<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
----------
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period ended June 30, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
---------- ----------
Commission file number 0-21708
GOLDEN STAR RESOURCES LTD.
(Exact Name of Registrant as Specified in Its Charter)
Canada 98-0101955
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1660 Lincoln Street,
Suite 3000, Denver, Colorado 80264
(Address of Principal Executive Office) (Zip Code)
(303) 830-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
--- ---
Number of Common Shares outstanding as of August 8, 1997: 29,690,136.
<PAGE> 2
GOLDEN STAR RESOURCES LTD.
INDEX
Part I - Financial Information
Item 1. Financial Statements......................................1
Item 2. Management's Discussion and Analysis of Financial
Condition, Results of Operations and
Recent Developments......................................12
Part II - Other Information
Item 1. Legal Proceedings .......................................16
Item 4. Submission of Matters to a Vote of the Security Holders..16
Item 6. Exhibits and Reports on Form 8-K.........................17
Signatures.............................................................18
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of the company to be materially different from any
future results, performance, or achievements express or implied by such
forward-looking statements. Such factors include, among others, gold and
diamond exploration and development costs and results, fluctuation of gold
prices, foreign operations and foreign government regulation, competition,
uninsured risks, recovery of reserves, capitalization and commercial viability
and requirements for obtaining permits and licenses.
i
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States Dollars except share amounts)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
ASSETS As of June 30, As of December 31,
1997 1996
-------------- ------------------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 27,526 $ 15,663
Accounts receivable 3,697 5,116
Inventories 601 1,027
Other assets 391 376
--------- ---------
Total Current Assets 32,215 22,182
RESTRICTED CASH $ 1,443 $ 2,015
DEFERRED EXPLORATION 72,657 64,721
INVESTMENT IN OMAI GOLD MINES LIMITED 2,532 3,279
FIXED ASSETS 2,994 3,666
OTHER ASSETS 148 420
--------- ---------
Total Assets $ 111,989 $ 96,283
========= =========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 4,947 $ 5,830
Accrued wages and payroll taxes 543 1,065
--------- ---------
Total Current Liabilities $ 5,490 6,895
OTHER LIABILITIES 107 92
--------- ---------
Total Liabilities 5,597 6,987
--------- ---------
MINORITY INTEREST 9,881 11,202
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY
SHARE CAPITAL 157,677 129,954
(Common shares, without par value, unlimited shares
authorized. Shares issued and outstanding: June 30, 1997 -
29,647,636; December 31, 1996 - 25,941,103)
Stock option loans (4,012) (4,012)
DEFICIT (57,154) (47,848)
--------- ---------
Total Shareholders' Equity 96,511 78,094
--------- ---------
Total Liabilities and Shareholders' Equity $ 111,989 $ 96,283
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
1
<PAGE> 4
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except per share amounts)
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
1997 1996 1997 1996
------- -------- -------- -------
<S> <C> <C> <C> <C>
REVENUE
Precious metals sales $ 38 $ 331 $ 439 $ 1,169
Interest and other 338 364 525 576
------- -------- -------- -------
376 695 964 1,745
COSTS AND EXPENSES
Cost of goods sold 112 1,043 978 2,223
Depreciation 248 288 560 583
General and administrative 2,255 2,596 4,335 4,509
Exploration expense 339 41 479 111
Recovery of abandonment loss -- (936) -- (936)
Abandonment and impairment of mineral properties 6,070 -- 6,070 --
Gain on sale of assets (1) (58) (1) (58)
Interest and bank charges (2) -- 21 --
Foreign exchange loss (gain) (68) -- 23 77
------- -------- -------- -------
8,953 2,974 12,465 6,509
PROFIT (LOSS) BEFORE THE UNDERNOTED (8,577) (2,279) (11,501) (4,764)
Gain on subsidiary's issuance of common stock -- -- -- 2,001
Omai Preferred Share Redemptions 345 -- 899 --
------- -------- -------- -------
Net profit (loss) before minority interest (8,232) (2,279) (10,602) (2,763)
Minority interest loss 756 653 1,296 1,102
------- -------- -------- -------
NET PROFIT (LOSS) $(7,476) $ (1,626) $ (9,306) $(1,661)
======= ======== ======== =======
NET PROFIT (LOSS) PER SHARE $ (0.25) $ (0.06) $ (0.32) $ (0.07)
======= ======== ======== =======
Weighted Average Shares Outstanding
(Millions of shares) 29.6 25.6 28.8 25.1
======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
2
<PAGE> 5
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
(Unaudited)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (9,306) $ (1,661)
Reconciliation of net loss to net cash used in operations:
Depreciation 560 583
Premium on Omai Preferred Share Redemptions (899) --
Recovery of abandonment loss -- (936)
Abandonment and write-down of mineral properties 6,070 --
Gain on issuance of common stock by subsidiary -- (2,001)
Minority interest (1,296) (1,102)
Changes in non-cash operating working capital 425 (1,488)
-------- --------
Net Cash Flows Used in Operating Activities (4,446) (6,605)
-------- --------
INVESTING ACTIVITIES:
Expenditures on mineral properties, net of joint venture
recoveries (14,006) (9,821)
Equipment purchases (20) (1,192)
Proceeds from sale of equipment 132 --
Omai Preferred Share Redemptions 1,646 --
Other assets and investments 3 787
-------- --------
Net Cash Flows Used in Investing Activities (12,245) (10,226)
-------- --------
FINANCING ACTIVITIES:
Restricted cash 572 --
Proceeds from issuance of subsidiary's stock -- 10,261
Offering costs of subsidiary (25) (126)
Increase in minority interest -- 327
Issuance of share capital 22,513 12,886
Issuance of share capital under warrants 5,429 3,979
Issuance of share capital under options 50 5,451
Stock option loan receipts (additions) -- (2,756)
Other 15 (3)
-------- --------
Net Cash Flows Provided by Financing Activities 28,554 30,019
-------- --------
Increase in cash 11,863 13,188
Cash and short-term investments, beginning of period 15,663 9,498
-------- --------
Cash and short-term investments, end of period $ 27,526 $ 22,686
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
<PAGE> 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
These financial statements and notes thereto should be read in conjunction with
the financial statements and related notes included in the annual report on
Form 10-K for Golden Star Resources Ltd. (the "Company") for the fiscal year
ended December 31, 1996 on file with the Securities and Exchange Commission in
the United States and the provincial securities commissions in Canada
(hereinafter referred to as "the Company's 1996 10-K"). All amounts are in
United States dollars unless otherwise stated.
The unaudited financial statements as of June 30, 1997, and for the six months
ended June 30, 1997 and 1996, reflect all adjustments, consisting solely of
normal recurring items, which are necessary for a fair presentation of
financial position, results of operations, and cash flows on a basis consistent
with that of the prior audited consolidated financial statements.
