<PAGE>
===============================================================================
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
GOLDEN STAR RESOURCES LTD.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF GOLDEN STAR RESOURCES LTD.
Denver, Colorado
NOTICE IS HEREBY GIVEN that the Annual General and Special Meeting of
Shareholders of Golden Star Resources Ltd. (the "Company") will be held at 11:00
am (Toronto time) on Tuesday, June 15, 1999, in the Engineer Room of the Ontario
Club, 30 Wellington Street West, Toronto, Ontario, Canada for the following
purposes:
1. to receive the report of the directors to the shareholders and the
consolidated financial statements of the Company, together with the
auditor's report thereon, for the fiscal year ended December 31, 1998;
2. to elect directors until the next annual general meeting;
3. to appoint PricewaterhouseCoopers, Chartered Accountants, as auditor to hold
office until the next annual general meeting at a remuneration to be fixed
by the directors;
4. to approve, ratify and confirm amendments to the Company's Shareholder
Rights Plan;
5. to approve amendments to stock options granted to non-employee directors of
the Company;
6. to approve amendments to stock options granted to senior officers of the
Company;
7. to approve the continuance of the Company under the Yukon Business
Corporations Act and to approve, ratify and confirm new Bylaws of the
Company as a Yukon corporation;
8. to approve in advance the issuance of a number of common shares of the
Company, by virtue of exemptions from registration and prospectus
requirements under applicable securities legislation and transactions which
may not be fully marketed public offerings that may exceed 25% of the
Company's issued and outstanding common shares, subject to all necessary
regulatory approvals;
9. to transact such other business as may properly come before the meeting or
any adjournment of it.
TAKE NOTICE that pursuant to the Canada Business Corporations Act (the "CBCA") a
dissenting shareholder is entitled to be paid the fair value of his shares in
accordance with section 190 of the CBCA. A dissenting shareholder shall send to
the Company, at or before the Meeting, a written objection with respect to the
special resolution to continue the Company under the Yukon Business Corporations
Act. Such written objection may be delivered to the Company, or sent to the
Company by registered mail addressed to the Company, at the registered office of
the Company at 19th Floor, 885 West Georgia Street, Vancouver, British Columbia
V6C 3H4.
The Board of Directors has fixed the close of business on April 27, 1999, as the
record date for the determination of shareholders entitled to notice of and to
vote at the meeting and at any adjournment thereof. Accompanying this Notice of
Meeting are (i) a proxy statement and management information circular, a form of
proxy, and (iii) a reply card for use by shareholders who wish to receive the
Company's interim financial statements.
If you are a registered shareholder of the Company and do not expect to attend
the meeting in person, please promptly complete and sign the enclosed proxy form
and return it in the self-addressed envelope for receipt by 5:00 p.m. (Toronto
time) on Friday, June 11, 1999. If you receive more than one proxy form because
you own shares registered in different names or addresses, each proxy form
should be completed and returned.
If you are a non-registered shareholder of the Company and receive these
material through your broker or another intermediary, please complete and sign
the materials in accordance with the instructions provided to you by such broker
or other intermediary.
Dated at Denver, Colorado, this th day of May, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Louis O. Peloquin
Vice President, General Counsel and Secretary
<PAGE>
GOLDEN STAR RESOURCES LTD.
PROXY STATEMENT AND MANAGEMENT INFORMATION CIRCULAR
This Management Information Circular is furnished to the shareholders of Golden
Star Resources Ltd. (the "Company") in connection with the solicitation by
management of proxies to be voted at the annual meeting (the "Meeting") of the
shareholders of the Company to be held at the Ontario Club, 30 Wellington Street
West, in Toronto, Canada, at 11:00 am (Toronto time), on Tuesday, June 15, 1999,
and at any adjournment thereof, for the purposes set forth in the accompanying
Notice of Meeting.
All dollar ($) amounts referred to herein are to United States dollars (U.S.$)
unless otherwise indicated.
Solicitation of Proxies
The enclosed proxy is solicited by and on behalf of management of the Company.
The persons named in the enclosed proxy form are directors or officers of the
Company. A shareholder desiring to appoint some other person (who need not be a
shareholder) to represent him at the meeting may do so either by inserting such
other person's name in the blank space provided in the proxy form or by
completing another form of proxy. To be used at the Meeting, the completed
proxy form must be received by 5:00 p.m. (Toronto time) on Friday, June 11,
1999, at the address set forth in the accompanying return envelope (Attention:
Proxy Department, CIBC Mellon Trust Company, PO Box 12005 STN BRM B, Toronto,
Ontario M7Y 2K5). Solicitation will be primarily by mail, but some proxies may
be solicited personally or by telephone by regular employees or directors of the
Company at a nominal cost. The cost of solicitation by management of the
Company will be borne by the Company. This Management Information Circular and
the accompanying proxy are expected to be sent to the shareholders on or about
May 14, 1999.
Revocability of Proxies
A shareholder who has given a proxy may revoke it either by (a) signing a proxy
bearing a later date and depositing the same at the registered office of the
Company at 19th floor, 885 West Georgia Street, Vancouver, British Columbia V6C
3H4 prior to the close of business on the day preceding the date on which the
Meeting is to be held or any adjournment thereof, or with the chairman of the
Meeting before any votes in respect of which the proxy is to be used shall have
been taken; or (b) attending the Meeting in person and registering with the
scrutineers as a shareholder personally present.
Voting of Proxies
A shareholder's instructions on his proxy form as to the exercise of voting
rights will be followed in casting such shareholder's votes. In the absence of
any instructions, the proxy agent named on the proxy form will cast the
shareholder's votes in favor of the passage of the resolutions set forth herein
and in the Notice of Meeting.
The enclosed proxy form confers discretionary authority upon the persons named
therein with respect to (a) amendments or variations to matters identified in
the Notice of Meeting and (b) other matters which may properly come before the
Meeting or any adjournment thereof. At the time of printing of this Management
Information Circular, management of the Company knows of no such amendments,
variations or other matters to come before the Meeting other than the matters
referred to in the Notice of Meeting.
Votes Necessary to Pass Resolutions at the Meeting
Under the Company's Bylaws, the quorum for the transaction of business at the
Meeting consists of two persons present in person, each being a shareholder
entitled to vote thereat or a duly appointed proxyholder or representative for a
shareholder so entitled. Pursuant to the Canada Business Corporations Act
("CBCA") and the Company's Bylaws, directors must be elected and resolutions
referred to in the accompanying Notice of Meeting must be passed by a majority
of the votes cast by the shareholders who voted in respect of the particular
matter, except that the special resolution regarding the continuance of the
Company under the Yukon Business Corporations Act referred to in item 6 of the
accompanying Notice of Meeting requires approval by a majority of at least two-
thirds of the votes cast by shareholders on such resolution.
<PAGE>
Voting Shares and Principal Holders Thereof
The Company has an authorized capital consisting of an unlimited number of
common shares (the "Common Shares") and an unlimited number of first preferred
shares (the "First Preferred Shares. As of April 27, 1999, 29,649,457 Common
Shares and no First Preferred Shares were issued and outstanding. The Board of
Directors of the Company (the "Board") has fixed April 27, 1999, as the record
date for the determination of shareholders entitled to notice of and to vote at
the Meeting and at any adjournment thereof. Each Common Share outstanding on
the record date carries the right to one vote. The Company has caused to be
prepared a list of the holders of its Common Shares on such record date. Each
shareholder named in the list will be entitled to one vote at the Meeting for
each Common Share shown opposite such shareholder's name except to the extent
that (a) such shareholder has transferred the ownership of such Common Share
after the date on which the list was prepared and (b) the transferee of such
Common Share produces a properly endorsed share certificate or otherwise
establishes that the transferee owns such Common Share and demands not later
than 10 days before the Meeting that the transferee's name be included in the
list in which case the transferee will be entitled to vote such Common Share at
the Meeting. A complete list of the shareholders entitled to vote at the
Meeting will be open to examination by any shareholder for any purpose germane
to the Meeting, during ordinary business hours for a period of 10 days prior to
the Meeting, at the office of CIBC Mellon Trust Company at Mall Level, 1177 West
Hastings Street, Vancouver, British Columbia V6E 2K3.
As of April 27, 1999, based upon information available to the Company, no person
or entity beneficially owns, directly or indirectly, or exercises control or
direction over, shares carrying more than 5% of the voting rights attached to
the Company's issued and outstanding Common Shares, except as noted in the table
under "Security Ownership of Certain Beneficial Owners and Management".
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of April 27, 1999, with respect
to beneficial ownership of the Company's Common Shares by each person known to
the Company or its directors or senior officers to be the beneficial owner of
more than 5% of its outstanding Common Shares, by each director and director
nominee, by each executive officer named in the table titled "Summary
Compensation Table" under "Compensation of Executive Officers", and by all
officers and directors of the Company as a group. Unless otherwise noted, each
shareholder has sole investment and voting power over the Common Shares owned.
2
<PAGE>
<TABLE>
<CAPTION>
Number of Common Shares Beneficially Percent of Common Shares
Owned
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Snyder Capital Management Inc. 4,478,000 (1) 14.8%
350 California Street, Suite 1460
San Francisco, CA 94104
- ------------------------------------------------------------------------------------------------------------------------------
David K. Fagin (3) 1,032,987 (2) 3.3%
Englewood, CO 80110
- ------------------------------------------------------------------------------------------------------------------------------
James E. Askew 333,333 (2) 1%
Denver, CO 80206
- ------------------------------------------------------------------------------------------------------------------------------
Roger D. Morton 312,500 (2) 1%
Edmonton, Alberta, Canada T6G 2V2
- ------------------------------------------------------------------------------------------------------------------------------
Gordon J. Bell (3) 297,604 (2) *
- ------------------------------------------------------------------------------------------------------------------------------
Carlos Bertoni 202,606 (2) *
Brasilia, Brazil
- ------------------------------------------------------------------------------------------------------------------------------
Louis O. Peloquin (3) 166,800 (2) *
- ------------------------------------------------------------------------------------------------------------------------------
Richard A. Stark 158,501 (2) *
Vero Beach, FL 32963
- ------------------------------------------------------------------------------------------------------------------------------
Hilbert Shields 149,509 (2) *
Georgetown, Guyana
- ------------------------------------------------------------------------------------------------------------------------------
Pierre Gousseland 123,040 (2) *
Greenwich, CT 06830
- ------------------------------------------------------------------------------------------------------------------------------
Philip S. Martin 77,000 (2) *
Oakville, Ontario, Canada L6J 4N2
- ------------------------------------------------------------------------------------------------------------------------------
Robert R. Stone 75,000 (2) *
Vancouver, British Columbia, Canada V6C 2G7
- ------------------------------------------------------------------------------------------------------------------------------
Ernest C. Mercier 63,300 (2) *
Toronto, Ontario, Canada M5N 1S8
- ------------------------------------------------------------------------------------------------------------------------------
John W. Sabine 0 n/a
Toronto, Ontario, Canada M5X 1A4
- ------------------------------------------------------------------------------------------------------------------------------
Directors and Executive Officers as a group (4) 3,457,947 (2) 10%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Indicates less than one percent.
(1) This information is based on the most current Schedule 13-G provided to the
Company by this beneficial owner.
(2) Includes Common Shares subject to options exercisable within 60 days of
April 27, 1999 as follows: James E. Askew: 333,333; Gordon Bell: 283,700;
Carlos Bertoni: 163,450; David Fagin: 453,000; Pierre Gousseland 120,000;
Philip S. Martin: 77,000; Ernest Mercier: 60,000; Roger Morton: 140,000;
Louis O. Peloquin: 166,800; Hilbert Shields: 138,450; Richard Stark:
150,000; Robert R. Stone: 70,000; and Directors and Executive Officers as a
group: 2,444,413. As a result of a plan of arrangement completed on March
14, 1995 between the Company and its shareholders, upon exercise of each
option to purchase Common Shares granted prior to March 14, 1995, the holder
thereof will, in addition, be entitled to receive one-fifth of one Class B
common share of Guyanor Ressources S.A., a subsidiary of the Company
("Guyanor"), for each Common Share acquired thereunder.
(3) Address is c/o Golden Star Resources Ltd., 1660 Lincoln Street, Suite 3000,
Denver, CO 80264.
(4) Includes the executive officers listed above and one other executive
officer.
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based on a review of reports filed by our directors,
executive officers and beneficial holders of 10% or more of our outstanding
shares, and upon representations from those persons, all reports required to be
filed by our reporting persons during 1998 were filed on time.
ELECTION OF DIRECTORS
Under the articles of the Company, the Board of Directors shall consist of a
minimum of three and a maximum of 15 directors. Under the CBCA, a majority of
the directors must be Canadian residents. It is proposed to nominate the six
persons listed below for election as directors of the Company to hold office
until the next annual meeting of the shareholders or until his successor is
elected or appointed pursuant to relevant provisions of the Bylaws of the
Company or the Company's governing
3
<PAGE>
statute. All such proposed nominees are currently directors of the Company
except Messrs. James E. Askew and John W. Sabine.
It is the intention of the persons named as proxyholders in the enclosed proxy
form to vote for the election to the Board of those persons hereinafter
designated as nominees for election as directors. The Board does not
contemplate that any of such nominees will be unable to serve as a director;
however, if for any reason any of the proposed nominees do not stand for
election or are unable to serve as such, proxies in favor of management
designees will be voted for another nominee in the discretion of the proxy agent
unless the shareholder has specified in the proxy form that the shareholder's
Common Shares are to be withheld from voting in the election of directors.
The following table sets forth the name of each of the persons proposed to be
nominated for election as a director; all positions and offices in the Company
presently held by him; his present principal occupation or employment; the date
of his first appointment as a director; and his age. See "Security Ownership of
Certain Beneficial Owners and Management" for the number of Common Shares of the
Company that each nominee has advised are beneficially owned by him, directly or
indirectly, or over which control or direction is exercised and his municipality
of residence.
<TABLE>
<CAPTION>
Name and Position Present and Principal Occupation Date of First Age
with Company Appointment as Director
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JAMES E. ASKEW President and Chief Executive Officer of the n/a 50
President, Chief Executive Company
Officer
DAVID K. FAGIN (1) Chairman of Western Exploration and Development May 15, 1992(2) 61
Director Limited
ERNEST C. MERCIER (1) Businessman and Professional Director January 20, 1995 66
Director
ROGER MORTON Professor Emeritus of Economic Geology, University May 15, 1992(2) 63
Director of Alberta and Business Consultant
ROBERT R. STONE (1) Business Consultant and Corporate Director September 30, 1997 56
Director
JOHN W. SABINE Partner of Bennett Jones n/a 53
n/a
</TABLE>
_______________________________
(1) Member of the Audit and Corporate Governance Committee.
