, Maturity Date, the date upon which any relevant computation pursuant to section 4.4.1 hereof is to be made, or any other date upon which the Current Market Price must be calculated, as the case may be, or if the Common Shares are not listed on the Nasdaq National Market on the date the determination is to be made, on such stock exchange on which the greatest volume of Common Shares are traded during such preceding 20 consecutive trading day period (with the weighted average trading price being converted into U.S. dollars based on the Bank of Canada noon exchange rate as reported for conversion of Canadian dollars into U.S. dollars on that date in the case of a stock exchange in Canada) or, if the Common Shares are not listed on any stock exchange, a price determined by the directors and approved by the Trustee; 1.1.22 "CUSTODIAN" means any receiver, interim receiver, receiver and manager, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law or any other person with like powers; 1.1.23 "DEBENTURE HOLDERS" or "HOLDERS" means the persons for the time being entered in the registers hereinafter mentioned as holders of Debentures; 1.1.24 "DEBENTURE INDEBTEDNESS" means, from time to time, all indebtedness, liabilities and obligations, present or future, direct or indirect, of the Company to the Debenture holders or the Trustee on behalf of the Debenture holders, as the case may be, under the Debentures, including principal, interest, fees, expenses and other amounts owing under the Debentures; 1.1.25 "DEBENTURES" means the 5.25% convertible unsecured senior subordinated debentures of the Company issued and certified hereunder and for the time being outstanding and, provided there is nothing in the context inconsistent therewith, shall include Additional Debentures; 1.1.26 "DEPOSITORY" means, with respect to the Debentures, the Person designated as depository by the Company pursuant to section 2.18 until a successor depository shall have become designated such pursuant to the applicable provisions of this indenture, and thereafter "DEPOSITORY" shall mean each person who is then a depository hereunder, and if at any time there is more than one such person "DEPOSITORY" as used with respect to the Debentures shall mean each Depository with respect to the Global Debentures; - 4 - 1.1.27 "DEPOSITORY PARTICIPANT" means a broker, dealer, bank, or other financial institution or other Person for whom, from time to time, a Depository effects book entry for a Global Debenture deposited with the Depository; 1.1.28 "DIRECTOR" means a director of the Company for the time being and "DIRECTORS" or "BOARD OF DIRECTORS" means the board of directors of the Company or, whenever duly empowered, the executive or other committee of the board of directors of the Company, for the time being, and reference without more to action by the directors means action by the directors of the Company as a board or action by the said executive or other committee as a committee; 1.1.29 "EVENT OF DEFAULT" has the meaning ascribed thereto in section 8.1 hereof; 1.1.30 "EXTRAORDINARY RESOLUTION" has the meaning ascribed thereto in section 11.12 hereof; 1.1.31 "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally accepted accounting principles from time to time approved by the Canadian Institute of Chartered Accountants; 1.1.32 "GLOBAL DEBENTURE" means a Debenture that is issued to and registered in the name of the Depository, or its nominee, pursuant to section 2.18 for purposes of being held by or on behalf of the Depository as custodian for Depository Participants; 1.1.33 "GOVERNMENT OBLIGATIONS" means interest bearing or discount debt obligations having a term of not more than 90 days issued or guaranteed by the Government of Canada or a Province of Canada, the United States Government or a Canadian chartered bank, provided that each such bank obligation is rated at least R1 (middle) by DBRS Inc. or an equivalent rating by Canadian Bond Rating Service; 1.1.34 "GREENSHOE OPTION" has the meaning ascribed thereto in section 2.11.1 hereof; 1.1.35 "INTEREST AMOUNT" has the meaning ascribed thereto in section 2.6 hereof; 1.1.36 "INTEREST CALCULATION DATE" means the date twelve business days preceding the relevant Interest Payment Date; 1.1.37 "INTEREST PAYMENT DATE" means each of January 31 and July 31 in each year, beginning January 31, 2004, provided that, if any Interest Payment Date falls on a day which is not a business day, the payment of any interest otherwise payable on such Interest Payment Date shall be deferred to the next business day; 1.1.38 "INTEREST ELECTION NOTICE" has the meaning ascribed thereto in section 2.8 hereof; 1.1.39 "INTEREST PERIOD" has the meaning ascribed thereto in section 2.5 hereof; 1.1.40 "INTEREST RATE" means the rate of interest, applicable both before and after an event of default hereunder, per annum at which the Debentures will bear interest during each Interest Period or portion thereof, equal to 5.25%; 1.1.41 "INTEREST RECORD DATE" means, with respect to any Interest Payment Date, the close of business on January 15 and July 15, as the case may be, in respect of the next preceding such Interest Payment Date, whether or not such day is a business day; 1.1.42 "MATURITY DATE" means July 31, 2009; - 5 - 1.1.43 "OFFICERS' CERTIFICATE" means a certificate signed by any two of the following officers of the Company: Chairman of the Board; President; Chief Executive Officer; any Executive Vice-President; Secretary; or Treasurer; 1.1.44 "PERSON" means any individual, corporation, company, partnership, joint-stock company, association, joint venture, trust, unincorporated association, government or governmental authority; 1.1.45 "REDEMPTION DATE" has the meaning ascribed thereto in section 3.4 hereof; 1.1.46 "REDEMPTION NOTICE" has the meaning ascribed thereto in section 3.4 hereof; 1.1.47 "REDEMPTION PRICE" means in respect of a Debenture, the principal amount thereof, plus accrued but unpaid interest thereon to but excluding the Redemption Date; 1.1.48 "SECURITIES ACT" means the Securities Act, R.S.O. 1990, c.S.5, as amended from time to time, and the rules and regulations made thereunder, also as amended from time to time, or any federal or Ontario statute enacted in substitution therefor; 1.1.49 "SENIOR INDEBTEDNESS" means (1) all indebtedness secured by a lien or other encumbrance; (2) all other indebtedness including, monetary obligations under credit facilities, with any bank, insurance company, investment funds, credit union or other financial institution; (3) any interest rate agreement or currency agreement; (4) indebtedness specifically incurred for the development of a particular mineral property with or without recourse to the Company; (5) all obligations to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments; (6) all trade and other accounts payable for goods, materials or services purchased in the ordinary course of business; and (7) all other indebtedness of the Company unless, in the case of any particular indebtedness, the instrument creating or evidencing the same expressly provides that such indebtedness shall not be senior in right of payment to the Debentures; but shall not include (A) any indebtedness to the extent incurred in violation of any covenant under this indenture; (B) any liability for foreign, federal, provincial or local taxes, subject to applicable law; (C) indebtedness that is subordinate or junior in right of payment to the Debentures; (D) any indebtedness to any employee, officer or director of the Company or any of its Subsidiaries, subject to applicable law; and (E) the Debentures; 1.1.50 "SENIOR INDEBTEDNESS DOCUMENTS" has the meaning ascribed thereto in section 6.7 hereof; 1.1.51 "SHARE DELIVERY DATE" means the date no more than 90 days and not less than one business day prior to an Interest Payment Date upon which Common Shares are delivered by the Company for purchase pursuant to an Interest Election Notice; 1.1.52 "SHARE ELECTION AMOUNT" means an amount of aggregate proceeds, based on the bids obtained pursuant to subsection 2.8.2 hereof, arising from the sale of Common Shares on a Share Delivery Date equal to the Interest Amount payable pursuant to the Interest Payment Election on such date, less any amount attributable to any fractional Common Share; 1.1.53 "SIGNIFICANT SUBSIDIARY" means any of the Company's "significant subsidiaries" as that term is defined in Rule 1-02 of Regulation S-X under the U.S. Securities Act of 1933, as amended, or any group of two or more subsidiaries that, taken as a whole, would constitute a "significant subsidiary" of the Company; 1.1.54 "SUBSIDIARY" means any corporation of which the Company at the time owns or controls, directly or indirectly, Capital Stock having voting power under ordinary circumstances to elect a majority of - 6 - the board of directors of such corporation (irrespective of whether or not at the time shares of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency); 1.1.55 "THIS INDENTURE", "HERETO", "HEREIN", "HEREBY", "HEREUNDER", "HEREOF", and similar expressions refer to this instrument and not to any particular Article, section, subsection, or other portion hereof, and include any and every instrument supplemental or ancillary hereto or required to implement this instrument and the form of Debenture; 1.1.56 "TIA" means the Trust Indenture Act of 1939, as amended or re-enacted from time to time; 1.1.57 "TRADING DAY" means, with respect to the Nasdaq National Market or other market or stock exchange for securities on which the Common Shares are listed or quoted, any day on which such market or exchange is open for trading or quotation; 1.1.58 "TRUST INDENTURE LEGISLATION" means, at any time, (i) the provisions of the Company Act (British Columbia) and the regulations thereunder as amended or re-enacted from time to time, (ii) the provisions of any other applicable statute of Canada or any province thereof and (iii) the TIA and regulations thereunder, but only to the extent applicable under Rule 4d-9 under the TIA, in each case, relating to trust indentures and to the rights, duties, and obligations of the Trustee under trust indentures and of corporations issuing debt obligations under trust indentures to the extent that such provisions are at such time in force and applicable to this indenture; 1.1.59 "TRUSTEE" means the Computershare Trust Company of Canada or its successor or successors appointed from time to time as trustee hereunder; 1.1.60 "UNITED STATES" means the United States of America, its territories and possessions, any state of the United States and the District of Columbia; 1.1.61 "VOTING SHARES" means, for any corporations, any Capital Stock having voting power under ordinary circumstances to vote in the election of directors of such corporation; and 1.1.62 "1934 ACT" means the United States Securities Exchange Act of 1934, as amended. 1.2 NUMBER, GENDER AND ENTITIES. Words importing the singular number only shall include the plural and vice versa and words importing the masculine gender shall include the feminine gender and words importing individuals shall include firms and corporations and vice versa. 1.3 MEANING OF "OUTSTANDING". Every Debenture certified and delivered by the Trustee hereunder shall be deemed to be outstanding until it shall be cancelled, converted, purchased or redeemed or delivered to the Trustee for cancellation, conversion, acquisition or redemption or moneys and/or Common Shares, as the case may be, for the payment thereof shall be set aside under Article 9, provided that: (a) Debentures which have been partially redeemed, purchased or converted shall be deemed to be outstanding only to the extent of the unredeemed, unpurchased or unconverted part of the principal amount thereof; (b) where a new Debenture has been issued in substitution for a Debenture which has been lost, stolen or destroyed, only one of such Debentures shall be counted for the purpose of determining the aggregate principal amount of Debentures outstanding; - 7 - (c) for the purpose of any provisions of this indenture entitling holders of outstanding Debentures to vote, sign consents, requisitions or other instruments or take any other action under this indenture, or to constitute a quorum of any meeting of Debenture holders, Debentures owned directly or indirectly, legally or equitably by the Company or by any Subsidiary, Associate or Affiliate shall be disregarded except that: (i) for the purpose of determining whether the Trustee shall be protected in relying on any such vote, consent, requisition or other instrument or action, or the holders of Debentures present or represented at any meeting of Debenture holders, only the Debentures which the Trustee knows are so owned shall be so disregarded; and (ii) Debentures so owned which have been pledged in good faith other than to the Company or any Subsidiary, Associate or Affiliate shall not be so disregarded if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Debentures in his or her discretion free from the control of the Company or any Subsidiary, Associate or Affiliate. 1.4 HEADINGS, ETC. The division of this indenture into Articles and sections, the provision of an index and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. 1.5 APPLICABLE LAW. This indenture and the Debentures shall be governed by and construed and enforced in accordance with the laws of the province of British Columbia including, without limitation, the Company Act, R.S.B.C. 1996, c.62, as amended from time to time or any British Columbia statute enacted in substitution therefor and the laws of Canada applicable therein and shall be treated in all respects as British Columbia contracts. 1.6 MONETARY REFERENCES. Whenever any amounts of money are referred to herein, such amounts shall be deemed to be in lawful money of the United States of America unless otherwise expressed. 1.7 CALCULATION OF DATES. Unless otherwise provided, any time period required to be calculated under this indenture shall exclude the date of the relevant event or notice and include the last day of the period being calculated. 1.8 SCHEDULES. The following schedules are hereby incorporated in, and form a part of, this indenture: Schedule A: Specimen Debenture Certificate Schedule B: Form of Redemption Notice Schedule C: Form of Maturity Notice Schedule D: Form of Notice of Conversion - 8 - ARTICLE 2 THE DEBENTURES 2.1 ISSUE OF DEBENTURES. The aggregate principal amount of the Debentures which may be authorized hereunder is limited to an aggregate principal amount of $75,000,000 plus, in the event of exercise of the Greenshoe Option as contemplated in section 2.11 hereof, up to a further aggregate principal amount of $11,250,000. The Debentures may be issued only upon and subject to the further conditions and limitations herein set forth. All Debentures now or hereafter certified and issued under this indenture shall, subject to the terms of this indenture, be equally and rateably entitled to the benefit hereof, whatever may be the actual dates or terms of issue of the same. 2.2 TERMS OF DEBENTURES. The Debentures shall be designated as "5.25% Convertible Unsecured Senior Subordinated Debentures". The Debentures shall be dated as of July 30, 2003, shall mature on the Maturity Date and shall bear interest (subject to the provisions of section 2.5), both before and after an event of default hereunder, from July 30, 2003 at the Interest Rate, with all accrued but unpaid interest payable in cash on the Interest Payment Dates. 2.2.1 Subject to sections 2.8 and 3.10, the principal of the Debentures and interest thereon shall be payable in lawful money of the United States of America by the Company to the Trustee on behalf of the Debenture holders and subsequently by the Trustee to the Debenture holders at their registered address. 2.3 FORMS AND SIGNATURE OF DEBENTURES. 2.3.1 The Debentures shall be issued as fully registered Debentures in denominations of $1,000 or integral multiples thereof and the certificate of the Trustee endorsed thereon shall be substantially in the form set forth in the Schedule A hereto, with such insertions, omissions, substitutions or other variations as shall be required or permitted by this indenture, and may have imprinted or otherwise mechanically reproduced thereon such legend or legends or endorsements, not inconsistent with the provisions of this indenture, as may be required to comply with any law or with any rules or regulations pursuant thereto or with any rules or regulations of any securities exchange or securities regulatory authority or to conform with general usage, all as may be determined by the directors or officers of the Company executing such Debenture in accordance with subsection 2.3.3 hereof, as conclusively evidenced by their execution of a Debenture. Notwithstanding the foregoing, a Debenture may be in such other form or forms as may, from time to time, be approved by a resolution of the directors or as specified in an Officers' Certificate. The Debentures shall in addition bear such distinguishing letters and numbers as the Trustee may approve. 2.3.2 The Debentures may be engraved or lithographed or may be partly in one form and partly in the other, as the Company may determine. 2.3.3 The Debentures shall be signed on behalf of the Company (either manually or by facsimile signature) by any two of the Chairman of the Board, the President, the Chief Executive Officer, any Executive Vice-President, the Secretary or the Treasurer of the Company holding office at the time of signing. A facsimile signature upon any of the Debentures shall for all purposes of this indenture be deemed to be the signature of the person whose signature it purports to be and to have been signed at the time such facsimile signature is reproduced and notwithstanding that any such person whose signature, either manual or in facsimile, may appear on the Debentures is not at the date of this indenture or at the date of execution of the Debentures or at the date of the certifying and delivery thereof, the Chairman of the Board, the President, the Chief Executive Officer, any Executive Vice-President, the Secretary or the Treasurer of the Company, as the case may be, such Debentures shall be valid and binding upon the Company and entitled to the benefits of this indenture. - 9 - 2.3.4 The Debentures shall initially be issued as Global Debentures and the Depository for the Debentures shall initially be The Canadian Depository for Securities Limited. The Global Debentures shall be registered in the name of The Canadian Depository for Securities Limited (or any nominee of the Depository). No beneficial holder will receive definitive certificates representing their interest in Debentures except as provided in section 2.18. A Global Debenture may be exchanged for Debentures in registered form that are not Global Debentures, or transferred to and registered in the name of a person other than the Depository for such Global Debentures or a nominee thereof as provided in section 2.18. 2.4 ISSUE OF DEBENTURES. Debentures in the aggregate principal amount of $75,000,000 in lawful money of the United States of America are hereby created and shall forthwith be executed by the Company and delivered to the Trustee. Upon receipt by the Trustee of an opinion of Counsel that all conditions precedent provided for herein in respect of the issuance of the Debentures have been met, the said $75,000,000 principal amount of Debentures shall be certified by the Trustee and delivered to, or to the order of, the Debenture holders pursuant to a written direction contained in an Officers' Certificate, without the Trustee receiving any consideration therefor. 2.5 INTEREST OBLIGATIONS. Each Debenture, whether issued originally or in exchange for another Debenture, shall bear and the Company shall pay interest semi-annually both before and after an event of default hereunder, at the Interest Rate from and including the date of its issuance or from and including the last Interest Payment Date on which interest shall have been paid or made available for payment on the outstanding Debentures, whichever shall be the later, to, but excluding the earliest of: (a) the next following Interest Payment Date on which interest is paid; (b) the Maturity Date; (c) if called for redemption, the date fixed for redemption in the Redemption Notice unless, upon due presentation, payment of the principal amount of any Debenture is improperly withheld or refused; (d) if surrendered for conversion, the Conversion Date, unless, upon due surrender, payment of the amounts properly due upon conversion is improperly withheld or refused; or (e) if presented for redemption or purchase in accordance with Article 5, the date upon which such redemption or acquisition is effected, as the case may be (the "INTEREST PERIOD"); provided, however, that if any Debentures are validly surrendered for conversion, redemption or purchase on a date other than an Interest Payment Date, the interest payable on such Debentures shall be the interest that would be otherwise payable (subject always to the calculation of the appropriate Interest Period) on the next Interest Payment Date and provided, however, that if any Debentures are surrendered for conversion in accordance with Article 4, interest shall cease to accrue from the Interest Payment Date next preceding the Conversion Date except as otherwise provided in Article 4. 2.6 CERTIFICATE AS TO INTEREST PAYABLE. On each Interest Calculation Date the Trustee shall calculate the amount of interest payable in respect of each $1,000 principal amount of the outstanding Debentures for the relevant Interest Period (the "INTEREST AMOUNT"). The Interest Amount per $1,000 principal amount of Debentures shall be calculated by multiplying the Interest Rate by $1,000, dividing the product so obtained by 365 days and multiplying the quotient by the actual number of days in the said Interest Period. Interest shall be calculated on the basis of a 365-day year. - 10 - 2.7 PAYMENT OF INTEREST IN CASH. 2.7.1 The person in whose name any Debentures shall be registered shall be deemed the owner thereof for all purposes of this indenture and payment of or on account of the principal and interest on such Debentures shall be made by the Company to the Trustee (on behalf of the Debenture holders, in aggregate) and by the Trustee to the Debenture holder only to or upon the order in writing of such Debenture holders and such payment shall be a good and sufficient discharge to the Company, the Trustee, any Debenture registrar and any paying agent for the amounts so paid. 2.7.2 Subject to section 2.8, as the interest on the Debentures becomes due (except interest payable at maturity or on redemption, conversion or purchase which shall be paid upon presentation and surrender of the Debentures for payment) the Company, no later than 8:00 a.m. (Toronto time) on each Interest Payment Date, shall deliver sufficient funds by way of money order, certified cheque, bank draft or wire transfer to the Trustee to enable it to forward or cause to be forwarded by prepaid post, to the holder in whose name any Debenture is registered at the close of business on the Interest Record Date with respect to such Interest Payment Date, at his or her last address appearing on the appropriate register hereinafter mentioned, or in the case of joint holders, to any (or all) holder(s) whose name appear(s) on such register, on the Interest Payment Date (or the first business day thereafter if the Interest Payment Date is not a business day) a cheque for such interest (less any withholding or other tax required by law to be deducted) payable to the order of such holder or holders and negotiable at par at any branch in Canada or the United States of such bank or banks as may be acceptable to the Trustee in its absolute discretion. The forwarding of such funds by the Company to the Trustee and the subsequent delivery of such funds by the Trustee to the Debenture holders by cheque shall satisfy and discharge the liability for the interest on the Debentures to the extent of the sums represented thereby, plus the amount of any withholding or other tax deducted as aforesaid, unless such cheque is not paid at par on presentation; provided that in the event of the non-receipt of such cheque by the Debenture holder, or the loss or destruction thereof, the Trustee on being furnished with reasonable evidence of such non-receipt, loss or destruction and indemnity reasonably satisfactory to it shall issue to such Debenture holder a replacement cheque for the amount of such cheque. Notwithstanding the foregoing, if the Company is prevented by circumstances beyond its control (including, without limitation, any interruption in mail service) from making payment of any interest due on each Debenture in the manner provided above, the Company may make payment of such interest or make such interest available for payment in any other manner acceptable to the Trustee with the same effect as though payment had been made in the manner provided above. 2.7.3 The holder for the time being of any Debenture shall be entitled to the principal moneys and interest on the Debenture, free from all equities or rights of set-off or counterclaim between the Company and the original or any intermediate holder thereof and all persons may act accordingly and a transferee of a Debenture shall, after the appropriate form of transfer is lodged with the Trustee or other registrar and upon compliance with all other conditions in that behalf required by this indenture or by any conditions contained in such Debenture or by law, be entitled to be entered on the appropriate register or on any one of the appropriate registers as the owner of such Debenture free from all equities or rights of set-off or counterclaim between the Company and his or her transferor or any previous holder thereof, save in respect of equities of which the Company is required to take notice by statute or by order of a court of competent jurisdiction. 2.7.4 Where Debentures are registered in more than one name the principal and interest from time to time payable in respect thereof may be paid by cheque payable to the order of any or all of such holders, failing written instructions from them to the contrary, and such payment shall be a valid discharge to the Company, the Trustee and any registrar and any paying agent. - 11 - 2.7.5 Notwithstanding paragraph 2.7.2, where Debentures are represented by a Global Debenture, then all payments of interest on the Global Debentures shall be made by electronic funds transferred or cheque to the Depository or its nominee for subsequent payment to Beneficial Holders of interests in that Global Debenture, unless the Company and the Depository otherwise agree. Should the Company cause the Trustee to make such payment to the Depository, the Company shall fund the Trustee in respect of such Interest Amount by wire transfer of funds no later than 8:00 a.m. (Toronto time) on the relevant Interest Payment Date. Should the Company instead elect to make such payment directly to the Depository, the Company must confirm such payment forthwith by delivery of an Officers' Certificate to the Trustee attesting to such payment. None of the Company, the Trustee or any agent of the Trustee for any Debenture issued as a Global Debenture will be liable or responsible to any person for any aspects of the records related to or payments made on account of beneficial interests in any Global Debenture or for maintaining, reviewing or supervising any records relating to such beneficial interests. 2.8 INTEREST ELECTION NOTICE. 2.8.1 The Company may elect to pay any or all of the Interest Amount payable on any Interest Payment Date by the application of the proceeds of sale of Common Shares in accordance herewith (the "INTEREST PAYMENT ELECTION"). The Company may make such election, unless an event of default has occurred and is continuing, by providing to the Trustee, a written notice (an "INTEREST ELECTION NOTICE") no later than the earlier of (i) the date required by applicable law or the rules of any stock exchange on which the Debentures are then listed; or (ii) 15 days prior to the applicable Interest Payment Date to which the Interest Election Notice relates. The Interest Election Notice shall specify: (a) the Interest Amount to which the election relates and the Interest Payment Date; (b) the amount of the payment due to the Debenture holders on the Interest Payment Date that the Company proposes to satisfy by the application of the proceeds of sale of Common Shares; (c) the specific Persons from whom the Trustee shall request bids to purchase the Common Shares and the parameters of such bids, which may include minimum number of Common Shares, minimum price per Common Share, timing of settlement for trades resulting from such bids and such other matters as the Company may specify; (d) that the Trustee shall accept only those bids which comply with such notice; and (e) that such notice has been delivered to the Trustee by the time required by this subsection 2.8.1. In connection with the Interest Payment Election, the Trustee shall have the power on behalf of the Company to (i) accept bids with respect to Common Shares on behalf of the Company as the Company shall direct in its absolute discretion; (ii) accept delivery of Common Shares from the Company required to consummate sales contemplated by bids so accepted (and consummate such sales as the Company shall direct in its sole discretion), plus cash in an amount equal to the value of any fractional Common Share; (iii) at the direction of the Company and subject to subsections 2.8.3 and 13.6.1, invest the proceeds of such sales (together with any cash received from the Company in respect of any fractional Common Share) in Government Obligations specified by the Company which mature prior to the applicable Interest Payment Date and in accordance with subsection 2.8.3, and use the proceeds from the Government Obligations to pay such Interest Amount on the Interest Payment Date; and (iv) perform any other action necessarily incidental thereto. - 12 - 2.8.2 Upon receipt of an Interest Election Notice, the Trustee shall, in accordance with the Interest Election Notice, deliver requests for bids on terms determined by the Company for the sale of Common Shares to investment banks, brokers or dealers selected by the Company in the Interest Election Notice: provided that the acceptance of any bid shall be conditional on the acceptance of sufficient bids to allow for the payment of such portion of the Interest Amount that the Company intends to pay by way of sale of Common Shares. The Interest Election Notice shall provide for, and all such bids shall be subject to, the right of the Company, by delivering written notice to the Trustee at any time prior to the consummation of the delivery and sale of the Common Shares on the Share Delivery Date, to withdraw the Interest Payment Election (which shall have the effect of withdrawing the request for bids delivered by the Trustee to the investment banks, brokers or dealers), whereupon the Company shall be obligated to pay in cash the Interest Amount on such Interest Payment Date, provided that any such Interest Payment Election so withdrawn shall not relieve the Company from delivering Common Shares to any purchaser whose bid to the Trustee was accepted by the Trustee prior to the withdrawal of the Interest Payment Election by the Company. Any sale of Common Shares pursuant to this section may be made to one or more Persons whose bids are solicited, but all such sales with respect to a particular Interest Payment Election shall take place concurrently on the Share Delivery Date. 2.8.3 The Trustee shall inform the Company promptly following receipt of any bid or bids for Common Shares. The Trustee shall accept such bid or bids as the Company, in its absolute discretion, shall direct, provided that the aggregate proceeds net of brokerage commissions or other fees of all such sales on the Share Delivery Date must at least equal the Share Election Amount. In connection with any bids so accepted, the Company, the Trustee and the applicable bidders shall, not later than the Share Delivery Date, enter into a share purchase agreement in customary form and shall comply with all applicable laws, including the securities laws of the United States and Canada (including those of any province), the rules and regulations of any stock exchange on which the Common Shares are then listed and the rules and regulations of any jurisdiction in which the Common Shares may be offered for sale. The Company shall pay all reasonable fees and expenses of the Trustee in connection with the share purchase agreement. The Debenture holders shall not be required to pay any fees or expenses in connection with the share purchase agreement. 