AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 18, 2003
REGISTRATION NO. 333-106858
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM F-10
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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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]
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PART I
INFORMATION REQUIRED TO BE
DELIVERED TO OFFEREES OR PURCHASERS
I-1
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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".
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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.
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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.
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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
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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;
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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.
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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
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(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.
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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
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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:
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(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;
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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:
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(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".*
4.6 Material Change Report of the Registrant, dated February 27,
2003, relating to the completion of the Registrant's
acquisition of Corner Bay Silver Inc. (3)
4.7 Material Change Report of the Registrant, dated February 27,
2003, relating to consolidated production figures from 2002.
(3)
4.8 Material Change Report of the Registrant, dated March 13,
2003, relating to financial and operational results for the
fourth quarter and year ended December 31, 2002. (4)
4.9 Material Change Report of the Registrant, dated May 22, 2003,
relating to financial and operational results for the first
quarter of 2003. (5)
4.10 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. (6)
4.11 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.
(7)
5.1 Consent of Deloitte & Touche LLP
5.2 Consent of PricewaterhouseCoopers LLP
6.1 Powers of Attorney*
---------------
* 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 Report on Form 6-K, furnished
to the Commission on February 27, 2003.
(4) Incorporated by reference to the Registrant's Report on Form 6-K, furnished
to the Commission on March 3, 2003.
(5) Incorporated by reference to the Registrant's Report on Form 6-K, furnished
to the Commission on May 22, 2003.
(6) Incorporated by reference to the Registrant's Report on Form 6-K, furnished
to the Commission on July 18, 2003.
(7) 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) Prior to filing this Amendment No. 1 to the 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) Any change to the name or address of the agent of service for
the Registrant 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 18,
2003.
PAN AMERICAN SILVER CORP.
By: /s/ ROSS J. BEATY
------------------------------------
Ross J. Beaty
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Amendment No.
1 to Registration Statement has been signed below by or on behalf of the
following persons in the capacities indicated, on July 18, 2003.
SIGNATURE TITLE
--------- -----
/s/ ROSS J. BEATY
---------------------------
Ross J. Beaty Chairman and Chief Executive Officer and Director
(Principal Executive Officer)
*
---------------------------
Anthony Hawkshaw Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
III-2
SIGNATURE TITLE
--------- -----
*
---------------------------
William A. Fleckenstein Director
---------------------------
John M. Willson Director
---------------------------
Michael Larson Director
---------------------------
Michael J.J. Maloney Director
*
---------------------------
Paul B. Sweeney Director
*
---------------------------
John H. Wright Director
*
---------------------------
Geoff Burns Director
*/s/ ROSS J. BEATY
---------------------------
Ross J. Beaty Attorney-in-fact
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 18, 2003.
PAN AMERICAN MINERALS INC.
(Authorized Representative)
By: /s/ ROSS J. BEATY
---------------------------------------------
Ross J. Beaty
Director
III-4
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------ ----------- --------
4.1 Annual Information Form of the Registrant, dated May 20, 2003.
(1)
4.2 Audited Consolidated Financial Statements of the Registrant
and the notes thereon as at and for the years ended December
31, 2001 and 2002, together with the auditors' report thereon
as set out in the Registrant's annual report. (1)
4.3 Unaudited Consolidated Financial Statements of the Registrant
and the notes thereto as at and for the three months ended
March 31, 2003, together with management's discussion and
analysis of financial condition and results of operations for
the three months ended March 31, 2003. (2)
4.4 Management's Discussion and Analysis of Financial Condition
and Results of Operations for the fiscal year ended December
31, 2002 as set out in the Registrant's annual report. (1)
4.5 Information Circular of the Registrant, dated April 9, 2003,
in connection with the Registrant's May 12, 2003 annual
meeting of members, other than the sections titled "Corporate
Governance", "Executive Compensation - Compensation
Committee", " Executive Compensation - Report on Executive
Compensation" and " Executive Compensation - Performance
Graph".*
4.6 Material Change Report of the Registrant, dated February 27,
2003, relating to the completion of the Registrant's
acquisition of Corner Bay Silver Inc. (3)
4.7 Material Change Report of the Registrant, dated February 27,
2003, relating to consolidated production figures from 2002.
(3)
4.8 Material Change Report of the Registrant, dated March 13,
2003, relating to financial and operational results for the
fourth quarter and year ended December 31, 2002. (4)
4.9 Material Change Report of the Registrant, dated May 22, 2003,
relating to financial and operational results for the first
quarter of 2003. (5)
4.10 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. (6)
4.11 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.
(7)
5.1 Consent of Deloitte & Touche LLP
5.2 Consent of PricewaterhouseCoopers LLP
6.1 Powers of Attorney*
---------------
* 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 Report on Form 6-K, furnished
to the Commission on February 27, 2003.
(4) Incorporated by reference to the Registrant's Report on Form 6-K, furnished
to the Commission on March 3, 2003.
(5) Incorporated by reference to the Registrant's Report on Form 6-K, furnished
to the Commission on May 22, 2003.
(6) Incorporated by reference to the Registrant's Report on Form 6-K, furnished
to the Commission on July 18, 2003.
(7) Incorporated by reference to the Registrant's Report on Form 6-K, furnished
to the Commission on July 3, 2003.