(1) INVENTORIES
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Precious Metals Inventory $ 54 $ 384
Materials and Supplies 547 643
------ ------
$ 601 $1,027
====== ======
</TABLE>
(2) FIXED ASSETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Building $ 1,727 $ 1,833
Machinery & Equipment 4,670 4,676
------- -------
6,397 6,509
Accumulated Depreciation (3,403) (2,843)
------- -------
$ 2,994 $ 3,666
======= =======
</TABLE>
4
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(3) DEFERRED EXPLORATION
<TABLE>
<CAPTION>
Deferred Deferred
Exploration Exploration
Expenditures Capitalized Capitalized Joint Property Expenditures
as at Exploration Acquisition Venture Impairments as at
Dec. 31, 1996 Expenditures Expenditures Recoveries & Abandonments June 30, 1997
============= ============ ============ ============= ============== =============
<S> <C> <C> <C> <C> <C> <C>
GUYANA
Eagle Mountain $ 111 $ 326 $ -- $ -- $ -- $ 437
Quartz Hill 1,347 -- -- -- -- 1,347
Upper Potaro Diamond /
Amatuk Diamond 1,010 128 8 -- -- 1,146
Mazaruni / Upper
Mazaruni Diamond 2,729 87 (54) -- (2,404) 358
Wenamu Gold 512 -- -- -- -- 512
Five Stars Gold 5,767 531 (108) -- (2,348) 3,842
Five Stars Diamond 1,097 257 48 -- -- 1,402
BHP Gold Projects 151 87 -- -- -- 238
Guyana Diamond Permits 27 197 -- (119) -- 105
Other 1,376 (155) -- -- -- 1,221
------- ------- ----- ------- ------- -------
Sub-total 14,127 1,458 (106) (119) (4,752) 10,608
------- ------- ----- ------- ------- -------
SURINAME
Benzdorp / Lawa 3,341 3 -- -- -- 3,344
Gross Rosebel 9,494 5,156 -- (1,780) -- 12,870
Headley's Right of 311 -- -- -- -- 311
Exploration
Thunder Mountain 453 -- -- -- -- 453
Saramacca 1,569 99 80 (11) -- 1,737
Sara Kreek 155 278 75 -- -- 508
Tempati Reconnaissance 161 59 75 -- -- 295
Tapanahony Reconnaissance 86 38 75 (1) -- 198
Kleine Saramacca 104 -- -- -- -- 104
Lawa Antino 764 1,094 -- -- -- 1,858
Suriname Diamond Projects 310 117 -- -- -- 427
Ulemari Reconnaissance 53 194 -- (19) -- 228
Other 252 152 -- -- -- 404
------- ------- ----- ------- ------- -------
Sub-total 17,053 7,190 305 (1,811) -- 22,737
------- ------- ----- ------- ------- -------
FRENCH GUIANA
(GUYANOR RESSOURCES S.A.)
Dorlin 628 1,070 -- (1,039) -- 659
St-Elie 1,973 1,218 -- (1,218) -- 1,973
Dieu-Merci 382 470 -- (470) -- 382
Yaou 7,087 876 -- (826) -- 7,137
Paul Isnard / Eau Blanche 3,629 662 -- (662) -- 3,629
SOTRAPMAG 1,520 469 134 -- -- 2,123
Dachine 575 147 2 (44) -- 680
Other 1,331 (3) -- -- (913) 415
Diamond Projects 204 8 -- -- -- 212
------- ------- ----- ------- ------- -------
Sub-total 17,329 4,917 136 (4,259) (913) 17,210
------- ------- ----- ------- ------- -------
AFRICA (PAN AFRICAN
RESOURCES CORPORATION)
Ivory Coast / Comoe 3,951 562 -- -- -- 4,513
Mali / Dioulafoundou 2,763 146 12 -- -- 2,921
Mali / Melgue 56 58 -- -- -- 114
Mali / Other 30 26 -- -- -- 56
Eritrea / Galla Valley 1,317 382 -- -- -- 1,699
Eritrea / Other 55 -- -- -- -- 55
Kenya / Ndori 901 512 -- -- -- 1,413
Burkina Faso -- 13 -- -- -- 13
Other 53 (15) -- -- -- 38
------- ------- ----- ------- ------- -------
Sub-total 9,126 1,684 12 -- -- 10,822
------- ------- ----- ------- ------- -------
</TABLE>
5
<PAGE> 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
<TABLE>
<CAPTION>
Deferred Deferred
Exploration Exploration
Expenditures Capitalized Capitalized Joint Property Expenditures
as at Exploration Acquisition Venture Impairments as at
Dec. 31, 1996 Expenditures Expenditures Recoveries & Abandonments June 30, 1997
============= ============ ============ ============= ============== ================
<S> <C> <C> <C> <C> <C> <C>
LATIN AMERICA (SOUTHERN STAR
RESOURCES LTD.)
Brazil / Andorinhas 3,547 2,709 533 -- -- 6,789
Brazil / Abacaxis 1,375 616 7 -- -- 1,998
Brazil / Other 583 57 -- -- -- 640
Bolivia / San Simon 858 42 -- -- -- 900
Bolivia / Sunsas 221 237 -- -- (405) 53
Bolivia / Other 502 263 8 -- -- 773
Other -- 3 -- -- -- 3
------- ------- ---- ------- ------- -------
Sub-total 7,086 3,927 548 -- (405) 11,156
------- ------- ---- ------- ------- -------
OTHER -- 124 -- -- -- 124
======= ======= ==== ======= ======= =======
TOTAL $64,721 $19,300 $895 $(6,189) $(6,070) $72,657
======= ======= ==== ======= ======= =======
</TABLE>
The recoverability of amounts shown for deferred exploration is dependent upon
the sale or discovery of economically recoverable reserves, the ability of the
Company to obtain necessary financing to complete the development, and upon
future profitable production or proceeds from the disposition thereof. The
amounts deferred represent costs to be charged to operations in the future and
do not necessarily reflect the present or future values of the properties.
During the quarter ended June 30, 1997, the Company relinquished five
prospecting licenses in the Upper Mazaruni and Five Stars areas in Guyana and,
as a consequence, recognized property abandonment losses of $4.8 million during
the period.
Also during the second quarter of 1997, Guyanor recorded a property write-down
charge of $0.9 million for the Regina Est property. Funds for an exploration
program have not been budgeted for the Regina Est project and Guyanor
anticipates relinquishing the property in the second half of 1997.
In addition, the Company recorded a property write-down charge of $0.4 million
for the Sunsas property area in Bolivia during the quarter ended June 30, 1997.
The Company intends to relinquish certain portions of the Sunsas property area
in the third quarter of 1997.
6
<PAGE> 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(4) INVESTMENT IN OMAI GOLD MINES LIMITED
Details regarding the Company's investment in the common and preferred share
equity of Omai Gold Mines Ltd. and its share of equity losses not recorded for
the year ended December 31, 1996 and the six months ended June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Common Shares Preferred Shares
------------- ----------------
<S> <C> <C>
December 31, 1996 -- $ 3,279
Less: Preferred Share Redemption -- (1,014)
Add: Premium on Preferred Share Redemption $ -- 554
------------ -------
March 31, 1997 $ $ 2,819
------------ -------
Less: Preferred Share Redemption -- (632)
Add: Premium on Preferred Share Redemption -- 345
-------
June 30, 1997 $ -- $ 2,532
============ =======
</TABLE>
The Company's share of Accumulated Losses at:
December 31, 1996 $(2,713)
=======
June 30, 1997 $(1,143)
=======
The Company recorded proceeds of $1.6 million from redemption of preferred
shares during the six months ended June 30, 1997.
(5) CHANGES TO SHARE CAPITAL
During the six months ended June 30, 1997, 8,333 common shares were issued by
the Company pursuant to exercised options previously granted under the
Company's Employees' Stock Option Plan. During the six months ended June 30,
1997, 673,200 shares were issued for the exercise of all of the Company's
outstanding Cdn$11.00 common share purchase warrants, providing proceeds of
$5.4 million.
On May 5, 1997, the Company sold through a prospectus offering 3,025,000 common
shares at $7.50 per share for total proceeds of $22.7 million. The shares were
issued under the Company's shelf prospectus in the United States and Canada.
In August 1997, the Company filed a shelf Registration Statement with the U.S.
Securities and Exchange Commission (the "SEC") and short form prospectuses with
Canadian provincial securities commissions. (See Note 9.)
7
<PAGE> 10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(6) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND
THE UNITED STATES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Canada which differ in certain
respects from those principles that the Company would have followed had its
financial statements been prepared in accordance with GAAP in the United
States. Differences which materially affect these consolidated financial
statements are:
(a) For United States GAAP ("U.S. GAAP"), exploration and general and
administrative costs related to projects are normally charged to
expense as incurred. As such, the majority of costs charged to
abandonment and impairment of mineral properties under Canadian GAAP
would have been charged to earnings in prior periods under U.S. GAAP.
Property acquisition costs are capitalized for both Canadian and U.S.
GAAP.