2.8.4 Provided that (i) all conditions specified in each share purchase agreement to the closing of all sales thereunder have been satisfied, other than the delivery of the Common Shares to be sold thereunder pursuant to the Interest Payment Election, and (ii) the purchasers under the share purchase agreements shall be ready, willing and able to perform thereunder, in each case on the Share Delivery Date, the Company shall deliver to the Trustee the Common Shares to be sold on such date, cash in an amount equal to the value of any fractional Common Shares and an Officers' Certificate and an opinion of Counsel to the effect that all conditions precedent to such sales, including those set forth in this indenture and in each share purchase agreement, have been satisfied. Upon such deliveries, the Trustee shall, on such Share Delivery Date, deliver Common Shares to such purchasers against payment to the Trustee in immediately available funds of the purchase price therefor in an aggregate net amount equal to the Share Election Amount. 2.8.5 The Trustee shall use the sale proceeds of the Common Shares (together with any cash received from the Company in respect of any fractional Common Share) to purchase, to the extent the Trustee is able to do so, Governmental Obligations specified by the Company, which mature prior to the applicable Interest Payment Date and which the Trustee is required to hold until maturity. The Trustee shall hold such Government Obligations under its exclusive control and shall hold such investments (but not income earned thereon) in an irrevocable trust securing payments for the benefit of the Debenture holders. On the Interest Payment Date, the Trustee shall apply the funds to payment of the Interest Amount to the Debenture holders of record on the applicable record date and shall remit any amount in excess of the Interest Amount to the Company. - 13 - 2.9 COMPANY TO INDEMNIFY TRUSTEE AND DEBENTURE HOLDERS. The Company shall indemnify and hold harmless the Trustee and (on an after-tax basis) the Debenture holders and any person who controls any Debenture holder within the meaning of any applicable securities laws, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by any such person in connection with defending or investigating any such action or claim) caused by or arising in connection with any Interest Payment Election or any withdrawal thereof, except for any income taxes payable by such persons as a result of the inclusion in the computation of their income (or in amounts paid or credited for the purposes of Part XIII of the Income Tax Act (Canada) to such persons who are Excluded Holders) of the Share Election Amount or sales proceeds in respect of Common Shares, and except in each case for any losses, claims, damages or liabilities caused by any such person's fraud, negligence or wilful misconduct. 2.10 ENTITLEMENTS PRESERVED. Neither the Company delivering an Interest Election Notice nor the consummation of nor the failure to consummate sales of Common Shares will (i) result in the holders of the Debentures not being entitled to receive on the applicable Interest Payment Date cash in an aggregate amount equal to the Interest Amount payable on such Interest Payment Date; or (ii) entitle such holder to receive any Common Shares in satisfaction of the Company's obligations to pay such Interest or cash in an aggregate amount greater than the amount to which such Holders are otherwise entitled. For greater certainty, nothing in sections 2.8, 2.9 and 2.10 shall relieve the Company from paying the Interest Amount due on the Debentures to the extent the net proceeds from the sale of the Common Shares pursuant to an Interest Election Notice are less than such Interest Amount. 2.11 CREATION AND ISSUE OF ADDITIONAL DEBENTURES. 2.11.1 The directors may from time to time authorize the creation of Additional Debentures hereunder as are necessary to satisfy the option granted by the Company to the underwriters of the Debentures to purchase up to an aggregate principal amount of $11,250,000 Additional Debentures for a period of thirty days from the date hereof (the "GREENSHOE OPTION"). Additional Debentures shall be subject to the terms and conditions of this Trust Indenture in all respects except the date of issue and the purchase price thereof which shall be determined by the Company at the time of issue of the Additional Debentures and, in the case of the purchase price, shall include interest accrued from and including July 30, 2003. 2.11.2 Before the issue of any Additional Debentures, the Company shall execute and deliver to the Trustee a certified resolution of the directors authorizing the same. 2.11.3 When Additional Debentures shall have been authorized as aforesaid, such Additional Debentures may from time to time be executed by the Company and delivered to the Trustee and, subject to subsection 2.11.4 and section 2.1, shall be certified by or on behalf of the Trustee and delivered by the Trustee to or upon the written order of the Company upon receipt by the Trustee of the following: (a) an Officers' Certificate that the Company is not in default in the performance of any of its covenants herein contained and that it has complied with all the requirements of this indenture in connection with the issue of the Additional Debentures for which certification is requested; (b) a written request of the Company contained in an Officers' Certificate for the certification and delivery of such Additional Debentures; and - 14 - (c) an opinion of Counsel that all conditions precedent provided for herein in connection with the proposed issue of Additional Debentures have been complied with, subject to delivery of certain documents or instruments specified in such opinion. 2.11.4 No Additional Debentures shall be certified or delivered hereunder if, to the knowledge of the Trustee, an event of default referred to in section 8.1 shall have occurred and be continuing. 2.12 CERTIFICATION. 2.12.1 No Debenture shall be issued or, if issued, shall be obligatory, or shall entitle the holder to the benefits of this indenture, until it has been certified by or on behalf of the Trustee substantially in the form set out in the Schedule A hereto or in some other form approved by the Trustee. Such signed certificate on any Debenture shall be conclusive evidence that such Debenture is duly issued, is a valid obligation of the Company and the holder is entitled to the benefits hereof. 2.12.2 The certificate of the Trustee signed on the Debentures shall not be construed as a representation or warranty by the Trustee as to the validity of this indenture or of the Debentures or their issuance and the Trustee shall in no respect be liable or answerable for the use made of such Debentures or any of them or the proceeds thereof. The certificate of the Trustee signed on the said Debentures shall however be a representation and warranty by the Trustee that said Debentures have been duly certified by or on behalf of the Trustee pursuant to the provisions of this indenture. 2.13 REGISTRATION OF DEBENTURES. 2.13.1 The Company shall cause to be kept by and at the principal office of the Trustee in the City of Vancouver a central register, and by and at the principal office of the Trustee in the city of Toronto and in such other place or places and by the Trustee or by such other registrar or registrars, if any, as the Company with the approval of the Trustee may designate, branch registers in which shall be entered the names and latest known addresses of the Debenture holders and the other particulars prescribed by law of the fully registered Debentures held by them respectively and of all transfers of fully registered Debentures. Such registration shall be noted on the Debentures by the Trustee or other registrar. No transfer of a fully registered Debenture shall be effective as against the Company unless made on one of the appropriate registers by the registered holder or his, her or their executors or administrators or other legal representatives or his, her or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee, upon compliance with such requirements as the Trustee and/or other registrar may prescribe, and unless such transfer shall have been duly noted on such Debenture by the Trustee or other registrar. 2.13.2 The registers referred to in this section 2.13 shall at all reasonable times be open for inspection by the Company, by the Trustee and by any Debenture holder. 2.13.3 The holder of a Debenture may at any time and from time to time have such Debenture transferred at any of the places at which a register is kept pursuant to the provisions of this section 2.13 and in accordance with such reasonable regulations as the Trustee may prescribe. 2.13.4 The holder of a Debenture may at any time and from time to time have the registration of such Debenture transferred from the register in which the registration thereof appears to another register maintained in another place authorized for that purpose under the provisions of this indenture upon payment of a reasonable fee to be fixed by the Trustee. 2.13.5 The register maintained by the Trustee pursuant to the terms hereof shall be conclusive proof of the ownership of the Debentures and the Company, the Trustee, any Debenture register and any - 15 - paying agent or any of them shall not be charged with notice of or be bound to see to the execution of any trust, whether express, implied or constructive, in respect of any Debenture and may transfer any Debenture on the direction of the holder thereof, whether named as trustee or otherwise, as though that person were the beneficial owner thereof. 2.13.6 Except in the case of the central register required to be kept at the City of Vancouver, the Company shall have power at any time to close any branch register upon which the registration of any Debentures appears and in that event it shall transfer the records thereof to another existing register or to a new register and thereafter such Debentures shall be deemed to be registered on such existing or new register as the case may be. In the event that the register in any place is closed and the records transferred to a register kept in another place, notice of such change shall be given, in the manner provided in section 12.2, to the holders of the Debentures registered in the register so closed and in addition the particulars of such change shall be recorded in the central register required to be kept in the City of Vancouver. 2.13.7 Every registrar shall, when requested so to do by the Company or the Trustee, furnish the Company or the Trustee, as the case may be, with a list of the names and addresses of the holders of Debentures showing the principal amounts and serial numbers of such Debentures held by each holder. 2.14 MUTILATION, LOSS, THEFT OR DESTRUCTION OF DEBENTURES. In case any of the Debentures shall become mutilated or be lost, stolen or destroyed, the Company, in its discretion, may issue, and thereupon the Trustee shall certify and deliver a new Debenture upon surrender and cancellation of the mutilated Debenture, or in the case of a lost, stolen or destroyed Debenture, in lieu of and in substitution for the same, and the substituted Debenture shall be in a form approved by the Trustee and shall be entitled to the benefits of this indenture equally with all other Debentures without preference or priority one over another. In case of loss, theft or destruction the applicant for a substituted Debenture shall furnish to the Company and to the Trustee such evidence of such loss, theft or destruction as shall be satisfactory to them in their discretion and shall also furnish an indemnity and surety bond satisfactory to them in their discretion and shall pay all expenses incidental to the issuance of such substituted Debenture. 2.15 EXCHANGES OF DEBENTURES. 2.15.1 Debentures of any denomination may be exchanged for Debentures of any other authorized denomination or denominations, any such exchange to be for Debentures of an equal aggregate principal amount. 2.15.2 Exchanges of Debentures may be made at the offices of the Trustee or at the offices of any other registrar or registrars where registers are maintained for the Debentures pursuant to the provisions of section 2.13. Any Debentures tendered for exchange shall be surrendered to the Trustee or appropriate registrar and shall be cancelled. 2.15.3 Debentures issued in exchange for Debentures which at the time of such issue have been selected or called for redemption at a later date shall be deemed to have been selected or called for redemption in the same manner and shall have noted thereon a statement to that effect. 2.15.4 Except as herein otherwise provided, in every case of exchange of Debentures of any denomination for other Debentures and for any transfer of Debentures, the Trustee or other registrar may make a sufficient charge to reimburse it for any stamp tax or other governmental charge required to be paid, and in addition a reasonable charge for its services for each Debenture exchanged or transferred and a reasonable charge for every Debenture issued upon such exchange or transfer, and payment of the said charges shall be made by the party requesting such exchange or transfer as a condition precedent thereto. - 16 - 2.15.5 Notwithstanding the foregoing provisions, no charge shall be made to a Debenture holder hereunder for any exchange or transfer of any Debenture applied for within a period of two months from the date hereof, provided that the Debentures surrendered for exchange shall not have been issued as a result of any previous exchange other than an exchange pursuant to this subsection or sections 3.3 or 4.2. 2.15.6 Notwithstanding the provisions of sections 2.13 and 2.18, neither the Company nor the Trustee nor any registrar shall be required to: (a) transfer or exchange any Debentures during the periods commencing on any Interest Record Date and ending on the next following Interest Payment Date; (b) transfer or exchange any Debentures on the day of any selection by the Company or the Trustee of any Debentures to be redeemed in accordance with Article 3 or redeemed in accordance with Article 5 during the fifteen days next preceding any such date; or (c) transfer or exchange any Debentures on the date of any selection by the Company or the Trustee of any Debentures to be converted or during the fifteen days next preceding any such date. 2.16 PLACE OF PAYMENT. Except as herein otherwise provided, all sums which may at any time become payable, whether at maturity, upon conversion or on a declaration or on redemption or otherwise, on account of any Debenture or any interest, shall be payable at any of the places at which the principal of and interest on such Debenture are payable. 2.17 PARTNERSHIP NOT CREATED. Each of the Company and the Trustee, on its own behalf and on behalf of the Debenture holders, expressly disclaims any intention to create a partnership or joint venture. Nothing in this indenture will constitute the parties or either of them partners or joint venturers nor, except as may be expressly provided in this indenture, constitute any one of them the agent or agents of the other. 2.18 ISSUE OF GLOBAL DEBENTURES. 2.18.1 The Company may specify that the Debentures are to be issued in whole or in part as one or more Global Debentures registered in the name of a Depository, or its nominee, designated by the Company in writing to the Trustee at the time of issue of such Debentures, which shall initially be The Canadian Depository for Securities Limited, and in such event the Company shall execute and the Trustee shall certify and deliver one or more Global Debentures that shall: (a) represent an aggregate amount equal to the principal amount of the outstanding Debentures to be represented by one or more Global Debentures; (b) be delivered by the Trustee to such Depository or pursuant to such Depository's instructions; and - 17 - (c) bear a legend substantially to the following effect: "This Debenture is a Global Debenture within the meaning of the indenture herein referred to and is registered in the name of a Depository or a nominee thereof. This Debenture may not be transferred to or exchanged for Debentures registered in the name of any Person, other than the Depository or a nominee thereof and no such transfer may be registered except in the limited circumstances described in the indenture. Every Debenture authenticated and delivered upon registration of, transfer of, or in exchange for, or in lieu of, this Debenture shall be a Global Debenture subject to the foregoing, except in such limited circumstances described in the indenture." 2.18.2 Each Depository designated for a Global Debenture must, at the time of its designation and at all times while it serves as such Depository, be a clearing agency registered or designated under the securities legislation of the jurisdiction where the Depository has its principal offices. 2.18.3 The Company shall cause to be kept by and at the principal offices of the Trustee in Vancouver, British Columbia and Toronto, Ontario and by the Trustee or such other registrar as the Company, with the approval of the Trustee, may appoint at such other place or places, if any, as the Company may designate with the approval of the Trustee, a register in which shall be entered the name and address of the holder of each such Global Debenture (being the Depository, or its nominee, for such Global Debenture) as holder thereof and particulars of the Global Debenture held by it, and of all transfers thereof. If the Debentures are at any time not Global Debentures, the provisions of section 2.13 shall govern with respect to registrations and transfers of such Debentures. 2.18.4 Notwithstanding any other provision of this Indenture, a Global Debenture may not be transferred by the registered holder thereof and accordingly, no definitive fully registered certificates shall be issued to Beneficial Holders except in the following circumstances or as otherwise specified in a resolution of the directors of the Company, Officers' Certificate or supplemental indenture relating to the Debentures: (a) Global Debentures may be transferred by a Depository to a nominee of such Depository or by a nominee of a Depository to such Depository or to another nominee of such Depository or by a Depository or its nominee to a successor Depository or its nominee; (b) Global Debentures may be transferred at any time after the Depository for such Global Debentures (i) has notified the Trustee, or the Company has notified the Trustee, that it is unwilling or unable to continue as Depository for such Global Debentures, or (ii) ceases to be eligible to be a Depository under subsection 2.18.2, provided that at the time of such transfer the Company has not appointed a successor Depository for such Global Debentures; (c) Global Debentures may be transferred at any time after the Company has determined, in its sole discretion, to terminate the book-entry only registration system in respect of such Global Debentures and has communicated such determination to the Trustee in writing; (d) Global Debentures may be transferred at any time after the Trustee has determined that an event of default has occurred and is continuing with respect to the Debentures issued as a Global Debenture, provided that Beneficial Holders representing, in the aggregate, not less than 25% of the aggregate principal amount of the Debentures advise the Depository - 18 - in writing, through the Depository Participants, that the continuation of the book-entry only registration system for such Debentures is no longer in their best interest and also provided that at the time of such transfer the Trustee has not waived the event of default pursuant to section 8.3; (e) Global Debentures may be transferred if required by applicable law; or (f) Global Debentures may be transferred if the book-entry only registration system ceases to exist. 2.18.5 With respect to the Global Debentures, unless and until fully registered definitive certificates have been issued to Beneficial Holders pursuant to subsection 2.18.4: (a) the Company and the Trustee may deal with the Depository for all purposes (including paying interest on the Debentures) as the sole holder of such series of Debentures and the authorized representative of the Beneficial Holders; (b) the rights of the Beneficial Holders shall be exercised only through the Depository and shall be limited to those established by law and agreements between such Beneficial Holders and the Depository or the Depository Participants; (c) the Depository will make book entry transfers among the Depository Participants; and (d) whenever this indenture requires or permits actions to be taken based upon instructions or directions of Debenture holders evidencing a specified percentage of the outstanding Debentures, the Depository shall be deemed to be counted in that percentage only to the extent that it has received instructions to such effect from the Beneficial Holders or the Depository Participants, and has delivered such instructions to the Trustee. 2.18.6 Whenever a notice or other communication is required to be provided to Debenture holders, unless and until definitive fully registered certificate(s) have been issued to Beneficial Holders pursuant to subsection 2.18.4, the Trustee shall provide all such notices and communications to the Depository and the Depository shall deliver such notices and communications to such Beneficial Holders in accordance with applicable securities laws. Upon the termination of the book-entry only registration system on the occurrence of one of the conditions specified in subsection 2.18.4 with respect to Debentures issued hereunder, the Trustee shall notify all applicable Beneficial Holders, through the Depository, of the availability of definitive Debenture certificates. Upon surrender by the Depository of the certificate(s) representing the Global Debentures and receipt of new registration instructions from the Depository, the Trustee shall deliver the definitive Debenture certificates for such Debentures to the holders thereof in accordance with the new registration instructions and thereafter, the registration and transfer of such Debentures will be governed by section 2.13 and the remaining sections of this Article 2. 2.19 PAYMENT OF ADDITIONAL AMOUNTS. 2.19.1 All payments made by the Company under or with respect to the Debentures shall be made free and clear of and without deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge 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 ("TAXES"), unless the Company is required to withhold or deduct 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 Taxes from any payment made under - 19 - or with respect to the Debentures as described above, the Company will pay as additional interest such additional amounts ("ADDITIONAL AMOUNTS") as may be necessary so that every net payment of any amounts due under the Debentures (including Additional Amounts) after withholding or deduction for or on account of any such Taxes will not be less than the amount the holder would have received if such Taxes had not been withheld or deducted; provided that no Additional Amounts will be payable with respect to the payment made to a holder (an "EXCLUDED HOLDER") in respect of the beneficial owner thereof (i) with which the Company does not deal at arm's length (within the meaning of the Income Tax Act (Canada)) at the time of making such payment or (ii) which is subject to such Taxes by reason of its being connected with Canada or any province or territory thereof otherwise than by the mere holding of the Debentures or the receipt of payment thereunder, or (iii) which fails to comply with any administrative requirements necessary as a precondition to exemption from Canadian withholding taxes. The Company will also make such withholding or deduction and remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. The Company will furnish to the Trustee on behalf of the holders of the Debentures, within 30 days after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts or other satisfactory evidence of any such payment by the Company. The Company will indemnify and hold harmless each holder (other than an Excluded Holder) for the amount of (i) any Taxes so levied or imposed which have not been withheld or deducted and remitted by the Company and which have been paid by such holder as a result of payments made under or with respect to the Debentures, (ii) any liability (including penalties, interest and expenses) arising therefrom or with respect thereto or from the failure to make such payment, and (iii) any Taxes imposed with respect to any reimbursement under (i) or (ii), but excluding any such Taxes on such holder's net income. 2.19.2 At least 30 days prior to each date on which any payment on the Debentures is due and payable, if the Company will be obligated to pay Additional Amounts with respect to such payment, the Company will deliver to the Trustee an Officers' Certificates stating the fact that such Additional Amounts will be payable and the amounts so payable and will set forth such other information necessary to enable the Trustee to pay such Additional Amounts to holders on the payment date. Whenever in this indenture there is mention, in any context, of the payment of principal, Redemption Price, interest or any other amount payable under or with respect to any Debenture, such mention shall be deemed to include mention of the payment of Additional Amounts provided for in this section 2.19 to the extent that, in such context, such Additional Amounts are, were or would be payable in respect thereof pursuant to the provisions of this section 2.19 and express mention of the payment of Additional Amounts (if applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made (as applicable). 2.19.3 The obligations of the Company under this section 2.19 shall survive the termination of this indenture and the payments of all amounts under or with respect to the Debentures. ARTICLE 3 REDEMPTION AND PURCHASE FOR CANCELLATION OF DEBENTURES 3.1 REDEMPTION OF DEBENTURES. 3.1.1 Subject to subsection 3.1.2, the Company shall have the right, at its option, to redeem the Debentures either in whole at any time or in part from time to time before the Maturity Date and in accordance with the provisions hereof. 3.1.2 The Debentures shall not be redeemable by the Company at any time before July 31, 2006, except in the event of the satisfaction of certain conditions after a Change of Control has occurred as - 20 - outlined herein or to the extent described in section 3.2. The Debentures shall be redeemable on or after July 31, 2006 and prior to the Maturity Date in whole at any time or in part from time to time at the option of the Company at a price equal to the principal amount thereof to be redeemed, together with accrued and unpaid interest thereon to but excluding the date fixed for redemption provided that the Company shall have filed with the Trustee on the date that a Redemption Notice is first delivered an Officers' Certificate certifying that the Current Market Price at the date of the Redemption Notice was not less than 125% of the Conversion Price. 3.2 REDEMPTION FOR CHANGES IN CANADIAN TAX LAW. In addition to the right of the Company to redeem Debentures under sections 3.1 and 5.2, the Company shall have the right, at its option, to redeem all but not part of the Debentures at any time for cash upon notice as provided for in section 3.4 at the Redemption Price in the event that the Company has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Debentures, any Additional Amounts as a result of: (a) any change in, or amendment to (including any announced prospective change), the laws (or any regulations promulgated thereunder) of Canada (or any political subdivision or taxing authority thereof or therein); or (b) any change in, or amendment to, any interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory dissemination); in either case, which amendment or changes enacted, promulgated, issued or announced, or which interpretation is issued or announced, or which action is taken, on or after July 30, 2003 provided that the Company, in its reasonable business judgment, determines that the obligation to pay such Additional Amounts cannot be avoided by the use of reasonable measures available to the Company (not including the substitution of the obligor under the Debentures). 