(2) May 15, 1992 represents the date of the Company's formation upon the
amalgamation of Golden Star Resources Ltd. ("Golden Star") and South
American Goldfields Inc. Mr. Fagin and Dr. Morton were, prior to the
amalgamation, directors of Golden Star serving since February 3, 1992 and
April 2, 1985, respectively.
Below is additional information concerning each of the individuals named in the
above table.
Mr. Askew has been President and Chief Executive Officer of the Company since
March 1999. Prior thereto, Mr. Askew was President and Chief Executive Officer
of Rayrock Resources Inc. from September 1998 to March 1999. Mr. Askew has
also been President and Chairman of International Mining and Finance Company
since 1997. From 1986 to 1996, Mr. Askew was President and Chief Executive
Officer of Golden Shamrock Mines Ltd.
Mr. Fagin was President of Homestake Mining Company from May 1986 to July
1991. From July 1991 to February 1992, Mr. Fagin was an independent
businessman and from February to May 1992, Mr. Fagin was Chairman, President
and Chief Executive Officer of South American Goldfields Inc. and Chairman and
Chief Executive Officer of Golden Star. From May 1992 until May 1, 1996, Mr.
Fagin was Chairman and Chief Executive Officer of the Company. On May 1,
1996, Mr. Fagin resigned as Chief Executive Officer of the Company and on
December 31, 1997, Mr. Fagin resigned as Chairman of the Board. Mr. Fagin
continues as a Director of the Company and is currently Chairman of Western
Exploration and Development Ltd.
4
<PAGE>
Mr. Mercier retired from The Toronto-Dominion Bank in 1993 and currently
serves as Chairman of the Board of Oxford Properties Group Inc. and as
director of Cascade Corporation, , Camvec Ltd., and International Comfort
Products Ltd.
Dr. Morton was a professor of Economic Geology at the University of Alberta
from 1967 until 1995. He is now Professor Emeritus at the University of
Alberta and President of Polar Star Diamonds Ltd. Currently, Dr. Morton serves
as a director of Texas Star Resources Inc., Roraima Gold Corporation,
Solitario Resources, Canadian Entech Research Corp., Takla Star Resources
Ltd., International Capri Ltd., Layfield Resources Ltd., Uruguay Gold Fields
(Chairman), Mindoro Resources and Arian Resources and acts as a private
consultant to mining companies.
Mr. Stone was employed from 1973 until 1997 by Cominco Ltd., most recently as
Vice-President, Finance, Chief Financial Officer and Director. Mr. Stone
retired from Cominco Ltd. in 1997 and currently serves as a director of
Boliden Limited, Global Stone Corporation, Manhattan Minerals Corp.
(Chairman), United Bolero Development Corp. and Union Bank of Switzerland
(Canada).
Mr. Sabine is the managing partner and a member of the corporate and
securities group of the law firm Bennett Jones in Toronto. Prior to joining
Bennett Jones, Mr. Sabine was the president and chief executive officer of
Arbor Memorial Services Inc. from October 1992 to March 1995. Previously, he
was a senior partner and the head of the securities and public transactions
group at a major Toronto law firm.
There are no family relationships among any of the director nominees or
directors or officers of the Company.
See "Statement of Corporate Governance Practices" for information on Board
committees and directors' meeting attendance.
Compensation of Directors
Directors' Fees
During the year ended December 31, 1998, the Company paid a total of $134,400 to
its non-employee directors in respect of Board and committee participation. Mr.
Pierre Gousseland, as non-executive Chairman, received a monthly payment of
$3,000, Mr. Richard A. Stark as Chairman of the Audit and Governance Committee
received $2,000 a month, and all other non-employee directors received $1,000 a
month. On September 1, 1998, the Board decided to reduce all payments to non-
employee directors by 20%. The non-employee directors are also reimbursed for
transportation and other out-of-pocket expenses reasonably incurred for
attendance at Board and committee meetings and in connection with the
performance of their duties as directors.
Stock Options
The Company's 1997 Stock Option Plan, as amended (the "Plan"), provides for an
automatic grant of an option to purchase 40,000 Common Shares to each person who
becomes a non-employee director, as of the date such person first becomes a non-
employee director, provided that, within the previous year, such person was not
granted any other stock options by the Company or an affiliate of the Company.
In addition, upon a non-employee director being re-elected at each successive
annual general meeting of the Company, he will automatically be granted, as of
the date of each such re-election, an additional stock option to purchase 10,000
Common Shares provided that in respect of the first additional option to be
granted at least 11 months shall have elapsed since the initial automatic option
grant. The Board may, at its discretion, grant additional options to non-
employee directors from time to time. As of April 27, 1999, 1,220,000 Common
Shares were reserved for issuance under options granted to non-employee
directors under the Plan. The Board approved in January 1999 amendments to stock
options that would, if approved by the shareholders at the Meeting,
substantially reduce the exercise price of the directors' stock options and
reduce the number of their outstanding options by 20%. See "Amendments to Stock
Options Granted to Directors and Senior Officers of the Company". All options
granted to non-employee directors vest immediately and have a ten-year term. See
"Compensation of Executive Officers--Stock Option Plan" below for other
particulars of the Plan.
Because the non-employee directors of the Company are not employed by the
Company's subsidiary, Guyanor, they are not eligible to participate in Guyanor's
Stock Option Plan. Therefore, once a year, the Company grants to its non-
employee directors options to purchase Class B shares of Guyanor from the Class
B shares that the Company owns. The term of each option is ten years and the
options granted so far vest immediately.
5
<PAGE>
Stock Option Grants
The following table sets forth information with respect to options granted
during the financial year ended December 31, 1998 to the Company's non-employee
directors as a group under the Plan as well as options granted by the Company to
purchase Guyanor Class B shares.
OPTION GRANTS DURING LAST FISCAL YEAR
(all $ amounts in Canadian dollars)
<TABLE>
<CAPTION>
Market Value of Securities
Group Securities Under Exercise or Base Underlying Options on the
___________________ Options Granted Price ($/Security) Date of Grant ($/Security)
Non-executive (#) Expiration Date
directors as a group
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10,000 6.65 6.65 January 30, 2008
Company Company 20,000 4.50 4.50 May 15, 2008
Whose 10,000 3.80 3.80 June 11, 2008
Shares are 10,000 3.50 3.50 June 20, 2008
Subject of 10,000 1.55 1.55 September 1, 2008
Options 20,000 1.66 1.66 September 30, 2008
Granted 107,000 1.65 1.65 December 8, 2008
-----------------------------------------------------------------------------------------------------------
Guyanor 90,000 1.05 1.05 December 8, 2008
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Option Exercises
The following table sets forth information with respect to the exercise, during
the financial year ended December 31, 1998, by the non-employee directors as a
group of options granted under the Plan, or options granted by the Company to
acquire Guyanor Class B shares, as of December 31, 1998 as well as the value of
their outstanding options as of December 31, 1998.
AGGREGATED OPTION EXERCISES DURING LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
(all $ amounts in Canadian dollars)
<TABLE>
<CAPTION>
Unexercised Options at FY-End Value of Unexercised
Group (#) in-the-money Options at
__________________ Securities Aggregate Value Exercisable/ FY-End ($)
Non-executive Acquired on Realized Unexercisable Exercisable/
directors as a group Exercise ($) Unexercisable (2)
(#)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Company Company 0 N/A Exercisable 1,220,000(1) 0
Whose
Shares are
Subject of
Options Guyanor 0 N/A Exercisable 846,958 0
Granted Unexercisable 3,300 (3)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Upon the exercise of stock options to purchase an aggregate of 99,600
Common Shares granted prior to March 14, 1995, the holder will receive one-
fifth of one Class B share of Guyanor and one Common Share.
(2) For all unexercised options held as of December 31, 1998, the aggregate
dollar value of the excess of the market value of the shares underlying
those options over the exercise price of those unexercised options. On
December 31, 1998, the closing price on the Toronto Stock Exchange ("TSE")
of each of the Common Shares and the Guyanor Class B shares was Cdn.$1.55
and Cdn.$0.60, respectively.
(3) Options granted to a non executive director who was previously an employee.
6
<PAGE>
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The Company's Board and senior management consider good corporate governance to
be central to the effective and efficient operation of the Company, and the
well-being of the Company and its shareholders. The corporate governance
statement described below has been approved by the Board.
Mandate of Board
The Board is required to supervise the management of the business and affairs of
the Company. It establishes overall policies and standards for the Company.
The directors are kept informed of the Company's operations at meetings of the
Board and its Committees and through reports and analyses and discussions with
management. The Board normally meets once every two months in person or by
telephone conference, with additional meetings being held as needed. In 1998,
there were five meetings in person and three meetings by telephone conference.
All incumbent directors attended at least 75% of the aggregate number of
meetings of the Board, while serving on the Board, and on the Committees of the
Board on which they served. At least one meeting each year includes key
personnel of our exploration operations.
The following is a summary of how the Board handles matters pertaining to
strategic planning, risk management, communication and control systems:
1. Each year the Board reviews planning assumptions and budgets for the year.
Because the areas of exploration, the priorities and available funds change
constantly, it is not realistic to formulate long range plans other than to
select general geographic areas and the types of exploration to be pursued.
2. The Board and the Audit and Corporate Governance Committee seek to identify
principal risks of the Company's business which are wide-ranging because of
the nature of the Company's business, including risks associated with
operating in developing countries, maintaining control of the Company's
assets and funds, political risks, exchange controls, environmental risks,
government regulation problems, title uncertainties, civil unrest, to name
only a few.
3. The Board provides for shareholder communication through the Company's
Investor Relations Department and through adopted policies.
Decisions requiring Board Approval
The Board considers that certain decisions are sufficiently important that
management should seek prior approval of the Board. The Board has adopted
Policies on Corporate Control with respect to annual budgets, financial and
budget reporting, activities reporting, acquisitions and dispositions of assets,
joint ventures, spending authorities, contracts and investment banking services.
Therefore, in addition to those matters which must by law be approved by the
Board, the Board approves, among other things, the terms of acquisitions and
dispositions of the mineral properties of the Company and its subsidiaries as
well as joint venture agreements on such properties. Operating and capital
budgets also require the Board's approval. The Board receives monthly reports
on business developments and full Board meetings are held to review and approve
the corporate activities. Finally, because of its relatively small size, the
Board is very flexible and management has been able to liaise regularly with the
Board to seek approval for activities which management felt advisable including
any activities outside the normal course of business of the Company.
Composition of the Board and Independence from Management
The Board is currently composed of seven directors and six persons are being
nominated for election as directors at the Meeting. To reflect recent changes in
the operations of the Company, including a substantial reduction in our
exploration activities and expenses in the field and at the corporate
headquarters, the Company decided to reduce the size of the Board. Messrs.
Donald Mazankowski and Robert Minto resigned as directors on March 1, 1999. Mr.
David Fennell resigned on October 27, 1998. Messrs. Pierre Gousseland, Philip
S. Martin and Richard A. Stark will be retiring as directors upon the election
of the new Board at the Meeting.
Pierre Gousseland became non-executive Chairman of the Board on January 1, 1998.
From October 27, 1998 to March 8, 1999, Mr. Gousseland acted as Chief Executive
Officer during the interim period following David Fennell's resignation as
President and Chief Executive Officer until the appointment of Mr. James E.
Askew in March 1999. David K. Fagin was Chairman and Chief Executive Officer
from May 15, 1992 to May 1, 1996, non-executive Chairman until December 31,
1997.
7
<PAGE>
Dr. Morton, a member of the Board, is a Professor Emeritus of Economic Geology
at the University of Alberta and was a founder and for a brief period a Vice
President of one of the Company's predecessor corporations. The other members of
the Board are unrelated or outside members with no other affiliation with the
Company.
The non-management members have a variety of experience and skills, including in
the areas of accounting, banking, investment banking, geology, mining,
metallurgy, and law. No formal program has been adopted to date to assess Board
members individually or the effectiveness of the Board as a whole or of its
Committees. The education of new members is managed informally through
furnishing records and reports and through meeting with executives as desired.
The Board periodically reviews the adequacy and form of compensation of
directors in relation to the responsibilities and risks involved in being an
effective director. In addition to modest cash compensation, the directors
receive options under the Plan and have also received options on shares of
Guyanor Ressources, the Company's publicly-traded subsidiary. The Board
believes the emphasis on compensation through options is particularly
appropriate in a resource business where increasing shareholder value is perhaps
the only relevant measure of progress.
Board Committees
Audit and Corporate Governance Committee
The integrity of the Company's internal controls and management information
systems is monitored through the Audit and Corporate Governance Committee (the
"Audit Committee") and through expenditure control policies established by the
Board. The Audit Committee is currently composed of Messrs. Richard A. Stark
(Chairman), David K. Fagin, Ernest Mercier and Robert Stone. The Audit
Committee meets with the financial officers of the Company and the independent
auditors to review and inquire into matters affecting financial reporting, the
systems of internal accounting and financial controls and procedures and the
audit procedures and audit plan. The Audit Committee also recommends to the
Board the auditors to be appointed and approves their compensation. In
addition, the Audit Committee recommends to the Board for approval the annual
financial statements, the annual report and certain other documents required by
regulatory authorities. The Audit Committee authorizes and monitors corporate
conduct, compliance and disclosure policies. In 1997, the Audit Committee
reviewed the Company's compliance procedures, resulting, among other things, in
the designation of the Company's General Counsel as Corporate Compliance Officer
reporting to the Chief Executive Officer and to the Audit Committee. In
connection with risk assessment, the Audit Committee reviews among other things
the nature and adequacy of insurance coverages. The Audit Committee is also
responsible for corporate governance matters. The Audit Committee met once in
person and twice by telephone conference during 1998.
Strategic Committee
The Strategic Committee was created in December 1998 and is comprised of three
directors, Messrs. Robert Stone, Philip Martin and David Fagin. The Strategic
Committee was established to implement the merger and acquisition strategy of
the Company and the recruitment of a Chief Executive Officer to replace Mr.
David Fennell. In 1998, the Strategic Committee held four telephone meetings.
Its members interviewed several candidates for the Chief Executive Officer
position, began negotiations of terms with the final candidate, participated in
negotiations for new equity funding, participated in meetings with merger
candidates, and discussed many critical issues with one another and with members
of management.
Compensation and Nominating Committee
The Compensation and Nominating Committee (the "Compensation Committee") was
until its abolishment on December 7, 1998 composed of four non-employee
directors, Messrs. Philip Martin (Chairman), Donald Mazankowski, Robert Minto
and Roger Morton. The Compensation Committee was abolished as the Board was then
comprised of only non-management directors. The Compensation Committee, subject
to Board approval, supervised the selection, evaluation and determination of
compensation of top executives, set corporate-wide policy with respect to
compensation and benefits, and administered the Company's stock option plan for
employees and the Employee's Stock Bonus Plan. The Compensation Committee also
established descriptions, definitions and limits to management's authorities and
approval of objectives and goals for top management in general terms. The
Compensation Committee met three times in 1998, twice in person and once by
conference telephone. Since December 7, 1998, the Board, which is currently
composed only of non-employee directors, has been responsible for the matters
mentioned above.