(b) For periods prior to May 15, 1992 (the "Amalgamation"), the Company's
reporting currency was the Canadian dollar. Subsequent to the
Company's Amalgamation and relocation of its corporate headquarters to
the United States, the reporting currency was changed to the U.S.
dollar. As such, for the financial statements for periods prior to May
15, 1992, the Company's financial statements were translated into U.S.
dollars using a translation of convenience. U.S. GAAP requires
translation in accordance with the current rate method.
(c) Under U.S. GAAP, the investment in Omai Gold Mines Limited would have
been written off in prior years and, therefore, the entire Omai
Preferred Share Redemption would have been included in income. Under
Canadian GAAP, a portion of the Omai Preferred Share Redemption is
included in income with the remainder reducing the carrying value of
the Company's preferred stock investment.
(d) U.S. GAAP requires that compensation expense be recorded for the
excess of the quoted market price over the option price granted to
employees and directors under stock option plans. Under Canadian GAAP,
no compensation expense is recorded for such awards.
(e) Canadian GAAP allows classification of investments which are capable
of reasonably prompt liquidation as current assets. As such, all of
the Company's investments are included under the caption "short-term
investments" on the balance sheet under current assets. U.S. GAAP
requires classification as current or long term assets based upon the
anticipated maturity date of such instruments.
(f) The gains on subsidiary's issuance of common stock recorded under
Canadian GAAP in respect of the Guyanor public offerings in 1995 and
1996 and the PARC private placements in 1995 and 1996 are not
appropriate under U.S. GAAP.
(g) The Company eliminated its accumulated deficit through the
Amalgamation (defined as a quasi-reorganization under U.S. GAAP)
effective May 15, 1992. Under U.S. GAAP, the cumulative deficit was
greater than the deficit under Canadian GAAP due to the write-off of
certain deferred exploration costs described in (a) above.
8
<PAGE> 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
(h) Under U.S. GAAP, cash (and cash equivalents) includes bank deposits,
money market instruments, and commercial paper with original
maturities of three months or less. Canadian GAAP permits the
inclusion of temporary investments with maturities greater than 90
days in cash.
(i) Under U.S. GAAP, available-for-sale securities are recorded at fair
value and unrealized gains and losses are recorded as a separate
component of shareholders' equity. Fair value is determined by quoted
market prices.
(j) Under U.S. GAAP, accrued severance and social charges of $1.1 million
resulting from suspension of alluvial mining operations at SOTRAPMAG
would not have been recorded as of December 31, 1996, as the
requirements for accrual under U.S. GAAP were not satisfied. Under
U.S. GAAP, such costs and related accruals have been recorded in the
first quarter of 1997.
Had the Company followed U.S. GAAP, certain items on the statements of
operations and balance sheets would have been reported as follows:
<TABLE>
<CAPTION>
For the six months ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net loss under Canadian GAAP $(9,306) $ (1,661)
Net effect of the deferred exploration expenditures
on loss for the period (a) (7,125) (7,790)
Effect of recording compensation expense under stock
option plans (d) (42) (68)
Record loss for severance accruals (j) (1,115) --
Reversal of the gain on subsidiary's issuance of
common stock (f) -- (2,001)
Effect of Omai preferred share redemption (c) 747 --
-------- --------
Loss under U.S. GAAP before minority interest (16,841) (11,520)
Adjustment to minority interest 978 796
-------- --------
Loss under U.S. GAAP $(15,863) $(10,724)
======== ========
Loss per share under U.S. GAAP $ (0.55) $ (0.43)
======== ========
</TABLE>
9
<PAGE> 12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
The effect of the differences in accounting under Canadian GAAP and U.S. GAAP
on the balance sheets and statements of cash flows are as follows:
BALANCE SHEET
<TABLE>
<CAPTION>
As of June 30, 1997 As of December 31, 1996
--------------------------- ----------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Cash (h) $ 25,527 24,525 $ 9,664 $ 9,664
Short term investments (e) 1,999 1,002 5,999 2,500
Other current assets 4,689 4,689 6,519 6,519
Restricted cash 1,443 1,443 2,015 2,015
Deferred exploration (a) 72,657 19,422 64,721 18,611
Investment in Omai Gold
Mines Limited (c) 2,532 -- 3,279 --
Long-term investments (e) -- 1,999 -- 3,499
Other assets 3,142 3,142 4,086 4,087
--------- --------- --------- ---------
Total Assets $ 111,989 $ 56,222 $ 96,283 $ 46,895
========= ========= ========= =========
Liabilities 5,597 5,597 6,987 5,872
Minority interest (a) 9,881 8,765 11,202 11,064
Share capital, net of stock option
loans (g) 153,665 150,833 125,942 123,068
Cumulative translation
adjustments (b) -- 1,595 -- 1,595
Deficit (a)(c)(d)(f) (57,154) (110,568) (47,848) (94,704)
--------- -------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 111,989 $ 56,222 $ 96,283 $ 46,895
========= ========= ========= =========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
OPERATING INVESTING FINANCING
NET CASH PROVIDED BY (USED IN): ACTIVITIES ACTIVITIES ACTIVITIES
---------- ---------- ----------
Canadian U.S. Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP GAAP GAAP
--------- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
For the six months ended
June 30, 1997 ($4,446) ($16,038) ($12,245) $2,303 $28,554 $28,596
For the six months ended
June 30, 1996 ($6,605) ($14,489) ($10,226) $1,290 $30,019 $30,019
</TABLE>
10
<PAGE> 13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(All tabular amounts in thousands of United States Dollars)
The statements of cash flows reflect the impact of the previously discussed
adjustments (a) (c) (d) (f).
There were no significant non-cash transactions impacting the statement of cash
flows for the six months ended June 30, 1997. Non-cash items in financing
activities were $2.8 million for the six months ended June 30, 1996.
(7) TRANSACTIONS WITH SUBSIDIARIES
In May 1997, PARC entered into a demand revolving line of credit with the
Company, whereby the Company would loan PARC up to $2.0 million. On June 27,
1997, the principal and interest on outstanding advances due from PARC totaling
$2,018,591 were converted into 7,333,328 common shares of PARC at a conversion
price of Cdn$0.38 per share. As a result, the Company's interest in PARC was
increased to 63.89%.
(8) COMMITMENTS AND CONTINGENCIES
On June 5, 1997, PARC's performance bond requirements under its
Exploration License Agreement with the Government of Eritrea were reduced to
$0.7 million. As a result, the bank guarantee and restricted cash collateral
supporting the performance bond were reduced by $0.6 million.
(9) SUBSEQUENT EVENTS
On August 8, 1997, the Company filed with the SEC a shelf registration
statement on Form S-3 (the "Registration Statement"), with respect to the
proposed issuance by the Company from time to time of up to $47,687,500 of its
common shares, preferred shares, convertible debt securities and/or warrants.
The Registration Statement also includes $52,312,500 in securities previously
registered by the Company pursuant to a Registration Statement declared
effective by the SEC on November 8, 1996.
On August 13, 1997, the Company filed with nine Canadian provincial securities
commissions a short-form shelf prospectus, with respect to the proposed
issuance by the Company from time to time of up to 12 million common shares
and/or 12 million common share purchase warrants and a short-form shelf
prospectus with respect to the proposed issuance from time to time of up to
$100 million of convertible debt securities. The Canadian prospectuses relate
to the same securities being registered with the SEC.
11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND RECENT DEVELOPMENTS
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and related notes. The financial statements
have been prepared in accordance with Canadian generally accepted accounting
principles ("GAAP"). For U.S. GAAP reconciliation see attached financial
statement Note 6.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE REFORM ACT
The following contains certain forward-looking statements within the meaning of
the Reform Act. Actual results, performance or achievements of the Company
could differ materially from those projected in the forward-looking statements
due to a number of factors, including those set forth under "Risk Factors" in
the Company's Annual Report on Form 10-K. Readers are cautioned not to put
undue reliance on forward-looking statements. The Company disclaims any intent
or obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
During the second quarter of 1997, the Company recognized a net loss of $7.5
million or $0.25 per share as compared to a net loss of $1.6 million or $0.06
per share for the second quarter of 1996. During the second quarter of 1997,
the Company recorded property abandonment charges and write downs of $6.1
million, including $4.8 million due to relinquishment of five prospecting
licenses in Guyana, $0.4 million for write down of capitalized assets for the
Sunsas property area in Bolivia, and $0.9 million for write down of deferred
exploration for the Regina Est property area in French Guiana. There were no
property abandonment or write down charges during the second quarter of 1996.