3.3 PARTIAL REDEMPTION OF DEBENTURES. In case less than all of the outstanding Debentures are to be redeemed, the Company shall in each such case, at least ten business days before the date upon which the Redemption Notice is required to be given, notify the Trustee in writing of its intention to redeem Debentures and of the aggregate principal amount of Debentures so to be redeemed. The Debentures so to be redeemed may be selected on a pro rata basis (to the nearest multiple of $1,000) in accordance with the principal amount of Debentures registered in the name of each holder, by lot by the Trustee, or by such other method that complies with the requirements of the Toronto Stock Exchange, or any other stock exchange on which the Debentures are listed or quoted and that the Trustee may deem equitable. For this purpose the Trustee may make regulations with regard to the manner in which such Debentures may be so selected and regulations so made shall be valid and binding upon all Debenture holders. Debentures of denominations in excess of $1,000 may be selected and called for redemption in part only (such part being $1,000 or an integral multiple thereof) and, unless the context otherwise requires, references to Debentures in this Article 3 shall be deemed to include any such part of the principal amount of Debentures which shall have been so selected and called for redemption. The holder of any Debenture called for redemption in part only, upon surrender of such Debenture for payment as required by section 3.7, shall be entitled to receive, without expense to such holder, one or more new Debentures for the unredeemed part of the Debenture so surrendered, and the Trustee shall certify and deliver such new Debenture or Debentures upon receipt from the paying agent of the Debentures so surrendered. 3.4 REDEMPTION NOTICE. Notice of intention to redeem any Debentures (a "REDEMPTION NOTICE") prior to the maturity thereof shall be given by or on behalf of the Company to the holders of the - 21 - Debentures which are to be redeemed, not more than 60 days and, subject to subsection 3.10.2, not less than 30 days prior to the date to be fixed for redemption (a "REDEMPTION DATE"), in the manner provided in section 12.2. The Redemption Notice shall be substantially in the form set out in Schedule B hereto. Every Redemption Notice shall, unless all of the Debentures then outstanding are to be redeemed, state the designated numbers of the Debentures so called for redemption and, in case the Debentures are to be redeemed in part only, that part of the principal amount thereof so to be redeemed. Any Redemption Notice shall specify the Redemption Date, the Redemption Price, whether the Redemption Price will be paid in cash or in Common Shares in accordance with section 3.10 hereof, the place of payment, shall state that all interest thereon shall cease as of and after such Redemption Date, and shall state that the right to convert the principal of the Debentures so to be redeemed will terminate and expire at the close of business on the business day immediately prior to the Redemption Date, unless the Company shall make default in the payment of the Redemption Price of such Debenture. 3.5 DEBENTURES DUE ON REDEMPTION DATES. 3.5.1 Upon the provision of a Redemption Notice, all the Debentures so called for redemption shall thereupon be and become due and payable at the Redemption Price on the Redemption Date in the same manner and with the same effect as if it were the Maturity Date, anything therein or herein to the contrary notwithstanding, and from and after the Redemption Date, if the moneys necessary to redeem such Debentures shall have been deposited as hereinafter provided and affidavits or other proof satisfactory to the Trustee as to the mailing of such notices shall have been lodged with it, such Debentures shall not be considered as outstanding hereunder and interest upon such Debentures shall cease. 3.5.2 In case any question shall arise as to whether any notice has been given as above provided and any such deposit made, such question shall be decided by the Trustee whose decision shall be final and binding upon all parties in interest. 3.6 DEPOSIT OF REDEMPTION MONEYS. Upon Debentures having been called for redemption as hereinbefore provided, the Company shall deposit with the Trustee or with any paying agent to the order of the Trustee, on or before the Redemption Date fixed in the Redemption Notice, such sums as may be sufficient to pay the Redemption Price of the Debentures so to be redeemed. From the sums so deposited the Trustee shall pay or cause to be paid to the holders of such Debentures so called for redemption, upon surrender of such Debentures, the principal and interest to which they are entitled on redemption. 3.7 SURRENDER OF DEBENTURES FOR CANCELLATION. If the principal moneys due upon any Debenture shall become payable by redemption or otherwise before the Maturity Date, the registered holder presenting such Debenture for payment must surrender the same for cancellation and the Company shall pay or cause to be paid the principal of and interest accrued and unpaid thereon. All Debentures so surrendered for cancellation shall forthwith be delivered to the Trustee and shall be cancelled by it and, subject to section 3.3, no Debentures shall be issued in substitution therefor. 3.8 PURCHASE OF DEBENTURES. At any time no event of default shall have occurred and is continuing hereunder, the Company may purchase all or any of the Debentures in the market (which shall include purchase from or through an investment dealer or a firm holding membership on a recognized stock exchange) or by tender or by private contract; provided that in the event that such an offer is not made to all or substantially all of the Debenture holders, the price at which any Debenture may be purchased may not exceed 105% of the then current market price of the Debentures calculated in the same manner, mutatis mutandis, as the Current Market Price of the Common Shares together with an amount equal to accrued and unpaid interest thereon and costs of such purchase. All Debentures so purchased shall forthwith be delivered to the Trustee and shall be cancelled by it and no Debentures shall be reissued in substitution therefor. - 22 - 3.9 REDEMPTION OF DEBENTURES ON MATURITY DATE. Subject to section 3.10, and on the Maturity Date, the Company shall pay to the Trustee on behalf of the Debenture holders an amount in cash equal to the principal amount of the Debentures then outstanding plus interest accrued and unpaid thereon to but excluding the Maturity Date. The Trustee shall pay such amount to the registered Debenture holders presenting such Debentures for payment and the provisions of sections 9.2 and 9.3 shall be applicable thereto. 3.10 OPTIONAL REPAYMENT UPON REDEMPTION OR MATURITY. 3.10.1 Subject to the provisions hereof, and except in the case of a redemption pursuant to section 3.2 in which case the Redemption Price may only be paid in cash, on any Redemption Date or the Maturity Date the Company, at its option, may elect to satisfy all or any portion of its obligations to pay the outstanding principal amount of the Debentures by issuing and delivering to the Trustee on or prior to 8:30 a.m. (local time) on behalf of the holders of such Debentures to be redeemed, that number of fully paid, non-assessable Common Shares obtained by dividing the principal amount of Debentures to be redeemed by 95% of the then Current Market Price (provided the Company also delivers an Officers' Certificate attesting to the then Current Market Price), and together with the payment in cash of accrued and unpaid interest and any entitlement in respect of fractional shares in accordance with section 4.3 and the terms hereof, such payment shall be in full satisfaction of the principal amount together with accrued and unpaid interest of the Debentures to be redeemed. 3.10.2 The Company shall not redeem any Debenture nor repay any principal or interest by means of issuing, or by the application of proceeds from the sale of, Common Shares pursuant to subsection 3.10.1, section 2.8 or Article 5 at any time unless: (a) no event of default is continuing hereunder and the Company has delivered an Officers' Certificate to this effect to the Trustee; (b) the Common Shares are listed on either The Toronto Stock Exchange or the Nasdaq National Market or any other stock exchange in Canada or the United States; (c) the Company has provided written notice to the Trustee and the Debenture holders not more than 60 and not less than 30 days prior to the Redemption Date or Maturity Date, as the case may be, of its intention to redeem the Debentures by issuing and delivering Common Shares; (d) all applicable securities regulatory authorities' approvals in connection with such issuance of Common Shares have been obtained, if required, at the Company's expense that allow such Common Shares to be immediately traded free of hold periods or other re-sale restrictions under the applicable securities laws where the Common Shares are distributed; and (e) the Trustee shall have received, on behalf of the Debenture holders, an opinion from Counsel, at the Company's expense, that all conditions precedent provided for in this indenture in connection with the proposed issuance and delivery of such Common Shares have been complied with. 3.10.3 All costs associated with the issuance and delivery of Common Shares pursuant to section 3.10.1 shall be borne exclusively by the Company. - 23 - 3.11 NO OTHER REDEMPTION OF DEBENTURES. Subject to Article 5, the Company shall not, except as herein provided, redeem any Debentures. ARTICLE 4 CONVERSION 4.1 CONVERSION PRIVILEGE AND CONVERSION PRICE. Subject to and upon compliance with the provisions of this Article 4, any Debenture or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000 may, at the option of the holder thereof, at any time up to, but not after, the close of business on the last business day immediately prior to the earlier of any date fixed for redemption and the Maturity Date, be converted into fully paid and non-assessable Common Shares at the Conversion Rate. 4.2 CONVERSION PROCEDURE. 4.2.1 In order to exercise the conversion privilege, the holder of any Debenture to be converted shall surrender such Debenture to the Trustee at the Trustee's principal office in one of the cities of Toronto, or Vancouver, accompanied by written notice substantially in the form of Schedule D hereto (which shall be irrevocable) and the appropriate transfer documents, as required, signed by such holder, in form and execution satisfactory to the Trustee, stating that he elects to convert such Debenture or a stated portion of the principal amount thereof constituting an integral multiple of $1,000 to Common Shares. Such notice shall also state the name or names (with addresses) in which the certificate or certificates for Common Shares which shall be issuable on such conversion shall be issued. If any of the Common Shares to be issued hereunder are to be issued to a person or persons other than the holder of such Debenture such request shall be accompanied by payment to the Trustee of any tax which may be payable by reason of the transfer. The surrender of such Debenture accompanied by such written notice shall be deemed to constitute a contract between the holder of such Debenture and the Company whereby: (a) the holder of such Debenture subscribes for the number of Common Shares which he or she shall be entitled to receive on such conversion; (b) the holder of such Debenture releases the Company from all liability thereon or from all liability with respect to that portion of the principal amount thereof to be converted, as the case may be, including all liability for the principal amount and accrued and unpaid interest payable to the Conversion Date of such Debentures to be converted; and (c) the Company agrees that the surrender of such Debenture for conversion constitutes full payment of the subscription price for the Common Shares issuable upon such conversion. 4.2.2 Within five business days of surrender of any Debentures to be converted, the Company shall issue or cause to be issued and deliver or cause to be delivered to the holder whose Debenture is so surrendered, or on his or her written order, a certificate or certificates in the name or names of the person or persons specified in such notice for the number of Common Shares deliverable upon the conversion of such Debenture (or specified portion thereof) together with cash in respect of any fraction of a share as provided in section 4.3 and for any accrued and unpaid interest, if any, up to the Conversion Date as provided in section 2.5 and subsection 4.2.6. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date (the "CONVERSION DATE") such Debentures were surrendered for conversion and at such time the rights of the holder of such Debenture as such holder shall cease and the person or persons in whose name or names any certificate or certificates for Common Shares shall be deliverable upon such conversion shall be deemed to have become on such date the holder or holders of record of the Common Shares represented thereby; provided, however, that no such surrender on any date - 24 - when the share transfer registers for Common Shares of the Company shall be closed shall be effective until the close of business on the next succeeding day on which such share transfer registers are open and such conversion shall be at the Conversion Price in effect at the close of business on such next succeeding day. 4.2.3 Upon surrender to the Trustee of any Debenture which is to be converted in part only, the holder thereof shall be entitled to receive, without expense to such holder, one or more new Debentures for the unconverted portion of the principal amount of the Debenture so surrendered. 4.2.4 Where applicable, a holder may surrender a Debenture for conversion by means of book entry delivery in accordance with paragraph 10 of the Debenture and the regulations of the applicable book entry facility. 4.2.5 A holder that has delivered to the Trustee a Change of Control Redemption Notice in accordance with section 5.3 may not convert the Debentures to which such notice relates unless such notice is withdrawn in accordance with subsection 5.3.4. 4.2.6 No accrued and unpaid interest from the Interest Payment Date next preceding the Conversion Date shall be payable upon a conversion, except if a Debenture is called for redemption in accordance with Article 3 or in the case of a Change of Control as provided in Article 5, in which case the holder will be entitled to accrued and unpaid interest in cash up to but excluding the Conversion Date as contemplated in section 2.5. 4.3 NO FRACTIONAL SHARES. Notwithstanding anything herein contained, the Company shall in no case be required to issue fractional Common Shares upon the conversion of any Debenture or pursuant to section 3.10. If any fractional interest in a Common Share would, except for the provisions of this section 4.3, be deliverable upon the conversion of any Debenture or pursuant to section 3.10, the Company shall adjust such fractional interest by paying in cash to the holder of such surrendered Debenture or the Trustee or the holder entitled to receive Common Shares pursuant to this section or section 3.10 an amount equal (to the nearest cent) to the value thereof on the basis of the Current Market Price of Common Shares on the Conversion Date, Redemption Date or Maturity Date, as the case may be. 4.4 ADJUSTMENT OF THE CONVERSION PRICE. 4.4.1 The Conversion Price shall be subject to adjustment from time to time as follows: (a) If and whenever at any time the outstanding Common Shares of the Company shall be subdivided, redivided or changed into a greater or reduced or consolidated into a lesser number of shares or reclassified into different shares, any holder of Debentures who has not exercised his or her right of conversion prior to the effective date of such subdivision, redivision, change, consolidation, reduction or reclassification shall be entitled to receive and shall accept, upon the exercise of such right at any time on such effective date or thereafter, in lieu of the number of Common Shares to which he or she was theretofore entitled upon conversion at the Conversion Price, the aggregate number of shares of the Company that such Debenture holder would have been entitled to receive as a result of such subdivision, redivision, change, consolidation or reclassification if, on the effective date thereof, he or she had been the registered holder of the number of Common Shares to which he or she was theretofore entitled upon conversion. (b) In case the Company shall fix a record date for the issuance of additional Common Shares (or securities convertible into Common Shares) to the holders of any of its outstanding Common Shares by way of a stock dividend or other distribution, other than a stock - 25 - dividend to holders of Common Shares who exercise an option to receive any ordinary course equivalent dividends in Common Shares in lieu of receiving cash dividends, the Conversion Price shall be adjusted immediately after the record date for such stock dividend or other distribution by multiplying the Conversion Price in effect on such record date by a fraction of which the numerator shall be the total number of Common Shares outstanding on the record date and of which the denominator shall be the total number of Common Shares outstanding on the record date plus the number of additional Common Shares which shall result from the stock dividend or other distribution (assuming for this purpose that all Common Shares issuable upon the exercise of the conversion rights of the securities convertible into Common Shares have been issued). Any dividend or distribution on the Common Shares of the Company in Common Shares shall be deemed to have been issued on or immediately prior to the record date for such dividend or distribution for the purpose of calculating the number of outstanding Common Shares under subsections (c), (d), (e) and (f) below. (c) In case the Company shall fix a record date for the making of a distribution to all holders of its Common Shares: (i) of shares in the capital of the Company of any class (other than the Common Shares); (ii) of evidences of its indebtedness; (iii) of assets (excluding cash dividends or distributions, and dividends or distributions referred to in subsection (b) above and stock dividends to holders of Common Shares who exercise an option to receive in the ordinary course equivalent dividends in Common Shares in lieu of receiving cash dividends); or (iv) of options, rights or warrants (excluding those referred to in subsection (d) below), then in each such case the Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Conversion Price in effect on such record date by a fraction, of which the numerator shall be the Aggregate Market Capitalization on such record date (not including any Common Shares issued, or issuable upon exercise of any option, right or warrant, pursuant to such dividend) less the fair market value (as determined by the board of directors, whose determination shall be conclusive) of said shares or evidences of indebtedness or assets or options, rights or warrants so distributed, and of which the denominator shall be the Aggregate Market Capitalization immediately after such record date. Common Shares owned by or held for the account of the Company shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment shall be made successively as of any such record date. To the extent that such distribution is not so made, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect based upon the said shares or evidences of indebtedness or assets or options, rights or warrants actually distributed. (d) In case the Company shall fix a record date for the issuance of options, rights or warrants to all holders of its Common Shares entitling them to subscribe for or purchase Common Shares (or securities convertible or exchangeable into Common Shares) within 45 days of such record date at a price per share (or having a conversion or exchange price per share) less than 95% of the Current Market Price of a Common Share on such record date, the - 26 - Conversion Price shall be adjusted immediately after the expiry of such 45-day period so that it shall equal the price determined by multiplying the Conversion Price in effect on the expiry of such 45-day period by a fraction, of which the numerator shall be the total number of Common Shares outstanding on the expiry of such 45-day period (not including any Common Shares outstanding as a result of such issuance) plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares so offered (or the aggregate conversion or exchange price of the convertible or exchangeable securities so offered) by such Current Market Price per Common Share and of which the denominator shall be the total number of Common Shares outstanding on the expiry of such 45-day period plus the total number of additional Common Shares offered for subscription or purchase (or into which the convertible or exchangeable securities so offered are convertible or exchangeable, as the case may be). Common Shares owned by or held for the account of the Company shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment shall be made successively as of any such record date. To the extent that such options, rights or warrants are not so issued or such options, rights or warrants are not exercised prior to the expiration thereof, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect based upon the number of Common Shares (or securities convertible or exchangeable into Common Shares) actually delivered upon the exercise of such options, rights or warrants. (e) In case the Company shall pay or make a dividend or other distribution on its Common Shares exclusively in cash and the aggregate of: (i) such dividend or other distribution paid exclusively in cash; and (ii) other all cash dividends or other distributions made by the Company to all holders of the Common Shares within the preceding 12 months which did not trigger an adjustment to the Conversion Price, exceeds 1% of the Company's Aggregate Market Capitalization (such excess hereinafter the "EXCESS DISTRIBUTION") on the record date in respect of the last such cash dividend or other distribution, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction, of which the denominator shall be the Aggregate Market Capitalization on such record date and of which the numerator shall be such Aggregate Market Capitalization minus the amount of the Excess Distribution. Such adjustment shall become effective immediately prior to the opening of business on the day following such record date. In the event the amount of the Excess Distribution is equal to or greater than the Aggregate Market Capitalization on the record date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of Debentures shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted such Debentures to Common Shares immediately prior to the record date (less 1% of the Current Market Price multiplied by such number Common Shares). In the event that such dividend or distribution is not so paid or made, the Conversion Price shall be readjusted to be the Conversion Price which would then be in effect if such dividend or other distribution had not been declared. (f) In case an issuer bid or a tender or exchange offer (other than an odd-lot offer) made by the Company or a Subsidiary for all or any portion of the Common Shares shall expire and such issuer bid or tender or exchange offer shall involve payment by the Company or a - 27 - Subsidiary of cash or other consideration (based on the acceptance of all Common Shares validly tendered or exchanged and not withdrawn up to any maximum specified in the terms of the issuer bid or tender or exchange offer, such shares, up to such maximum, the "PURCHASED SHARES") having a fair market value (as determined in good faith by the board of directors, whose determination shall be conclusive, binding and described in a resolution of the board of directors) at the time (the "EXPIRATION TIME") tenders or exchanges may be made pursuant to such issuer bid or tender or exchange offer (as amended), together with: (i) any cash and the fair market value of other consideration (as determined in good faith by the board of directors, whose determination shall be binding, conclusive and described in a resolution of the board of directors) payable in respect of an issuer bid or a tender or exchange offer by the Company or a Subsidiary for Common Shares concluded within the preceding twelve months which did not trigger an adjustment to the Conversion Price, and (ii) the aggregate amount of any all-cash dividends or other distributions made by the Company to all holders of Common Shares made within the twelve months preceding such issuer bid or tender or exchange offer which did not trigger an adjustment to the Conversion Price, exceeds 5% of the Aggregate Market Capitalization (such excess hereinafter the "EXCESS BID CONSIDERATION") on the trading day next succeeding the Expiration Time (the "NEXT TRADING Day"), the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the opening of business on the Next Trading Day by a fraction, of which the denominator shall be the Aggregate Market Capitalization on the Next Trading Day and of which the numerator shall be Aggregate Market Capitalization on the Next Trading Day minus the amount of the Excess Bid Consideration. Such adjustment shall become effective immediately prior to the opening of business on the Next Trading Day. In the event that no shares are validly accepted in such issuer bid or tender or exchange offer, the Conversion Price shall be readjusted to be the Conversion Price which would then be in effect if such record date had not been fixed. (g) No adjustments of the Conversion Price shall be made pursuant to subsections (b), (c), (d), (e) or (f) above if the holders of Debentures are permitted (subject to satisfying all regulatory requirements, including without limitation those of the Toronto Stock Exchange and such other exchanges upon which the Common Shares are listed at such time) to participate in such dividend or distribution on the Common Shares of the Company in cash equivalent, Common Shares or in the issue of such options, rights, warrants or such distribution, as the case may be, as though and to the same effect as if they had converted their Debentures into Common Shares prior to the record date for such dividend or distribution or the issue of such options, rights or warrants or such distribution, as the case may be. (h) In any case in which this Article shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Debenture converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder cash in lieu of any fractional interest to which he or she is entitled - 28 - pursuant to section 4.3; provided, however, that the Company shall deliver to such holder an appropriate instrument evidencing such holder's rights to receive such additional Common Shares and such cash, upon the occurrence of the event requiring such adjustment. (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least one percent in such price; provided, however, that any adjustments which by reason of this subsection (i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. 4.5 CERTIFICATE AS TO ADJUSTMENT. The Company shall from time to time immediately after the occurrence of any event which requires an adjustment in the Conversion Price as above provided, deliver an Officers' Certificate to the Trustee specifying the nature of the event requiring the adjustment and the amount of the adjustment thereby necessitated and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, which certificate and the amount of the adjustment therein specified shall be verified by an opinion of the Company's Auditors and, when approved by the Trustee, be conclusive and binding on all parties in interest. The Company shall forthwith give notice, in the manner specified in section 12.3, of such adjustment to the Trustee, which notice shall specify the Conversion Price after such adjustment and the event requiring such adjustment and the Trustee, forthwith upon receipt of such notice, shall deliver such notice to the Debenture holders in the manner specified in section 12.2. 4.6 VOLUNTARY DECREASE. The Company from time to time may decrease the Conversion Price (subject to applicable law and the receipt of all regulatory approvals, including the consent of the Toronto Stock Exchange) by any amount and for any period of time if the board of directors has determined in good faith (to be evidenced by a resolution of the board of directors) that such decrease is in the Company's best interests; provided that such period is not less than 20 business days. Whenever the Conversion Price is decreased, the Company shall file with the Trustee a notice of the decrease, and the Trustee shall mail such notice to Debenture holders, at the Company's expense. The Company shall file the notice at least 15 days before the date the decreased Conversion Price becomes effective. A voluntary decrease of the Conversion Price does not change or adjust the Conversion Price otherwise in effect for the purposes of section 4.4. 