8
<PAGE>
Applications and communications relating to candidates for director may be sent
to the Secretary of the Company at the head office in Denver.
Expectations of Management
The Board expects management to conduct the business of the Company in
accordance with the Company's ongoing strategic plan as adopted by the Board.
Management is expected to assess the potential of properties as a result of
ongoing exploration. Management is also expected to develop plans, arrange
financing and train the necessary personnel to advance these properties toward
the development phase and to constantly look for new opportunities. The Board
regularly reviews management's progress in meeting these expectations.
Shareholder Communications
The Company believes that it is important to maintain good shareholder
relations. The Vice President, Corporate Development and the President and Chief
Executive Officer are responsible for shareholder communications and investor
relations. The Company attempts to deal with the few concerns or complaints
expressed to it by shareholders in an effective and timely manner.
Proposed Board Changes
In order to further reduce costs and to be even more efficient, a six-member
Board is proposed to be elected at the Meeting, five of whom would be non-
management directors. The Company intends that, following the election of the
new Board, the principles contained in this Corporate Governance Statement will
continue to be applied. A new Chairman will be appointed after the Meeting and
the Committees will be restructured.
EXECUTIVE OFFICERS
As of April 27, 1999 the Company's executive officers were as follows:
<TABLE>
<CAPTION>
Name Age Office and Experience Officer Since
- --------------------------- --------- -------------------------------------------------------------------- ----------------
<S> <C> <C> <C>
James E. Askew 50 President and Chief Executive Officer of the Company since March 1999
1999; prior thereto President and Chief Executive Officer of
Rayrock Resources from September 1998 to March 1999; from 1997 to
present, President and Chairman of International Mining and Finance
Company; from 1986 to 1996, President and Chief Executive Officer
of Golden Shamrock Mines Ltd.
GORDON J. BELL 41 Vice President and Chief Financial Officer of the Company since 1995
November 1995; prior thereto, Vice President and Director, RBC
Dominion Securities Inc. from October, 1994; Vice President, RBC
Dominion Securities Inc. from December, 1991 to October 1994.
CARLOS H. BERTONI 47 President of Guyanor Ressources S.A. since December 1998; Vice 1993
President, Brazil of the Company since June 1997, prior thereto
Vice President, Exploration (Eastern Division) of the Company since
1993.
LOUIS O. PELOQUIN 41 Vice President, General Counsel and Secretary of the Company since 1993
June 1993.
HILBERT N. SHIELDS 43 Vice President, Guyana since June 1997 and prior thereto Vice 1993
President, Exploration (Western Division) since 1993.
RICHARD A. WINTERS 36 Vice President, Corporate Development since August 1995; prior 1995
thereto Senior Analyst, Robertson Stephens & Co. from August 1994;
prior thereto Senior Engineer, Phelps Dodge Mining Co. from January
1993 to August 1994.
</TABLE>
9
<PAGE>
Compensation of Executive Officers
The following table sets forth in summary form the compensation received during
each of the Company's last three fiscal years by the Chief Executive Officer of
the Company and by the five most highly compensated officers during the fiscal
year ended December 31, 1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation (1)
--------------------------------------- ---------------------------------------
Awards
---------------------------------------
Number of Number of
Securities Securities
Underlying Underlying
Other Options Granted Options Granted
Name and Principal Position Salary Bonus Annual by the Company by Guyanor All Other
Year (US$) (US$) Compensation (US$) (#) (6) (#) Compensation
(2) (3) (US$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David A. Fennell 1998 215,250 32,804 189,279 (4) 0 0 600,225 (7)(10)
President and Chief 1997 258,300 40,000 206,477 (4) 150,000 100,000 17,364 (7)
Executive Officer (8) 1996 246,000 40,000 204,917 (4) 150,000 375,000 17,912 (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Pierre Gousseland 1998 33,600 N/A N/A 50,000 0 0
Chairman and Chief Executive 1997 N/A N/A N/A 30,000 0 0
Officer (9) 1996 N/A N/A N/A 40,000 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Carlos Bertoni 1998 190,000 0 (5) 0 0 0
Vice President, 1997 190,000 0 (5) 35,000 18,000 0
Brazil 1996 185,000 0 (5) 25,000 50,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Hilbert Shields 1998 190,000 0 (5) 0 0 0
Vice President, 1997 190,000 0 (5) 35,000 18,000 0
Guyana 1996 185,000 0 (5) 25,000 50,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon J. Bell 1998 186,500 0 (5) 0 0 2,569 (7)
Vice-President and Chief 1997 186,500 10,000 (5) 40,000 20,000 1,364 (7)
Financial Officer 1996 180,000 0 14,571 30,000 85,000 740 (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Louis O. Peloquin 1998 160,000 0 (5) 0 0 2,321 (7)
Vice-President, General 1997 160,000 10,000 (5) 40,000 20,000 1,174 (7)
Counsel and Secretary 1996 135,000 15,000 (5) 25,000 50,000 271 (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Adrian W. Fleming 1998 183,333 0 (5) 0 0 77,695 (7)(11)
Executive Vice-President, 1997 200,000 10,000 (5) 40,000 20,000 1,461 (7)
Exploration (8) 1996 230,000 0 (5) 150,000 125,000 0 (7)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There were no long-term incentive plan payouts during the periods indicated.
(2) The dollar value of base salary (cash and non-cash) earned.
(3) The dollar value of bonuses (cash and non-cash) earned. The 1997 bonuses
were declared December 16, 1997 and the 1996 bonuses were declared
January 1, 1997.
(4) Pertains to deemed taxable benefit of interest free loans from the Company.
See "Indebtedness of Directors and Officers."
(5) Other annual compensation, including perquisites and other personal
benefits, securities or property, did not exceed 10% of the total of the
annual salary and bonus, if applicable.
(6) Upon exercise of the options granted prior to March 14, 1995, the holder
will receive one-fifth of one Class B share of Guyanor for each one Common
Share acquired.
(7) These amounts are in respect of premiums paid for life insurance for the
benefit of these executives.
(8) Mr. David Fennell resigned as of October 27, 1998 and Mr. Adrian Fleming
resigned as of November 27, 1998.
(9) Mr. Pierre Gousseland, Chairman of the Company, was appointed Acting Chief
Executive Officer for the interim period after the resignation of Mr. David
Fennell and the appointment of his successor Mr. James Askew on March 8,
1999. The compensation was paid to Mr. Gousseland as non-executive Chairman.
(10) This amount includes $597,000 paid pursuant to a Separation Agreement and
Release in connection with Mr. Fennell's October 27, 1998 resignation.
(11) This amount includes $75,000 paid in February 1999 pursuant to a Separation
Agreement and Release in connection with Mr. Fleming's November 27, 1998
resignation.
10
<PAGE>
Employment, Change of Control Agreements and Other Agreements
The Company entered into employment agreements with Messrs. Bell and Peloquin in
October 1995 and November 1997 respectively. The terms of their agreements are
substantially the same. The agreements are for a three-year term unless
terminated as provided hereinafter. After the expiration of the three-year
term, the agreements are automatically renewed on a year-to-year basis unless
terminated as follows. Messrs. Bell and Peloquin's base annual salaries in 1998
were $186,500 and $160,000 respectively. In response to continuing weak gold
prices and to conserve cash, their employment agreements were revised by mutual
agreement in May 1999. Their base annual salaries were reduced to $160,000 and
$150,000, respectively, starting March 1, 1999. In the event their agreements
are terminated by the Company "without cause" or as a result of a "change in
control" before August 1, 1999, Messrs. Bell and Peloquin would be entitled to a
lump sum payment equal to the salary and benefits to which they would have been
entitled to receive for a period of twelve months after the termination. If
they are terminated after December 31, 1999, the lump sum to which they would be
entitled is reduced to six months. If they are terminated between August 1 and
December 31, 1999, the lump sum to which they would be entitled would be
prorated on a monthly basis. In addition to the lump sum, all stock options
granted to them would become immediately vested and, subject to regulatory
approvals, would remain exercisable for a period of 24 months from the
termination date. In consideration for this reduction in benefits, the Company
agreed to give to Messrs. Bell and Peloquin, should they choose to leave the
Company on their own volition before December 31, 1999, a severance package
including (i) a lump sum payment representing that portion of their salary they
would have been entitled to receive through the end of 1999 had they not left
the Company, (ii) the equivalent of one year of medical benefits and life
insurance and (iii) subject to regulatory approval, an extension of the exercise
period of their stock options until June 30, 2001. Finally, the Change of
Control Agreement they had entered into with the Company in December 1997 was
terminated.
The Company also has employment agreements with Messrs. Carlos Bertoni and
Hilbert Shields, the terms of which are substantially the same. The two
contracts were executed as of January 1, 1994 for an initial term of three
years. They have been automatically renewed from year to year in accordance the
agreements. In 1998, Messrs. Bertoni and Shields were each paid a salary of
$190,000, including a living allowance of $36,000. In response to continuing
weak gold prices and to conserve cash, their employment agreements were revised
by mutual agreement in May 1999. Their annual salaries were reduced to $120,000
starting March 1, 1999. The Company has the right to terminate their agreements
"without cause" upon twelve-months notice. In consideration for this reduction
in benefits, the Company agreed to give to Messrs. Bertoni and Shields, should
they choose to leave the Company on their own volition between July 1, 1999 and
December 31, 1999, a severance package including a lump sum payment and, subject
to regulatory approval, an extension of the exercise period of their stock
options. If Mr. Bertoni's or Mr. Shields' employment is terminated upon the
occurrence of a change in control of the Company, he would be entitled to
receive his salary for a period of twelve months.
On October 28, 1998, the Company entered into a Separation Agreement and Release
with David A. Fennell, its then President and Chief Executive Officer. Mr.
Fennell's resignation in such capacity became effective as of October 27, 1998.
Under this agreement, the Company paid to Mr. Fennell $597,000, the equivalent
of two years of salary. Mr. Fennell is also entitled to reimbursement of
certain expenses for up to $81,200, $10,000 of which were paid so far.
The Company also entered into a Separation Agreement and Release with Adrian
Fleming as of February 9, 1999. This agreement confirmed Mr. Fleming's
resignation as of November 27, 1998. Under this agreement, Mr. Fleming
received a gross payment of $75,000, the equivalent of 4 1/2 months of salary.
Report on Executive Compensation
The Compensation Committee, first established in 1992, was abolished in December
1998. The Compensation Committee had always been comprised of non-employee
directors and its members in 1998 were Messrs. Martin (Chairman), Mazankowski,
Minto, Morton and Gousseland (ex-officio). The Board, which is currently
comprised of non-employee directors only, has taken over the responsibility of
the Compensation Committee. This responsibility includes approving compensation
arrangements for all executive officers of the Company and of Guyanor, its
controlled subsidiary (subject to the approval of the Board of Directors of
Guyanor). Cash and benefits compensation is provided for in employment
agreements which have been negotiated and entered into with the President and
Chief Executive Officer and the Vice-Presidents of the Company. At the time such
agreements were entered into, the Compensation Committee considered the
compensation levels for such positions to be comparable to those of other public
gold exploration companies. Subsequent adjustments have reflected, among other
things, merit, cost of living and special living conditions and the Company's
cost-reduction effort. Executive salaries are reviewed on a yearly basis and
are set for individual executive officers based on the level of responsibility,
scope and complexity of the executive's position and a subjective evaluation of
each individual's role and performance in advancing
11
<PAGE>
the successful development of the Company, the officer's performance in general,
the Company's performance and a comparison of salary ranges for executives of
other similar companies in the mining industry.
During 1998, executive compensation consisted of base salary and living
allowances (for executives working overseas). One executive officer received a
stock bonus. The base salaries of the executives have not been increased since
December 1996. In addition, in response to continuing weak gold prices and to
conserve cash, the Board has negotiated with the executive officers of the
Company for a reduction in their benefits under their employment and change of
control agreements, including a reduction in their base salaries which took
effect retroactively as of March 1, 1999.
Because the Company is in an early stage mineral development business, the Board
(and prior to December 1998, the Compensation Committee) considers an essential
element of its compensation arrangements for executive officers to consist of
options to purchase Common Shares and stock bonuses in order to provide
appropriate incentive for individual and group effort. In determining the
amount of stock options and stock bonuses to be granted, the Board considers,
among other things, the officer's position, salary, and previous and anticipated
accomplishments. There were no stock option grants to executive officers in
1998. The Board, however, approved in January 1999 amendments to stock options
that would, if approved by the shareholders at the Meeting, substantially reduce
the exercise price of the executive officers' stock options and reduce the
number of their outstanding options by 20%. See "Amendments to Stock Options
granted to Directors and Senior Officers of the Company" for more information
about the repricing.
Submitted by the Board of Directors: Pierre Gousseland (Chairman), David K.
Fagin, Philip S. Martin, Ernest Mercier, Roger D. Morton, Richard Stark and
Robert Stone
Stock Option Plan
The Company has a 1997 Stock Option Plan, as amended (referred to herein as the
"Plan") which provides to certain key employees, consultants and directors of
the Company and its subsidiaries an incentive to maintain and to enhance the
long-term performance of the Company through the acquisition of Common Shares
pursuant to the exercise of stock options. The Plan consists of two components:
(i) a discretionary component, under which options may be granted to employees,
consultants and directors (including non-employee directors), and (ii) a non-
discretionary component, under which options are automatically granted, upon
appointment or election and on an annual basis, to non-employee directors.
The Plan is currently administered by the Board. The Board has the authority,
subject to the terms of the Plan, to determine when and to whom to make grants
under the Plan, the number of shares to be covered by the grants, the terms of
options granted and the exercise price of options, and to prescribe, amend and
rescind rules and regulations relating to the Plan. Subject to certain other
limitations, the maximum number of Common Shares that can be issued under the
Plan is 5,600,000.
Under the terms of the non-discretionary component of the Plan, each person who
is first elected, appointed or otherwise first becomes a non-employee director
will generally be automatically granted an option to purchase 40,000 Common
Shares as of the date on which such person first becomes a non-employee
director. Upon a non-employee director being re-elected at each successive
annual general meeting of the Company, he will generally be automatically
granted then an additional option to purchase 10,000 Common Shares. With
respect to any non-discretionary option, each option is exercisable for a period
of ten years from the date of the grant. Each initial option and annual option
vests and becomes fully exercisable on the date of grant and the exercise price
of such options may not be less than the fair market value of the Common Shares
on the date of the grant. Also see "Election of Directors--Compensation of
Directors--Stock Options".