In addition, during the second quarter of 1996, the Company recorded recovery
of abandonment losses totaling $0.9 million related to the Company's interests
in Venezuela.
For the six months ended June 30, 1997, the Company recognized a net loss of
$9.3 million or $0.32 per share, compared to a loss of $1.7 million or $0.07
per share for the similar period in 1996. The increased loss in the 1997 period
is primarily attributable to increased property write-downs in 1997 ($6.1
million) and gains recorded in 1996 which did not recur in 1997 ($0.9 million
for recovery of abandonment losses and $2.0 million for gains on sale of
subsidiary shares). These increased losses were offset by reduced production
losses at SOTRAPMAG in 1997 as compared to 1996 ($0.5 million) and redemptions
of Omai Gold Mines Ltd. preferred shares in 1997 which did not occur in 1996
($0.9 million).
During the first quarter of 1997, the Company, through Guyanor Ressources S.A.
("Guyanor"), began implementation of a program to discontinue the alluvial
operations conducted at Societe de Travaux Publics et de Mines Auriferes en
Guyane, a subsidiary of Guyanor Ressources S.A. ("SOTRAPMAG"). Mining
operations were suspended on April 17, 1997 after receipt of regulatory
approvals for SOTRAPMAG's closure plan. Alluvial gold production continued to
the date of closure, with operating losses of $0.5 million incurred during the
period from January 1 to April 17, 1997. All accruals for future obligations
are included in current liabilities and no significant adjustments were made to
accruals for obligations associated with the shut-down during the first six
months of 1997. Closure procedures, including land rehabilitation and
company-provided outplacement services, were conducted during the quarter and
are expected to continue at a reduced level during the third quarter of 1997.
During the
12
<PAGE> 15
second quarter of 1997, SOTRAPMAG initiated a plan to sell certain equipment
and machinery from the mine site. Sales of $0.1 million were completed as of
June 30, 1997 and additional sales are anticipated during the third quarter of
1997.
Total revenues of $0.4 million during the second quarter of 1997 (as compared
to $0.7 million for the second quarter of 1996) decreased due to the suspension
of gold production at SOTRAPMAG, with second quarter 1997 interest and other
income consistent with the 1996 period.
General and administrative expenditures of $2.3 million (as compared to $2.6
million in the second quarter of 1996) reflected the Company's efforts to
reduce overhead costs while maintaining continued support of the portfolio of
exploration projects in South America and Africa. Depreciation expense
decreased as a result of the shut down of the SOTRAPMAG mine in April 1997.
Omai Gold Mines Limited ("OGML"), in which the Company maintains a 30% common
share equity interest, reported net income of $1.3 million for the second
quarter of 1997 and $5.5 million for the six months ended June 30, 1997,
compared to a net loss of $0.3 million in the second quarter of 1996 and a net
loss of $1.8 million for the six months ended June 30, 1996. During the six
months ended June 30, 1997, OGML produced 174,770 ounces of gold, compared to
85,192 ounces during the first six months of 1996. Production during the first
six months of 1996 was adversely impacted by the tailings dam failure in August
1995, with production resuming in February 1996 and returning to full capacity
in June 1996. The Company recorded Class "I" preferred share redemptions from
OGML of $1.6 million for the six months ended June 30, 1997. There were no
redemptions of Class "I" preferred shares during the six months ended June
30,1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company held cash and short term investments of $27.5
million ($22.7 million as of June 30, 1996) and working capital of $26.7
million ($25.9 million as of June 30, 1996). The increase in cash resources and
working capital resulted from proceeds from the issuance of Guyanor shares in
conjunction with the listing of the Nouveau Marche in the fourth quarter of
1996 ($8.9 million), proceeds from the exercises of the Company's Cdn$11.00
warrants in the first quarter of 1997 ($5.4 million) and proceeds from the
Company's common share offering in May 1997 ($22.7 million), offset by
expenditures on the Company's exploration activities during the second half of
1996 and the first six months of 1997.
Cash used in investing activities of $12.2 million for the six months ended
June 30, 1997 (as compared to $10.2 million for the six months ended June 30,
1996) increased primarily due to increased expenditures on exploration
projects, primarily the Gross Rosebel project in Suriname ($3.4 million net of
joint venture recoveries) and the Andorinhas project in Brazil ($3.2 million).
Cash provided by financing activities of $28.6 million for the six months ended
June 30, 1997 decreased by $1.4 million as compared to $30.0 million for the
six months ended June 30, 1996. The decrease results from offerings by the
Company's subsidiaries in the first six months of 1996 which did not recur in
1997. Share capital increased by $28.0 million for the six months ended June
30, 1997 compared with $22.3 million during the six months ended June 30, 1996,
reflecting proceeds from warrant exercises and the May 1997 common stock
offering.
In response to continuing weak gold prices, which could impact the Company's
ability to raise capital through the equity markets, management implemented
a program in July to conserve cash by reducing
13
<PAGE> 16
administrative expenses and exploration spending. The Company's exploration
efforts will focus on advanced stage projects and the higher priority earlier
stage projects. Management has assessed and prioritized exploration projects in
order to ensure continued progress on the most promising projects in the
Company's portfolio over a prolonged period of time should the currently weak
gold environment persist. The objective of the revised budgets is to fund those
programs that the Company believes offer the greatest potential for meaningful
results and that will generate new resources and reserves. As of June 30, 1997,
the Company had approximately $29 million in cash and restricted cash. The
Company's consolidated exploration spending for the second half of 1997 is
budgeted to be $20.9 million, with recoveries from joint venture partners of
$7.8 million, resulting in net exploration expenditures totaling $13.1 million.
The Company expects that its existing cash resources will be sufficient to fund
these expenditures.
The Company's primary efforts for the remainder of 1997 are planned to focus on
six projects: Andorinhas in Brazil, Yaou, Dorlin, St-Elie and Paul Isnard in
French Guiana, and Eagle Mountain in Guyana. Construction of the Gross Rosebel
Project in Suriname has been deferred pending receipt of necessary government
approvals, resolution of certain issues related to development and improved gold
prices. Work will continue on an update of the feasibility study which is
expected to be completed in the second half of 1997. Work is also expected to
continue on gold anomalies established through our joint ventures with BHP in
Suriname and Guyana, as well as programs recently initiated on the Dachine
diamond project in French Guiana and the Five Stars diamond projects in north
western Guyana. Most other earlier state projects have been put on care and
maintenance while awaiting improved conditions, while seeking joint venture
partners where appropriate. Certain early state projects have been assessed and
those which do not warrant further work abandoned (see Results of Operations).
Africa (Pan African Resources Corporation)
Total exploration and acquisition expenditures in Africa for the second quarter
of 1997 amounted to $0.8 million (compared to $1.5 million during the second
quarter of 1996) and $1.7 million for the first six months of 1997 (compared to
$2.7 million for the first six months of 1996). Expenditures in 1997 primarily
reflect exploration activities in the Ivory Coast, Kenya and Eritrea. General
and administrative expenditures for the second quarter of 1997 totaled $0.2
million (compared to $0.4 million for the second quarter of 1996) and $0.3
million for the first six months of 1997 (compared to $0.7 million for the six
month period ended June 30, 1996). PARC recorded exploration expense of $0.3
million and $0.4 million during the second quarter and six months ended June
30, 1997, respectively, representing preliminary project reconnaissance and
additional expenditures for projects previously written down.
In May 1997, PARC entered into a demand revolving line of credit with the
Company, whereby the Company would loan PARC up to $2.0 million. On June 27,
1997, the principal and interest on outstanding advances due from PARC totaling
$2,018,591 were converted into 7,333,328 common shares of PARC at a conversion
price of Cdn$0.38 per share. As a result, the Company's interest in PARC as of
June 30, 1997 was increased to 63.89%.