4.7 NOTICE TO DEBENTURE HOLDERS OF CERTAIN EVENTS. In the event that: (a) the Company shall declare on its Common Shares any cash dividend per share which when added to the sum of the last four cash dividends per share paid on its Common Shares would exceed the sum of the last four cash dividends per share by more than 50%; (b) the Company shall declare on its Common Shares any dividend payable in shares of the Company (other than a stock dividend to the holders of Common Shares who exercise an option to receive in the ordinary course equivalent dividends in Common Shares in lieu of receiving cash dividends) or make any other distribution on its Common Shares (other than a cash dividend); (c) the Company shall offer for subscription pro rata to all the holders of its Common Shares any additional shares of any class of securities convertible into or exchangeable for Common Shares or shall issue any other options, rights or warrants to all of such holders; (d) there shall be a reclassification or change of the Common Shares of the nature referred to in section 4.9 or an amalgamation, merger, plan of arrangement or other reorganization of the - 29 - Company with or into any other corporation or a sale, transfer or other disposition of all or substantially all of the assets of the Company; (e) the Company shall take any action that would require an adjustment to the Conversion Price pursuant to section 4.4; or (f) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, in each such case, the Company shall give notice, in the manner specified in section 12.3, to the Trustee and the Trustee shall give same notice to each Debenture holder in the manner specified in section 12.2, of the action which has occurred or the action proposed to be taken, as the case may be, and the date on which (i) the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights or other options, rights or warrants, or (ii) such reclassification, change, amalgamation, merger, sale, transfer or other disposition, dissolution, liquidation or winding-up shall take place, as the case may be provided that the Company shall only be required to specify in such notice such particulars of such action as shall have been fixed and determined at the date on which such notice is given. Such notice shall also specify the date as of which the holders of Common Shares of record shall participate in such dividend, distribution, subscription rights or other options, rights or warrants, or shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reclassification, change, amalgamation, merger, sale, transfer or other disposition, dissolution, liquidation or winding-up as the case may be. Such written notice shall be given, with respect to the actions described in subsections (a) through (e) above, not less than 21 days prior to the record date or the date on which the Company's transfer books are to be closed with respect thereto. 4.8 RIGHT OF CONVERSION CEASES ON REDEMPTION. The right of the holder of Debentures to convert any Debenture called for redemption pursuant to the provisions hereof shall terminate and expire at the close of business on the business day immediately prior to the Redemption Date, unless the Company shall make default in the payment of the Redemption Price of such Debenture. 4.9 RECLASSIFICATIONS, REORGANIZATIONS, ETC. In case of any reclassification or change of the Common Shares (other than a change as a result of a subdivision or consolidation), or in case of any amalgamation of the Company with, merger of the Company into, plan of arrangement or other reorganization with any other corporation (other than an amalgamation, merger, plan of arrangement or other reorganization in which the Company is the continuing corporation and which does not result in any reclassification or change, other than as aforesaid, of the Common Shares), or in case of any sale, transfer or other disposition of all or substantially all of the assets of the Company, the Company or the corporation formed by such amalgamation or the corporation into which the Company shall have been merged or the corporation which shall have acquired such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the holder of each Debenture then outstanding shall have the right thereafter (until the expiration of the conversion right of such Debenture) to convert such Debenture into the kind and amount of shares and other securities and property receivable upon such reclassification, change, amalgamation, merger, sale, transfer or other disposition by a holder of the number of Common Shares into which such Debenture might have been converted at the Conversion Price immediately prior to such reclassification, change, amalgamation, merger, sale, transfer or other disposition. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this section shall similarly apply to successive reclassifications, changes, amalgamations, mergers, sales, transfers or other dispositions. - 30 - 4.10 OVERRIDING LIMITATION ON CONVERSION RIGHT. Notwithstanding the provisions of sections 4.4 and 4.9, if any of the events referred to in such sections occur prior to July 30, 2008: (a) and, as a result of which, holders of Common Shares would be entitled to receive any stock, other securities or other property or assets (including cash) other than securities prescribed for purposes of section 212(1)(b)(vii)(E) of the Income Tax Act (Canada) ("PRESCRIBED SECURITIES") with respect to or in exchange for such Common Shares (other than any such event (a "CASH-OUT TRANSACTION") in which all or substantially all of the Common Shares are exchanged for (x) cash or (y) securities which are redeemable for cash within 60 days of their issue or (z) any combination of (x) and (y)) then the Company or the successor, as the case may be, shall execute with the Trustee a supplemental indenture providing that in respect of any Debentures surrendered for conversion following such event and prior to July 30, 2008, the Debentures shall be convertible into the Prescribed Securities of a type specified by the board of directors and identified in the supplemental indenture referred to in clause (c) below and the Conversion Price shall be adjusted so that the kind and amount of Prescribed Securities into which each Debenture is convertible immediately following such event shall be equivalent in value (as determined by the board of directors whose determination shall be conclusive and binding) to the value of the property a holder of the Debenture would have been entitled to receive had the holder converted the Debenture to Common Shares immediately prior to such event and, in the circumstances contemplated by this section 4.10, no holder shall have the right upon the surrender of Debentures for conversion prior to July 30, 2008 to the property which holders of Common Shares shall be entitled to receive as a result of such event; (b) if the event is a Cash-Out Transaction, then without any further act or formality, the Debentures shall cease to be convertible from the effective time of the Cash-Out Transaction. Nothing in this section 4.10 shall limit the right of a holder of a Debenture to surrender the Debenture for conversion pursuant to the terms of this indenture prior to the effective time of a Cash-Out Transaction or to tender the Debenture to a Change of Control Notice pursuant to the terms of this indenture; and (c) where paragraph 4.10(a) applies, the Trustee and the Company shall, subject to subsection 14.1.1, execute a supplemental indenture modifying the provisions of this indenture relating to the conversion rights applicable to the Debentures following such event, including without limitation, the applicable provisions of this Article and the definition of Common Shares and such other related definitions set forth herein as determined in good faith by the Company (which determination shall be conclusive and binding), and to make such provisions apply in the event of a subsequent event similar to the event described above to the Prescribed Securities and the issuer thereof if different from the Company and the Common Shares (in lieu of the Company and Common Shares). 4.11 CANCELLATION OF DEBENTURES. All Debentures surrendered for conversion shall be cancelled by the Trustee and, subject to section 4.2, no Debentures shall be issued in substitution therefor. ARTICLE 5 CHANGE OF CONTROL 5.1 CHANGE OF CONTROL OFFER. Within 35 days following the occurrence of a Change of Control, and subject to the provisions and conditions of this Article 5, the Company shall be obligated to offer to redeem for cash all the then outstanding Debentures at a price equal to the sum of: - 31 - (a) 101% of the principal amount thereof (the "OFFER PRICE") plus accrued and unpaid interest, if any, on such Debentures up to, but excluding, the date of redemption of such Debentures by the Company or an Affiliate of the Company; and (b) in the event the Change of Control occurs on or before July 31, 2006, the present value of any additional amount of interest which would have accrued and been paid on the Debentures if the Debentures were outstanding until July 31, 2006; (collectively, the "TOTAL OFFER PRICE") which Offer shall, unless otherwise provided under applicable securities laws, be open for acceptance thereof for a period of not less than 35 days and not more than 60 days and shall provide for payment to all Debenture holders who accept the Offer not later than the 60th day after the making of the Offer. The present value of the amount of interest that would have accrued and been paid on the Debentures will be computed using a discount rate equal to the US Treasury Yield. The "US TREASURY YIELD" means the yield to maturity (as published by the Federal Reserve, or any other publicly available source for such market data, at the time of computation) of US Treasury securities with a constant maturity equal to the then remaining term to July 31, 2006, provided, however, that if the then remaining term to July 31, 2006 is not equal to the constant maturity of a US Treasury security for which a yield to maturity is available, the US Treasury Yield shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of US Treasury securities for which such yields are given, except that if the then remaining term to July 31, 2006 is less than one year, the weekly average yield on US Treasury securities adjusted to a constant maturity of one year shall be used. 5.2 CHANGE OF CONTROL. 5.2.1 Within 35 days following the occurrence of a Change of Control, the Company shall deliver to the Trustee, in the manner provided in section 12.3, and the Trustee shall promptly deliver to the holders of the Debentures, in the manner provided in section 12.2, a notice stating that there has been a Change of Control and specifying the circumstances surrounding such event (a "CHANGE OF CONTROL NOTICE") together with an offer in writing (the "OFFER") to redeem for cash or Common Shares (in accordance with the provisions of section 3.10, mutatis mutandis) at the Total Offer Price all the then outstanding Debentures made in accordance with the requirements of applicable securities laws. 5.2.2 Upon receipt of the Offer, the Trustee shall mail a copy of the Offer to each holder (and to beneficial owners known to the Trustee to the extent required by applicable law). The Trustee shall be under no obligation to ascertain the occurrence of a Change of Control or to give notice with respect thereto other than as provided above upon receipt of an Offer from the Company. The Trustee may conclusively assume, in the absence of receipt of an Offer from the Company, that no Change of Control has occurred. 5.2.3 The Offer shall include a form of Change of Control Redemption Notice (defined below) to be completed by the holder and shall state: (a) the date such Change of Control is deemed to have occurred and briefly the events causing a Change of Control; (b) that the Offer is being made pursuant to this section 5.2 and that all Debentures properly tendered for redemption pursuant to the Offer will be accepted for payment; (c) the last date by which the Change of Control Redemption Notice pursuant to this section 5.2 must be given; (d) the date of expiry of the Offer; - 32 - (e) the Total Offer Price on a per Debenture basis and what portion thereof, if any, shall be paid in Common Shares; (f) that Debentures in respect of which a Change of Control Redemption Notice has been given by the holder may be converted into Common Shares at any time prior to the close of business on the expiry of the Offer only if the applicable Change of Control Redemption Notice has been withdrawn in accordance with the terms of this indenture; (g) the procedures for withdrawing a Change of Control Redemption Notice; (h) that Debentures must be surrendered to the Trustee, or a specified paying agent at the office of the Trustee, or the specified paying agent in order to collect payment or the procedures to be followed in accordance with book entry delivery, if applicable; (i) that the Total Offer Price for any Debenture as to which a Change of Control Redemption Notice has been duly given and not withdrawn will be paid on the business day following the expiry of the Offer or, if such Debenture is not surrendered on the expiry of the Offer, as promptly as practicable after surrender of such Debenture; (j) the procedures the holder must follow to accept the Offer; (k) briefly, the conversion rights of the Debentures; (l) the Conversion Price and any adjustments thereto; and (m) that holders who want to convert Debentures must satisfy the requirements set forth in paragraph 10 of the Debentures. 5.3 CHANGE OF CONTROL REDEMPTION NOTICE. 5.3.1 A holder may accept an Offer by delivering to the Trustee, or a specified paying agent at the office of the Trustee or the specified paying agent, a written notice (a "CHANGE OF CONTROL REDEMPTION NOTICE") at any time prior to the close of business on the expiry of the Offer stating: that such holder elects to have a Debenture tendered for redemption pursuant to the Offer; the principal amount of the Debenture that the holder elects to have redeemed by the Company, which amount must be $1,000 or an integral multiple thereof, and the certificate numbers of the Debentures to be delivered by such holder for redemption by the Company; and that such Debenture shall be redeemed on the expiry date of the Offer pursuant to the terms and conditions specified in this indenture and in paragraph 9 of the Debentures. 5.3.2 The delivery of such Debenture (together with all necessary endorsements) to the Trustee or a specified paying agent at the office of the Trustee or the specified paying agent prior to, on or after the expiry date of the Offer shall be a condition to the receipt by the holder of the Total Offer Price therefor; provided that such Total Offer Price shall be so paid pursuant to this section 5.3 only if the Debenture so delivered to the Trustee or to a specified paying agent shall conform in all respects to the description thereof set forth in the related Change of Control Redemption Notice. 5.3.3 The Company shall redeem from the holder thereof, pursuant to this section 5.3, a portion of a Debenture if the principal amount of such portion is $1,000 or an integral multiple of $1,000. Provisions of this indenture that apply to the redemption of all of a Debenture also apply to the redemption of a portion of such Debenture. Any redemption by the Company contemplated pursuant to - 33 - the provisions of this section 5.3 shall be consummated by the delivery of the consideration to be received by the holder on the business day following the date of expiry of the Offer or, if such Debenture is not surrendered on the date of expiry of the Offer, as promptly as practicable after the surrender of the Debenture by the holder to the Trustee or a specified paying agent in the manner required by this section 5.3. 5.3.4 Notwithstanding anything herein to the contrary, any holder delivering to the Trustee or a specified paying agent at the office of the Trustee or the specified paying agent the Change of Control Redemption Notice contemplated in this section 5.3 shall have the right to withdraw such Change of Control Redemption Notice at any time prior to the close of business on the date of expiry of the Offer by delivery of a written notice of withdrawal to the Trustee or a specified paying agent in accordance with section 5.4. The Trustee shall promptly notify the Company of the receipt by the former of any Change of Control Redemption Notice or written notice of withdrawal thereof. 5.4 EFFECT OF CHANGE OF CONTROL REDEMPTION NOTICE. 5.4.1 Upon receipt by the Company of the Change of Control Redemption Notice specified in section 5.3, the holder of the Debenture in respect of which such Change of Control Redemption Notice was given shall (unless such Change of Control Redemption Notice is withdrawn as specified in subsections 5.4.2 or 5.4.3) thereafter be entitled to receive solely the Total Offer Price (whether in cash, Common Shares or a combination of the foregoing as offered by the Company) with respect to such Debenture, plus, if such amount is not paid when due, interest on the overdue amount. Such Total Offer Price shall be paid to such holder (a) on the business day following the date of expiry of the Offer with respect to such Debenture (provided the conditions in section 5.2 have been satisfied) or (b) if such Debenture is not surrendered on the date of expiry of the Offer, as promptly as practicable after such Debenture is surrendered to the Trustee or a specified paying agent at the office of the Trustee or the specified paying agent by the holder thereof in the manner required by section 5.2. Debentures in respect of which a Change of Control Redemption Notice has been given by the holder thereof may not be converted into Common Shares on or after the date of the delivery of such Change of Control Redemption Notice unless such Change of Control Redemption Notice has first been validly withdrawn as specified in subsection 5.4.3. 5.4.2 If on the business day following the date of expiry of the Offer the Trustee or any specified paying agent holds money and/or Common Shares sufficient to pay the Total Offer Price for a Debenture in respect of which a Change of Control Redemption Notice has been delivered as specified in section 5.2, then after the date of expiry of the Offer such Debenture shall cease to be outstanding, interest on such Debenture shall cease to accrue and the principal amount of the Debenture and the amount of accrued and unpaid interest thereon to, but excluding the date of expiry of the Offer, will be fully satisfied whether or not such Debenture is delivered to the Trustee or the specified paying agent, and all other rights of the holder shall terminate (other than the right to receive the Total Offer Price in accordance with this section 5.4). 5.4.3 A Change of Control Redemption Notice may be withdrawn before or after delivery by the holder to the Trustee or a specified paying agent at the office of the Trustee or the specified paying agent of the Debenture to which such Change of Control Redemption Notice relates, by means of a written notice of withdrawal delivered by the holder to the Trustee or the specified paying agent at the office of the Trustee or the specified paying agent to which the related Change of Control Redemption Notice was delivered at any time prior the close of business on the date of expiry of the Offer specifying, as applicable: - 34 - (a) the certificate number of the Debenture in respect of which such notice of withdrawal is being submitted; (b) the principal amount of the Debenture (which shall be $1,000 or an integral multiple thereof) with respect to which such notice of withdrawal is being submitted; and (c) the principal amount, if any, of such Debenture (which shall be $1,000 or an integral multiple thereof) that remains subject to the original Change of Control Redemption Notice and that has been or will be delivered for redemption by the Company. 5.4.4 There shall be no redemption of any Debentures pursuant to section 5.1 if there has occurred (prior to, on or after, as the case may be, the giving by the holders of such Debentures of the required Change of Control Redemption Notice) and is continuing an event of default. The Trustee or the specified paying agent will promptly return to the respective holders thereof any Debentures (i) with respect to which a Change of Control Redemption Notice has been withdrawn in compliance with this indenture, or (ii) held by it during the continuance of an event of default. 5.5 THIRD PARTY MAY SATISFY. The obligations of the Company arising upon a Change of Control will be satisfied if a third party makes and consummates an Offer in the manner and at the times and otherwise in compliance with this Article 5 provided that the payment obligations of the Company hereunder may only be satisfied by Common Shares of the Company, cash or a combination of the foregoing. 5.6 90% REDEMPTION RIGHT. 5.6.1 If 90% or more in aggregate principal amount of Debentures outstanding on the date the Company provides the Change of Control Notice and Offer to holders of the Debentures have been tendered for redemption pursuant to the Offer on the expiration thereof, the Company has the right and obligation upon written notice provided to the Trustee in the manner provided in section 12.3 within 10 days following the expiration of the Offer, to redeem and shall redeem all the Debentures remaining outstanding on the expiration of the Offer at the Total Offer Price (the "90% REDEMPTION RIGHT"). 5.6.2 Upon receipt of notice that the Company has exercised or is exercising the 90% Redemption Right and is acquiring the remaining Debentures, the Trustee shall promptly provide written notice in the manner provided in section 12.2 to each Debenture holder that did not previously accept the Offer that: (a) the Company has exercised the 90% Redemption Right and is redeeming all outstanding Debentures effective on the expiry of the Offer at the Total Offer Price, and shall include a calculation of the amount and type of consideration payable to such holder as payment of the Total Offer Price; (b) each such holder must transfer their Debentures to the Trustee on the same terms as those holders that accepted the Offer and must send their respective Debentures, duly endorsed for transfer, to the Trustee within 10 days after the sending of such notice; and (c) the rights of such holder under the terms of the Debentures and this Indenture cease effective as of the date of expiry of the Offer provided the Company has, on or before the time of notifying the Trustee of the exercise of the 90% Redemption Right, paid or deposited the Total Offer Price to, or to the order of, the Trustee and thereafter the - 35 - Debentures shall not be considered to be outstanding and the holder shall not have any right except to receive such holder's Total Offer Price upon surrender and delivery of such holder's Debentures in accordance with the Indenture. 5.7 DEPOSIT OF TOTAL OFFER PRICE. The Company shall, on or before the business day immediately prior to the expiry of the Offer, deposit with the Trustee or any paying agent to the order of the Trustee, such cash and/or Common Shares as may be sufficient to pay the Total Offer Price of the Debentures to be redeemed by the Company on the expiry of the Offer. From the consideration so deposited, the Trustee shall pay or transfer or cause to be paid or transferred to the registered holders of such Debentures, upon surrender of such Debentures, the Total Offer Price to which they are entitled on the Company's redemption and the provisions of sections 9.2 and 9.3 shall be applicable thereto, mutatis mutandis. 5.8 REDEMPTION IN PART. In the event that one or more of such Debentures being redeemed in accordance with this Article 5 becomes subject to redemption in part only, upon surrender of such Debentures for payment of the Total Offer Price, the Company shall execute and the Trustee shall certify and deliver without charge to the holder thereof or upon the holder's order one or more new Debentures for the portion of the principal amount of the Debentures not redeemed upon receipt of the Debentures so surrendered. 5.9 DEBENTURES DUE ON EXPIRY OF OFFER. 5.9.1 Debentures for which holders have accepted the Offer and Debentures which the Company has elected to redeem in accordance with this Article 5 shall become due and payable at the Total Offer Price on the date of expiry of the Offer, in the same manner and with the same effect as if it were the Maturity Date, anything therein or herein to the contrary notwithstanding, and from and after such date of expiry of the Offer, if the moneys and/or Common Shares necessary to redeem the Debentures shall have been deposited as provided in this Article 5 and affidavits or other proof satisfactory to the Trustee as to the publication and/or mailing of such notices shall have been lodged with it, such Debentures shall not be considered as outstanding hereunder and interest upon such Debentures shall cease. 5.9.2 In case any question shall arise as to whether any notice has been given as above provided and any such deposit made, such question shall be decided by the Trustee whose decision shall be final and binding upon all parties in interest. 5.10 COVENANT TO COMPLY WITH SECURITIES LAWS UPON REDEMPTION OF DEBENTURES. In connection with any Offer to redeem Debentures under section 5.1 hereof (provided that such offer constitutes an "issuer tender offer" for purposes of Rule 13e-4 (which term, as used herein, included any successor provision thereto) under the 1934 Act at the time of such offer or purchase) the Company shall (i) comply with Rule 13e-4 under the 1934 Act, if applicable, and (ii) file the related Schedule 13E-4 or 13E-4F (or any successor schedule, form or report) under the 1934 Act, if required. In addition, the Company shall otherwise comply with all applicable Canadian and United States federal, provincial and state securities laws so as to permit the rights and obligations under sections 5.1, 5.2 and 5.3 to be exercised to the greatest extent practicable in the time and in the manner specified in sections 5.1, 5.2 and 5.3. 5.11 CANCELLATION OF DEBENTURES. Subject to the provisions above related to Debentures purchased in part, all Debentures redeemed and paid under this Article 5 shall forthwith be delivered to the Trustee and be cancelled and no Debentures shall be issued in substitution therefor. - 36 - ARTICLE 6 SUBORDINATION OF DEBENTURES 6.1 SUBORDINATION OF DEBENTURES. The Debenture Indebtedness shall for all purposes be, and shall at all times remain, inferior, junior and subordinate to the Senior Indebtedness and shall rank at least pari passu with all other present or future unsecured indebtedness of the Company. By the acceptance of a Debenture, each Debenture holder agrees that the Debenture Indebtedness is hereby expressly postponed and subordinated to the extent and in the manner hereinafter set forth in right of payment to the prior payment of the Senior Indebtedness, except to the extent that payments are permitted pursuant to section 6.6. 6.2 DEFINITION. For purposes of this Article, the words "CASH, PROPERTY OR SECURITIES" shall be deemed not to include shares of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinated at least to the extent provided in this Article with respect to the Debentures to the payment of all Senior Indebtedness which may at the time be outstanding, provided that the Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment and provided further that the rights of the holders of the Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. 6.3 EFFECT OF DISSOLUTION, WINDING-UP, LIQUIDATION OR REORGANIZATION. 6.3.1 In the event of any insolvency, bankruptcy, liquidation, reorganization or other similar proceedings, or any receivership proceedings in connection therewith, relative to the Company and in the event of any proceedings for involuntary liquidation, dissolution or other winding-up of the Company, whether or not involving insolvency or bankruptcy proceedings, then all Senior Indebtedness shall first be paid in full in cash before any payment of or on account of any Debenture Indebtedness is made by the Company. 6.3.2 Upon any distribution of assets of the Company on any dissolution, winding-up, liquidation, bankruptcy, insolvency or receivership (or other marshalling of assets of the Company equivalent thereto) of the Company: (a) the holders of all Senior Indebtedness shall be entitled to receive payment in full of the Senior Indebtedness before the Debenture holders (or the Trustee on behalf of the Debenture holders) are entitled to receive any payment in respect of the Debenture Indebtedness; and (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Debenture holders (or the Trustee on behalf of the Debenture holders) would be entitled, except for the provisions of this Article, shall be paid by the person making such payment or distribution (whether a trustee in bankruptcy, a receiver or receiver-manager or liquidating trustee or otherwise) directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any such Senior Indebtedness may have been issued, as their respective interest may appear, to the extent necessary to pay in full in cash all Senior Indebtedness remaining unpaid after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. 6.3.3 In the event that any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, contemplated by this section 6.3 shall be received by the - 37 - Trustee or the Debenture holders on account of the Debenture Indebtedness before all Senior Indebtedness is paid in full in cash, such payment or distribution shall be received and held in trust for the benefit of and shall be paid over to the holders of such Senior Indebtedness or their representative or representatives or to the trustee or trustees under the relevant Senior Indebtedness Documents, may have been issued, as their respective interests may appear, forthwith for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. 6.3.4 Upon any distribution of assets of the Company referred to in this Article, the Trustee and the Debenture holders shall be entitled to rely upon a certificate of the liquidation trustee or agent or other person making any distribution to the Trustee or to the holders of the Debentures for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount paid or distributed thereon and all other facts pertinent thereto or to this Article; provided, however, that if no such liquidation trustee has been appointed or such liquidation trustee has not issued such a certificate, the Trustee, the Debenture holders or both of them may pay any such funds received by them into court without attracting any liability whatsoever for such actions. 6.4 SUBROGATION OF DEBENTURES. Subject to the payment in full of all Senior Indebtedness, the rights of the Trustee and Debenture holders shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness, to the extent of the application thereto of moneys or other assets which would have been received by the holders of Debentures but for the provisions of this Article, until the Debentures shall be paid in full and no such payment or distribution, as between the Company, its creditors other than the holders of Senior Indebtedness, and the Debenture holders, shall be deemed to be a payment by the Company to or for the account of the holders of Senior Indebtedness, it being understood that the provisions of this Article are, and are intended, solely for the purpose of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of the Senior Indebtedness, on the other hand. Nothing contained in this Article or elsewhere in this Trust Indenture or in the Debentures is intended to or shall impair, as between the Company and its creditors (other than the holders of Senior Indebtedness and the Debenture holders), the obligation of the Company, which is unconditional and absolute, to pay to the holders of the Debentures the Debenture Indebtedness as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the holders of the Debentures and creditors of the Company other than the holders of Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Debenture holder from exercising all remedies otherwise permitted by applicable law upon default under this Trust Indenture, subject to the rights, if any, under this Article, of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. 