Options granted under the discretionary component of the Plan are exercisable
over a period determined by the Board, but not to exceed ten years from the date
of grant, and the exercise price of an option may not be less than the fair
market value of the Common Shares on the date of grant. In addition, such
options may be subject to vesting conditions established by the Board and
provided in the option agreement evidencing the grant of such option.
Provision is made in the Plan for interest-free non-recourse loans to employee
participants. The loans are secured by a pledge to the Company of the Common
Shares acquired through the exercise of an option and are repayable prior to the
earliest of the date which is five years from the date of the loan, ten years
from the date of grant of the particular option and 30 days after the optionee
ceases to be employed by the Company for any reason other than death.
12
<PAGE>
Stock Option Grants
No stock options were granted to the Named Executive Officers in the last fiscal
year.
Stock Option Exercises and Year-End Option Values
The following table sets forth information concerning the fiscal year-end value
of unexercised options held by the Named Executive Officers. There were no
exercises of stock options to purchase Common Shares or Class B shares of
Guyanor during the fiscal year ended December 31, 1998 by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Name of Optionee and Common Shares Aggregate Value Number of Securities Underlying Value of Unexercised In-the-money
Company Whose Shares Acquired on Realized Unexercised Options at Fiscal Year Options at Fiscal Year End (Cdn.$)
are Subject of Exercise (Cdn.$) End (2)
Options Granted (#)
-----------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David A. Fennell
Company 0 N/A 353,400 (1,3) 49,500 0 0
Guyanor 0 N/A 1,040,052 (3) 33,000 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Adrian W. Fleming
Company 0 N/A 0 0 0 0
Guyanor 0 N/A 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Gordon J. Bell
Company 0 N/A 306,800 13,200 0 0
Guyanor 0 N/A 126,451 6,600 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Louis O. Peloquin
Company 0 N/A 166,800 (1) 13,200 0 0
Guyanor 0 N/A 103,400 6,600 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Carlos Bertoni
Company 0 N/A 163,450 11,550 0 0
Guyanor 0 N/A 412,060 5,940 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Hilbert Shields
Company 0 N/A 138,450 11,550 0 0
Guyanor 0 N/A 102,060 5,940 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Upon exercise of options granted prior to March 14, 1995, the holder will,
in addition, be entitled to receive one-fifth of one Class B share of
Guyanor for each Common Share acquired.
(2) For all unexercised options held as of December 31, 1998, the aggregate
dollar value of the excess of the market value of the shares underlying
those options over the exercise price of those unexercised options. On
December 31, 1998, the closing price on the TSE of each of the Common
Shares and the Guyanor Class B shares was Cdn.$1.55 and Cdn.$0.60,
respectively.
(3) The options held by Mr. Fennell to purchase the Company's Common Shares
will expire on October 27, 2000 and the options he holds to purchase
Guyanor Class B shares will expire on October 27, 1999.
Stock Bonus Plan
In December 1992, the Company established an Employees' Stock Bonus Plan (the
"Bonus Plan") for any full-time or part-time employee (whether or not a
director) of the Company or any of its subsidiaries who has rendered meritorious
services that contributed to the success of the Company or any of its
subsidiaries. The Bonus Plan is currently administered by the Board and
provides that the Board may grant bonus Common Shares on terms that the Board
may determine, within the limitations of the Bonus Plan and subject to the rules
of applicable regulatory authorities. The maximum number of Common Shares
issuable under the Bonus Plan is limited to 320,000 Common Shares. In addition,
in any calendar year such reservation is limited to 1% of the total number of
Common Shares which were issued and outstanding at the end of the preceding
fiscal year (with no more than 0.5% being issuable to insiders of the Company).
A total of 32,783 Common Shares were issued under the Bonus Plan in 1998. Of
these bonus Common Shares, 18,608 were issued to David A. Fennell, a Named
Executive Officer.
13
<PAGE>
LIABILITY INSURANCE
The Company has purchased insurance and has, in addition, agreed to indemnify
directors and officers of the Company against all costs, charges and expenses
reasonably incurred by them in respect of certain proceedings to which they may
be made party by reason of their status as a director or officer of the Company.
The indemnification is extended to directors and officers provided that they
have 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 action or proceeding
that is enforced by a monetary penalty, on the condition that the director or
officer had reasonable grounds for believing his conduct was lawful. The amount
of the premium paid in respect of directors and officers as a group was
US$133,266; the policy coverage is US$5,000,000 per claim and in aggregate in
any policy year. Expenses for the Company per claim not covered by the policy
ranges between nil and US$250,000.
Indebtedness of Directors and Officers
At May 11, 1999, the total amount of indebtedness outstanding to the Company
which was entered into in connection with a purchase of securities of the
Company by directors, officers and employees of the Company or any of its
subsidiaries was Cdn.$102,439. The following table sets forth information with
respect to indebtedness incurred by any director or officer of the Company in
connection with an acquisition by such officer or director of Common Shares.
The loans indicated were granted pursuant to the Plan. See "Stock Option Plan"
for a description of the terms of the loans.
TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS
AND SENIOR OFFICERS UNDER SECURITIES PURCHASE PROGRAMS
<TABLE>
<CAPTION>
Name and Principal Involvement of Largest Amount Amount Financially Assisted Security for
Position Issuer or Outstanding During the Outstanding Securities Purchases Indebtedness
Subsidiary Financial Year Ended as at During the Financial
Dec. 31, 1998 May 11, 1999 Year Ended
(Cdn.$) (Cdn.$) Dec. 31, 1998
(#)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David A. Fennell (1) Lender 4,359,932 0 0 Common Shares
President and Chief
Executive Officer
- ----------------------------------------------------------------------------------------------------------------------------
Richard A. Winters (2) Lender 102,439 102,439 0 Common Shares
Vice-President,
Corporate
Development
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Fennell resigned on October 27, 1998. The loan became due on November
27, 1999. No amounts were reimbursed. On April 5, 1999, the loan was
forgiven and the 667,792 Common Shares that were pledged to the Company were
canceled.
(2) Due to a substantial decline in the stock price, Mr. Winters surrendered to
the Company the 11,220 Common Shares he bought through the exercise of stock
options in 1996 with the indicated loan. The Company is in the process of
canceling these shares in consideration for the forgiveness of the loan.
At May 11, 1999, the total amount of indebtedness outstanding to the Company
which was entered into, other than in connection with a purchase of securities
of the Company, by directors, officers and employees of the Company or any of
its subsidiaries was $16,609. The following table sets forth information with
respect to such indebtedness incurred by any director or officer of the Company.
14
<PAGE>
TABLE OF INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS
<TABLE>
<CAPTION>
Name and Principal Position Involvement of issuer or Largest Amount Outstanding Amount Outstanding as at
Subsidiary During the Financial Year May 11, 1999
Ended December 31, 1998 (US$)
(US$)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Louis O. Peloquin (1) Lender 32,833 16,609
Vice-President, General Counsel and
Secretary
- ------------------------------------------------------------------------------------------------------------------------------
David K. Fagin (2) Lender 667,699 0
Director
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The loan to Mr. Peloquin was made for the purpose of purchasing a residence
at the time of his relocation to Denver, Colorado. The loan bears interest
at the prime rate and is repayable in December 1999.
(2) The loan to Mr. Fagin was made when he was an employee of the Company in
connection with different exercises of options under the Plan. Mr. Fagin
ceased to be an employee on December 31, 1997 and the loan became due 30
days later in accordance with the Plan. The Board granted him an extension
for the repayment of the loan. The loan was to be repayable in eight
consecutive monthly installments starting July 1, 1999. In exchange for an
earlier repayment of the loan, the Company agreed to reduce the loan by
approximately $30,652. Mr. Fagin paid the Company $637,047 on May 11, 1999
to fully discharge the loan.
PERFORMANCE GRAPH
The following graph shows the cumulative total shareholder return on the Common
Shares for the fiscal years ended December 31, 1994 through 1998, together with
the total shareholder return of the TSE 300 Total Return Index and the TSE Gold
and Precious Metals Index. The graph assumes an initial investment of US$100 at
December 31, 1993 and is based on the trading prices of the Common Shares on the
Toronto Stock Exchange for the dates indicated. Because the Company did not pay
dividends on its Common Shares during the measurement period, the calculation of
the cumulative total shareholder return on the Common Shares does not include
dividends.
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Golden Star Resources Ltd.
Dollar Value 100 67.50 42.92 106.87 42.92 9.18
Annual Return -32.50% -57.08% 6.87% -70.40% -90.82%
- -----------------------------------------------------------------------------------------------------------
TSE 300 Total Return Index
Dollar Value 100 97.50 109.07 137.15 155.03 150.09
Annual Return -2.50% 9.07% 37.15% 55.03% 50.09%
- -----------------------------------------------------------------------------------------------------------
TSE Gold and Precious Metals Index
Dollar Value 100 89.60 97.33 105.64 59.62 55.35
Annual Return -10.40% -2.67% 5.64% -40.38% -44.65%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and officers of the Company are and may continue to be
involved in the mining and mineral exploration industry through their direct and
indirect participation in corporations, partnerships or joint ventures which are
potential competitors. Situations may arise in connection with potential
acquisitions and investments where the other interests of these directors and
officers may conflict with the interests of the Company. As required by law,
each of the directors and officers of the Company is required to disclose any
potential conflict of interest and to act honestly, in good faith and in the
best interests of the Company.
Except as otherwise disclosed herein, since January 1, 1998, no insider of the
Company, nor any associate or affiliate of an insider, has had any material
interest in any transaction or proposed transaction which has materially
affected or would materially affect the Company or any of its subsidiaries, nor
has any director of the Company been involved, directly or indirectly, in any
business or professional relationship with the Company in connection with the
provision by the director or the Company of property, services or financing to
the other. See "Executive Officers-Employment, Change of Control Agreements and
Other Agreements".
15
<PAGE>
APPOINTMENT OF AUDITOR
The persons named in the enclosed proxy form intend to vote for the re-
appointment of PricewaterhouseCoopers, Chartered Accountants (a firm formed by
the merger of Price Waterhouse and Coopers & Lybrand) as auditor of the Company
to hold office until the next annual general meeting of shareholders and to
authorize the directors of the Company to fix the auditor's remuneration.
PricewaterhouseCoopers (then Coopers & Lybrand) was first appointed the auditor
of the Company on May 16, 1992.
A representative of the firm of PricewaterhouseCoopers will be present at the
Meeting, will have an opportunity to make a statement if desired and will be
available to answer any questions shareholders may have with respect to the
financial statements of the Company for the fiscal year ended December 31, 1998.
AMENDMENTS TO THE SHAREHOLDER RIGHTS PLAN
On June 11, 1996, the shareholders of the Company approved a shareholder rights
agreement dated April 24, 1996 (the "Rights Agreement") between the Company and
CIBC Mellon Trust Company (then The R-M Trust Company) as rights agent. Pursuant
to the Rights Agreement, one right (a "Right") is issued with each Common Share
of the Company. The Rights Agreement will, if not extended, expire on June 30,
1999.
The Rights Agreement is designed to ensure that all shareholders receive fair
treatment in the event of a take-over bid or tender offer or other acquisition
that could lead to a change in control of the Company. The Rights Agreement is
not intended to deter take-over bids or tender offers or other acquisitions but
could have the effect of extending the time before any such transaction may be
completed. The Rights Agreement also provides the Board and the shareholders
with more time to fully consider any unsolicited take-over bid for the Company
and to allow the Board to pursue, if appropriate, other alternatives to maximize
shareholder value.
Without a shareholder rights plans, it would be possible for a bidder to acquire
effective control, over a relatively short period of time, through open market
and private purchases, using various techniques permitted under the securities
legislation in Canada and the United States, without making a bid available to
all shareholders. Shareholder rights plans are designed to prevent this
occurrence.
The Board considered that it is appropriate and in the best interests of the
Company and its shareholders to amend the Rights Agreement to extend its
application beyond the current expiration date, June 30, 1999. On April 23,
1999, the Board approved, subject to shareholder and regulatory approvals,
certain amendments to the Rights Agreement. The shareholders will be asked at
the Meeting to approve these amendments to the Rights Agreement.
16
<PAGE>
The text of the resolution to be submitted to the shareholders is as follows:
(RESOLVED that the shareholder rights agreement dated April 24, 1996 (the
"Rights Agreement") between the Company and CIBC Mellon Trust Company (then The
R-M Trust Company) be amended as follows:
1. the definition of "Expiration Time" in Section 1.1(25) of the Rights
Agreement shall be deleted and the following be substituted therefor:
"Expiration Time" means the close of business on the date that is the
earlier of: (a) the time at which the right to exercise Rights shall
terminate pursuant to Section 5.1 hereof; and (b) June 30, 2004,
unless extended to June 30, 2009 pursuant to Section 5.2(2) hereof."
2. Section 5.2 of the Rights Agreement shall be deleted and the
following be substituted therefor:
"5.2 Expiration and Extension of Expiration Time
-------------------------------------------
(1) No Person has any rights under this Agreement or in respect of
any Right after the Expiration Time, except the Rights Agent as
specified in subsection 4.1(1) of this Agreement.
(2) At the first annual meeting of the shareholders of the
Corporation following June 30, 2003, provided that the Expiration
Time has not occurred prior to such time, the Board of Directors
may submit a resolution to the holders of Voting Shares of the
Corporation, for their consideration, and if thought advisable,
approval, extending the Expiration Time for the Rights to June
30, 2009. If the majority of votes cast on such resolution are
voted for such extension, then the Expiration Time shall be the
earlier of: (a) the time at which the right to exercise Rights
shall terminate pursuant to Section 5.1 hereof; and (b) June 30,
2009."
3. In view of the Rights Agreement having been approved by the
shareholders of the Company at the annual general meeting held on June
11, 1996, Section 5.15 of the Rights Agreement shall be amended by
deleting the last sentence thereof, which reads as follows, in its
entirety:
"If this Agreement is not confirmed by a majority of the votes cast by
holders of Voting Shares who vote in respect of confirmation of the
Agreement at such meeting, this Agreement and all outstanding Rights
terminate and become void at the close of business on the date of
termination of such meeting.")