On June 5, 1997, PARC's performance bond requirements under its Exploration
License Agreement with the Government of Eritrea were reduced from $1.3 million
to $0.7 million. As a result, the bank guarantee and restricted cash collateral
supporting the performance bond were reduced by $0.6 million.
French Guiana (Guyanor Ressources S.A.)
Total exploration expenditures by Guyanor for the second quarter of 1997
amounted to $3.0 million, offset by joint venture recoveries of $2.5 million as
compared to $2.4 million in expenditures and $2.2 million in joint venture
recoveries in 1996. Total exploration expenditures and joint venture recoveries
for Guyanor for the six months ended June 30, 1997 were $5.1 million and $4.3
million, respectively (compared to $3.5 million in expenditures and $3.3
million in joint venture recoveries for the first six
14
<PAGE> 17
months of 1996). Activities in French Guiana focused primarily on further work
at the St-Elie/Dieu-Merci, Paul-Isnard/Eau Blanche and Yaou/Dorlin properties.
General and administrative expenditures for Guyanor which were not reimbursed
by joint venture partners amounted to $0.4 million and $0.9 million for the
quarter and six months ended June 30, 1997, respectively (compared to $0.6
million and $1.1 million for the three and six months ended June 30, 1996,
respectively). During the second quarter of 1997, Guyanor recorded property
write-downs of $0.9 million for the Regina Est property. Funds for an
exploration program have not been budgeted for the Regina Est project and
Guyanor anticipates relinquishing the property in the second half of 1997.
Guyanor anticipates it will begin to contribute its 50% share of expenditures
at Yaou / Dorlin in the second half of 1997.
The Company owned approximately 68% of the outstanding shares of Guyanor as of
June 30, 1997.
Guyana
Exploration and acquisition expenditures in the second quarter of 1997 in
Guyana amounted to $0.8 million (compared to $1.1 million during the second
quarter of 1996) and $1.4 million for the six months ended June 30, 1997
(compared to $2.2 million for the first six months of 1996). Joint venture
recoveries from the Company's BHP projects totaled $0.1 million for the six
months ended June 30, 1997. Activities in Guyana focused primarily on the Five
Stars gold and diamond reconnaissance areas and the Eagle Mountain project.
During the quarter ended June 30, 1997, the Company relinquished five
prospecting licenses in the Upper Mazaruni and Five Stars areas in Guyana and,
as a consequence, recognized property abandonment losses of $4.8 million during
the period.
Suriname
Exploration expenditures in Suriname during the second quarter and six months
ended June 30, 1997 focused principally on the Gross Rosebel gold project in
joint venture with Cambior Inc. ("Cambior"). Total spending in Suriname in the
second quarter of 1997 of $3.6 million was offset by recoveries from joint
venture partners of $0.7 million (compared to $3.1 million in expenditures and
$1.1 million in recoveries for the second quarter of 1996), as Cambior has met
its earn-in requirements at Gross Rosebel and all expenditures are shared
equally on the Gross Rosebel project. Exploration expenditures of $7.5 million
for the first six months of 1997 (compared to $5.1 million for the six months
ended June 30, 1996) were offset by $1.8 million in joint venture recoveries
(compared to $2.4 million in recoveries for the first six months of 1996).
Southern Star Resources Ltd.
Exploration expenditures by Southern Star for the second quarter of 1997 of
$2.5 million ($1.4 million for the second quarter of 1996) and $4.5 million for
the first six months of 1997 (compared to $1.9 for the first six months of
1996). Exploration work focused primarily on the Andorinhas and Abacaxis
properties in Brazil and the San Simon project in Bolivia.
During the quarter ended June 30, 1997, the Company recorded a property
write-down charge of $0.4 million for the Sunsas property area in Boliva. The
Company intends to relinquish certain portions of the Sunsas property area and
close its office in Santa Cruz in the third quarter of 1997.
15
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are currently no material pending legal proceedings to which the Company
or any of its subsidiaries is a party or to which any of it properties or those
of any of its subsidiaries is subject. The Company and its subsidiaries are,
however, engaged in routine litigation incidental to their business. No
material legal proceedings involving the Company are pending, or, to the
knowledge of the Company, contemplated, by any governmental authority. The
Company is not aware of any material events of noncompliance with environmental
laws and regulations. The exact nature of environmental control problems, if
any, which the Company may encounter in the future cannot be predicted,
primarily because of the changing character of environmental regulations that
may be enacted within foreign jurisdictions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual General Meeting of the Shareholders of the Company held on June
10, 1997, shareholders were asked to (i) re-elect the nine directors, including
Messrs. Fagin, Fennell, Gousseland, Lefebvre, Mazankowski, Mercier, Minto (Dr.
Robert Minto was previously appointed to the Board on September 1, 1996 upon
the resignation of Bernard G. Poznanski from the Board), Morton and Stark, (ii)
approve the appointment of auditors for 1997, and (iii) approve the Company's
1997 Stock Option Plan.
As a result of recent changes in U.S. securities laws, the Board decided to
adopt a new stock option plan, (the "1997 Stock Option Plan"). Under the new
plan, the Employees Stock Option Plan (the "Employees' Plan") and the
Non-discretionary Director Stock Option Plan (the "Directors' Plan") were
combined into one plan. Upon approval of the 1997 Stock Option Plan, the
Employees' Plan and Directors' Plan were both terminated and outstanding
options granted thereunder were assumed under the 1997 Stock Option Plan.
(i) Votes cast in the election of directors were as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
For Withheld
--- --------
<S> <C> <C>
David K. Fagin 20,488,647 15,697
David A. Fennell 20,488,647 15,697
Pierre Gousseland 20,488,647 15,697
Jean-Pierre Lefebvre(1) 20,488,647 15,697
Donald Mazankowski 20,488,647 15,697
Ernest Mercier 20,488,647 15,697
Robert Minto 20,488,647 15,697
Roger D. Morton 20,488,647 15,697
Richard A. Stark 20,488,647 15,697
</TABLE>
(1) On July 1, 1997, Jean-Pierre Lefebvre resigned as a director of the
Company.
16
<PAGE> 19
Votes cast for the appointment of Coopers & Lybrand as auditors for 1997:
For Against Withheld
--- ------- --------
20,483,659 -0- 14,273
(iii) Votes cast for the 1997 Stock Option Plan:
For Against Withheld
--- ------- --------
8,698,051 3,913,735 -0-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10 1997 Stock Option Plan
Exhibit 27 Financial Data Schedule
(b) The Company filed with the Securities and Exchange Commission ("SEC")
on May 8, 1997, a Form 8-K, dated April 24, 1997, concerning the sale
of 3.025 million Common Shares of the Company at US$7.50 per Common
Share.
17
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Golden Star Resources Ltd.
By: /s/ David A. Fennell
-------------------------------
David A. Fennell
President and Chief Executive
Officer
By: /s/ Gordon J. Bell
-------------------------------
Gordon J. Bell
Vice President and Chief Financial
Officer
Date: August 14, 1997
18
<PAGE> 21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10 1997 Stock Option Plan
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10
GOLDEN STAR RESOURCES LTD.
1997 STOCK OPTION PLAN
1. PURPOSE
1.l The purpose of the 1997 Stock Option Plan (the "Plan") is to advance
the interests of Golden Star Resources Ltd. (the "Corporation") by
encouraging equity participation in the Corporation by selected key
employees, consultants and directors of the Corporation or
subsidiaries of the Corporation through the acquisition of common
shares without par value ("Shares") in the Corporation. Any reference
herein to the Corporation or any subsidiary of the Corporation shall
be deemed to refer to any predecessor or successor corporation
thereto.
It is the further purpose of this Plan to permit the granting of
awards that will constitute performance-based compensation for certain
executive officers, as described in section 162(m) of the United
States Internal Revenue Code of 1986, as amended (the "Code"), and
regulations promulgated thereunder.