6.5 NO PAYMENT TO DEBENTURE HOLDERS IF SENIOR INDEBTEDNESS DUE OR IN DEFAULT. 6.5.1 Upon the maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise, then (except as hereinafter in subsections 6.6.1(b) and 6.6.2 otherwise provided) all such matured Senior Indebtedness shall first be paid in full, or provisions for such payment shall first have been made, before any payment on account of the Debenture Indebtedness is made. 6.5.2 Upon the happening of an event of default with respect to any Senior Indebtedness, as defined therein or in the relevant Senior Indebtedness Documents, under which the holders have accelerated the maturity thereof, then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, and except as otherwise provided in subsections 6.6.1(b) and 6.6.2, no payment (by purchase of Debentures or otherwise) shall be made by the Company with respect to the Debenture - 38 - Indebtedness. In the event that, notwithstanding the foregoing, the Company shall make any payment on the Debenture Indebtedness then, except as hereinafter in subsections 6.6.1(b) and 6.6.2 otherwise provided, unless and until such event of default shall have been cured or waived or shall have ceased to exist, such payments shall be held in trust for the benefit of, and, if and when such Senior Indebtedness shall have, become due and payable, shall be paid over to, the holders of the Senior Indebtedness or their representative or representatives or to the trustee or trustees under the relevant Senior Indebtedness Documents, as their respective interest may appear, for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. 6.5.3 The fact that any payment hereunder is prohibited by this section shall not prevent the failure to make such payment from being an event of default or default hereunder. 6.6 PAYMENT OF DEBENTURES PERMITTED. 6.6.1 Nothing contained in this Trust Indenture, or in any of the Debentures, shall (a) prevent the Company, at any time, except under the conditions described in section 6.5 hereof or during the pendency of any such dissolution, winding-up, liquidation, reorganization, bankruptcy, insolvency, receivership or other marshalling of assets as referred to in subsection 6.3.1, from making payments at any time on the Debenture Indebtedness; or (b) upon the maturity or acceleration of any Senior Indebtedness or the happening of an event of default or the existence of facts described in subsections 6.5.1 or 6.5.2, prevent any payment being made by the Company or the Trustee in connection with the redemption of Debentures with respect to which a Redemption Notice shall have been given pursuant to Article 3 hereof prior to the Trustee receiving a notice (as contemplated in subsection 6.6.2) of such maturity, acceleration or event of default or existence of facts described in subsection 6.5.2. 6.6.2 Unless and until written notice shall be given to the Trustee by or on behalf of any holder of any Senior Indebtedness notifying the Trustee of the maturity or acceleration of such Senior Indebtedness or the happening of an event of default with respect to such Senior Indebtedness permitting the holders of such Senior Indebtedness to accelerate the maturity thereof, the Trustee and the Debenture holders shall be entitled to assume, with respect to any moneys which may be received by the Trustee or the Debenture holders from time to time pursuant to this Trust Indenture, that the provisions of section 6.5 do not apply, and nothing in this Trust Indenture shall prevent the Trustee or the Debenture holders from applying such moneys to the purposes for which the same were so received, notwithstanding the occurrence or continuance of an event of default with respect to such Senior Indebtedness. - 39 - 6.7 SUBORDINATION NOT TO BE IMPAIRED. No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Trust Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. Without limiting the generality of the foregoing, all agreements and obligations of the Company, Trustee and Debenture holders under this Article 6 shall remain in full force and effect irrespective of: (a) any lack of validity or enforceability of any document or instrument providing for the issue or payment of, guarantee of, or security arrangement concerning, the Senior Indebtedness, or any other agreement or instrument relating thereto (the "SENIOR INDEBTEDNESS DOCUMENTS"); (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Senior Indebtedness or any other amendment or waiver of or any consent to any departure from the Senior Indebtedness Documents, including without limitation any increase in the obligations of the Company thereunder resulting from the extension of additional credit to the Company or any of its affiliates or subsidiaries or otherwise; (c) any taking, exchange, release or non-perfection of any security, or any taking, release or amendment or waiver of or consent to departure from any guarantee, for all or any of the Senior Indebtedness; (d) any manner of application of collateral, or proceeds thereof, to all or any of the Senior Indebtedness or any manner of sale or other disposition of any security or any other assets of the Company or other persons; (e) any change, restructuring, or termination of the corporate structure or existence of the Company or other persons; or (f) any other circumstance which might otherwise constitute a defence available to, or a discharge of, the Company. The terms of this Article 6 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by a holder of Senior Indebtedness upon the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. 6.8 AUTHORIZATION OF DEBENTURE HOLDERS TO TRUSTEE TO EFFECT SUBORDINATION. Each holder of Debentures by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. 6.9 SURVIVAL. The terms of this Article 6 shall survive until all of the Senior Indebtedness is paid and satisfied in full. - 40 - 6.10 FURTHER ASSURANCES. The Trustee shall execute and deliver to a holder of Senior Indebtedness such further documents and do such further things as may reasonably be requested by such holders of Senior Indebtedness to give effect to the terms and conditions hereof. ARTICLE 7 COVENANTS OF THE COMPANY The Company hereby covenants and agrees with the Trustee for the benefit of the Trustee and the Debenture holders as follows: 7.1 TO PAY PRINCIPAL AND INTEREST. That the Company will duly and punctually pay or cause to be paid to every Debenture holder or to the Trustee on behalf of every Debenture holder the principal of and interest accrued on the Debentures of which he or she is the holder on the dates, at the places, in the moneys, and in the manner mentioned herein and in the Debentures. 7.2 TO CARRY ON BUSINESS. That, subject to the express provisions hereof, the Company will carry on and conduct its business in a proper and efficient manner, and at all reasonable times it will furnish or cause to be furnished to the Trustee or its duly authorized agent or attorney such information relating to its business as the Trustee may reasonably require; and, subject to the express provisions hereof, it will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. 7.3 TO MAINTAIN RESERVATION OF COMMON SHARES. That, as long as any Debentures are outstanding hereunder, the Company shall maintain and not revoke the reservation of the Common Shares to be issued upon any potential conversion of the Debentures. 7.4 TO QUALIFY COMMON SHARES AND MAINTAIN A LISTING. That the Company will do or cause to be done all things necessary to ensure that the Common Shares issued pursuant to sections 2.8, 3.10 or 4.1 are: (a) qualified to be offered and sold to the public in the provinces of Alberta, British Columbia, Manitoba and Ontario and in the United States by or through such persons and in such manner as may be prescribed under the applicable legislation of such province or state in effect at the time such Common Shares are so issued; and (b) listed on the Toronto Stock Exchange and/or the Nasdaq National Market. 7.5 TO PAY TRUSTEE'S REMUNERATION. That the Company will pay the Trustee reasonable remuneration for its services as Trustee hereunder (including reimbursement for distributions which include legal services) and will repay to the Trustee on demand all moneys which shall have been paid by the Trustee in and about the execution of the trusts hereby created with interest at such reasonable rate as shall have been agreed to by the Trustee from time to time, from the date of expenditure until repayment, with a reasonable rate of interest to be charged by the Trustee on any overdue accounts of the Company, and such moneys and the interest thereon, including the Trustee's remuneration, shall be payable out of any funds coming into the possession of the Trustee in priority to the payment of any principal or interest on any of the Debentures. The said remuneration shall continue to be payable until the trusts hereof are finally wound up and whether or not the trusts of this indenture shall be in course of administration by or under the direction of the court. - 41 - 7.6 NOT TO EXTEND TIME FOR PAYMENT OF INTEREST OR PRINCIPAL. 7.6.1 That, in order to prevent any accumulation after maturity of unpaid interest or of any principal payable in respect of any Debentures, the Company will not directly or indirectly extend or assent to the extension of time for payment of any interest upon any Debentures or of any principal payable in respect of any Debentures and that it will not directly or indirectly be or become a party to or approve any such arrangement by funding any interest on said Debentures or any principal thereof or in any other manner; and that the Company shall and will deliver to the Trustee all Debentures when paid as evidence of such payment. 7.6.2 In case the time for the payment of any such interest or principal shall be extended, whether or not such extension be by or with the consent of the Company, notwithstanding anything herein or in the Debentures contained, such interest and/or principal shall not be entitled in case of default hereunder to the benefits of this indenture except subject to the prior payment in full of the principal of all, the Debentures and of all interest of such Debentures the payment of which has not been so extended. 7.7 AUDIT. That the Company will annually within 140 days (or such longer period as the Trustee in its discretion may consent to) after the end of its fiscal year end furnish to the Trustee a copy of the consolidated financial statements and of the report of the Company's Auditors thereon which are furnished to the shareholders of the Company; provided, however, that the Trustee has no obligation to review, analyze or disseminate said information. 7.8 TRUSTEE MAY PERFORM COVENANTS. That if the Company shall fail to perform any covenant on its part herein contained, the Trustee may in its discretion, but (subject to section 8.2) need not, notify the Debenture holders of such failure or it may perform any of said covenants capable of being performed by it and, if any such covenant requires the payment or expenditure of money, it may make such payment or expenditure with its own funds, or with money borrowed by or advanced to it for such purpose, but shall be under no obligation so to do; and all sums so expended or advanced shall be repayable by the Company in the manner provided in section 7.5, but no such performance or payment shall be deemed to relieve the Company from any default hereunder. 7.9 CERTIFICATES OF NO DEFAULT. That the Company will, contemporaneously with the delivery of the financial statements pursuant to section 7.7 and at any other time if requested by the Trustee, deliver to the Trustee an Officers' Certificate stating that the Company has complied with all covenants, conditions or other requirements contained in this indenture the non-compliance with which would, with the giving of notice or the lapse of time, or both, or otherwise, constitute an event of default under this indenture, or if such is not the case, specifying the covenant, condition or other requirement which has not been complied with and giving particulars of such non-compliance. 7.10 FURTHER ASSURANCES. The Company shall provide an Officers' Certificate setting out the Interest Amount and shall execute any further assurance setting out its obligations hereunder from time to time and upon the Trustee's reasonable request. 7.11 TRUSTEE INDEMNIFICATION. The Trustee, its directors, officers, employees and agents (the "INDEMNIFIED PARTIES") will at all times be indemnified and saved harmless by the Company from and against all claims, demands, losses, actions, causes of action, suits, proceedings, costs, charges, expenses, assessments, judgements, damages and liabilities whatsoever arising in connection with this indenture, including, without limitation, those arising out of or related to actions taken or omitted to be taken by the Indemnified Parties contemplated hereby, expert consultation and legal fees and disbursements on a solicitor and client basis and costs and expenses incurred in connection with the enforcement of this indemnity, which the Indemnified Parties, or any of them, may suffer or incur, whether at law or in equity, in any way - 42- caused by or arising, directly or indirectly, in respect of any act, deed, matter or thing whatsoever made, done, acquiesced in or omitted in or about or in relation to the execution of the Trustee's duties and including any deed, matter or thing in relation to the registration, perfection, release or discharge of security or any other services that the Trustee may provide in connection with or in any way relating to this indenture. The foregoing provisions of this section do not apply to the extent that in any circumstances there has been negligence, fraud or wilful misconduct of the Indemnified Parties or there has been a failure by the Indemnified Parties to act honestly and in good faith to discharge the Trustee's obligations under section 13.11. The Company agrees that its liability hereunder shall be absolute and unconditional regardless of the correctness of any representations of any third parties and regardless of any liability of third parties to the Indemnified Parties, and shall accrue and become enforceable without prior demand or any other precedent action or proceeding. This indemnity will survive the termination or discharge of this indenture and the resignation or removal of the Trustee. 7.12 REPORTS. The Company shall furnish to the Trustee and provide Debenture holders and the Depository, within 15 days after the Company files the same with the Ontario Securities Commission and the United States Securities and Exchange Commission (provided that multiple copies of the same or a substantially similar document need not be filed), copies of its annual financial statements and the information, documents and other reports that the Company is required to both (a) file with the Ontario Securities Commission or the United States Securities and Exchange Commission (excluding those filed on a confidential basis until required to be publicly disclosed) and (b) mail to the holders of Common Shares; or, if the Company is not required to file any such material with the Ontario Securities Commission or the United States Securities and Exchange Commission, the Company shall continue to file with the Ontario Securities Commission and the United States Securities and Exchange Commission, as applicable and furnish to the Trustee and furnish to the holders of Debentures without cost (i) within 140 days after the end of the Company's last fiscal year, audited annual financial statements and (ii) within 60 days after the end of the first three quarters of the Company's fiscal year, interim financial statements which shall contain such information required to be provided in quarterly reports by applicable securities regulatory authorities in Canada to securityholders of a company listed on the Toronto Stock Exchange, whether or not the Company has any of its securities so listed. Each such report shall be prepared in accordance with the disclosure requirements of such applicable securities regulatory authorities in Canada and generally accepted accounting principles of Canada or the United States. 7.13 FUTURE ISSUANCES OF DEBT. For so long as any of the Debentures are issued and outstanding, the Company will not itself issue or permit any of its Subsidiaries to issue by public offering or private placement (whether under a prospectus or registration statement or pursuant to an exemption from the requirements therefor) any unsecured bonds, debentures, notes or other similar instruments or securities unless such indebtedness is by its terms subordinate in right of payment to the Debentures. 7.14 RESTRICTIONS ON DIVIDENDS. For so long as Debentures are issued and outstanding, the Company will not declare or pay cash dividends on the Common Shares in an aggregate amount per Common Share, during any calendar year, in excess of one percent of the Current Market Price of the Common Shares calculated as of the last trading day of the preceding calendar year. 7.15 CONVERSION OF CURRENCY. The Company covenants and agrees that the provisions set out in this section 7.15 shall apply to conversion of currency in the case of the Debentures and this indenture: 7.15.1 (a) If for the purpose of obtaining judgment in, or enforcing the judgment of, any court in any country, it becomes necessary to convert into any other currency (the "JUDGMENT CURRENCY") an amount due in U.S. dollars, then the conversion shall be made at the rate of exchange prevailing on the business day before the day on which the judgment is given or - 43 - the order of enforcement is made, as the case may be (unless a court shall otherwise determine). (b) If there is a change in the rate of exchange prevailing between the business day before the day on which the judgment is given or an order of endorsement is made, as the case may be (or such other date as a court shall determine), and the date of receipt of the amount due, the Company will pay such additional (or, as the case may be, such lesser) amount, if any, as may be necessary so that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of receipt will produce the amount in U.S. dollars originally due. 7.15.2 In the event of the winding-up of the Company at any time while any amount or damages owing under the Debentures and this indenture, or any judgment or order rendered in respect thereof, shall remain outstanding, the Company shall indemnify and hold the holders of Debentures and the Trustee harmless against any deficiency arising or resulting from any variation in rates of exchange between (1) the date as of which the equivalent of the amount in U.S. dollars due or contingently due under the Debentures and this indenture (other than under this subsection 7.15.2) is calculated for the purposes of such winding-up and (2) the final date for the filing of proofs of claim in such winding-up. For the purpose of this subsection 7.15.2 the final date for the filing of proofs of claim in the winding-up of the Company shall be the date fixed by the liquidator or otherwise in accordance with the relevant provisions of applicable law as being the latest practicable date as at which liabilities of the Company may be ascertained for such winding-up prior to payment by the liquidator or otherwise in respect thereto. 7.15.3 The obligations contained in subsections 7.15.1 and 7.15.2 shall constitute separate and independent obligations of the Company from its other obligations under the Debentures and this indenture, shall give rise to separate and independent causes of action against the Company, shall apply irrespective of any waiver or extension granted by any holder of Debentures or the Trustee from time to time and shall continue in full force and effect notwithstanding any judgment or order or the filing of any proof of claim in the winding-up of the Company for a liquidated sum in respect of amounts due hereunder (other than under subsection 7.15.2 above) or under any such judgment or order. Any such deficiency as aforesaid shall be deemed to constitute a loss suffered by the holders of Debentures or the Trustee, as the case may be, and no proof or evidence of any actual loss shall be required by the Company or its liquidator. In the case of subsection 7.15.2 above, the amount of such deficiency shall not be deemed to be reduced by any variation in rates of exchange occurring between the said final date and the date of any liquidating distribution. 7.15.4 The term "RATE(S) OF EXCHANGE" shall mean the rate of exchange quoted by the Bank of Canada at 12:00 noon (Toronto time) for purchase of U.S. dollars with the judgment currency other than U.S. dollars referred to in subsections 7.15.1 and 7.15.2 above and includes any premiums and costs of exchange payable. ARTICLE 8 DEFAULT 8.1 ACCELERATION OF MATURITY. Upon the happening of any one or more of the following events (each herein sometimes referred to as an "EVENT OF DEFAULT") namely: (a) if the Company makes default in payment of the principal of any Debenture when the same becomes due under any provision hereof or of the Debentures and such default continues for a period of five business days; - 44 - (b) if the Company makes default in payment of any interest due on any Debenture and any such default continues for a period of 15 business days; (c) the Company or any Significant Subsidiary pursuant to or under or within the meaning of any Bankruptcy Law: (i) commences a voluntary case or proceeding; (ii) consents to the entry of a Bankruptcy Order in an involuntary case or proceeding or the commencement of any case against it; (iii) consents to the appointment of a Custodian of it or for any substantial part of its property; (iv) makes a general assignment for the benefit of its creditors or files a proposal or other scheme of arrangement involving the rescheduling or composition of its indebtedness; (v) files a petition in bankruptcy or answer or consent seeking reorganization or relief; or (vi) consents to the filing of such petition or the appointment of or taking possession by a Custodian; (d) a court of competent jurisdiction in any involuntary case or proceeding enters a Bankruptcy Order against the Company or any Significant Subsidiary, and such Bankruptcy Order remains unstayed and in effect for 15 consecutive days; (e) a Custodian shall be appointed out of court with respect to the Company or any Significant Subsidiary, or with respect to all or any substantial part of the property of the Company or any Significant Subsidiary, or any encumbrancer shall take possession of all or any substantial part of the property of the Company or any Significant Subsidiary; (f) the failure by the Company to pay when due at maturity or upon a default, event of default or similar condition under any bond, note, debenture or other evidence of indebtedness for money borrowed by the Company or any of its Subsidiaries having an aggregate outstanding principal amount in excess of $10,000,000, not including any amounts the Company may owe under reimbursement or similar obligations to banks, sureties or other entities that have issued letters of credit, surety bonds, performance bonds or other guarantees to the extent any demands made under any such reimbursement or similar obligation relate to a draw under the related letter of credit or other instrument, which draw is being contested in good faith by the Company through appropriate proceedings, which default shall have resulted in that indebtedness being accelerated without that indebtedness being discharged or that acceleration having been rescinded or annulled within five business days after the Company's receipt of the Notice of Default from the Trustee or receipt by the Company and the Trustee of the Notice of Default from the holders of not less than 25% in aggregate principal amount of the Debentures then outstanding, unless that default has been cured or waived within 30 days; provided, however, that if such default under such agreement or instrument is remedied or cured by the Company or waived by the holders of such indebtedness, then the event of default hereunder by reason thereof shall be - 45 - deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of the Trustee or any Debenture holders; (g) if the Company elects to satisfy obligations to Debenture holders hereunder by issuing and delivering Common Shares to the Trustee for sale by it and the Company fails to deliver a sufficient number of Common Shares to the Trustee which, upon the sale of such Common Shares, would permit the Trustee to deliver to Debenture holders the full amount of the interest otherwise due in cash; (h) if the Company shall neglect to observe or perform any other material covenant or condition herein contained on its part to be observed or performed and, after notice in writing has been given by the Trustee to the Company specifying such default, requiring the Company to put an end to the same and stating that such notice is a "NOTICE OF DEFAULT" hereunder (which said notice may be given by the Trustee, in its discretion, and shall be given by the Trustee upon receipt of a request in writing signed by the holders of not less than 25% in principal amount of the Debentures then outstanding), the Company shall fail to make good such default within a period of 30 days, unless the Trustee (having regard to the subject matter of the default) shall have agreed to a longer period, and in such event, within the period agreed to by the Trustee; (i) if the Company fails to redeem any Debenture pursuant to the terms hereof when obligated to do so; (j) if the Company fails to make an Offer or pay the Offer Price pursuant to the terms hereof when obligated to do so pursuant to Article 5; or (k) if the Company fails to deliver Common Shares together with cash in lieu of fractional shares, when those Common Shares and/or cash are required to be delivered following the conversion of a Debenture in accordance with the provisions hereof and such default continues for a period of ten days, then in each and every such event the Trustee may in its discretion and shall upon receipt of a requisition in writing signed by the holders of not less than 50% in principal amount of the Debentures then outstanding, subject to the provisions of section 8.3, by notice in writing to the Company declare the principal of and interest on all Debentures then outstanding which would have been payable if the Company had redeemed the Debentures on the date of such declaration and all other moneys outstanding hereunder to be due and payable and the same shall forthwith become immediately due and payable to the Trustee, anything therein or herein to the contrary notwithstanding, and the Company shall forthwith pay to the Trustee for the benefit of the Debenture holders the principal of, and accrued and unpaid interest and interest on amounts in default on such Debentures hereunder, together with interest on such principal and interest at the Interest Rate, if any, from the date of the said declaration until payment in full is received by the Trustee. Such payment when made shall be deemed to have been made in discharge of the Company's obligations hereunder and any moneys so received by the Trustee shall be applied in the manner provided in section 8.6. Notwithstanding the foregoing, upon the occurrence of an event of default pursuant to clauses (c), (d) or (e) above, the principal of or any interest on all Debentures then outstanding shall forthwith become due and payable without any further action by the Trustee or any holder. - 46 - 8.2 NOTICE OF EVENTS OF DEFAULT. 8.2.1 If an event of default described in subsections 8.1(c), (d), (e), (f), (h), (i) or (j) shall occur and be continuing, the Company shall, within five business days of becoming aware of such occurrence, given notice of such occurrence to the Trustee in the manner provided in section 12.3. 8.2.2 If an event of default shall occur and be continuing the Trustee shall, within 30 days after it becomes aware of the occurrence of such event of default, unless cured or waived in accordance with section 8.3, give notice of such event of default to the Debenture holders in the manner provided in section 12.2, provided that, notwithstanding the foregoing, and except in connection with an event of default pursuant to subsections 8.1(c), (d) or (e), the Trustee shall not be required to give such notice if the Trustee in good faith shall have decided that the withholding of such notice is in the best interests of the Debenture holders and shall have so advised the Company in writing. 8.3 WAIVER OF DEFAULT. Upon the happening of any event of default hereunder: (a) the holders of Debentures then outstanding shall have power exercisable by extraordinary resolution to instruct the Trustee to waive any default hereunder other than a default under sections 8.1(a), (b) or (k), or a default in respect of a provision that under section 11.11.2 cannot be amended without the consent of each holder of Debentures, or a default under Article 4, and/or to cancel any declaration made by the Trustee pursuant to section 8.1 and the Trustee shall thereupon waive the default and/or cancel such declaration upon such terms and conditions as shall be prescribed in such requisition; and (b) the Trustee, so long as it has not become bound to declare the principal of and interest on the Debentures then outstanding to be due and payable or to obtain or enforce payment of the same, shall have power to waive any default hereunder if, in the Trustee's opinion, the same shall have been cured or adequate satisfaction made therefor, and in such event to cancel any such declaration theretofore made by the Trustee in the exercise of its discretion, upon such terms and conditions as to the Trustee may seem advisable, provided that no act or omission either of the Trustee or of the Debenture holders in the premises shall extend to or be taken in any manner whatsoever to affect any subsequent default hereunder or the rights resulting therefrom. 8.4 ENFORCEMENT BY THE TRUSTEE. 