Update of Litigation
July 16, 2009
MAJESTIC SILVER CORP. (FR-T) (“First Majestic” or the “Company”) wishes
to provide an update on the status of its ongoing litigation with
Hector Davila Santos, the prior majority shareholder of First Silver
Reserve, Inc. (“FSR”) with respect to alleged interference with FSR’s
opportunity to acquire the Bolanos mine in Mexico. FSR later became a
wholly owned subsidiary of the Company.
In November 2007, an action was commenced in British Columbia by the
Company and its wholly owned subsidiary, FSR against Hector Davila
Santos and Minera Arroyo Del Agua, S.A. de C.V. whereby the Company and
FSR allege that while holding the positions of director, President and
Chief Executive Officer and Chairman of the Board of FSR, Mr. Davila
Santos wrongfully interfered with FSR’s opportunity to acquire the
Bolanos mine and breached his fiduciary and statutory duties owed to
FSR, which resulted in Mr. Davila Santos personally or through Minera
Arroyo, acquiring the Bolanos mine from Grupo Mexico for his own
interests. The court has yet to rule on these allegations.
Pending resolution of this action the Company withheld certain amounts
owing to Mr. Davila Santos with respect to the purchase of shares in FSR
which the Company acquired from Mr. Davila Santos in 2006. The
withheld amounts consist of quarterly instalments of interest due on
November 30, 2007, February 29, 2008 and May 30, 2008, as well as the
final principal payment of $13,341,380 due to Mr. Davila Santos on May
30, 2008. The total amount withheld from Mr. Davila Santos and due as
at May 30, 2008 was $13,940,097. A letter of credit in the amount
withheld plus interest, amounting to $14,485,759 was previously posted
by First Majestic with the courts and a reserve of cash equalling this
amount has been maintained by the Company.
On March 14, 2008, Mr. Davila Santos filed a statement of defence and
counter-claim in respect of the action referred to above. Pursuant to
the counterclaim, Mr. Davila Santos has claimed, among other things, for
payment of the amounts referred to above.
The parties have now agreed to a consent order with respect to the funds
represented by the letter of credit. Pursuant to the order,
$14,258,332 will be paid out of the letter of credit to the trust
account of Mr. Davila Santos’ lawyers. The remaining $227,420 will be
paid out to the Company and the letter of credit will be cancelled. The
amounts paid to the Company may be used as the Company sees fit. The
consent order requires that the funds be held in the lawyers’ trust
account pending the outcome of the litigation, with trial scheduled to
commence in the Supreme Court of British Columbia, Vancouver, British
Columbia on April 12, 2010. If the trial has not commenced by June 30,
2011 the funds will be released on that date to Mr. Davila Santos,
unless otherwise ordered by the court. The consent order does not
affect the standing of the Company’s claims against Mr. Davila Santos.
The effect of the consent order on the Company’s financial position will
be to simultaneously reduce Vendor Liability and Interest as well as
Restricted Cash by offsetting amounts of $14,485,759, with $227,420 of
cash being reclassified from Restricted Cash to Cash (i.e. unrestricted
Cash). The net assets of the Company will not be increased or decreased
as a result of this order.
The Company’s President and Chief Executive Officer, Keith Neumeyer
stated “We think that this consent order is a reasonable compromise with
Mr. Davila Santos and gives First Majestic comfort that if our action
against Mr. Davila Santos is successful we will be able to enforce the
judgment against these monies which will continue to reside within
Canada and be subject to the jurisdiction of the British Columbia
First Majestic is a producing silver company focused in Mexico and is
aggressively pursuing its business plan to become a senior silver
producer through the development of its existing assets and the pursuit
through acquisition of additional assets that contribute to achieving
its corporate growth objectives.
FOR FURTHER INFORMATION contact firstname.lastname@example.org, visit our
website at www.firstmajestic.com
or call our toll free number
FIRST MAJESTIC SILVER CORP.
President & CEO
This press release includes certain “Forward-Looking Statements” within
the meaning of section 21E of the United States Securities Exchange Act
of 1934, as amended. All statements, other than statements of historical
fact, included herein, including without limitation, statements
regarding potential mineralization and reserves, exploration results and
future plans and objectives of First Majestic Silver Corp. are
forward-looking statements that involve various risks and uncertainties.
There can be no assurance that such statements will prove to be
accurate and actual results and future events could differ materially
from those anticipated in such statements.