As of the effective date of the Plan, the 1992 Employees' Stock Option
Plan and the 1992 Non-Discretionary Directors' Stock Option Plan
(collectively, the "1992 Plans") will be terminated subject to the
assumption under the Plan of outstanding options granted under the
1992 Plans.
2. ADMINISTRATION OF THE PLAN
2.1 The Plan will be administered by a specifically designated independent
committee ("Independent Committee") of the Board of Directors of the
Corporation (the "Board of Directors"), except that with respect to
options granted to non-employee directors of the Corporation, the
Board of Directors shall serve as the Committee, and, where
applicable, any reference herein to the Independent Committee shall be
deemed to refer to the Board of Directors. The Independent Committee
shall consist of such two or more directors of the Corporation as the
Board of Directors may designate from time to time, all of whom shall
be and remain directors of the Corporation. To the extent necessary to
comply with Code section 162(m) or Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act"), as amended ("Rule 16b-3"),
each member of the Independent Committee shall be intended to be an
"outside director" within the meaning of Code section 162(m) or a
"non-employee director" within the meaning of Rule 16b-3. The
Independent Committee is authorized to interpret and to implement the
Plan and all Plan agreements and may from time to time amend or
rescind rules and regulations required for carrying out the Plan. The
Independent Committee shall have the authority to exercise all of the
powers granted to it under the Plan, to make any determination
necessary or advisable in administering the Plan and to correct any
defect, supply any omission and reconcile any inconsistency in the
Plan. Any such interpretation or construction of any provision of the
Plan shall be final and conclusive. Notwithstanding the foregoing, the
Board of Directors may resolve to administer the Plan with respect to
all of the Plan or certain participants and/or awards made or to be
made under the Plan. To the extent that the Board of Directors
determines to administer the Plan, all references herein to the
Independent Committee shall be deemed to refer to the Board of
Directors.
<PAGE> 2
All administrative costs of the Plan shall be paid by the Corporation.
No member of the Independent Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any
option granted under it.
3. PARTICIPATION
3.1 Options may be granted under the Plan to persons who are directors or
key employees (including officers, whether or not directors, and
part-time employees) of, or independent consultants to, the
Corporation or any of its subsidiaries who, by the nature of their
positions or jobs, are in the opinion of the Independent Committee in
a position to contribute to the success of the Corporation or any of
its subsidiaries or who, by virtue of their length of service to the
Corporation or to any of its subsidiaries are, in the opinion of the
Independent Committee, worthy of special recognition.
Designation of a participant in any year shall not require
the designation of such person to receive an option in any other year.
The Independent Committee shall consider such factors as it deems
pertinent in selecting participants and in determining the amount and
terms of their respective options.
Options shall also be granted to non-employee directors of the
Corporation in accordance with Section 11 of the Plan.
3.2 Subject to applicable regulatory approval, options may also be granted
under the Plan in exchange for outstanding options granted by the
Corporation, whether such outstanding options are granted under the
Plan, under any other stock option plan of the Corporation or under
any stock option agreement with the Corporation. Options granted under
the 1992 Plans which are outstanding upon the effectiveness of the
Plan will be assumed and will be deemed to be governed by the Plan as
of such date.
3.3 Options may also be granted under the Plan in substitution for
outstanding options of another corporation in connection with a plan
of arrangement, amalgamation, merger, consolidation, acquisition of
property or shares, or other reorganization between or involving such
other corporation and the Corporation or any of its subsidiaries.
4. NUMBER OF SHARES RESERVED UNDER THE PLAN
4.1 The number of Shares reserved for issuance under the Plan is
limited as follows:
(a) the maximum number of Shares issuable pursuant to the exercise
of options granted under the Plan shall be 5,600,000 (including
such number of Shares issuable upon exercise of options granted
under the 1992 Plans as of the effective date of the Plan)
provided, however, if, after the effective date of the Plan,
any Shares covered by an option granted under the Plan, or to
which such an option relates, are forfeited, or if an option
has expired, terminated or been canceled for any reason
whatsoever (other than by reason of exercise), then the Shares
covered by such option shall again be, or shall become, Shares
with respect to which options may be granted hereunder;
(b) the number of Shares that may be reserved from time to time
under the Plan for issuance to Insiders (as defined below) of
the Corporation shall be limited to that number which is
2
<PAGE> 3
equal to the difference between (i) 10% of the outstanding
number of Shares from time to time, and (ii) the number of
Shares that are reserved for issuance to Insiders pursuant to
stock options granted under other stock option plans or
arrangements of the Corporation;
(c) the total number of Shares issuable within any one-year period
to all Insiders of the Corporation pursuant to the exercise of
vested options granted under the Plan or pursuant to any other
share compensation arrangements of the Corporation shall not
exceed 10% of the Outstanding Issue;
(d) the total number of Shares reserved for issuance to any one
optionee pursuant to options granted under the Plan or other
stock option plans or arrangements of the Corporation shall not
exceed 5% of the outstanding number of Shares from time to
time; and
(e) the total number of Shares issuable within any one-year period
to an Insider and, if applicable, such Insider's "associates"
(as defined under the Securities Act (Ontario) pursuant to the
exercise of vested options granted under the Plan or any other
share compensation arrangements of the Corporation shall not
exceed 5% of the Outstanding Issue.
"Insiders" has the meaning set forth in the Toronto Stock Exchange's
policy issued March 22, 1994 entitled "Employee Stock Option and Stock
Purchase Plans, Options for Services and Related Matters."
"Outstanding Issue", for the purposes of the Plan, is determined on
the basis of the number of Shares that are outstanding immediately
prior to the Shares issuance in question, excluding Shares issued
pursuant to the Plan or the Corporation's other share compensation
arrangements over the preceding one-year period. The maximum number of
Shares set forth in Section 4.1(a) shall be appropriately adjusted in
the event of any subdivision or consolidation of the Shares or in the
discretion of the Independent Committee, to reflect any other
corporate event or change in the Shares.
5. NUMBER OF OPTIONED SHARES PER OPTIONEE
5.1 Subject to Section 4.1 hereof, the maximum number of Shares subject to
options granted to any one participant under the Plan in any one
calendar year shall not exceed 400,000 (subject to adjustment in the
event of any subdivision or consolidation of the Shares). Subject to
these limitations and Section 11, however, the determination regarding
the number of optioned Shares that may be granted to each optionee
pursuant to an option will be made by the Independent Committee and
will take into consideration the optionee's present and potential
contribution to the success of the Corporation.
6. PRICE
6.1 The exercise price per optioned Share shall be determined by the
Independent Committee at the time the option is granted, but such
price shall not be less than the fair market value per Share on the
date of grant. For the purposes of the Plan, "fair market value" per
Share shall mean the closing price of the Shares on the stock exchange
or other market on which the Shares principally traded on the day
immediately preceding the date of grant.
3
<PAGE> 4
7. EXERCISE OF OPTIONS
7.1 The period during which an option may be exercised (the "Option
Period") shall be determined by the Independent Committee at the time
the option is granted and may be up to 10 years from the date the
option is granted, except as the same may be reduced pursuant to the
provisions of Sections 8 and 9 hereof and except as provided in
Section 11 hereof.
7.2 In order to ensure that the Corporation will receive the benefits
contemplated in exchange for the options granted hereunder, no option
shall be exercisable until it has vested. Subject to Section 11.1
hereof, the vesting schedule for each option shall be specified in an
option agreement as provided for in Section 12 hereof; provided,
however, that the Independent Committee shall have the right with
respect to any one or more optionees to accelerate the time at which
an option may be exercised. Notwithstanding the foregoing provisions
of this Section 7.2, if there is a Change of Control, as defined
below, then all options outstanding shall become immediately
exercisable.
For purposes of this Plan, a "Change of Control" shall mean the
occurrence of any of the following: (i) the sale, lease, transfer,
conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the assets of the
Corporation to any "person" or "group" (as such terms are used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act), (ii) any person
or group, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the voting
stock of the Corporation, including by way of merger, consolidation or
otherwise or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board
of Directors (together with any new directors whose election by such
Board of Directors whose nomination for election by the shareholders
of the Corporation was approved by a vote of a majority of the
directors of the Corporation, then still in office, who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors, then in
office.