8.4.1 Subject to the provisions of section 8.3 and to the provisions of any extraordinary resolution that may be passed by the Debenture holders, in case the Company shall fail to pay to the Trustee, forthwith after the same shall have been declared to be due and payable under section 8.1, the principal of and interest on all Debentures then outstanding, together with any other amounts due hereunder, the Trustee may in its discretion and shall upon receipt of a request in writing signed by the holders of not less than 50% in principal amount of the Debentures then outstanding and upon being indemnified and funded (or reasonable provisions having been made for such funding) to its reasonable satisfaction against all costs, expenses and liabilities to be incurred, proceed in its name as Trustee hereunder to obtain or enforce payment of the said principal of and interest on all the Debentures then outstanding together with any other amounts due hereunder by such proceedings authorized by this indenture or by law or equity as the Trustee in such request shall have been directed to take, or if such request contains no such direction, or if the Trustee shall act without such request, then by such proceedings authorized by this indenture or by suit at law or in equity as the Trustee shall deem necessary or expedient. - 47 - 8.4.2 The Trustee shall be entitled and empowered, either in its own name or as trustee of an express trust, or as attorney-in-fact for the holders of the Debentures, or in any one or more of such capacities, to file such proof of debt, amendment of proof of debt, claim, petition or other document as may be necessary or advisable in order to have the claim of the Trustee and of the holders of the Debentures allowed in any insolvency, bankruptcy, liquidation or other judicial proceedings relative to the Company or its creditors or relative to or affecting its property. The Trustee is hereby irrevocably appointed (and the successive respective holders of the Debentures by taking and holding the same shall be conclusively deemed to have so appointed the Trustee) the true and lawful attorney-in-fact of the respective holders of the Debentures with authority to make and file in the respective names of the holders of the Debentures or on behalf of the holders of the Debentures as a class, subject to deduction from any such claims of the amounts of any claims filed by any of the holders of the Debentures themselves, any proof of debt, amendment of proof of debt, claim, petition or other document in any such proceedings and to receive payment of any sums becoming distributable on account thereof, and to execute any such other papers and documents and to do and perform any and all such acts and things for and on behalf of such holders of the Debentures, as may be necessary or advisable in the opinion of the Trustee, in order to have the respective claims of the Trustee and of the holders of the Debentures against the Company or its property allowed in any such proceeding, and to receive payment of or on account of such claims; provided, however, that nothing contained in this indenture shall be deemed to give to the Trustee, unless so authorized by extraordinary resolution, any right to accept or consent to any plan of reorganization or otherwise by action of any character in such proceeding to waive or change in any way any right of any Debenture holder. 8.4.3 The Trustee shall also have the power at any time and from time to time to institute and to maintain such suits and proceedings as it may be advised shall be necessary or advisable to preserve and protect its interests and the interests of the Debenture holders. 8.4.4 All rights of action hereunder may be enforced by the Trustee without the possession of any of the Debentures or the production thereof on the trial or other proceedings relative thereto. Any such suit or proceeding instituted by the Trustee may be brought in the name of the Trustee as trustee of an express trust, and any recovery of judgment shall be for the rateable benefit of the holders of the Debentures subject to the provisions of this indenture. In any proceeding brought by the Trustee (and also any proceeding in which a declaratory judgment of a court may be sought as to the interpretation or construction of any provision of this indenture, to which the Trustee shall be a party) the Trustee shall be held to represent all the holders of the Debentures, and it shall not be necessary to make any holders of the Debentures parties to any such proceeding. 8.5 SUITS BY DEBENTURE HOLDERS. No holder of any Debenture shall have any right to institute any action, suit or proceeding at law or in equity for the purpose of enforcing payment of the principal of or interest on the Debentures or for the execution of any trust or power hereunder or for the appointment of a liquidator or receiver or for a receiving order under the Bankruptcy and Insolvency Act (Canada) or to have the Company wound up or to file or prove a claim in any liquidation or bankruptcy proceeding or for any other remedy hereunder, unless: (a) such holder shall previously have given to the Trustee written notice of the happening of an event of default hereunder; (b) the holders of at least 25% of the principal amount of the Debentures then outstanding shall have made a request in writing to the Trustee and the Trustee shall have been afforded reasonable opportunity to proceed to exercise the powers hereinbefore granted or to institute an action, suit or proceeding in its name for such purpose; - 48 - (c) the Debenture holders or any of them shall have furnished to the Trustee, when so requested by the Trustee, sufficient funds and security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby; and (d) the Trustee shall have failed to act within 45 days after such notification, request and offer of indemnity and such notification, request and offer of indemnity are hereby declared in every such case, at the option of the Trustee, to be conditions precedent to any such proceeding or for any such proceeding or any other remedy hereunder or by or on behalf of the holder of any Debentures. 8.6 APPLICATION OF MONEYS BY TRUSTEE. Except as herein otherwise expressly provided, any moneys received by the Trustee from the Company pursuant to the foregoing provisions of this Article 8, or as a result of legal or other proceedings or from any trustee in bankruptcy or liquidator of the Company, shall be applied, together with any other moneys in the hands of the Trustee available for such purposes, as follows: (a) first, in payment or in reimbursement to the Trustee of its compensation, costs, charges, expenses, borrowings, advances or other moneys furnished or provided by or at the instance of the Trustee in or about the execution of its trusts under, or otherwise in relation to, this indenture, with interest thereon as herein provided; (b) second, but subject to the provisions of Article 6 and as hereinafter in this section 8.6 provided, in payment of the principal of and accrued and unpaid interest and interest on amounts in default on the Debentures which shall then be outstanding in the priority of principal first and then accrued and unpaid interest and interest on amounts in default unless otherwise directed by extraordinary resolution and in that case in such order or priority as between principal and interest as may be directed by such resolution; and (c) third, in payment of the surplus, if any, of such moneys to the Company or its assigns, provided, however, that no payment shall be made pursuant to paragraph 8.6(b) in respect of the principal or interest of any Debenture held, directly or indirectly, by or for the benefit of the Company or any Principal Subsidiary, Associate or Affiliate (other than any Debenture pledged for value and in good faith to a person other than the Company or any Principal Subsidiary, Associate or Affiliate but only to the extent of such person's interest therein) except subject to the prior payment in full of the principal of and interest on, all Debentures which are not so held. 8.7 DISTRIBUTION OF PROCEEDS. Payments to holders of Debentures pursuant to paragraph 8.6(b) shall be made as follows: (a) at least 10 business days' notice of every such payment shall be given in the manner provided in section 12.2 specifying the time when and the place or places where the Debentures are to be presented and the amount of the payment and the application thereof as between principal and interest; (b) payment of any Debenture shall be made upon presentation thereof at any one of the places specified in such notice and any such Debenture thereby paid in full shall be surrendered, otherwise a memorandum of such payment shall be endorsed thereon; but the Trustee may in its discretion dispense with presentation and surrender or endorsement in any special case upon such indemnity being given as it shall deem sufficient; - 49 - (c) from and after the date of payment specified in the notice, interest shall accrue only on the amount owing on each Debenture after giving credit for the amount of the payment specified in such notice unless the Debenture in respect of which such amount is owing be duly presented on or after the date so specified and payment of such amount be not made; and (d) the Trustee shall not be required to make any interim payment to Debenture holders unless the moneys in its hands, after reserving therefrom such amount as the Trustee may think necessary to provide for the payments mentioned in paragraph 8.6(a), exceed 2% of the principal amount of the Debentures then outstanding. 8.8 REMEDIES CUMULATIVE. No remedy herein conferred upon or reserved to the Trustee, or upon or to the holders of Debentures, is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now existing or hereafter to exist by law or by statute. 8.9 JUDGMENT AGAINST THE COMPANY. The Company covenants and agrees with the Trustee that, in case of any judicial or other proceedings to enforce the rights of the Debenture holders, judgment may be rendered against it in favour of the Debenture holders or in favour of the Trustee, as Trustee for the Debenture holders, for any amount which may remain due in respect of the Debentures and the interest thereon. 8.10 IMMUNITY OF SHAREHOLDERS. The Debenture holders and the Trustee hereby waive and release any right, cause of action or remedy now or hereafter existing in any jurisdiction against any past, present or future incorporator, shareholder, director or officer of the Company or of any successor corporation for the payment of the principal of or interest on any of the Debentures or on any covenant, agreement, representation or warranty by the Company herein or in the Debentures contained, save and except only recourse with respect to damages resulting from fraud. 8.11 TRUSTEE APPOINTED ATTORNEY. The Company hereby irrevocably appoints the Trustee to be the attorney of the Company in the name and on behalf of the Company to execute any instruments and do any acts and things which the Company ought to execute and do, and has not executed or done, under the covenants and provisions contained in this indenture and generally to use the name of the Company in the exercise of all or any of the powers hereby conferred on the Trustee, with full powers of substitution and revocation. ARTICLE 9 SATISFACTION AND DISCHARGE 9.1 CANCELLATION AND DESTRUCTION. Debentures shall forthwith after payment thereof be delivered to the Trustee and cancelled by it. All Debentures cancelled or required to be cancelled under this or any other provision of this indenture shall be destroyed by the Trustee and if required by the Company the Trustee shall furnish to it a destruction certificate in respect of the Debentures so destroyed. 9.2 NON-PRESENTATION OF DEBENTURES. In case the holder of any Debenture shall fail to present the same for payment or for conversion, as the case may be, on the date on which the principal thereof and/or the interest thereon or represented thereby becomes payable, either on the Maturity Date or otherwise, or shall not accept payment on account thereof and give such receipt therefor, if any, as the Trustee may require: (a) the Company shall be entitled to pay or deliver to the Trustee and direct it to set aside; or - 50 - (b) in respect of moneys in the hands of the Trustee which may or should be applied to the payment of the Debentures, the Company shall be entitled to direct the Trustee to set aside; or (c) if the redemption was pursuant to notice given by the Trustee, the Trustee may itself set aside, the principal moneys and/or the interest, as the case may be, in trust to be paid to the holder of such Debenture upon due presentation or surrender thereof in accordance with the provisions of this indenture; and thereupon the principal moneys and/or the interest payable on or represented by each Debenture in respect whereof such moneys have been set aside shall be deemed to have been paid, no further interest shall accrue thereon for the benefit of the holder and the holder thereof shall thereafter have no right in respect thereof except that of receiving payment of the moneys so set aside by the Trustee upon due presentation and surrender thereof, subject always to the provisions of section 9.3. 9.3 REPAYMENT OF UNCLAIMED MONEYS. Subject to applicable law, any moneys set aside under section 9.2 and not claimed by and paid to holders of Debentures as provided in section 9.2 within six years after the date of such setting aside shall be repaid to the Company by the Trustee on demand and thereupon the Trustee shall be released from all further liability with respect to such moneys and thereafter the holders of the Debentures in respect of which such moneys were so repaid to the Company shall have no rights in respect thereof except to obtain payment of the moneys due thereon from the Company. After return to the Company, holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person. 9.4 DISCHARGE. The Trustee shall at the request of the Company release and discharge this indenture and execute and deliver such instruments as it shall be advised by Counsel are requisite for that purpose and to release the Company from its covenants herein contained (other than the provisions relating to the indemnification of the Trustee), upon proof being given to the reasonable satisfaction of the Trustee that the principal of and interest (including interest on amounts in default, if any) on all the Debentures and all other moneys payable hereunder have been paid or satisfied or that all the Debentures having matured or having been duly called for redemption, payment of the principal of and interest (including interest on amounts in default, if any) on such Debentures and of all moneys payable hereunder has been duly and effectually provided for in accordance with the provisions hereof. ARTICLE 10 SUCCESSOR CORPORATIONS 10.1 CERTAIN REQUIREMENTS. The Company shall not, directly or indirectly, sell, transfer, assign, lease or otherwise dispose of all or substantially all of its property and assets as an entirety to any other Person and shall not amalgamate, consolidate or merge with or into any other Person (any such other Person being herein referred to as a "SUCCESSOR CORPORATION") unless: (a) the successor corporation shall execute, prior to or contemporaneously with the consummation of any such transaction, an indenture supplemental hereto together with such other instruments as are, in the opinion of Counsel, necessary or advisable to evidence the assumption by the successor corporation of the due and punctual payment of all the Debentures and the interest thereon and all other moneys payable hereunder and the covenant of the successor corporation to pay the same and its agreement to observe and perform all the covenants and obligations of the Company under this indenture; - 51 - (b) such transaction shall, in the opinion of Counsel, be upon such terms as substantially to preserve and not impair any of the rights and powers of the Trustee or of the Debenture holders hereunder; (c) such transaction shall not, in the opinion of Counsel, result in the successor corporation being required to make any deduction or withholding of taxes from any payments in respect of the Debentures for which Additional Amounts would be required to be paid pursuant to section 2.19; (d) no condition or event shall exist as to the Company or the successor corporation either at the time of or immediately after the consummation of any such transaction and after giving full effect thereto or immediately after the successor corporation complying with the provisions of clause (a) above which constitutes or would constitute an event of default hereunder; and (e) an Officers' Certificate and an opinion of Counsel, each stating that the amalgamation, merger, consolidation, transfer, assignment or lease complies with the provisions of this indenture, have been delivered by the Company to the Trustee. 10.2 VESTING OF POWERS IN SUCCESSOR. Whenever the conditions of section 10.1 have been duly observed and performed the successor corporation shall possess and from time to time may exercise each and every right and power of the Company under this indenture in the name of the Company or otherwise and any act or proceeding by any provision of this indenture required to be done or performed by any directors or officers of the Company may be done and performed with like force and effect by the directors or officers of such successor corporation. ARTICLE 11 MEETINGS OF DEBENTURE HOLDERS 11.1 RIGHT TO CONVENE MEETING. The Trustee may at any time and from time to time and shall on receipt of a written request of the Company or a written request signed by the holders of not less than 25% in principal amount of the Debentures then outstanding and upon being indemnified to its reasonable satisfaction by the Company or by the Debenture holders signing such request against the costs which may be incurred in connection with the calling and holding of such meeting, convene a meeting of the Debenture holders. In the event of the Trustee failing within 30 days after receipt of any such request and such indemnity to give notice convening a meeting, the Company or such Debenture holders, as the case may be, may convene such meeting. Every such meeting shall be held in the City of Vancouver, British Columbia or at such other place as may be approved or determined by the Trustee. 11.2 NOTICE OF MEETINGS. Subject to section 11.17, at least 21 days notice of any meeting shall be given to the Debenture holders in the manner provided in section 12.2 and a copy thereof shall be sent by mail to the Trustee and to the Company. Such notice shall state the time when and the place where the meeting is to be held and shall state briefly the general nature of the business to be transacted thereat and it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Article. 11.3 CHAIRMAN. Some person, who need not be a Debenture holder, nominated in writing by the Trustee shall be the chairman of the meeting and if no person is so nominated, or if the person so nominated is not present within 15 minutes from the time fixed for the holding of the meeting, the Debenture holders present in person or by proxy shall choose some person present to be chairman. - 52 - 11.4 QUORUM. Subject to the provisions of sections 11.12 and 11.17, at any meeting of the Debenture holders a quorum shall consist of Debenture holders present in person or by proxy and representing at least 25% in principal amount of the outstanding Debentures. If a quorum of the Debenture holders shall not be present within 30 minutes from the time fixed for holding any meeting, the meeting, if summoned by the Debenture holders or pursuant to a request of the Debenture holders, shall be dissolved; but in any other case the meeting shall be adjourned to the same day in the next week (unless such day is not a business day in which case it shall be adjourned to the next following business day thereafter) at the same time and place and no notice shall be required to be given in respect of such adjourned meeting. At the adjourned meeting the Debenture holders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened notwithstanding that they may not represent 25% of the principal amount of the outstanding Debentures. 11.5 POWER TO ADJOURN. The chairman of any meeting at which a quorum of the Debenture holders is present may with the consent of the holders of a majority in principal amount of the Debentures represented thereat adjourn any such meeting and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe. 11.6 SHOW OF HANDS. Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a show of hands except that votes on extraordinary resolutions shall be given in the manner hereinafter provided. At any such meeting, unless a poll is duly demanded as herein provided, a declaration by the chairman that a resolution has been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be conclusive evidence of the fact. 11.7 POLL. On every extraordinary resolution, and on any other question submitted to a meeting when demanded by the chairman or by one or more Debenture holders and/or proxies for Debenture holders holding at least $10,000 principal amount of Debentures, a poll shall be taken in such manner and either at once or after an adjournment, as the chairman shall direct. Questions other than extraordinary resolutions shall, if a poll be taken, be decided by the votes of the holders of a majority in principal amount of the Debentures represented at the meeting and voted on the poll. 11.8 VOTING. On a show of hands every person who is present and entitled to vote, whether as a Debenture holder or as proxy for one or more Debenture holders or both, shall have one vote. On a poll each Debenture holder present in person or represented by a proxy (which proxy need not be a Debenture holder) duly appointed by an instrument in writing shall be entitled to one vote in respect of each $1,000 principal amount of Debentures of which he shall then be the holder or in the case of joint holders of a Debenture, any one of them present in person or by proxy at the meeting may vote in the absence of the other or others, but in case more than one of them be present in person or by proxy, they shall vote together in respect of the Debentures of which they are joint holders. 11.9 REGULATIONS. 11.9.1 The Trustee, or the Company with the approval of the Trustee, may from time to time make and from time to time vary such regulations as it shall from time to time think fit providing for and governing: (a) the voting by proxy by Debenture holders and form of instrument appointing proxies where authorized under such regulations and the manner in which the same shall be executed, and for the production of the authority of any person signing on behalf of the giver of such proxy; - 53 - (b) the deposit of instruments appointing proxies at such place as the Trustee, the Company or the Debenture holders convening the meeting, as the case may be, may, in the notice convening the meeting, direct the time, if any, before the holding of the meeting or any adjournment thereof by which the same shall be deposited; and (c) the deposit of instruments appointing proxies at some approved place or places other than the place at which the meeting is to be held and enabling particulars of such instruments appointing proxies to be mailed, cabled, telegraphed, telecopied or sent by telex before the meeting to the Company or to the Trustee at the place where the same is to be held and for the voting of proxies so deposited as though the instruments themselves were produced at the meeting. 11.9.2 Any regulation made in accordance with this section 11.9 shall be binding and effective and the votes given in accordance therewith shall be valid and shall be counted. Save as such regulations may provide, the only persons who shall be recognized at any meeting as the holders of any Debentures, or as entitled to vote or be present at the meeting in respect thereof, shall be Debenture holders and persons whom Debenture holders have by instrument in writing duly appointed as their proxies. 11.10 COMPANY AND TRUSTEE MAY BE REPRESENTED. The Company and the Trustee, by their respective officers and directors, the Auditors of the Company, and the legal advisers of the Company and the Trustee, may attend any meeting of the Debenture holders and of any committee appointed pursuant to paragraph 11.1(g), but shall have no vote as such. 11.11 POWERS EXERCISABLE BY EXTRAORDINARY RESOLUTION. 11.11.1 In addition to the powers conferred upon them by section 8.3 or any other provisions of this indenture or by law, but subject to subsection 11.11.2 and section 11.17, a meeting of the Debenture holders shall have the following powers exercisable from time to time by extraordinary resolution subject, in the case of the matters in paragraphs 11.11.1(a), (b), (c) and (i), to receipt of the prior approval of the Toronto Stock Exchange (if applicable) or such other exchange on which the Debentures are then listed: (a) power to sanction any modification, abrogation, alteration, compromise or arrangement of the rights of the Debenture holders and/or the Trustee against the Company, or against its property, whether such rights arise under this indenture or the Debentures or otherwise; (b) power to assent to any modification of or change in or addition to or omission from the provisions contained in this indenture which shall be agreed to by the Company and to authorize the Trustee to concur in and execute any indenture supplemental hereto embodying any modification, change, addition or omission; (c) power to sanction any scheme for the reconstruction, reorganization or recapitalization of the Company or for the consolidation, amalgamation or merger of the Company with any other Person or for the sale, leasing, transfer or other disposition of the undertaking, property and assets of the Company or any part thereof, provided that no such sanction shall be necessary in respect of any such transaction if the provisions of section 10.1 shall have been complied with; (d) power to direct or authorize the Trustee to exercise any power, right, remedy or authority given to it by this indenture in any manner specified in any such extraordinary resolution or to refrain from exercising any such power, right, remedy or authority; - 54 - (e) power to waive and direct the Trustee to waive any default hereunder and/or cancel any declaration made by the Trustee pursuant to section 8.1 either unconditionally or upon any condition specified in such extraordinary resolution; (f) power to assent to any compromise or arrangement with any creditor or creditors or any class or classes of creditors, whether secured or otherwise, and with holders of any shares or other securities of the Company; (g) power to appoint a committee with power and authority subject to such limitations, if any, as may be prescribed in the resolution to exercise, and to direct the Trustee to exercise, on behalf of the Debenture holders, such of the powers of the Debenture holders as are exercisable by extraordinary or other resolution as shall be included in the resolution appointing the committee. The resolution making such appointment may provide for payment of the expenses and disbursements of and compensation of such committee. Such committee shall consist of such number of persons as shall be prescribed in the resolution appointing it and the members need not be themselves Debenture holders. Every such committee may elect its chairman and may make regulations respecting its quorum, the calling of its meetings, the filling of vacancies occurring in its number and its procedure generally. Such regulations may provide that the committee may act at a meeting at which a quorum is present or may act by minutes signed by the number of members thereof necessary to constitute a quorum. All acts of any such committee within the authority delegated to it shall be binding upon all Debenture holders. Neither the committee nor any member thereof shall be liable for any loss arising from or in connection with any action taken or omitted to be taken by them in good faith; (h) power to remove the Trustee from office and to appoint a new Trustee or Trustees to take the place of the Trustee so removed provided that no such removal shall be effective unless and until a new Trustee or Trustees shall have become bound by this indenture; (i) power to sanction the exchange of the Debentures for or the conversion thereof into shares, bonds, debentures or other obligations of the Company or of any other Person formed or to be formed; (j) power to authorize the distribution in specie of any shares or securities received pursuant to a transaction authorized under the provisions of paragraph 11.11.1(i); and (k) power to amend, alter or repeal any extraordinary resolution previously passed or sanctioned by the Debenture holders or by any committee appointed pursuant to paragraph 11.11.1(g). Notwithstanding the foregoing provisions of this subsection 11.11.1, none of such provisions shall in any manner allow or permit any amendment, modification, abrogation or addition to the provisions of Article 6 which could reasonably be expected to detrimentally affect the rights, remedies or recourse of the priority of the holders of any Senior Indebtedness. 11.11.2 Notwithstanding subsection 11.11.1, without the consent of each Debenture holder affected, an amendment, modification or supplement to this indenture or the Debentures may not: (a) reduce the threshold amount of Debentures whose holders must consent to any amendment or waiver under this indenture or modify the provisions relating to such amendment or waiver; - 55 - (b) reduce the Interest Rate or extend the time for payment of interest on any Debentures; (c) reduce the principal amount of any Debenture or extend the Maturity Date of any Debenture; (d) reduce the Redemption Price, Total Offer Price, Additional Amounts or Conversion Price (except, with respect to the Conversion Price, as otherwise permitted by this indenture) of any Debenture or extend the date on which the Redemption Price, Total Offer Price or Additional Amounts of any Debenture is payable; (e) make any Debenture payable in money or securities other than that stated in the Debenture; (f) make any change in section 8.3 or this subsection 11.11.2, except to increase any percentage set forth therein; (g) make any change that adversely affects the right of any holder to convert any Debenture or to receive any Additional Amounts (except as such right is otherwise limited by this indenture); (h) make any change that affects in a manner adverse to the interest of the holders, the obligation of the Company to make an Offer or to pay the Total Offer Price when due as contemplated in Article 5; (i) impair the right to institute suit for the enforcement of any payment with respect to, or conversion of, the Debentures; or (j) make any change that would result in the Company being required to make any deduction or withholding from payments made in respect of the Debentures. It shall not be necessary for the consent of the holders under this subsection 11.11.2 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. 