AMENDMENTS TO STOCK OPTIONS GRANTED TO DIRECTORS
AND SENIOR OFFICERS OF THE COMPANY
General
On January 15, 1999, the Board of Directors approved, subject to any necessary
shareholder and regulatory approvals, a resolution amending certain outstanding
stock options (the "Existing Options") held by non-employee directors, senior
officers and employees. The amendments to the Existing Options provide for (i)
a reduction of the exercise price of each Existing Option from its original
price to Cdn.$1.80 (the closing price of the Common Shares on the Toronto Stock
Exchange on January 14, 1999) and (ii) a 20% reduction of the number of shares
that can be purchased under each Existing Option. The other terms of the
Existing Options do not change. On March 10, 1999, the Toronto Stock Exchange
consented to the amendments of all such Existing Options granted to non-employee
directors and to senior officers, subject to receiving the approval of
disinterested shareholders at the Meeting. The amendments to the Existing
Options granted to employees were approved without any conditions.
The Company believes that it is important to motivate directors, management and
employees to remain with the Company and to provide an incentive for them to
provide maximum efforts for the Company and its shareholders. Stock options are
an important part of the overall compensation package offered by the Company.
In addition, most exploration companies use stock options to attract and retain
employees and directors. When stock prices fall, however, the retention and
incentive value of the options disappear.
17
<PAGE>
As a result of the decline in the price of gold in the last 18 months, the
Company has experienced a severe decline in the price of its Common Shares, with
the share price having ranged from Cdn.$1.00 to Cdn.$6.85 per share. On April
27, 1999, the record date for the Meeting, the closing price of the Common
Shares on the TSE was Cdn.$1.10 which is 39% below the proposed amended exercise
price of Cdn.$1.80. The original exercise price of the Existing Options ranges
between Cdn.$2.76 and Cdn.$24.40. The Company believes that such out-of-the-
money or "underwater" stock options have little incentive and retention value.
The Board had carefully considered various factors which it deemed relevant in
assessing whether to reprice the Existing Options, including market conditions,
potential loss of employees, motivation, cost, potential dilution and other
related factors. The Board believes that it is in the best interest of the
Company and its shareholders to reduce the exercise price of the Existing
Options to Cdn.$1.80 as described above. In exchange for the anticipated lower
exercise price, however, the optionees will be forfeiting 20% of the Existing
Options subject to the repricing. The Company believes that the forfeiture of
20% of the Existing Options is adequate and appropriate consideration for the
repricing.
For more information about the 1997 Stock Option Plan, as amended , see "Stock
Option Plan" above.
Tax Consequences
There are no tax consequences to the Company or to any optionee receiving a
repriced option.
Proposed Option Repricing
The Company is proposing to the shareholders to approve amendments to stock
options granted to directors and senior officers of the Company as set forth in
the resolution in Schedule "A" attached hereto.
To be approved, the resolution must be passed by a majority of the votes cast by
the disinterested holders of Common Shares at the Meeting, with each holder
entitled to one vote for each share held, except for Common Shares held by
optionees holding Existing Options, together with their associates and
affiliates, all of whom will not be entitled to vote on this matter. To the
best of the Company's knowledge, the Common Shares to be withheld from voting on
the resolution total 864,918 Common Shares. In the event that the shareholders
do not approve this resolution, the Existing Options will continue to be
outstanding and will be exercisable by the optionees at their respective
original exercise prices.
If the resolution is approved, the total number of shares under Existing Options
granted to the directors and senior officers would be reduced from an aggregate
of 2,026,780 Common Shares to an aggregate of 1,621,424 Common Shares. The
original exercise price of the Existing Options ranges between Cdn.$2.76 and
Cdn.$24.40. If the resolution is approved, the shares constituting the 20% being
forfeited can be used for new stock option grants under the Plan.
The following table sets forth the number of repriced Existing Options held by
Named Executive Officers and by the two indicated groups, as well as a range of
the exercise prices of these options. As of April 27, 1999, the record date for
the Meeting, the aggregate market value of the 905,000 Common Shares underlying
the Existing Options granted to the indicated Named Executive Officers was
approximately Cdn.$995,500, based on a price per share of Cdn.$1.10 on that
date.
18
<PAGE>
OPTIONS GRANTED UNDER THE 1997 STOCK OPTION PLAN
<TABLE>
<CAPTION>
ORIGINAL GRANT IF APPROVED
Number of Shares Range of Exercise Number of Shares Price/Share
Prices in Cdn.$ reduced by 20% in Cdn.$
<S> <C> <C> <C> <C>
Pierre Gousseland 80,000 3.40 to 19.00 64,000 1.80
Chairman and Chief Executive Officer
Carlos Bertoni 175,000 3.40 to 18.45 140,000 1.80
Vice President Brazil
Hilbert Shields 150,000 3.40 to 18.45 120,000 1.80
Vice President Guyana
Gordon J. Bell 320,000 3.40 to 18.45 256,000 1.80
Vice President and Chief Financial
Officer
Louis O. Peloquin 180,000 3.40 to 18.45 144,000 1.80
Vice President, General Counsel
and Secretary
Executive Officers as a group 953,780 3.40 to 18.45 763,024 1.80
Non-employee directors as a group 1,073,000 2.76 to 24.40 858,400 1.80
</TABLE>
CONTINUANCE UNDER THE YUKON BUSINESS CORPORATIONS ACT
Management of the Company has determined it to be in the best interests of the
Company to make application for a continuance under the Yukon Business
Corporations Act (the "YBCA"). The change of corporate jurisdiction is being
sought as the CBCA requires a majority of the directors of a corporation to be
resident Canadians. The Company would like to have the ability to have a board
of directors that could be comprised of a majority of non-resident Canadians in
order to attract persons to serve on the Board based on their qualifications and
experience rather than based on their residence, particularly when all of the
Company's mineral properties are located outside Canada and the Company's head
office is located outside Canada. The YBCA does not have a requirement that a
majority of directors must be resident Canadians. Accordingly, the Company
wishes to continue its jurisdiction of incorporation from the federal Canadian
jurisdiction to the Yukon Territory.
As part of the continuance the Company will adopt, in substitution for the
existing articles and bylaws of the Company, articles of continuance and bylaws
in accordance with the YBCA. It is proposed that the articles of continuance
would reflect provisions that are substantially the same as those currently
applicable to the Company. The share capital structure, along with the special
rights and restrictions attached to the shares, is set out in the articles of
continuance to be approved at the Meeting which are attached as Appendix 1 to
the special resolution attached as Schedule "B" hereto.
Shareholders will be asked to consider, and if thought fit, to approve the
following special resolution to continue the Company under the YBCA which is
replicated, with the Appendices thereto, as Schedule "B" hereto:
"RESOLVED, as a special resolution, that:
1. the Company be authorized, for the purposes of section 188 of the
Canada Business Corporations Act, to apply to the Registrar of
Corporations of the Yukon Territory for an instrument of continuation
to continue the Company into the Yukon Territory under the Yukon
Business Corporations Act ("YBCA") as if it had been incorporated
under the YBCA;
2. the articles and bylaws of the Company be amended by substituting all
of the provisions thereof with, respectively, the provisions set out
in the Articles of Continuance, a copy of which is annexed hereto as
Appendix 1, and the provisions of Bylaw No. 1 annexed hereto as
Appendix 2 and that such Articles of Continuance and bylaws be and
same are hereby approved, ratified and confirmed;
19
<PAGE>
3. any one of the directors or officers of the Company be, and is hereby,
authorized and empowered, acting for, in the name and on behalf of the
Company, to execute or cause to be executed, under the seal of the
Company or otherwise, and to deliver or cause to be delivered, all
such other documents and instruments, and to do or to cause to be done
all such other acts and things as may be, in the opinion of such
director or officer, necessary or desirable in order to fulfill the
intent of the foregoing paragraphs of this resolution; and
4. this special resolution may be revoked by the board of directors of
the Company without further approval of the shareholders of the
Company at any time prior to the filing of the Articles of Continuance
with the Registrar of Corporations under the YBCA."
In order to be acted upon, the CBCA requires that the special resolution for the
continuance be passed, with or without variation, by a majority of at least two-
thirds of the votes cast by shareholders who vote, in person or by proxy, on the
special resolution.
The continuance of the Company into the Yukon Territory is subject to any
necessary approvals of regulatory authorities having jurisdiction over the
Company.
See "Dissent Rights of Shareholders" for a description of dissent rights which
are available to registered shareholders in respect of the continuance.
See "Accompanying Financial Information and Incorporation by Reference" for a
description of the financial statements of the Company and related management's
discussion and analysis thereon which accompanies and forms part of, and
information which is specifically incorporated by reference into, this Proxy
Statement and Management Information Circular.
The effect of the continuance will be to change the legal jurisdiction of
incorporation of the Company from the federal laws of Canada to the laws of the
Yukon Territory. Notwithstanding the continuance of the Company from the federal
jurisdiction to the Yukon, the CBCA and the YBCA provide that all the rights of
the creditors of the Company against the Company's property, rights and assets
and all liens on the Company's property, rights and assets are unimpaired by the
continuance. All debts, contracts, liabilities and duties of the Company from
then on attach to the Company as continued into the Yukon and continue to be
enforceable against it as if the Company had remained incorporated under the
CBCA. The derivative action, oppression, dissent and appraisal rights provisions
of the YBCA are substantially similar to the CBCA.
Exchange of Share Certificates
If the continuance to the Yukon Territory is effected, the Company will send a
letter to each holder of Common Shares advising of the effectiveness of the
continuance. Following the effectiveness of the continuance, new Common Share
certificates reflecting the Yukon jurisdiction will be issued upon surrender of
existing share certificates in the normal course further to share transfers and
other share transactions or upon request.
Dissent Rights of Shareholders
Pursuant to section 190(1) of the CBCA, registered shareholders of the Company
are entitled to dissent rights. The result of these dissent rights is that,
pursuant to section 190(3) of the CBCA, dissenting shareholders are entitled to
be paid the fair value for the shares in respect of which they dissent.
Pursuant to section 190(5) of the CBCA, a dissenting shareholder of the Company
may, at or before the Meeting at which the special resolution is to be
considered, provide a written objection to the proposed continuance, in which
event section 190 of the CBCA applies. A copy of section 190 of the CBCA is
attached as Schedule "C" hereto.
A dissenting shareholder must dissent in respect of all of the shares held by
the shareholder of record and all shares in respect of which dissent rights are
exercised must be registered in the name of the dissenting shareholder. A
shareholder of the Company is not entitled to dissent with respect to the
shareholder's shares if the shareholder votes any of those shares in favour of
the special resolution authorizing the continuance.
After the special resolution is approved by the shareholders, the Company will
notify dissenting shareholders of this fact within 10 days of such approval.
Each dissenting shareholder is then required, within 20 days after the Company
gives such
20
<PAGE>
notice to send to the Company a written notice demanding payment of the fair
value of the shares in respect of which the shareholder dissents. Not later than
seven days after the receipt of such notice, the Company must make an offer to
pay for those shares in an amount considered by the Board to be the fair value
thereof, or notify the dissenting shareholders that the Company is unable
lawfully to pay the dissenting shareholder for the shares as it would then not
meet the CBCA's solvency tests as set out in section 190(26) of the CBCA. Any
such offer made by the Company must be accepted by a dissenting shareholder
within 30 days and the Company must pay for the dissenting shareholder's shares
within 10 days after such acceptance.
The CBCA requires strict adherence to the dissent procedures established therein
and failure to do so may result in the loss of all of the dissenter's rights.
Accordingly, each shareholder of the Company who might desire to exercise the
dissent rights in respect of the special resolution for the continuance should
carefully consider and comply with the provisions of section 190 of the CBCA and
consult with the shareholder's legal advisor.
Address for Notice
All notices to the Company relating to the exercise of the dissent rights
pursuant to section 190 of the CBCA must be addressed to the Company at the
registered office of the Company at 19th Floor, 885 West Georgia Street,
Vancouver, British Columbia, Canada V6C 3H4.
Result of Numerous Shares Being Subject to Exercise of Dissent Rights
Management does not anticipate that a material number of shares of the Company
will be subject to the exercise of dissent rights. The Board of Directors may,
however, abandon the continuance of the Company to the Yukon without further
approval of the shareholders if more than 50,000 Common Shares are subject to
the exercise of dissent rights.
Advance Shareholder Approval for Private Placements
The Company from time to time investigates opportunities to raise financing on
advantageous terms. It expects to undertake one or more financings over the
next year and expects some of them to be structured as private placements.
Under the rules of the TSE the aggregate number of shares of a listed company
which are issued or made subject to issuance (i.e. issuable under a share
purchase warrant or option or other convertible security) by way of one or more
private placement transactions during any particular six-month period must not
exceed 25% of the number of shares outstanding (on a non-diluted basis) prior to
giving effect to such transactions (the "TSE 25% Rule"), unless there has been
shareholder approval of such transactions. Such private placement transactions
are generally those which are made pursuant to various exemptions from
registration and prospectus requirements under applicable securities legislation
and those transactions which are not fully marketed public offerings
(collectively, "Private Placement Transactions").
The application of the TSE 25% Rule may restrict the availability to the Company
of funds which it may wish to raise in the future through such Private Placement
Transactions.
In particular, management of the Company considers it to be in the best
interests of the Company to raise funds through Private Placement Transactions
for working capital and Company operations. The TSE has a working practice that
it will accept advance approval by shareholders in anticipation of Private
Placement Transactions that may exceed the TSE 25% Rule, provided such Private
Placement Transactions are completed within 12 months of the date such advance
shareholder approval is given.
As at April 27, 1999, the Company had issued and outstanding 29,649,457 Common
Shares and the Company proposes that the maximum number of Common Shares which
either would be issued or made subject to issuance under one or more Private
Placement Transactions within the 12-month period following the date of the
Meeting would not exceed 20,000,000 Common Shares in the aggregate, or 67.45% of
the Company's issued and outstanding Common Shares as at April 27, 1999.
Any Private Placement Transactions proceeded with by the Company under the
advance approval being sought at the Meeting will be subject to the following
additional restrictions:
(a) each must be substantially with parties at arm's length to the Company;
21
<PAGE>
(b) each cannot materially affect control of the Company;
(c) each must be completed within a 12-month period following the date the
shareholder approval is given; and
(d) each must comply with the pricing rules for Private Placement Transactions
of the TSE and the American Stock Exchange ("AMEX"), including any
applicable discount; and
(e) each will still be subject to the approval of the TSE and AMEX.
In addition, the terms of the Common Shares to be issued in any Private
Placement Transaction will be determined by the Board of Directors of the
Company and no further authorization for any such issuance by a vote of the
Company's shareholders will be solicited prior to such issuance. The TSE and the
AMEX will, however, retain the discretion to decide whether or not a particular
Private Placement Transaction is "substantially" at arm's length or will
materially affect control in which case specific shareholder approval may be
required.