7.3 Options shall be exercisable, either all or in part, at any time after
vesting. If less than all of the Shares included in the vested portion
of any option are purchased, the remainder may be purchased, subject
to the option's terms, at any subsequent time prior to the expiration
of the Option Period.
7.4 Except as set forth in Sections 8 and 9 hereof, no option may be
exercised unless the optionee is at the time of such exercise an
employee or director of, or consultant to, the Corporation or any of
its subsidiaries and shall have continuously served in any one or more
of such capacities since the grant of the option. Absence on leave,
with the approval of the Independent Committee, shall not be
considered an interruption of service for any purpose of the Plan.
7.5 The exercise of any option will be contingent upon receipt by the
Corporation of payment for the full purchase price of the Shares being
purchased in cash by way of certified cheque or bank draft or by way
of proceeds of any loan made by the Corporation to the optionee
pursuant to Section 10 hereof. No optionee or his or her legal
representatives, legatees or distributees will be, or will be deemed
to be, a holder of any Shares subject to an option under the Plan,
unless and until certificates for such Shares are issued to him, her
or them under the terms of the Plan.
4
<PAGE> 5
7.6 No option granted under the Plan shall be an "incentive stock option"
within the meaning of Code section 422.
8. TERMINATION OF EMPLOYMENT
8.1 Except as provided in Section 11 hereof, if an optionee ceases to be
employed by, or provide services to, the Corporation or any of its
subsidiaries for any reason (other than death), or shall receive
notice from the Corporation or any of its subsidiaries of the
termination of his or her employment or services (such optionee being
referred to in this Section 8.1 as a "Former Optionee"), the Former
Optionee may only exercise each option held, to the extent that it has
vested and not been exercised before such termination, until the
earlier of:
(a) the date which is 30 days after the Former Optionee ceased to
be employed by, or provide services to, the Corporation or any
of its subsidiaries; and
(b) the expiry of the Option Period for the option (the "Option
Expiry Date");
provided, however, that:
(c) if the Former Optionee continues to be a director of the
Corporation or any of its subsidiaries after such termination
of employment, each option held will continue to be exercisable
until the earlier of:
(i) the date which is 12 months after the Former Optionee
ceases to be such a director for any reason (other than
death), and
(ii) the Option Expiry Date, and
(d) each option held may continue to be exercisable for such longer
period than that provided for in this Section 8.1 if and as may
be determined by the Independent Committee and any such
determination by the Independent Committee may be made
retroactively effective in order to reinstate the effectiveness
of an option held by a Former Optionee that is otherwise
rendered unexercisable pursuant to the other provisions of this
Section 8.1; provided, however, that any such determination by
the Independent Committee shall be subject to the following:
(i) such determination shall be made within three months after
the date that the Former Optionee ceased to be employed
by, or provide services to, the Corporation or any of its
subsidiaries;
(ii) such determination shall be subject to applicable
regulatory approvals; and
(iii) such longer exercise period determined by the Independent
Committee for any option shall not extend beyond the
Option Expiry Date for such option.
5
<PAGE> 6
9. DEATH OF OPTIONEE
9.1 In the event of the death of an optionee while in service or in the
post-termination period described in Section 8, each option
theretofore granted to him or her shall be exercisable until the
earlier of:
(a) the expiry of the period within which the option may be
exercised after such death, which period may be up to one year
after such death and is to be specified in his or her option
agreement, and
(b) the Option Expiry Date;
provided, however, that the option is only exercisable in such event:
(c) by the person or persons to whom the optionee's rights under
the option shall pass by the optionee's will or by the laws of
descent and distribution, and
(d) to the extent that the option has vested and not been exercised
prior to the Optionee's death.
10. LOANS TO EMPLOYEES
10.1 An interest free loan will be made available to optionees who are
employees of the Corporation or any of its subsidiaries at the time
the loan is made, the proceeds of which loan may only be used directly
for the exercise of options granted under the Plan to the optionee.
The optionee shall pledge the subject shares as security for timely
repayment of the loan and the Corporation's sole recourse for
repayment and recovery of the loan shall be against the pledged
shares. Until the loan is repaid, the pledged shares will be held by a
trustee designated by the Corporation. The term of the loan shall be
five years from the date of the loan, provided that the due date for
the loan shall not in any event extend beyond that date which is ten
years from the date of grant of the particular option, and, provided
further, that the loan shall be repaid within 30 days of the earlier
of the date upon which the optionee ceases to be an employee of the
Corporation or any of its subsidiaries for any reason (other than
death), or the date upon which the optionee receives notice from the
Corporation or any of its subsidiaries of the termination of his or
her employment. If the option has not been exercised by the optionee
prior to his or her death, the loan provisions shall not be available
for the exercise of the option pursuant to Section 9 hereof after his
or her death.
11. AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS
11.1 Each person who becomes a non-employee director of the Corporation
will automatically be granted, as of the date such person first
becomes a non-employee director, an option to purchase 40,000 Shares,
provided that, within the one year prior to the date he or she became
a non-employee director, he or she had not been granted any other
stock option by the Corporation (or an affiliate). On each anniversary
a person became a non-employee director of the Corporation if he or
she continues to be a non-employee director of the Corporation, he or
she will automatically be granted, as of the anniversary date, an
option to purchase 10,000 Shares. For purposes of this Section 11, a
non-employee director is any person who is a member of the Board of
Directors and who is not an employee or consultant of the Corporation
or any of its
6
<PAGE> 7
subsidiaries. All options granted under this Section 11.1 shall be
exercisable for a period of 10 years from the date the option is
granted (except as provided in Section 11.3) and shall vest
immediately upon grant.
11.2 Notwithstanding the provisions for automatic grants of options set
forth in section 11.1 hereof, if any particular automatic grant of an
option would violate the requirements of Section 4.1 or 5.1 hereof,
then the grant of such option shall be postponed until such time as
when the option may be granted without any violation of Section 4.1 or
5.1 hereof.
11.3 With respect to options granted under this Section 11, if an optionee
shall cease to be a director of the Corporation for any reason (other
than death), he or she may exercise each option held, to the extent
that it has vested and not been exercised, until the earlier of:
(a) the date which is 12 months after the optionee ceases to be a
director; and
(b) the expiry of the Option Period for the option (the "Option
Expiry Date").
12. OPTION AGREEMENT
12.1 Upon the grant of an option to an optionee, the Corporation and the
optionee shall enter into an option agreement setting out the number
of optioned Shares granted to the optionee and incorporating the terms
and conditions of the Plan and any other requirements of regulatory
bodies having jurisdiction over the securities of the Corporation and
such other terms and conditions as the Independent Committee may
determine are necessary or appropriate, subject to the Plan's terms.
13. ADJUSTMENT IN SHARES SUBJECT TO THE PLAN
13.1 The option exercise price and the number of Shares to be purchased by
an optionee upon the exercise of an option will be adjusted, with
respect to the then unexercised portion thereof, by the Independent
Committee from time to time (on the basis of such advice as the
Independent Committee considers appropriate, including, if considered
appropriate by the Independent Committee, a certificate of auditors of
the Corporation) in the event and in accordance with the provisions
and rules set out in this Section 13. Any dispute that arises at any
time with respect to any adjustment pursuant to such provisions and
rules will be conclusively determined by the Independent Committee,
and any such determination will be binding on the Corporation, the
optionee and all other affected parties.
(a) In the event that a dividend is declared upon the Shares
payable in Shares (other than in lieu of dividends paid in the
ordinary course), the number of Shares then subject to any
option shall be adjusted by adding to each such Share the
number of Shares which would be distributable thereon if such
Share had been outstanding on the date fixed for determining
shareholders entitled to receive such stock dividend.