11.12 MEANING OF "EXTRAORDINARY RESOLUTION". 11.12.1 The expression "EXTRAORDINARY RESOLUTION" when used in this indenture means, subject as hereinafter in this Article provided, a resolution proposed to be passed as an extraordinary resolution at a meeting of Debenture holders duly convened for the purpose and held in accordance with the provisions of this Article at which the holders of at least 25% in principal amount of the Debentures then outstanding are present in person or by proxy and passed by the favourable votes of the holders of not less then 66 2/3% of the principal amount of Debentures represented at the meeting and voted on a poll upon such resolution. 11.12.2 Subject to section 11.17, if, at any meeting convened to consider an extraordinary resolution, the holders of 25% in principal amount of the Debentures outstanding are not present in person or by proxy within 30 minutes after the time appointed for the meeting, then the meeting, if convened by or on the requisition of Debenture holders, shall be dissolved; but in any other case it shall stand adjourned to such date, being not less than 14 nor more than 60 days later, and to such place and time as may be appointed by the chairman. Not less than ten days notice shall be given of the time and place of such adjourned meeting in the manner provided in section 12.2. Such notice shall state that at the adjourned meeting the Debenture holders present in person or by proxy shall form a quorum but it shall not be necessary to set forth the purposes for which the meeting was originally called or any other particulars. At the adjourned meeting the Debenture holders present in person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such -56- adjourned meeting and passed by the requisite vote as provided in subsection 11.12.1 shall be an extraordinary resolution within the meaning of this indenture, notwithstanding that the holders of 25% in principal amount of the Debentures then outstanding are not present in person or by proxy at such adjourned meeting. 11.12.3 Votes on an extraordinary resolution shall always be given on a poll and no demand for a poll on an extraordinary resolution shall be necessary. 11.13 POWERS CUMULATIVE. It is hereby declared and agreed that any one or more of the powers and/or any combination of the powers in this indenture stated to be exercisable by the Debenture holders by extraordinary resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to exhaust the rights of the Debenture holders to exercise the same or any other such power or combination of powers thereafter from time to time. 11.14 MINUTES. Minutes of all resolutions and proceedings at every meeting as aforesaid shall be made and duly entered in books to be from time to time provided for that purpose by the Trustee at the expense of the Company, and any such minutes as aforesaid, if signed by the chairman of the meeting at which such resolutions were passed or proceedings had, or by the chairman of the next succeeding meeting of the Debenture holders, shall be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting in respect of the proceedings of which minutes shall have been made shall be deemed to have been duly held and convened, and all resolutions passed thereat or proceedings had thereat, to have been duly passed and had. 11.15 INSTRUMENTS IN WRITING. Subject to section 11.17, all actions which may be taken and all powers that may be exercised by the Debenture holders at a meeting held as hereinbefore in this Article provided may also be taken and exercised by the holders of 66 2/3% of the principal amount of all the outstanding Debentures by an instrument in writing signed in one or more counterparts and the expression "EXTRAORDINARY RESOLUTION" when used in this indenture shall include an instrument so signed. 11.16 BINDING EFFECT OF RESOLUTIONS. Every resolution and every extraordinary resolution passed in accordance with the provisions of this Article at a meeting of Debenture holders shall be binding upon all the Debenture holders, whether present at or absent from such meeting, and every instrument in writing signed by Debenture holders in accordance with section 11.15 shall be binding upon all the Debenture holders, whether signatories thereto or not, and each and every Debenture holder and the Trustee (subject to the provisions for its indemnity herein contained) shall be bound to give effect accordingly to every such resolution, extraordinary resolution and instrument in writing. 11.17 EVIDENCE OF RIGHTS OF DEBENTURE HOLDERS. Any request, direction, notice, consent or other instrument which this indenture may require or permit to be signed or executed by the Debenture holders may be in any number of concurrent instruments of similar tenor signed or executed by such Debenture holders and the Trustee may, in its discretion, require proof of execution in cases where it deems proof desirable and may accept such proof as it shall consider proper. ARTICLE 12 NOTICES 12.1 NOTICE TO COMPANY. Any notice to the Company under the provisions of this indenture shall be valid and effective if: (a) delivered; -57- (b) subject to section 12.5, sent by registered letter, postage prepaid; or (c) facsimiled and confirmed by first class mail, postage prepaid, to the Company addressed to it at 1500 - 625 Howe Street, Vancouver, British Columbia V6C 2T6, facsimile (604) 684-1175, Attention: The Secretary and a copy delivered to Borden Ladner Gervais, LLP 1200 - 200 Burrard Street, Vancouver, British Columbia V7X 1T2, facsimile (604) 687-1415, Attention: Fred R. Pletcher. The Company may from time to time notify the Trustee in writing of a change of address which thereafter, until changed by like notice, shall be the address of the Company for all purposes of this indenture. 12.2 NOTICE TO DEBENTURE HOLDERS. 12.2.1 All notices to be given hereunder with respect to the Debentures shall be deemed to be validly given to the Debenture holders if sent by ordinary mail, postage prepaid, by letter or circular, facsimile, or other recorded means of communication addressed to such holders at their post office addresses or address of any recorded means of communications device appearing in any of the registers hereinbefore mentioned and shall be deemed to have been effectively given five business days following the day of mailing or on the date sent by facsimile, as the case may be. Accidental error or omission in giving notice or accidental failure to mail notice to any Debenture holder shall not invalidate any action or proceeding founded thereon. 12.2.2 All notices with respect to any Debenture may be given to any one of the holders thereof (if more than one) who is named in the registers hereinbefore mentioned, and any notice so given shall be sufficient notice to all holders of and/or persons interested in such Debenture. 12.3 NOTICE TO TRUSTEE. Any notice to the Trustee under the provisions of this indenture shall be valid and effective if: (a) delivered; (b) subject to section 12.5, sent by registered letter, postage prepaid; or (c) facsimiled and confirmed by first class mail, postage prepaid, to the Trustee addressed to it at Computershare Trust Company of Canada at 510 Burrard Street, Vancouver, British Columbia, V6C 3B9, facsimile (604) 685-4079, Attention: Corporate Trust Department. The Trustee may from time to time notify the Company in writing of a change of address which thereafter, until changed by like notice, shall be the address of the Trustee for all purposes of this indenture. 12.4 RECEIPT OF NOTICES. Any notice given to the Company or the Trustee in the manner set out in sections 12.1 or 12.3, as the case may be, shall be deemed to have been effectively given: (a) if delivered, on the date so delivered; (b) if sent by facsimile, on the date such facsimile is sent; or (c) if mailed, subject to section 12.5, on the date five business days after the date of mailing. 12.5 MAIL SERVICE INTERRUPTION. If by reason of any interruption of mail service, actual or threatened, any notice to be given to the Trustee or to the Company would reasonably be unlikely to reach -58- its destination in the ordinary course of mail, such notice shall be valid and effective only if delivered to the party to which it is addressed or if sent to such party, at the appropriate address in accordance with section 12.1 or 12.3, as the case may be, by facsimile or other means of prepaid transmitted or recorded communication. 12.6 WAIVER OF NOTICE. Where this indenture provides for notice to any person in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. ARTICLE 13 CONCERNING THE TRUSTEE 13.1 TRUST INDENTURE LEGISLATION. 13.1.1 This indenture is subject to the provisions of the Trust Indenture Legislation and shall, to the extent applicable, be governed by such provisions. Without limiting the foregoing, the Trustee and the Company each agree to comply with all provisions of the Trust Indenture Legislation applicable to or binding upon each of them in connection with this indenture. 13.1.2 If and to the extent that any provision of this indenture limits, qualifies or conflicts with any mandatory requirement of indenture legislation, such mandatory requirement shall prevail. 13.2 NO CONFLICT OF INTEREST. The Trustee represents to the Company that at the date of the execution and delivery of this indenture there exists no material conflict of interest in the role of the Trustee as a fiduciary hereunder. 13.3 REPLACEMENT OF TRUSTEE. 13.3.1 The Trustee may resign its trusts and be discharged from all further duties and liabilities hereunder by giving to the Company 90 days notice in writing or such shorter notice as the Company may accept as sufficient at any time a material conflict of interest exists in the Trustee's role as a fiduciary hereunder. The Trustee shall, within 90 days after ascertaining that such a material conflict of interest exists, either eliminate such material conflict of interest or resign in the manner and with the effect specified in this section. In the event of the Trustee resigning or being removed as provided in section 11.11 or subsection 13.3.3 or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Company shall forthwith appoint a new Trustee unless a new Trustee has already been appointed by the Debenture holders; failing such appointment by the Company, the retiring Trustee or any Debenture holder may apply to a Judge of the Supreme Court of British Columbia, on such notice as such Judge may direct, for the appointment of a new Trustee but any new Trustee so appointed by the Company or by the Court shall be subject to removal as aforesaid by the Debenture holders. Any new Trustee appointed under any provision of this section shall be a company authorized to carry on the business of a trust company in the province of British Columbia and upon any new appointment the new Trustee shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as Trustee. 13.3.2 Any company into which the Trustee may be merged or with which it may be consolidated or amalgamated or any corporation resulting from any merger, consolidation or amalgamation to which the Trustee shall be a party, shall be the successor Trustee under this indenture without the execution of any instrument or any further act. -59- 13.3.3 Subject to subsection 13.3.1, the Company may, in its absolute discretion, remove the Trustee and discharge the Trustee from all further duties hereunder by giving the Trustee 30 days' notice in writing or such shorter notice as the Trustee may accept as sufficient at any time. 13.4 EXPERTS, ADVISERS AND AGENTS. The Trustee may: (a) act on the opinion or advice of or information obtained from any solicitor, auditor, valuer, engineer, surveyor, or other expert, whether obtained by the Trustee or by the Company, or otherwise, and may employ such assistants as may be necessary to the proper discharge of its duties and may pay proper and reasonable compensation for all such legal and other advice or assistance as aforesaid; and (b) employ such agents and other assistants as it may reasonably require for the proper discharge of its duties hereunder, and may pay reasonable remuneration for all services performed for it (and shall be entitled to receive reasonable remuneration for all services performed by it) in the discharge of the trusts hereof and compensation for all disbursements, costs and expenses made or incurred by it in the discharge of its duties hereunder and in the management of the trusts hereof. Any solicitors employed or consulted by the Trustee may, but need not be, solicitors for the Company. 13.5 TRUSTEE MAY DEAL IN DEBENTURES. Subject to section 13.2 the Trustee may buy, sell, lend upon and deal in the Debentures and generally contract and enter into financial transactions with the Company or otherwise, without being liable to account for any profits made thereby. 13.6 INVESTMENT OF MONEYS HELD BY TRUSTEE. 13.6.1 Unless otherwise provided in this indenture, any moneys held by the Trustee which under the trusts of this indenture may or ought to be invested or which may be on deposit with the Trustee or which may be in the hands of the Trustee shall be invested and reinvested in the name or under the control of the Trustee in securities in which, under the laws of the Province of British Columbia, trustees are authorized to invest trust moneys, provided that such securities are expressed to mature within two years or such shorter period selected to facilitate any payments expected to be made under this indenture, after their purchase by the Trustee, and unless and until the Trustee shall have declared the principal of and interest on the Debentures to be due and payable, the Trustee shall so invest such moneys at the written request of the Company. 13.6.2 Pending the investment of any moneys as hereinbefore provided, such moneys may be deposited in the name of the Trustee in any chartered bank of Canada or, with the consent of the Company, in the deposit department of the Trustee or any other loan or trust company authorized to accept deposits under the laws of Canada, or any province thereof at the rate of interest then current on similar deposits. 13.6.3 Unless and until the Trustee shall have declared the principal of and interest on the Debentures to be due and payable the Trustee shall pay over to the Company all interest received by the Trustee (other than pursuant to section 9.3) in respect of any investment or deposits made pursuant to the provisions of this section 13.6. 13.7 TRUSTEE NOT ORDINARILY BOUND. Except as provided in subsections 8.1 (a) and 8.2 and as otherwise specifically provided herein, the Trustee shall not, subject to the provisions of indenture legislation, be bound to give notice to any person of the execution hereof, nor to do, observe or perform or see to the observance or performance by the Company of any of the obligations herein imposed upon the Company or of the covenants on the part of the Company herein contained, nor in any way to supervise or -60- interfere with the conduct of the Company's business, unless the Trustee shall have been required to do so in writing by the holders of not less than 25% of the aggregate principal amount of the Debentures then outstanding or by any extraordinary resolution of the Debenture holders passed in accordance with the provisions contained in Article 11, and then only after it shall have been indemnified and funded (or provision having been made for such funding which are satisfactory to the Trustee) to its satisfaction against all actions, proceedings, claims and demands to which it may render itself liable and all costs, charges, damages and expenses which it may incur by so doing. 13.8 TRUSTEE NOT REQUIRED TO GIVE SECURITY. The Trustee shall not be required to give any bond or security in respect of the execution of the trusts and powers of this indenture or otherwise in respect of the premises. 13.9 ACCEPTANCE OF TRUST. The Trustee hereby accepts the trusts in this indenture declared and provided for and agrees to perform the same upon the terms and conditions herein set forth and to hold all rights, privileges and benefits conferred hereby and in law in trust for the various persons who shall from time to time be Debenture holders, subject to all the terms and conditions herein set forth. 13.10 PROTECTION OF THE TRUSTEE. The Trustee: (a) shall not at any time be under any duty or responsibility to any Debenture holder to determine whether any facts exist which may require any adjustment contemplated by subsection 4.4.1, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making the same; (b) shall not be accountable with respect to the validity or value (or the kind or amount) of any shares or other securities or property which may at any time be issued or delivered upon the exercise of the rights attaching to any Debenture; (c) shall not be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver Common Shares or certificates for the same, if any, pursuant to the terms of this Indenture; (d) shall not incur any liability or responsibility whatever or be in any way responsible for the consequence of any breach on the part of the Company of any of the representations, warranties or covenants herein contained or of any acts of the agents or servants of the Company; (e) shall not incur any liability or responsibility whatever or be in any way responsible for the consequences of any act of negligence or fraud of its agents so long as such agents were employed in good faith; (f) shall not incur any liability or responsibility whatever or be in any way responsible for any moneys deposited with any person other than the Trustee; and (g) shall not incur any liability or responsibility whatever or be in any way responsible for the consequences of accepting a document as genuine without further inquiry, provided such document is accepted in good faith. 13.11 TRUSTEE STANDARD OF CARE. In the exercise of its rights, duties and obligations prescribed or conferred by the terms of this indenture, the Trustee shall act honestly and in good faith and shall exercise that degree of care, diligence and skill that a reasonably prudent trustee would exercise in comparable -61- circumstances and the Trustee shall be bound to the standard of care required of it under Trust Indenture Legislation. 13.12 THIRD PARTY INTERESTS. The Company hereby represents to the Trustee that any account to be opened by, or interest to held by, the Trustee in connection with this indenture for or to the credit of the Company, either: (i) is not intended to be used by or on behalf of any third party; or (ii) is intended to be used by or on behalf of a third party, in which case the Company agrees to complete and execute forthwith a declaration in the Trustee's prescribed form as to the particulars of such third party. 13.13 TRUSTEE NOT BOUND TO ACT. The Trustee shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Trustee, in its sole judgement, determines that such act might cause it to be in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline. Further, should the Trustee, in its sole judgement, determine at any time that its acting under this indenture has resulted in its being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline, then it shall have the right to resign on 10 days written notice to the Company provided: (i) that the Trustee's written notice shall describe the circumstances of such non-compliance; and (ii) that if such circumstances are rectified to the Trustee's satisfaction within such 10 day period, then such resignation shall not be effective. ARTICLE 14 SUPPLEMENTAL INDENTURES 14.1 SUPPLEMENTAL INDENTURES. 14.1.1 Notwithstanding any other provision contained herein, from time to time the Trustee and, when authorized by a resolution of its directors, the Company, may and, when required by this indenture, they shall execute, acknowledge and deliver, by their proper officers, deeds or indentures supplemental hereto, which thereafter shall form part hereof, for any one or more of the following purposes: (a) adding to the covenants of the Company herein contained for the protection of the Debenture holders and/or providing for events of default in addition to those herein specified; (b) making such provision not inconsistent with this indenture as may be necessary or desirable with respect to matters or questions arising hereunder, including the making of any modifications in the form of the Debentures which do not affect the substance thereof and which, in the opinion of the Trustee upon advice from Counsel, it may be expedient to make, provided that the Trustee shall be of the opinion that such provisions and modifications will not be prejudicial to the interests of the Debenture holders; (c) evidencing the succession, or successive successions, of other corporations to the Company and the covenants of and obligations assumed by any such successor in accordance with the provisions of this indenture; (d) giving effect to a modification of the conversion rights applicable to the Debentures as contemplated in section 4.10 provided that the Trustee shall have received an opinion of Counsel that all conditions precedent to the execution of such supplemental indenture have been complied with; (e) giving effect to any extraordinary resolution passed as provided in Article 11; -62- (f) making any change to comply with any exemption from qualification under the TIA, or to comply with Canadian federal or provincial legislation relating to trust indentures; (g) surrendering any right, power or option conferred by this indenture on the Company; and (h) for any other purpose not inconsistent with the terms of this indenture. 14.1.2 The Trustee may also, without the consent or concurrence of the Debenture holders, by supplemental indenture or otherwise, concur with the Company in making any changes or corrections in this indenture which: (a) in the good faith opinion of the board of the directors of the Company do not materially adversely affect the rights of any holder of Debentures, as evidenced by a resolution of the board of directors contained in an Officers' Certificate provided to the Trustee; and (b) it shall have been advised by Counsel are required for the purpose of curing or correcting any ambiguity or defective or inconsistent provision or clerical omission or mistake or manifest error contained herein or in any deed or indenture supplemental or ancillary hereto, provided that in the opinion of the Trustee upon advice from Counsel the rights of the Trustee are in no way prejudiced thereby. ARTICLE 15 EVIDENCE OF OWNERSHIP 15.1 EVIDENCE OF OWNERSHIP. The Company and the Trustee may treat the holder of any Debenture as the owner thereof without actual production of such Debenture for the purpose of any request, requisition, direction, consent, instrument or other document as aforesaid. -63- ARTICLE 16 EXECUTION AND FORMAL DATE 16.1 COUNTERPART EXECUTION. This indenture may be simultaneously executed in several counterparts, each of which when so executed shall be deemed to be an original and such counterparts together shall constitute one and the same instrument. 16.2 FORMAL DATE. This indenture may be referred to as bearing the formal date of July 30, 2003 irrespective of the actual date of execution hereof. IN WITNESS WHEREOF the parties hereto have executed these presents under their respective corporate seals and the hands of their proper officers in that behalf. PAN AMERICAN SILVER CORP. Per: ---------------------------------------------- Name: Title: Per: ---------------------------------------------- Name: Title: COMPUTERSHARE TRUST COMPANY OF CANADA Per: ---------------------------------------------- Name: Title: Per: ---------------------------------------------- Name: Title: -64- SCHEDULE A Specimen Debenture Certificate A-1 [FORM OF FACE OF DEBENTURE] PAN AMERICAN SILVER CORP. 5.25% CONVERTIBLE UNSECURED SENIOR SUBORDINATED DEBENTURE [IF GLOBAL DEBENTURE, INSERT FOLLOWING LEGEND: "THIS DEBENTURE IS A GLOBAL DEBENTURE WITHIN THE MEANING OF THE INDENTURE HEREIN REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. THIS DEBENTURE MAY NOT BE TRANSFERRED TO OR EXCHANGED FOR DEBENTURES REGISTERED IN THE NAME OF ANY PERSON OTHER THAN THE DEPOSITORY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY DEBENTURE AUTHENTICATED AND DELIVERED UPON REGISTRATION OF, TRANSFER OF, OR IN EXCHANGE FOR, OR IN LIEU OF, THIS DEBENTURE SHALL BE A GLOBAL DEBENTURE SUBJECT TO THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE."] [IF ISSUED TO THE CANADIAN DEPOSITORY FOR SECURITIES LIMITED, INSERT THE FOLLOWING LEGEND: "UNLESS THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE CANADIAN DEPOSITORY FOR SECURITIES LIMITED ("CDS") TO PAN AMERICAN SILVER CORP. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEBENTURE ISSUED IN RESPECT THEREOF IS REGISTERED IN THE NAME OF CDS & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CDS (AND ANY PAYMENT IS MADE TO CDS & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED HOLDER HEREOF, CDS & CO., HAS AN INTEREST HEREIN." -1- No.: 1 Issue Date: July -, 2003 Principal Amount: U.S. $- CUSIP #: 697900AA6 PAN AMERICAN SILVER CORP., a company duly organized and subsisting under the laws of British Columbia, Canada (herein referred to as the "Company"), for value received, hereby promises to pay to ____________________ or registered assigns, the Principal Amount of ________ United States Dollars on July 31, 2009. This Debenture shall bear interest and the interest shall accrue and be calculated in the manner and shall be paid as specified on the reverse of this Debenture. This Debenture is subject to redemption and conversion as specified on the reverse of this Debenture. All capitalized terms used herein without definition shall have the respective meanings assigned thereto in the indenture referred to on the reverse of this Debenture. Additional provisions of this Debenture are set forth on the reverse of this Debenture, which additional provisions shall for all purposes have the same effect as if set forth at this place. PAN AMERICAN SILVER CORP. By: ------------------------------- Name: Title: By: -------------------------------- Name: Title: Computershare Trust Company of Canada, as Trustee, certifies that this Debenture is a Debenture referred to in the within-mentioned indenture. COMPUTERSHARE TRUST COMPANY OF CANADA By: ----------------------------------- Authorized Signatory -2- (FORM OF REGISTRATION PANEL) (No writing hereon except by Trustee or other registrar)
DATE OF REGISTRATION IN WHOSE NAME REGISTERED SIGNATURE OF TRUSTEE OR REGISTRAR - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- - ---------------------------------------- -------------------------------------- --------------------------------------