In anticipation that the Company may wish to enter into one or more Private
Placement Transactions in the next 12 months that will result in it issuing
and/or making issuable such number of its Common Shares, taking into account any
shares that may be issued upon exercise of any warrants, options or other rights
granted in connection with Private Placement Transactions, that will exceed the
TSE 25% Rule, the Company requests that its shareholders pass an ordinary
resolution in the following terms:
"RESOLVED that the issuance by the Company in one or more private placement
transactions during the 12-month period commencing June 15, 1999 of such
number of securities that would result in the Company issuing or making
issuable 20,000,000 Common Shares of the Company, as is more particularly
described in the Company's Information Circular dated May 13, 1999, is
hereby approved."
1998 ANNUAL REPORT
The Annual Report for the fiscal year ended December 31, 1998 was mailed to the
registered shareholders of the Company on April 30, 1999. The consolidated
financial statements of the Company, the accompanying notes and report of the
independent auditors, the selected financial data for each of the years ended
December 31, 1998, 1997 and 1996 and management's discussion and analysis of the
Company's financial condition and results of operations are included in the
Annual Report.
2000 SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy statement, shareholder
proposals for the year 2000 Annual Meeting of Shareholders must be received at
the Company's corporate office, 1660 Lincoln Street, Suite 3000, Denver,
Colorado 80264, Attention: Corporate Secretary, on or before January 1, 2000.
AVAILABILITY OF DOCUMENTS
The following documents, filed or to be filed with various securities
commissions or similar authorities in various provinces of Canada, may be
obtained, after filing, by shareholders of the Company on request without charge
from the Secretary of Golden Star Resources Ltd., 1660 Lincoln Street, Suite
3000, Denver, Colorado, USA 80264 (Tel.: (303) 830-9000; Toll Free: (800) 553-
8436; Fax: (303) 830-9094):
a) The Company's Annual Report on Form 10-K or Annual Information Form for the
year ended December 31, 1998, as may be amended, together with any document,
or the pertinent pages of any document, incorporated by reference therein;
b) comparative audited consolidated financial statements of the Company and the
notes thereto as at and for the fiscal years ended December 31, 1998, 1997
and 1996, together with the report of the auditors thereon, and any interim
financial statements of the Company that may be subsequently filed; and
c) the Company's Management Proxy Circular dated April 28, 1998 for its annual
general meeting of shareholders held on June 16, 1998.
22
<PAGE>
ACCOMPANYING FINANCIAL INFORMATION AND INCORPORATION BY REFERENCE
The following financial statements and information of the Company accompany and
form part of, and are specifically incorporated by reference into, this Proxy
Statement and Management Information Circular: (a) Consolidated Balance Sheets
as of December 31, 1998 and 1997, and Consolidated Statements of Operations,
Consolidated Statement of Changes in Shareholders' Equity, and Consolidated
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996;
(b) the Notes to the Consolidated Financial Statements; (c) the Auditors' Report
on such financial statements; (d) the report on Management's Responsibility for
Financial Information; and (e) Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Securities and Exchange Commission allows the Company to "incorporate by
reference" in this proxy statement information the Company is required to
disclose to its shareholders, which means that the Company can disclose such
information to its shareholders by referring you to those documents. The
information incorporated by reference is an important part of this proxy
statement. We incorporate by reference the documents listed above under clause
(a) (as to the Annual Report on Form 10-K) and clause (b) of "Availability of
Documents". Shareholders may request a copy of these filings without cost by
writing or telephoning the Company at the above address.
OTHER MATTERS
Management of the Company is not aware of any other matters to come before the
Meeting other than as set forth in the Notice of the Meeting. If any other
matter properly comes before the Meeting, it is the intention of the persons
named in the enclosed proxy form to vote the shares represented thereby in
accordance with their best judgment on such matter.
DIRECTORS' APPROVAL
The contents and the sending of this circular to holders of the Common Shares,
to each director of the Company, to the auditors of the Company and to the
appropriate regulatory authorities have been approved by the directors of the
Company. This circular contains no untrue statement of a material fact and does
not omit to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in the light of the circumstances
in which it was made.
Dated at Denver, Colorado, this 13th day of May, 1999.
Golden Star Resources Ltd.
/s/ Louis O. Peloquin
Vice President, General Counsel and Secretary
23
<PAGE>
SCHEDULE "A"
AMENDMENTS TO STOCK OPTIONS GRANTED TO DIRECTORS OF THE COMPANY
BE IT RESOLVED THAT:
1. The exercise price of stock options to purchase an aggregate of 2,026,780
Common Shares previously granted by the Company to certain directors, former
directors, and senior officers, the details of which are set out below, be
adjusted so that all stock options be exercisable at Cdn.$1.80 and the number of
shares that can be purchased under each of these options be reduced by 20%, all
other terms and conditions of such options remaining the same:
<TABLE>
<CAPTION>
DIRECTORS
- ---------------------------------------------------------------------------------------------------------------------
Name of Optionee Number of Shares Exercise Price Expiration Date
Under Option
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
David Fagin 50,000 $ 5.50 December 17, 2002
(Former Chairman and CEO) 148,000 $12.15 October 7, 2003
60,000 $16.20 September 26, 2004
125,000 $ 7.63 December 15, 2005
25,000 $18.45 December 18, 2006
25,000 $17.90 February 10, 2007
10,000 $ 3.40 December 16, 2007
- ---------------------------------------------------------------------------------------------------------------------
Pierre Gousseland 40,000 $19.00 June 11, 2006
10,000 $12.00 June 11, 2007
20,000 $ 3.40 December 16, 2007
10,000 $ 3.80 June 11, 2008
- ---------------------------------------------------------------------------------------------------------------------
Philip Martin 40,000 $ 8.05 September 30, 2007
- ---------------------------------------------------------------------------------------------------------------------
Donald Mazankowski 40,000 $13.75 March 1, 2001
10,000 $10.50 March 1, 2001
10,000 $19.00 March 1, 2001
10,000 $13.10 March 1, 2001
10,000 $ 3.50 March 1, 2001
- ---------------------------------------------------------------------------------------------------------------------
Ernest Mercier 30,000 $ 8.67 January 30, 2005
10,000 $ 9.50 January 30, 2006
10,000 $18.50 January 30, 2007
10,000 $ 6.65 January 30, 2008
- ---------------------------------------------------------------------------------------------------------------------
Robert Minto 40,000 $24.40 March 1, 2001
10,000 $ 7.30 March 1, 2001
- ---------------------------------------------------------------------------------------------------------------------
Roger Morton 40,000 $ 2.76 June 26, 2002
10,000 $14.85 July 6, 2003
15,000 $12.15 October 7, 2003
25,000 $16.88 May 16, 2004
10,000 $10.50 May 16, 2005
10,000 $22.75 May 16, 2006
10,000 $12.40 May 15, 2007
10,000 $11.20 June 10, 2007
10,000 $ 4.50 May 15, 2008
- ---------------------------------------------------------------------------------------------------------------------
Richard Stark 30,000 $ 2.76 June 26, 2002
10,000 $14.85 July 6, 2003
15,000 $12.15 October 7, 2003
25,000 $16.88 May 16, 2004
10,000 $10.50 May 16, 2005
10,000 $22.75 May 16, 2006
10,000 $12.40 May 15, 2007
10,000 $11.20 June 10, 2007
10,000 $ 3.40 December 16, 2007
10,000 $ 4.50 May 15, 2008
- ---------------------------------------------------------------------------------------------------------------------
Robert Stone 40,000 $ 8.05 September 30, 2007
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
SENIOR OFFICERS
- ---------------------------------------------------------------------------------------------------------------------
Name of Optionee Number of Shares Exercise Price Expiration Date
Under Option
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gordon Bell 250,000 $ 6.38 November 6, 2005
30,000 $18.45 December 18, 2006
40,000 $ 3.40 December 16, 2007
- ---------------------------------------------------------------------------------------------------------------------
Carlos Bertoni 25,000 $ 5.50 December 17, 2002
25,000 $12.15 October 7, 2003
25,000 $16.20 September 26, 2004
40,000 $ 7.63 December 15, 2005
25,000 $18.45 December 18, 2006
35,000 $ 3.40 December 16, 2007
- ---------------------------------------------------------------------------------------------------------------------
Louis Peloquin 50,000 $13.05 June 22, 2003
25,000 $16.20 September 26, 2004
40,000 $ 7.63 December 15, 2005
25,000 $18.45 December 18, 2006
40,000 $ 3.40 December 16, 2007
- ---------------------------------------------------------------------------------------------------------------------
Hilbert Shields 25,000 $12.15 October 7, 2003
25,000 $16.20 September 26, 2004
40,000 $ 7.63 December 15, 2005
25,000 $18.45 December 18, 2006
35,000 $ 3.40 December 16, 2007
- ---------------------------------------------------------------------------------------------------------------------
Richard Winters 21,780 $ 9.13 August 8, 2005
33,000 $ 7.63 December 15, 2005
34,000 $18.45 December 18, 2006
40,000 $ 3.40 December 16, 2007
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
2. Any director or officer of the Company be, and he is hereby authorized for
and on behalf of the Company, to execute, deliver, and file all such
documents and instruments, and to do all such acts or things as may be
necessary or desirable to give effect to the foregoing.
25
<PAGE>
Schedule "B"
RESOLVED, as a special resolution, that:
1. the Company be authorized, for the purposes of section 188 of the Canada
Business Corporations Act, to apply to the Registrar of Corporations of the
Yukon Territory for an instrument of continuation to continue the Company
into the Yukon Territory under the Yukon Business Corporations Act ("YBCA")
as if it had been incorporated under the YBCA;
2. the articles and bylaws of the Company be amended by substituting all of
the provisions thereof with, respectively, the provisions set out in the
Articles of Continuance, a copy of which is annexed hereto as Appendix 1,
and the provisions of Bylaw No. 1 annexed hereto as Appendix 2 and that
such Articles of Continuance and bylaws be and same are hereby approved,
ratified and confirmed;
3. any one of the directors or officers of the Company be, and is hereby,
authorized and empowered, acting for, in the name and on behalf of the
Company, to execute or cause to be executed, under the seal of the Company
or otherwise, and to deliver or cause to be delivered, all such other
documents and instruments, and to do or to cause to be done all such other
acts and things as may be, in the opinion of such director or officer,
necessary or desirable in order to fulfill the intent of the foregoing
paragraphs of this resolution; and
4. this special resolution may be revoked by the board of directors of the
Company without further approval of the shareholders of the Company at any
time prior to the filing of the Articles of Continuance with the Registrar
of Corporations under the YBCA.
26
<PAGE>
APPENDIX 1 TO YUKON CONTINUANCE SPECIAL RESOLUTION
ARTICLES OF CONTINUANCE
YUKON
BUSINESS CORPORATIONS ACT
(Section 190)
Form 3-01
ARTICLES OF CONTINUANCE
- --------------------------------------------------------------------------------
1. Name of Corporation:
GOLDEN STAR RESOURCES LTD.
- --------------------------------------------------------------------------------
2. The classes and any maximum number of shares that the Corporation is
authorized to issue:
Schedule "A" annexed hereto is incorporated into these Articles of
Continuance.
- --------------------------------------------------------------------------------
3. Restrictions, if any, on share transfers:
None.
- --------------------------------------------------------------------------------
4. Number (or minimum and maximum number) of Directors:
Not less than 3 nor more than 15.
- --------------------------------------------------------------------------------
5. Restrictions, if any, on business the Corporation may carry on:
None.
- --------------------------------------------------------------------------------
6. If change of name effected, previous name:
Not applicable.
- --------------------------------------------------------------------------------
7. Details of incorporation:
Amalgamated by way of arrangement on May 15, 1992 under the Canada Business
Corporations Act, incorporation number 282128-1.
- --------------------------------------------------------------------------------
8. Other provisions, if any:
Schedule "B" annexed hereto is incorporated into these Articles of
Continuance.
- --------------------------------------------------------------------------------
9. Date:
-------------------------------
Signature: Title:
-------------------------- ------------------------
27
<PAGE>
SCHEDULE "A" TO ARTICLES OF CONTINUANCE
The classes and number of shares that the Corporation is authorized to issue are
as follows:
(a) The Corporation is authorized to issue an unlimited number of Common Shares
having attached thereto, as a class, the following rights, privileges,
restrictions and conditions:
(i) the right to vote;
(ii) the right, subject to any preferential rights attaching to any other
class or series of shares of the Corporation, to receive dividends
as, when, and if declared on the Common Shares by the Corporation;
(iii) notwithstanding (ii), no dividend may be declared or paid on the
Common Shares if the Corporation is, or would after the payment be,
unable to pay its liabilities as they become due, or the realizable
value of the Corporation's assets would thereby be less than the
aggregate of its liabilities and stated capital of all classes; and
(iv) the right, subject to any preferential rights attaching to any other
class or series of shares of the Corporation, to share in the
remaining property of the Corporation upon dissolution or other
distribution of assets for the purpose of winding up the
Corporation's affairs.
(b) the Corporation is also authorized to issue an unlimited number of
Preferred Shares having attached thereto, as a class, the following rights,
privileges, restrictions and conditions:
(i) the Preferred Shares may be issued from time to time in one or more
series with each series to consist of such number of Preferred
Shares as may, before the issue thereof, be determined by the
directors of the Corporation.
(ii) Before the first issue of Preferred Shares of a particular series
the directors of the Corporation shall by resolution determine the
designation, rights, privileges, restrictions and conditions
attaching to that series of Preferred Shares, which rights are
completely in the discretion of the directors of the Corporation
subject to the requirements of the Business Corporations Act
(Yukon).
28
<PAGE>
SCHEDULE "B" TO ARTICLES OF CONTINUANCE
Other provisions, if any:
1. A meeting of the shareholders of the Corporation may, in the unfettered
discretion of the directors of the Corporation, be held at any location in
Canada or the United States specified by the Directors in the notice of
such meeting.
2. The directors of the Corporation may, between annual general meetings,
appoint one or more additional directors of the Corporation to serve until
the next annual general meeting, but the number of additional directors of
the Corporation shall not at any time exceed one third of the number of
directors of the Corporation who held office at the expiration of the last
annual general meeting of the Corporation, provided that the total number of
directors shall not exceed the maximum number of directors fixed pursuant to
the Articles.
29
<PAGE>
APPENDIX 2 TO YUKON CONTINUANCE SPECIAL RESOLUTION
BYLAW NO. 1
A Bylaw relating generally to the transaction of the business and affairs of
GOLDEN STAR RESOURCES LTD. (the "Corporation")
SECTION ONE - INTERPRETATION
1.1 Interpretation. Words and expressions defined in the Business Corporations
Act, Revised Statutes of the Yukon 1986, Chapter 15 as amended from time to
time, and any Statute that may be substituted therefor, as amended from time to
time (the "Act") have the same meanings when used in the Bylaws. Words importing
the singular number include the plural and vice versa and words importing gender
include masculine, feminine and neuter genders as required by the context.