(b) In the event that the outstanding Shares are changed into or
exchanged for a different number or kind of Shares or other
securities of the Corporation or of another corporation,
whether through an arrangement, amalgamation or other similar
procedure or otherwise, or a share recapitalization,
subdivision or consolidation, then there shall be substituted
for each Share subject to any option the number and kind of
Shares or other
7
<PAGE> 8
securities of the Corporation or another
corporation into which each outstanding Share shall be so
changed or for which each such Share shall be exchanged.
(c) In the event that there is any change, other than as specified
above in this Section 13, in the number or kind of outstanding
Shares or of any securities into which such Shares shall have
been changed or for which they shall have been exchanged, then,
if the Independent Committee, in its sole discretion,
determines that such change equitably requires an adjustment to
be made in the number or kind of Shares, such adjustment shall
be made by the Independent Committee and be effective and
binding for all purposes.
(d) In the event that the Corporation distributes by way of a
dividend, or otherwise, to all or substantially all holders of
Shares, property, evidences of indebtedness or shares or other
securities of the Corporation (other than Shares) or rights,
options or warrants to acquire Shares or securities convertible
into or exchangeable for Shares or other securities or property
of the Corporation, other than as a dividend in the ordinary
course, then, if the Independent Committee, in its sole
discretion, determines that such action equitably requires an
adjustment in the option exercise price or number of Shares
subject to any option, or both, such adjustment shall be made
by the Independent Committee and shall be effective and binding
for all purposes.
13.2 In the case of any such substitution or adjustment as provided for in
this Section 13, the exercise price in respect of each option for each
Share covered thereby prior to such substitution or adjustment will be
proportionately and appropriately varied, such variation shall
generally require that the number of Shares or securities covered by
the option after the relevant event multiplied by the varied option
exercise price be equal to the number of Shares covered by the option
prior to the relevant event multiplied by the original option exercise
price.
13.3 No adjustment or substitution provided for in this Section 13 shall
require the Corporation to issue a fractional share in respect of any
option. Fractional shares shall be eliminated.
13.4 The grant of an option shall not affect in any way the right or power
of the Corporation to effect adjustments, reclassifications,
reorganizations, arrangements or changes of its capital or business
structure, or to amalgamate, merge, consolidate, dissolve or
liquidate, or to sell or transfer all or any part of its business or
assets.
14. TRANSFERABILITY
14.1 All benefits, rights and options accruing to any optionee in
accordance with the terms and conditions of the Plan shall not be
assignable other than as specifically provided in Section 9 in the
event of the death of the optionee. During the lifetime of an
optionee, all benefits, rights and options shall not be transferable
and may only be exercised by the optionee.
15. EMPLOYMENT
15.1 Nothing contained in the Plan shall confer upon any optionee any right
with respect to employment or continuance of employment with, or the
provision of services to, the Corporation or any of its subsidiaries,
or interfere in any way with the right of the Corporation or any of
its subsidiaries to terminate the optionee's employment or services at
any time. Participation in the Plan by an optionee is voluntary.
8
<PAGE> 9
16. RECORD KEEPING
16.1 The Corporation shall maintain a register in which shall be recorded:
(a) the name and address of each optionee; and
(b) the number of Shares subject to an option granted to an
optionee and the number of Shares subject to the option
remaining outstanding.
17. SECURITIES REGULATION AND TAX WITHHOLDING
17.1 Where the Independent Committee determines it is necessary or
desirable to effect exemption from registration or distribution of the
Shares under securities laws applicable to the securities of the
Corporation, an optionee shall be required, upon the acquisition of
any Shares pursuant to the Plan, to acquire the Shares with investment
intent (i.e., for investment purposes) and not with a view to their
distribution, and to present to the Independent Committee an
undertaking to that effect in a form acceptable to the Independent
Committee. The Board of Directors and the Independent Committee may
take such other action or require such other action or agreement by
such optionee as may from time to time be necessary to comply with
applicable securities laws. This provision shall in no way obligate
the Corporation to undertake the registration or qualification of any
options or the Shares under any securities laws applicable to the
securities of the Corporation.
17.2 The Board of Directors and the Corporation may take all such measures
as they deem appropriate to ensure that the Corporation's obligations
under the withholding provisions under income and tax laws applicable
to the Corporation and other provisions of applicable laws are
satisfied with respect to the issuance of Shares pursuant to the Plan
or the grant or exercise of options under the Plan.
17.3 Issuance, transfer or delivery of certificates for Shares purchased
pursuant to the Plan may be delayed, at the discretion of the
Independent Committee, until the Independent Committee is satisfied
that the applicable requirement of securities and income tax laws have
been met.
18. AMENDMENT AND TERMINATION
18.1 The Board of Directors reserves the right to amend or to terminate the
Plan at any time if and when it is advisable in the absolute
discretion of the Board of Directors; provided, however, that no such
amendment or termination shall adversely affect any outstanding
options granted under the Plan without the consent of the optionee.
Furthermore, to the extent any amendment would require shareholder
approval under Code section 162(m), such amendment shall be effective
upon the required approval of the shareholders of the Corporation. Any
amendment to the Plan shall also be subject to any necessary approvals
of any stock exchange or regulatory body having jurisdiction over the
securities of the Corporation and, where applicable, shareholders
approval.
18.2 Subject to regulatory approval, where applicable, the Independent
Committee may waive any conditions or rights under, amend any terms
of, or alter, suspend, discontinue, cancel or terminate, any option
theretofore granted, prospectively or retroactively; provided,
however, that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination
9
<PAGE> 10
that would impair the rights of any optionee or any holder or
beneficiary of any option theretofore granted shall not to that
extent be effective without the consent of the affected optionee,
holder or beneficiary.
19. NO REPRESENTATION OR WARRANTY
19.1 The Corporation makes no representation or warranty as to the future
market value of any Shares issued in accordance with the provisions of
the Plan.
20. NECESSARY APPROVALS
20.1 The obligation of the Corporation to issue and to deliver any Shares
in accordance with the Plan is subject to any necessary or desirable
approval of any regulatory authority having jurisdiction over the
securities of the Corporation. If any Shares cannot be issued to any
optionee for whatever reason, the obligation of the Corporation to
issue such Shares shall terminate and any option exercise price paid
to the Corporation shall be returned to the optionee.
21 GENERAL PROVISIONS
21.1 Nothing contained in the Plan shall prevent the Corporation or any
subsidiary thereof from adopting or continuing in effect other
compensation arrangements, which may, but need not, provide for the
grant of options (subject to shareholder approval if such approval is
required), and such arrangements may be either generally applicable or
applicable only in specific cases.
21.2 The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan and any option agreement shall be
determined in accordance with the laws of the State of New York.
21.3 If any provision of the Plan or any option is or becomes or is deemed
to be invalid, illegal, or unenforceable in any jurisdiction or as to
any person or option, or would disqualify the Plan or any option under
any law deemed applicable by the Independent Committee, such provision
shall be construed or deemed amended to conform to the applicable
laws, or if it cannot be construed or deemed amended without, in the
determination of the Independent Committee, materially altering the
intent of the Plan or the option, such provision shall be stricken as
to such jurisdiction, person or option and the remainder of the Plan
and any such option shall remain in full force and effect.
21.4 Neither the Plan nor any option shall create or be construed to create
a trust or separate fund of any kind or a fiduciary relationship
between the Corporation or any subsidiary thereof and an optionee or
any other person.
21.5 Headings are given to the Sections of the Plan solely as a convenience
to facilitate reference. Such headings shall not be deemed in any way
material or relevant to the construction or interpretation of the Plan
or any provision thereof.
22. TERM OF THE PLAN
22.1 The Plan shall be effective as of the date of its approval by the
shareholders of the Corporation, subject to receipt of all necessary
regulatory approvals.
10
<PAGE> 11
22.2 No option shall be granted under the Plan after June 10, 2007. Unless
otherwise expressly provided in the Plan or in an applicable option
agreement, any option granted hereunder may, and the authority of the
Board of Directors or the Independent Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such option or to waive
any conditions or rights under any such option shall, continue after
June 10, 2007.
11
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