-3- [FORM OF REVERSE OF DEBENTURE] 5.25% CONVERTIBLE UNSECURED SENIOR SUBORDINATED DEBENTURE 1. Interest (a) The Company shall pay interest on each Debenture in arrears in semi-annual instalments on January 31 and July 31 of each year (the "Interest Payment Dates") commencing on January 31, 2004 at the rate of 5.25% per annum computed on the basis of a 365 day year. Subject to the terms and conditions of the indenture hereinafter referred to, interest shall accrue from and including the most recent date to which interest has been paid or made available for payment or, if no interest has been paid or made available for payment, from and including July 30, 2003. The interest so payable on any January 31 or July 31 will, subject to certain exceptions provided in the indenture, be paid to the person in whose name this Debenture is registered at the close of business on January 15 or July 15, as the case may be, next preceding such January 31 or July 31 whether or not such January 15 or July 15 is a business day. Interest shall cease to accrue on (and excluding) the earlier of (i) the Maturity Date; (ii) any Conversion Date, Redemption Date or other date on which interest shall cease to accrue in accordance with sections 2.5 and 4.2.6 of the indenture. (b) If the principal amount hereof or any portion of the principal amount hereof is not paid when due (whether upon acceleration pursuant to section 8.1 of the indenture, upon the Redemption Date pursuant to paragraph 6 hereof or on the business day following the expiry of an Offer pursuant to paragraph 9 hereof or upon the Maturity Date) or if interest is not paid when due upon the Interest Payment Dates provided for in section 1(a) hereof, or if Common Shares (or cash in lieu of fractional shares) are not delivered when due upon the conversion of this Debenture or, if Additional Amounts are not paid when due, then in each such case the Company shall pay interest on the overdue amount at the rate of 5.25% per annum, which interest (to the extent payment of such interest shall be legally enforceable) shall accrue from the date such overdue amount was due to, but excluding, the date payment of such amount, including interest thereon, has been made or duly provided for. The Company will pay to the registered holder of this Debenture such Additional Amounts as may become payable under section 2.19 of the indenture. 2. Method of Payment Subject to the terms and conditions of the indenture and certain exceptions contained therein, the Company will make payments or, if the Company is permitted to do so under the indenture and so elects in connection with a payment on a Redemption Date or the Maturity Date, the Company shall issue Common Shares, in respect of the Debentures to the persons who are registered holders of Debentures at the close of business on the business day preceding the Redemption Date or Maturity Date, or at the close of business on the Conversion Date or the date of expiry of an Offer. Holders must surrender Debentures to the Trustee to collect payments in respect of the Debentures, other than payments of interest only or Additional Amounts. The Company will pay cash amounts in United States dollars and may make such cash payments by cheque or electronic transfer of funds. Interest will be payable at the office of the Trustee, except that, at the option of the Company, payment of interest may be made by electronic transfer of funds or by cheque mailed first-class mail to the address of the person entitled thereto at such address as shall appear in the principal register for the Debentures. -4- Pursuant to section 2.8 of the indenture, the Company may elect to pay interest hereon by delivering Common Shares to the Trustee, which the Trustee is obligated to sell and use the proceeds to satisfy the Interest Amount payable. 3. Registrar Initially, Computershare Trust Company of Canada (the "Trustee") will act as registrar. The Company may appoint and change any paying agent, conversion agent, registrar or co-registrar upon notice to the Trustee and the Debenture holders. The Company or any Subsidiary or Affiliate of the Company may act as registrar or co-registrar. If there is an inconsistency between the terms of this Debenture and the terms set out in the indenture, the terms of the indenture will govern. The indenture is incorporated by reference in this Debenture. 4. Indenture The Company issued the Debentures under an indenture dated as of July 30, 2003 (the "indenture") between the Company and the Trustee. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the indenture. If there is an inconsistency between the terms of this Debenture and the terms set out in the Indenture, the terms of the Indenture will govern. The Indenture is incorporated by reference in this Debenture. 5. Subordination The indebtedness evidenced by this Debenture is subordinated in right of payment, to the extent and in the manner provided in the indenture, to the prior payment in full of all Senior Indebtedness whether outstanding at the date of the indenture or thereafter created, incurred, assumed or guaranteed. 6. Redemption at the Option of the Company At any time on or after July 31, 2006, the Company may, at its option, redeem the Debentures in whole at any time or in part from time to time, provided that the then Current Market Price is not less than 125% of the Conversion Price, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to but excluding the Redemption Date (the "Redemption Price"). In addition, the Debentures are redeemable, in whole but not in part, at the option of the Company for cash in United States dollars at any time upon not less than 30 days' nor more than 60 days' notice at the Redemption Price in the event that the Company has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Debentures, any Additional Amounts in accordance with section 3.2 of the indenture as a result of any change in, or amendment to, the laws (or any regulations promulgated hereunder) of Canada (or any political subdivision or taxing authority thereof or therein) or any change in, or amendment to, any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after July 30, 2003; provided that the Company determines, in its reasonable business judgment, that the obligation to pay such Additional Amounts cannot be avoided by the use of reasonable measures available to the Company (not including substitution of the obligor under the Debentures). If fewer than all the Debentures are to be redeemed, the Debentures will be redeemed in principal amounts of U.S.$1,000 or integral multiples of U.S.$1,000 pro rata or by another method that complies with the requirements of any exchange on which the Debentures are listed or quoted and that the Trustee shall deem equitable. -5- 7. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each holder of Debentures to be redeemed to the holder's registered address. If a combination of cash and Common Shares (if the Company elects to issue Common Shares as full or partial payment) sufficient to satisfy the Redemption Price of all Debentures (or portions thereof) to be redeemed on the Redemption Date are deposited with the Trustee prior to or on the Redemption Date, on and after such Redemption Date, interest shall cease to accrue on such Debentures or portions thereof. Debentures in denominations larger than U.S.$1,000 principal amount may be redeemed in part but only in integral multiples of U.S.$1,000 principal amount. 8. Share Payment Option The Company may at its option and subject to receiving all applicable regulatory approvals, unless an event of default has occurred and is continuing and except in the case of a redemption under section 3.2 of the indenture, elect to satisfy its obligations to pay all or a specified percentage of the outstanding principal amounts of Debentures upon redemption or maturity by issuing and delivering to the Debenture holder, for each U.S.$1,000 principal amount of Debentures, that number of fully paid and non-assessable and freely tradeable Common Shares obtained by dividing such principal amount by 95% of the Current Market Price of the Debentures on the applicable Redemption Date or Maturity Date, as the case may be, in accordance with section 3.10 of the indenture. No fractional Common Shares will be issued to the holders of Debentures, however in lieu thereof, the Company shall pay to the Trustee on account of the Debenture holders the cash equivalent thereof determined on the basis of the Current Market Price on the Redemption Date or Maturity Date, as the case may be. To exercise this option, the Company must, in the case of a redemption of Debentures, so state in the applicable Redemption Notice, or in the case of payment at maturity, provide the appropriate notice as described in the indenture. 9. Change of Control In the event of any Change of Control of the Company, the Company must, within 35 days after the occurrence of the Change of Control, make an offer to all Debenture holders to redeem (an "Offer") all outstanding Debentures properly tendered pursuant to such Offer, that is open for acceptance for a period of not less than 35 days and not more than 60 days and shall provide for payment to all Debenture holders who accept the Offer no later than the 60th day after making the Offer of cash or Common Shares or any combination of the foregoing having an aggregate value equal to the sum of: (i) 101% of the aggregate principal amount of the Debentures plus accrued and unpaid interest thereon up to but excluding the date of redemption of such Debentures by the Company or an Affiliate of the Company; and (ii) in the event the Change of Control occurs on or before July 31, 2006, the present value of any additional amount of interest (calculated as provided in the indenture) which would have accrued and been paid on the Debentures had such Debentures been outstanding until July 31, 2006 (collectively, the "Total Offer Price"). Common Shares issued as payment hereunder shall be issued in accordance with paragraph 8 hereof and section 3.10 of the indenture. If on the business day following the expiry date of the Offer the Trustee holds sufficient cash and/or Common Shares to pay the Total Offer Price of all Debentures or portions thereof in respect of which a Change of Control Redemption Notice has been delivered as specified in section 5.3 of the indenture, then after the expiry date of the Offer such Debenture shall cease to be outstanding. Interest on such Debenture shall cease to accrue and the principal amount of the Debenture and the amount of -6- accrued and unpaid interest thereon to, but excluding the expiry date of the Offer, will be fully satisfied and all other rights of the Debenture holder shall terminate (other than the right to receive the Total Offer Price upon surrender of such Debenture). Holders have the right to withdraw any Change of Control Redemption Notice by delivering to the Trustee a written notice of withdrawal in accordance with the terms and provisions of the indenture. 10. Conversion Subject to the next succeeding sentence, a holder of a Debenture may convert it into Common Shares at any time prior to the close of business on the Maturity Date in accordance with the indenture, provided that if the Debenture is called for redemption, the holder is entitled to convert it at any time before the close of business on the last business day prior to the Redemption Date. A Debenture in respect of which a holder has delivered a Change of Control Redemption Notice accepting an Offer may be converted only if such Change of Control Redemption Notice is withdrawn in accordance with the terms of the indenture. The initial Conversion Rate is approximately 104.4932 Common Shares per U.S.$1,000 principal amount of Debentures, reflecting an initial Conversion Price of U.S.$9.57. The Conversion Price is subject to adjustment upon the occurrence of certain events described in the indenture, including the events described below. The Company will deliver cash in lieu of any fractional Common Share. Subject to the indenture, to convert a Debenture, a holder must (1) complete and manually sign a conversion notice in the form attached as Schedule D to the indenture and deliver such notice to the Trustee or, if applicable, complete and deliver to The Canadian Depository for Securities Limited ("CDS", which term includes any successor thereto) the appropriate instruction form for conversion pursuant to CDS's book entry conversion program, (2) surrender the Debenture to the Trustee by physical or book entry delivery (which is not necessary in the case of conversion pursuant to CDS's book entry conversion program), (3) furnish appropriate endorsements and transfer documents if required by the Trustee or the Company and (4) pay any transfer or similar tax, if required. Book entry delivery of a Debenture to the Trustee may be made by any financial institution that is a participant in CDS; conversion through CDS's book entry conversion program is available for any Debenture that is held in an account maintained at CDS by any such participant. No accrued and unpaid interest from the Interest Payment Date next preceding the Conversion Date will be paid on Debentures that are converted except if a Debenture is converted in response to a call for redemption in accordance with Article 3 of the indenture or in response to an Offer made upon the occurrence of a Change of Control as provided in Article 5 of the indenture. A Debenture holder may elect to convert a portion of a Debenture if the principal amount of such portion is U.S.$1,000 or an integral multiple of U.S.$1,000. No payment or adjustment will be made for dividends or other distributions on the Common Shares except as provided in the indenture. The Conversion Price will be adjusted for: (i) dividends or distributions on Common Shares payable in Common Shares of the Company; (ii) subdivisions or combinations of Common Shares; (iii) certain issuances by reclassification of Common Shares into any other shares of the Company; (iv) distributions to all holders of Common Shares of rights, warrants or options entitling them, for a period not exceeding 45 days, to subscribe for Common Shares at less than the Current Market Price per Common Share; (v) distributions on Common Shares of evidences of indebtedness, capital stock, cash -7- or assets (including Debentures but excluding Common Share distributions covered above, those rights, warrants, dividends and distributions referred to above, dividends and distributions paid exclusively in cash and certain distributions upon mergers or consolidations resulting in reclassification, conversion, exchange or cancellation of common shares); (vi) dividends and other distributions on Common Shares paid exclusively in cash, if the aggregate amount of such dividends and other distributions, when taken together with other all-cash distributions made within the preceding 12 months not triggering a conversion rate adjustment, exceeds 1% of Aggregate Market Capitalization on the date of the payment of the dividends and other distributions; or (vii) payment to holders of Common Shares in respect of an issuer bid or a tender or exchange offer, other than an odd-lot offer, by the Company or a Subsidiary for Common Shares as of the trading day next succeeding the last date tenders or exchanges may be made pursuant to an issuer bid or a tender or exchange offer by the Company or one of the Company's Subsidiaries, which involves an aggregate consideration that, together with any cash and the fair market value of other consideration payable in respect of an issuer bid or any tender or exchange offer by the Company or one of the Company's Subsidiaries for the Common Shares concluded within the preceding 12 months not triggering a conversion rate adjustment, and the aggregate amount of any all-cash distributions to all holders of the Company's common shares made within the preceding 12 months not triggering a conversion rate adjustment exceeds 5% of Aggregate Market Capitalization on the Next Trading Day. However, no adjustment will be made if Debenture holders will participate in the transactions on a basis that the board of directors of the Company determines is fair and appropriate. Subject to regulatory consent, the Company from time to time may voluntarily decrease the Conversion Price. If the Company is a party to a consolidation, amalgamation, merger or binding share exchange, a transfer of distributions or certain other transactions described in the indenture, the right to convert a Debenture may be changed into a right to convert it into securities, property or assets (including cash) of the Company or another person. 11. Denominations; Transfer; Exchange The Debentures are issued in denominations of U.S.$1,000 and integral multiples thereof and may be issued as Global Debentures. A holder may transfer or exchange Debentures in accordance with the indenture and, where the Debentures have been issued as Global Debentures, in accordance with the book-entry system. The Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the indenture. The Trustee need not transfer or exchange any Debentures selected for redemption (except, in the case of a Debenture to be redeemed in part, the portion of the Debenture not to be redeemed) or any Debentures in respect of which a Change of Control Redemption Notice has been given and not withdrawn (except, in the case of a Debenture to be purchased in part, the portion of the Debenture not to be purchased), any Debentures for a period of 15 days before a selection of Debentures to be redeemed or any Debentures that the Company may have acquired in any manner whatsoever. 12. Persons Deemed Owners The registered holder of this Debenture may be treated as the owner of this Debenture for all purposes. 13. Unclaimed Money or Securities Subject to applicable law, the Trustee shall return to the Company upon written request any money or securities held by the Trustee for the payment of any amount with respect to the Debentures -8- that remains unclaimed for six years after the date upon which payment became due. After return to the Company, holders entitled to the money or securities must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person. 14. Amendments; Waiver Subject to certain exceptions set forth in the indenture, the indenture or the Debentures may be amended by extraordinary resolution of the Debenture holders. Without the consent of any Debenture holder, the Company and the Trustee may amend the indenture or the Debentures: to cure any ambiguity, defect or inconsistency provided, however that such amendment does not adversely affect the rights of any holder; to provide for the succession of another person to the Company, or successive successions, and the assumption by the successor person of the covenants, agreements and obligations of the Company, in compliance with, or otherwise to comply with, Article 10 or section 4.9 of the indenture; to make any change that does not adversely affect the rights of any Debenture holder; to add to the covenants or obligations of the Company under the indenture or to surrender any right, power or option conferred in the indenture upon the Company; or to comply with any requirement under the Trust Indenture Legislation. 15. Defaults and Remedies Under the indenture, events of default include (i) a default in the payment of interest in cash when due on the Debenture and the continuance of such default for 15 business days; (ii) default in the payment of the principal amount, Redemption Price (in cash or Common Shares) or Total Offer Price on any Debenture when the same becomes due and payable, whether at maturity of such Debenture, upon redemption or otherwise and such default continues for five business days; (iii) failure by the Company to comply with any material term, covenant or other agreements in the Debentures or the indenture and such failure continues for 30 days after receipt by the Company of a Notice of Default; (iv) failure to deliver Common Shares (or cash in lieu of fractional shares) in accordance with the terms of the indenture when such Common Shares (or cash in lieu of fractional shares) are required to be delivered upon conversion of a Debenture and such failure is not remedied for a period of 10 days; (v) failure by the Company to make an Offer as required under Article 5 of the indenture; (vi) default by the Company under the terms of any agreement or instrument evidencing or under which the Company or a Subsidiary has at the date of the indenture or thereafter outstanding any indebtedness for borrowed money and such indebtedness shall be accelerated so that the same shall be or become due and payable prior to the date on which the same would otherwise become due and payable and the aggregate amount thereof so accelerated exceeds U.S.$10 million and such acceleration is not rescinded or annulled within five business days after written notice thereof to the Company from the Trustee or to the Company and the Trustee from the holders of at least 25% in aggregate principal amount of the Debentures then outstanding in accordance with the indenture unless that default has been cured or waived within 30 days; provided however, that, if such default under such agreement or instrument is remedied or cured by the Company or a Subsidiary or waived by the holders of such indebtedness, then the event of default under the indenture by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of the Trustee or any of such holders; and (vii) certain events of bankruptcy or insolvency by the Company or a Significant Subsidiary. If an event of default occurs and is continuing, the Trustee, or the holders of at least 50% in aggregate principal amount of the Debentures at the time outstanding, by notice in writing to the Company (and to the Trustee if given by the holders) may declare all the Debentures to be due and payable immediately. Certain events of bankruptcy or insolvency are events of default which will result in the Debentures becoming due and payable immediately upon the occurrence of such events of default. -9- Debenture holders may not enforce the indenture or the Debentures except as provided in the indenture. The Trustee may refuse to enforce the indenture of the Debentures unless it receives reasonable indemnity or security. Subject to certain limitations, holders of a majority in aggregate principal amount of the Debentures at the time outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Debenture holders notice of any continuing event of default in certain circumstances if it determines that withholding notice is in the Debenture holders' interests. 16. Trustee Dealings with the Company Subject to certain limitations imposed by the Trust Indenture Legislation, a Trustee, in its individual or any other capacity, may become the owner or pledgee of Debentures and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not a Trustee. 17. No Recourse Against Others A director, officer, employee or shareholder, as such, of the Company shall not have any liability for any obligations of the Company under the Debentures or the indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Debenture, each Debenture holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Debentures. 18. Authentication This Debenture shall not be valid until an authorized signatory of the Trustee manually signs the Trustee's certificate of authentication on the other side of this Debenture. 19. Governing Law THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF BRITISH COLUMBIA, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE PROVINCE OF BRITISH COLUMBIA. -10- FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto __________________________, whose address and social insurance number, if applicable, are set forth below, this Debenture (or U.S.$_______________________ principal amount hereof*) of PAN AMERICAN SILVER CORP. standing in the name(s) of the undersigned in the register maintained by the Company with respect to such Debenture and does hereby irrevocably authorize and direct the Trustee to transfer such Debenture in such register, with full power of substitution in the premises. Dated: -------------------------------------------------------------------------- Address of Transferee: ---------------------------------------------------------- (Street Address, City, Province and Postal Code) Social Insurance Number of Transferee, if applicable: --------------------------- *If less than the full principal amount of the within Debenture is to be transferred, indicate in the space provided the principal amount (which must be U.S.$1,000 or an integral multiple thereof, unless you hold a Debenture in a non-integral multiple of U.S.$1,000 by reason of your having exercised your right to exchange upon the making of an Offer, in which case such Debenture is transferable only in its entirety) to be transferred. 1. The signature(s) to this assignment must correspond with the name(s) as written upon the face of this Debenture in every particular without alteration or any change whatsoever. The signature(s) must be guaranteed by a Canadian chartered bank or trust company or by a member of an acceptable Medallion Guarantee Program. Notarized or witnessed signatures are not acceptable as guaranteed signatures. The Guarantor must affix a stamp bearing the actual words: "SIGNATURE GUARANTEED". 2. The registered holder of this Debenture is responsible for the payment of any documentary, stamp or other transfer taxes that may be payable in respect of the transfer of this Debenture. Signature of Guarantor: - ----------------------------- ------------------------------------------- Authorized Officer Signature of transferring registered holder - ----------------------------- Name of Institution [IF CDS GLOBAL DEBENTURE, INSERT FOLLOWING] EXHIBIT "1" TO CDS GLOBAL DEBENTURE PAN AMERICAN SILVER CORP. 5.25% CONVERTIBLE UNSECURED SENIOR SUBORDINATED DEBENTURE Initial Principal Amount: U.S.$- CUSIP: 697900AA6 Authorization: ----------------------------- ADJUSTMENTS
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-2- SCHEDULE B REDEMPTION NOTICE PAN AMERICAN SILVER CORP. 5.25% CONVERTIBLE UNSECURED SENIOR SUBORDINATED DEBENTURES REDEMPTION NOTICE To: Holders of 5.25% Convertible Unsecured Senior Subordinated Debentures (the "DEBENTURES") of Pan American Silver Corp. (the "COMPANY") Note: All capitalized terms used herein have the meaning ascribed thereto in the indenture mentioned below, unless otherwise indicated and all references to $ shall be to lawful money of the United States of America, unless otherwise indicated. Notice is hereby given pursuant to section 3.4 of the trust indenture (the "INDENTURE") dated as of July 30, 2003 between the Company, and Computershare Trust Company of Canada (the "TRUSTEE"), that the aggregate principal amount of $- of the $- of Debentures outstanding will be redeemed as of - (the "REDEMPTION DATE"), upon payment of a redemption amount of $- for each $1,000 principal amount of Debentures, being equal to the aggregate of (i) $- (the "REDEMPTION PRICE"), and (ii) all accrued and unpaid interest hereon to but excluding the Redemption Date (collectively, the "TOTAL REDEMPTION PRICE"). The Total Redemption Price will be payable upon presentation and surrender of the Debentures called for redemption at the following corporate trust office: COMPUTERSHARE TRUST COMPANY OF CANADA [VANCOUVER ADDRESS] The interest upon the principal amount of Debentures called for redemption shall cease to be payable from and after the Redemption Date, unless payment of the Total Redemption Price shall not be made on presentation for surrender of such Debentures at the above-mentioned corporate trust office on or after the Redemption Date or prior to the setting aside of the Total Redemption Price pursuant to the Indenture. Pursuant to subsection 3.10.1 of the indenture, the Company hereby irrevocably elects to satisfy its obligation to pay to the holders of Debentures $- of the Redemption Price payable to holders of Debentures in accordance with this notice by issuing and delivering to the holders that number of Common Shares obtained by dividing the Redemption Price by 95% of the then Current Market Price of the Common Shares along with payment in cash of accrued and unpaid interest, if any, up to the Redemption Date. No fractional Common Shares shall be delivered upon the exercise by the Company of the above-mentioned redemption right but, in lieu thereof, the Company shall pay the cash equivalent thereof determined on the basis of the Current Market Price of Common Shares on the Redemption Date (less any tax required to be deducted, if any). In this connection, upon presentation and surrender of the Debentures for payment on the Redemption Date, the Company shall, on the Redemption Date, make the delivery to the Trustee, at the above-mentioned corporate trust office, for delivery to and on account of the holders, of certificates representing the Common Shares to which holders are entitled together with the cash equivalent in lieu of B-1 fractional Common Shares, cash for all accrued and unpaid interest up to, but excluding, the Redemption Date, and, if only a portion of the Debentures are to be redeemed by issuing Common Shares, cash representing the balance of the Total Redemption Price. DATED: PAN AMERICAN SILVER CORP. - ----------------------------------- (Authorized Signatory) B-2 SCHEDULE C FORM OF MATURITY NOTICE PAN AMERICAN SILVER CORP. 5.25% CONVERTIBLE UNSECURED SENIOR SUBORDINATED DEBENTURES MATURITY NOTICE To: Holders of 5.25% Convertible Unsecured Senior Subordinated Debentures (the "DEBENTURES") of Pan American Silver Corp. (the "COMPANY") Note: All capitalized terms used herein have the meaning ascribed thereto in the indenture mentioned below, unless otherwise indicated and all references to $ shall be to lawful money of the United States of America, unless otherwise indicated. Notice is hereby given pursuant to subsection 3.10.1 of the trust indenture (the "INDENTURE") dated as of July 30, 2003 between the Company, and Computershare Trust Company of Canada, as trustee (the "TRUSTEE"), that the Debentures are due and payable as of July 31, 2009 (the "MATURITY DATE") and the Company elects to satisfy its obligation to pay to holders of Debentures $- of the principal amount of all of the Debentures outstanding on the Maturity Date by issuing and delivering to the holders that number of Common Shares equal to the number obtained by dividing such principal amount of $- of the Debentures by 95% of the Current Market Price of Common Shares on the Maturity Date along with payment of all accrued and unpaid interest thereon to but excluding the Maturity Date. No fractional Common Shares shall be delivered on exercise by the Company of the above mentioned repayment right but, in lieu thereof, the Company shall pay the cash equivalent thereof determined on the basis of the Current Market Price of Common Shares on the Maturity Date (less any tax required to be deducted, if any). In this connection, upon presentation and surrender of the Debentures for payment on the Maturity Date, the Company shall, on the Maturity Date, make delivery to the Trustee, at its principal corporate trust office in Vancouver, British Columbia, for delivery to and on account of the holders, of certificates representing the Common Shares to which holders are entitled together with the cash equivalent in lieu of fractional Common Shares, cash for all accrued and unpaid interest up to, but excluding, the Maturity Date and if only a portion of the Debentures are to be repaid by issuing Common Shares, cash representing the balance of the principal amount due on the Maturity Date. DATED: PAN AMERICAN SILVER CORP. - ----------------------------------- (Authorized Signatory) C-1 SCHEDULE D FORM OF NOTICE OF CONVERSION CONVERSION NOTICE To: PAN AMERICAN SILVER CORP. c/o Computershare Trust Company of Canada 510 Burrard Street Vancouver, British Columbia, V6C 3B9 Note: All capitalized terms used herein have the meaning ascribed thereto in the indenture mentioned below, unless otherwise indicated and all references to $ shall be to lawful money of the United States of America, unless otherwise indicated. The undersigned registered holder of 5.25% Convertible Unsecured Senior Subordinated Debentures bearing Certificate No.- irrevocably elects to convert such Debentures (or $* principal amount thereof*) in accordance with the terms of the indenture referred to in such Debentures and tenders herewith the Debentures, and, if applicable, directs that the Common Shares of Pan American Silver Corp. issuable upon a conversion be issued and delivered to the person indicated below. (If Common Shares are to be issued in the name of a person other than the holder, all requisite transfer taxes must be tendered by the undersigned). Dated: ------------------------------------ -------------------------------- (Signature of Registered Holder) * If less than the full principal amount of the Debentures, indicate in the space provided the principal amount (which must be $1,000 or integral multiples thereof). NOTE: If Common Shares are to be issued in the name of a person other than the holder, the signature must be guaranteed by a Canadian chartered bank or trust company or by a member of an acceptable Medallion Guarantee Program. The Guarantor must affix a stamp bearing the actual words: "SIGNATURE GUARANTEED". (Print name in which Common Shares are to be issued, delivered and registered) Name: ------------------------------------- - ------------------------------------- (Address) - ------------------------------------- (City, Province and Postal Code) Name of guarantor: ------------------------------------------ Authorized signature: --------------------------------------- D-1 -----END PRIVACY-ENHANCED MESSAGE-----