1.2 Conflict with Act or Articles. The Bylaws are subject to the provisions of
the Act and the articles of the Corporation and in the event of conflict between
the provisions of any Bylaws and the provisions of the Act or the articles, the
provisions of the Act or the articles shall prevail over the Bylaws.
1.3 Headings. The headings and indices used in the Bylaws are inserted for
convenience of reference only and do not affect the interpretation of the Bylaws
or any part thereof.
SECTION TWO - BUSINESS OF THE CORPORATION
2.1 Corporate Seal. The Board of Directors of the Corporation (the "Board") may
adopt and change a corporate seal which shall contain the name of the
Corporation and the Board may cause to be created as many duplicates thereof as
the Board shall determine.
2.2 Execution of Instruments. The Board may from time to time direct the manner
in which, and the person or persons by whom, any particular document or class of
documents may or shall be signed and delivered. In the absence of a directors'
resolution concerning the execution of any particular documents, documents shall
be signed and delivered on behalf of the Corporation by two persons, one of whom
holds the office of Chairman of the Board, President, Managing Director, Vice-
President or director and the other of whom holds one of the said offices or the
office of Secretary, Treasurer, Assistant-Secretary or Assistant-Treasurer or
any other office created by bylaw or by resolution of the Board, including
affixing the corporate seal to all such documents as may require the same.
2.3 Banking and Financial Arrangements. The banking and financial business of
the Corporation including, without limitation, the borrowing of money and the
giving of security therefor, shall be transacted with such banks, trust
companies or other bodies corporate or organizations as may from time to time be
designated by or under the authority of the Board. Such banking and financial
business or any part thereof shall be transacted under such agreements,
instructions and delegations of powers as the Board may from time to time
prescribe or authorize.
2.4 Voting Rights in other Bodies Corporate. The signing officers of the
Corporation may execute and deliver proxies and arrange for the issuance of
voting certificates or other evidence of the right to exercise the voting rights
attaching to any securities held by the Corporation. Such instruments,
certificates or other evidence shall be in favour of such person or persons as
may be determined by the officers executing such proxies or arranging for the
issuance of voting certificates or such other evidence of the right to exercise
such voting rights. In addition, the Board may from time to time direct the
manner in which and the person or persons by whom any particular voting rights
or class of voting rights may or shall be exercised.
2.5 Withholding Information from Shareholders. Subject to the provisions of the
Act, no shareholder shall be entitled to discovery of any information respecting
any details or conduct of the Corporation's business which, in the opinion of
the Board, it would be inexpedient in the interests of the shareholders or the
Corporation to communicate to the public. The Board may from time to time
determine whether and to what extent and at what time and place and under what
conditions or regulations the accounts, records and documents of the Corporation
shall be open to the inspection of shareholders and no
30
<PAGE>
shareholder shall have any right of inspection of any account, record or
document of the Corporation except as conferred by the Act or authorized by the
Board or by resolution passed at a general meeting of shareholders.
SECTION THREE - DIRECTORS AND BOARD
3.1 Calling of Meeting. Meetings of the Board shall be held from time to time
and at such place as the Board, the Chairman of the Board, the Managing
Director, the President or any two directors may determine.
3.2 Notice of Meetings. Notice of the time and place of Board meetings shall be
given to each director in the manner provided in Section 9.1 not less than 48
hours before the time of the meeting.
3.3 Telecommunication. A director may participate in a Board meeting or a
meeting of a committee of directors by means of telephone or other communication
facilities that permit all directors participating in the meeting to hear each
other.
3.4 Quorum. A quorum for Board meetings shall be a majority of the directors
present in person or by telecommunication. If a quorum is not present within 15
minutes of the time fixed for the holding of the meeting, the meeting shall be
adjourned for not less than 72 hours and notice of the time and place of the
adjourned meeting shall be given to each director not less than 48 hours before
the time of the adjourned meeting. If a quorum is not present within 15 minutes
of the time fixed for the holding of the adjourned meeting, those directors
present in person or by telecommunication shall constitute a quorum for the
purpose of the adjourned meeting.
3.5 First Meeting of New Board. Provided a quorum of directors is present, each
newly elected Board may, without notice, hold its first meeting immediately
following the meeting of shareholders at which such Board is elected.
3.6 Regular Meetings. The Board may appoint a day or days in any month or
months and a place and hour for regular meetings of the Board. A copy of any
resolution of the Board fixing the day or days, the place and time of such
regular meetings shall be sent to each director forthwith after being passed,
but no other notice shall be required for any such regular meeting except where
the Act requires the purpose thereof or the business to be transacted thereat to
be specified.
3.7 Casting Vote. At all Board meetings, each director shall have one vote and
every question shall be decided by a majority of votes cast on each question. In
the case of an equality of votes, the chairman of the meeting shall not be
entitled to a second or casting vote in addition to the vote to which he may be
entitled as a director.
3.8 Chairman. The chairman of any meeting of the Board shall be the first
mentioned of such of the following officers as have been appointed and who is
present at the meeting:
a) the Chairman of the Board; or
b) the President; or
c) any Vice-President (and where more than one Vice-President is present
at the meeting, then the priority to act as chairman as between them
shall be in order of their appointment to the office of Vice-
President).
If no such officer is present within 15 minutes from the time fixed for the
holding of the meeting of the Board, the persons present shall choose one of
their number then present to be chairman of that meeting.
3.9 Committees of Directors. Unless otherwise ordered by the Board each
committee of directors shall have power to fix its quorum at not less than a
majority of its members, to elect its chairman and to regulate its procedure.
3.10 Remuneration and Expenses. The directors shall be paid such remuneration
for their services as the Board may from time to time determine. The directors
shall also be entitled to be reimbursed for travel expenses and other expenses
properly incurred by them in attending meetings of the Board or any committee
thereof. Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
31
<PAGE>
SECTION FOUR - OFFICERS
4.1 Appointment. The Board may from time to time appoint a Chairman of the
Board, a President, one or more Vice-Presidents (to which title may be added
words indicating seniority or function), a Secretary, a Treasurer and such other
officers as the Board may determine, including one or more assistants to any of
the officers so appointed. Subject to those powers and authority which pursuant
to the Act may only be exercised by the directors, the officers of the
Corporation may exercise, respectively, such powers and authority and shall
perform such duties, in addition to those specified in the Bylaws, as may from
time to time be prescribed by the Board. Except for the Chairman of the Board,
if appointed, and the Managing Director, if appointed, an officer may, but need
not be, a director.
4.2 Delegation. In case of the absence of any officer or employee of the
Corporation or for any other reason that the Board may deem sufficient, the
Board may delegate for the time being the powers and authority of such officer
or employee to any other officer or employee or to any director of the
Corporation.
4.3 Chairman of the Board. The Chairman of the Board, if appointed, shall be a
director of the Corporation and shall be the chief executive officer of the
Corporation. The Chairman of the Board shall preside at all meetings of the
Board and may exercise such other powers and authority and shall perform the
duties which the directors may from time to time prescribe. During the absence
or disability of the Chairman of the Board, his or her duties shall be performed
and his or her powers exercised by the Managing Director, if any, or if no
Managing Director, by the President.
4.4 Managing Director. The Managing Director, if appointed, shall be a director
of the Corporation, shall manage the operations of the Corporation generally,
and may exercise such other powers and authority and shall perform such other
duties as may from time to time be prescribed by the Board. During the absence
or disability of the Chairman of the Board and/or the President, or if no
Chairman of the Board and/or President have been appointed, the Managing
Director shall also have the powers and duties of the Chairman of the Board
and/or the President.
4.5 President. The President shall, subject to the authority of the Board, be
responsible for the general supervision of the business and affairs of the
Corporation and shall have such other powers and duties as the Board may
specify. During the absence or disability of the Chairman of the Board and/or
the Managing Director, or if no Chairman of the Board and/or Managing Director
have been appointed, in the event the President is a Director of the
Corporation, the President shall also have the powers and duties of the Chairman
of the Board and/or the Managing Director.
4.6 Vice-President. The Vice-President, or if more than one Vice-President has
been appointed, the Vice-Presidents, may exercise such powers and authority and
shall perform such duties as may from time to time be prescribed by the Board.
Subject to Sections 4.3 and 4.4, one of the Vice-Presidents, being a shareholder
and/or director, as the case may be, where required by the Act or these Bylaws,
may exercise the powers and perform the duties of the Chairman of the Board
and/or the Managing Director and/or the President.
4.7 Secretary. Except as may be otherwise determined from time to time by the
Board, the Secretary shall attend and be the secretary to all meetings of the
Board, shareholders and committees of the Board and shall enter or cause to be
entered in records kept for that purpose minutes of all proceedings at such
meetings. The Secretary shall give or cause to be given as and when instructed
all notices to shareholders, directors, officers, auditors and members of
committees of the Board. The Secretary shall be the custodian of the corporate
seal, if any, of the Corporation and shall have charge of all books, papers,
reports, certificates, records, documents, registers and instruments belonging
to the Corporation, except when some other officer or agent has been appointed
for that purpose and may exercise such other powers and authority and shall
perform such other duties as may from time to time be prescribed by the Board or
by the President.
4.8 Treasurer. The Treasurer shall be responsible for the keeping of proper
accounting records in compliance with the Act and shall be responsible for the
deposit of monies and other valuable effects of the Corporation in the name and
to the credit of the Corporation in such banks or other depositories as the
Board may from time to time designate and shall be responsible for the
disbursement of the funds of the Corporation. The Treasurer shall render to the
Board whenever so directed an account of all financial transactions and of the
financial position of the Corporation. The Treasurer may exercise such other
duties as may from time to time be prescribed by the Board or by the President.
4.9 Other Officers. The powers and duties of all other officers shall be those
prescribed by the Board from time to time. Any of the powers and duties of an
officer to whom an assistant has been appointed may be exercised and performed
by such assistant, unless the Board or the President otherwise direct.
32
<PAGE>
4.10 Variation of the Powers and Duties. The Board may from time to time vary,
add to or limit the powers, authority and duties of any officer.
4.11 Removal and Discharge. The Board may remove any officer of the
Corporation, with or without cause, at any meeting called for that purpose and
may elect or appoint others in their place or places. Any officer or employee of
the Corporation, not being a member of the Board, may also be removed and
discharged, either with or without cause, by the Chairman of the Board or the
President. If, however, there be a contract with an officer or employee
derogating from the provisions of this Section, such removal or discharge shall
be subject to the provisions of such contract.
4.12 Term of Office. Each officer appointed by the Board shall hold office
until a successor is appointed, or until his earlier resignation or removal by
the Board.
4.13 Terms of Employment and Remuneration. The terms of employment and the
remuneration of officers appointed by the Board shall be settled by the Board
from time to time.
4.14 Agents and Attorneys. The Board, the Chairman of the Board or the
President may also from time to time appoint other agents, attorneys, officers
and employees of the Corporation within or without Canada, who may be given such
titles and who may exercise such powers and authority (including the power of
subdelegation) and shall perform such duties of management or otherwise, as the
Board may from time to time prescribe.
4.15 Fidelity Bonds. The Board, the Chairman of the Board or the President may
require such officers, employees and agents of the Corporation as the Board
deems advisable to furnish bonds for the faithful performance of their powers
and duties, in such form and with such surety as the Board may from time to time
determine.
SECTION FIVE - INDEMNIFICATION
5.1 Indemnification of Directors and Officers against actions by Third
Parties. Except in respect of an action by or on behalf of the Corporation or
body corporate to procure a judgment in its favour, the Corporation shall
indemnify a director or officer of the Corporation, a former director or officer
of the Corporation or a person who acts or acted at the Corporation's request as
a director or officer of a body corporate of which the Corporation is or was a
shareholder or creditor, or a person who undertakes or has undertaken any
liability on behalf of the Corporation or any such body corporate, and his heirs
and legal representatives, against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him in respect of any civil, criminal or administrative action or proceeding to
which he is made a party by reason of being or having been a director or officer
of that Corporation or body corporate, if:
a) He acted honestly and in good faith with a view to the best interests
of the Corporation; and
b) In the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
5.2 Indemnification of Directors and Officers against actions by the
Corporation. The Corporation may with the approval of the Supreme Court of the
Yukon Territory indemnify a person referred to in paragraph 5.1 in respect of an
action by or on behalf of the Corporation or body corporate to procure a
judgment in its favour, to which he is made a party by reason of being or having
been a director or an officer of the Corporation or body corporate, against all
costs, charges and expenses reasonably incurred by him in connection with the
action if he fulfills the conditions set out in subparagraphs 5.1(a) and (b).
5.3 Right of Indemnity not Exclusive. The provisions for indemnification
contained in the Bylaws shall not be deemed exclusive of any other rights to
which a person seeking indemnification may be entitled under any Bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to an action in his official capacity and as to an action in any other capacity
while holding such office. This section shall also apply to a person who has
ceased to be a director or officer, and shall enure to the benefit of the heirs
and legal representatives of such person.
5.4 Insurance. Subject to the limitations contained in the Act, the
Corporation may purchase and maintain such insurance for the benefit of its
directors and officers as the Board may from time to time determine.
33
<PAGE>
SECTION SIX - SHARES
6.1 Options. The Board may from time to time grant options to purchase the
whole or any part of the authorized and unissued shares of the Corporation at
such times and to such persons and for such consideration as the Board shall
determine, provided that no share shall be issued until it is fully paid as
provided in the Act.
6.2 Non-recognition of Trusts. The Corporation shall treat as absolute owner of
any share the person in whose name the share is registered in the securities
register as if that person had full legal capacity and authority to exercise a
right of ownership, irrespective of any indication to the contrary through
knowledge or notice or description in the Corporation's records or on the share
certificate.
6.3 Joint Shareholders. If two or more persons are registered as joint holders
of any share, any one of such persons may give effectual receipts for the
certificate issued in respect thereof or for any dividend, bonus, return of
capital or other money payable or warrant issuable in respect of such share.
SECTION SEVEN - DIVIDENDS AND RIGHTS
7.1 Dividend Cheques. A dividend payable in cash shall be paid by cheque drawn
on the Corporation's bankers or one of them to the order of each registered
holder of shares of the class or series in respect of which a dividend has been
declared, and mailed by prepaid ordinary mail to such registered holder at the
address shown in the records of the Corporation, unless such holder otherwise
directs. The mailing of such cheque as aforesaid, unless the same is not paid on
due presentation, shall satisfy and discharge the liability for the dividend to
the extent of the sum represented thereby plus the amount of any tax which the
Corporation is required to and does withhold.
7.2 Joint Shareholders. In the case of joint holders, a cheque for payment of
dividends, bonuses, returns of capital or other money payable, shall, unless
such joint holders otherwise direct, be made payable to the order of all of such
joint holders and mailed to them at the address shown in the records of the
Corporation.
7.3 Non-Receipt of Cheques. In the event of non-receipt of any dividend cheque
by the person to whom it is sent as aforesaid, the Corporation shall issue to
such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the Board may from time to time prescribe, whether generally or in any
particular case.
7.4 Unclaimed Dividends. Any dividend unclaimed after a period of six (6) years
from the date on which the same has been declared to be payable shall be
forfeited and shall revert to the Corporation.
SECTION EIGHT - MEETINGS OF SHAREHOLDERS
8.1 Annual Meetings. The annual meeting of shareholders shall be held at such
time in each year and, subject to the articles of the Corporation, at such place
as the Board, or failing it, the Chairman of the Board, the Managing Director or
the President, may from time to time determine.
8.2 Time for Deposit of Proxies. The Board may specify in a notice calling a
meeting of shareholders a time, preceding the time of such meeting by not more
than 48 hours exclusive of non-business days, before which proxies to be used at
such meeting must be deposited. A proxy shall be acted upon only if, prior to
the time so specified, it shall have been deposited with the Corporation or an
agent thereof specified in such notice, or if no such time is specified in such
notice, unless it has been received by the Secretary of the Corporation or by
the chairman of the meeting or any adjournment thereof prior to the time of
voting.
8.3 Persons Entitled to be Present. The only persons entitled to be present at
a meeting of the shareholders shall be those persons entitled to vote thereat,
the directors and auditor (if any) of the Corporation and others who, although
not entitled to vote, are entitled or required under any provision of the Act or
the articles or Bylaws to be present at the meeting. Any other persons may be
admitted only on the invitation of the chairman of the meeting or with the
consent of the meeting.
34
<PAGE>
8.4 Quorum. A quorum of shareholders is present at a meeting of shareholders,
irrespective of the number of persons actually present at the meeting, if the
holder or holders of five percent (5%) of the shares entitled to vote at the
meeting are present in person or represented by proxy. No business shall be
transacted at any meeting unless the requisite quorum is present at the time of
the transaction of such business.
8.5 Adjournment. Should a quorum not be present at any meeting of shareholders,
those present in person or by proxy and entitled to vote shall have power to
adjourn the meeting for a period of not more than 30 days without notice other
than announcement at the meeting. At any such adjourned meeting, provided a
quorum is present, any business may be transacted which might have been
transacted at the meeting adjourned. Notice of meetings adjourned for more than
30 days and for more than 90 days shall be given as required by the Act.
8.6 Chairman. The chairman of any meeting of the shareholders shall be the
first mentioned of such of the following officers as have been appointed and who
is present at the meeting:
a) the Chairman of the Board;
b) the President;
c) any Vice-President (and where more than one Vice-President is present
at the meeting, then the priority to act as chairman as between them
shall be in order of their appointment to the office of Vice-
President).
If no such officer is present within 15 minutes from the time fixed for the
holding of the meeting of the shareholders, the persons present and entitled to
vote shall choose one of their number then present to be chairman of that
meeting.
8.7 Secretary of Meeting. If the Secretary of the Corporation is absent, the
chairman of a meeting of shareholders shall appoint some person, who need not be
a shareholder, to act as secretary of the meeting.
8.8 Chairman's Casting Vote. At any meeting of shareholders every question
shall be determined by the majority of the votes cast on the question. In the
case of an equality of votes at a meeting of shareholders, the chairman of the
meeting shall not be entitled to a second or casting vote in addition to the
vote or votes to which he may be entitled as a shareholder.
8.9 Chairman's Declaration. At any meeting of shareholders, unless a ballot is
demanded, a declaration by the chairman of the meeting that a resolution has
been carried or carried unanimously or by a particular majority or lost or not
carried by a particular majority shall be conclusive evidence of the fact
without proof of the number or proportion of votes recorded in favour of or
against the motion.
8.10 Voting by Ballot. If a ballot is demanded by a shareholder or proxy holder
entitled to vote at a shareholder's meeting and the demand is not withdrawn, the
ballot upon the motion shall be taken in such manner as the chairman of the
meeting shall direct. Upon a ballot each shareholder who is present in person or
represented by proxy shall be entitled, in respect of the shares which he is
entitled to vote at the meeting upon the question, to that number of votes
provided by the Act or the articles. The declaration by the Chairman of the
meeting that the vote upon the question has been carried, or carried unanimously
or by a particular majority, or lost or not carried by a particular majority
and an entry in the minutes of the meeting shall be prima facie evidence of the
fact without proof of the number or proportion of votes recorded in favour of or
against any resolution or question.
8.11 Scrutineers. The chairman or the secretary at any meeting of the
shareholders or the shareholders then present may appoint one or more
scrutineers, who need not be shareholders, to count and report upon the results
of the voting which is done by ballot.
SECTION NINE - NOTICES
9.1 Notices. In addition to any other method of service permitted by the Act,
any notice or document required by the Act, the regulations, the articles or the
Bylaws may be sent to any person entitled to receive same in the manner set out
in the Act for service upon a shareholder or director and by any means of
telecommunication with respect to which a written record is made. A notice sent
by means of telecommunication shall be deemed to have been given on the first
business day after the date upon which the written record is made.
35
<PAGE>
9.2 Notice to Joint Shareholders . If two or more persons hold shares jointly,
notice may be given to one of such persons and such notice shall be sufficient
notice to all of them.
9.3 Change of Address. The Secretary or Assistant Secretary may change or cause
to be changed the address in the records of the Corporation of any shareholder,
director, officer, auditor or member of a committee of the Board in accordance
with any information believed by him to be reliable.
9.4 Signature on Notice. The signature on any notice to be given by the
Corporation may be lithographed, written, printed or otherwise mechanically
reproduced.
SECTION TEN - EFFECTIVE DATE AND AMENDMENT
10.1 Effective Date. This Bylaw is effective from the date the Corporation is
first subject to the Act.
10.2 Amending Bylaw. The Board may by resolution amend or repeal this Bylaw and
such amendment or repeal shall have force and effect unless rejected by ordinary
resolution of the shareholders entitled to vote at an annual general meeting.
36
<PAGE>
SCHEDULE "C"
DISSENT RIGHTS PROVISION UNDER SECTION 190 OF THE CBCA
(1) Right to dissent - Subject to sections 191 and 241, a holder of shares of
any class of a corporation may dissent if the corporation is subject to an
order under paragraph 192(4)(d) that affects the holder or if the
corporation resolves to
(a) amend its articles under section 173 or 174 to add, change or remove
any provisions restricting or constraining the issue, transfer or
ownership of shares of that class,
(b) amend its articles under section 173 to add, change or remove any
restriction on the business or businesses as that the corporation may
carry on,
(c) amalgamate otherwise than under section 184,
(d) be continued under section 188, or
(e) sell, lease or exchange all or substantially all its property under
subsection 189(3).
(2) Further right - A holder of shares of any class or series of shares
entitled to vote under section 176 may dissent if the corporation resolves
to amend its articles in a manner described in that section.
(3) Payment for shares - In addition to any other right he may have, but
subject to subsection (26), a shareholder who complies with this section is
entitled, when the action approved by the resolution from which he dissents
or an order made under subsection 192(4) becomes effective, to be paid by
the corporation the fair value of the shares held by him in respect of
which he dissents, determined as of the close of business on the date
before the resolution was adopted or the order was made.
(4) No partial dissent - A dissenting shareholder may only claim under this
section with respect to all the shares of a class held by him on behalf of
any one beneficial owner and registered in the name of the dissenting
shareholder.
(5) Objection - A dissenting shareholder shall send to the corporation, at or
before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the
resolution, unless the corporation did not give notice to the shareholder
of the purpose of the meeting and of his right to dissent.
(6) Notice of resolution - The corporation shall, within ten days after the
shareholders adopt the resolution, send to each shareholder who has filed
the objection referred to subsection (5) notice that the resolution has
been adopted, but such notice is not required to be sent to any shareholder
who voted for the resolution or who has withdrawn his objection.
(7) Demand for payment - A dissenting shareholder shall, within twenty days
after he receives a notice under subsection (6) or, if he does not receive
such notice, within twenty days after he learns that the resolution has
been adopted, send to the corporation a written notice containing
(a) his name and address,
(b) the number and class of shares in respect of which he dissents, and
(c) a demand for payment of the fair value of such shares.
(8) Share certificate - A dissenting shareholder shall, within thirty days
after sending a notice under subsection (7), send the certificates
representing the shares in respect of which he dissents to the corporation
or its transfer agent.
(9) Forfeiture - A dissenting shareholder who fails to comply with subsection
(8) has no right to make a claim under this section.
(10) Endorsing certificate - A corporation or its transfer agent shall endorse
on any share certificate received under subsection (8) a notice that the
holder is a dissenting shareholder under this section and shall forthwith
return the share certificates to the dissenting shareholder.
(11) Suspension of rights - On sending a notice under subsection (7), a
dissenting shareholder ceases to have any rights as a shareholder other
than the right to be paid the fair value of his shares as determined under
this section except where
37
<PAGE>
(a) the dissenting shareholder withdraws his notice before the corporation
makes an offer under subsection (12),
(b) the corporation fails to make an offer in accordance with subsection
(12) and the dissenting shareholder withdraws his notice, or
(c) the directors revoke a resolution to amend the articles under
subsection 173(2) or 174(5), terminate an amalgamation agreement under
subsection 183(6) or an application for continuance under subsection
188(6), or abandon a sale, lease or exchange under subsection 189(9),
in which case his rights as a shareholder are reinstated as of the date he
sent the notice referred to in subsection (7).
(12) Offer to pay - A corporation shall, not later than seven days after the
later of the day on which the action approved by the resolution is
effective or the day the corporation received the notice referred to in
subsection (7), send to each dissenting shareholder who has sent such
notice
(a) a written offer to pay for his shares in an amount considered by the
directors of the corporation to be the fair value thereof, accompanied
by a statement showing how the fair value was determined, or
(b) if subsection (26) applies, a notification that it is unable lawfully
to pay dissenting shareholders for their shares.
(13) Same terms - Every offer made under subsection (12) for shares of the same
class or series shall be on the same terms.
(14) Payment - Subject to subsection (26), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made
under subsection (12) has been accepted, but any such offer lapses if the
corporation does not receive an acceptance thereof within thirty days after
the offer has been made.
(15) Corporation may apply to court - Where a corporation fails to make an offer
under subsection (12), or if a dissenting shareholder fails to accept an
offer, the corporation may, within fifty days after the action approved by
the resolution is effective or within such further period as a court may
allow, apply to a court to fix a fair value for the shares of any
dissenting shareholder.
(16) Shareholder application to court - If a corporation fails to apply to a
court under subsection (15), a dissenting shareholder may apply to a court
for the same purpose within a further period of twenty days or within such
further period as a court may allow.
(17) Venue - An application under subsection (15) or (16) shall be made to a
court having jurisdiction in the place where the corporation has its
registered office or in the province where the dissenting shareholder
resides if the corporation carries on business in that province.
(18) No security for costs - A dissenting shareholder is not required to give
security for costs in an application made under subsection (15) or (16).
(19) Parties - On an application to a court under subsection (15) or (16),
(a) all dissenting shareholders whose shares have not been purchased by
the corporation shall be joined as parties and are bound by the
decision of the court, and
(b) the corporation shall notify each affected dissenting shareholder of
the date, place and consequences of the application and of his rights
to appear and be heard in person or by counsel.
(20) Powers of court - On an application to a court under subsection (15) or
(16), the court may determine whether any other person is a dissenting
shareholder who should be joined as a party, and the court shall then fix a
fair value for the shares of all dissenting shareholders.
(21) Appraisers - A court may in its discretion appoint one or more appraisers
to assist the court to fix a fair value for the shares of the dissenting
shareholders.
38
<PAGE>
(22) Final order - The final order of a court shall be rendered against the
corporation in favour of each dissenting shareholder and for the amount of
his shares as fixed by the court.
(23) Interest - A court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date
of the action approved by the resolution is effective until the date of
payment.
(24) Notice that subsection (26) applies - If subsection (26) applies, the
corporation shall, within ten days after the pronouncement of an order
under subsection (22), notify each dissenting shareholder that it is unable
lawfully to pay dissenting shareholders for their shares.
(25) Effect where subsection (26) applies - If subsection (26) applies, a
dissenting shareholder, by written notice delivered to the corporation
within thirty days after receiving a notice under subsection (24), may
(a) withdraw his notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder is reinstated
to his full rights as a shareholder, or
(b) retain a status as a claimant against the corporation, to be paid as
soon as the corporation is lawfully able to do so or, in a
liquidation, to be ranked subordinate to the rights of creditors of
the corporation but in priority to it shareholders.
(26) Limitation - A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for
believing that
(a) the corporation is or would after the payment be unable to pay its
liabilities as they become due, or
(b) the realizable value of the corporation's assets would thereby be less
than the aggregate of its liabilities.
39
<PAGE>
GOLDEN STAR RESOURCES LTD.
--------------------------
Financial Statements and Supplementary Data
for the Fiscal Year ended December 31, 1998
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Accompanying Golden Star Proxy Statement
Dated May 13, 1999
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------------------------------------------
Index to Consolidated Financial Statements
of Golden Star Resources Ltd. and Subsidiaries
<TABLE>
<CAPTION>
<S> <C>
Management's Responsibility for Financial Information.......................... 3
Auditors' Report............................................................... 4
Consolidated Balance Sheets as of December 31, 1998 and 1997................... 5
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.......................................... 6
Consolidated Statement of Changes in Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996.......................................... 7
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................................... 8
Notes to the Consolidated Financial Statements................................. 9-36
</TABLE>
2
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION
To the Shareholders of Golden Star Resources Ltd.
The consolidated financial statements and all information in the Annual Report
are the responsibility of the Board of Directors and management. The
consolidated financial statements have been prepared by management based on
information available to March 5, 1999, and are in accordance with accounting
principles generally accepted in Canada.
A system of internal accounting and administrative controls is maintained by
management in order to provide reasonable assurance that financial information
is accurate and reliable, and that the Company's assets are safeguarded.
Limitations exist in all cost effective systems of internal controls. The
Company's systems have been designed to provide reasonable but not absolute
assurance that financial records are adequate to allow for the completion of
reliable financial information and the safeguarding of its assets.
The Company believes that the systems are adequate to achieve the stated
objectives. Regular testing of these systems is employed to ensure continued
effectiveness of the controls, and actions are taken when necessary to correct
deficiencies when they are identified.
The Audit and Corporate Governance Committee of the Board of Directors is
comprised of four outside directors, and meets regularly with management and the
independent auditors to ensure that management is maintaining adequate internal
controls and systems and to approve the annual and quarterly consolidated
financial statements of the Company. The committee also reviews the audit plan
of the independent auditors and discusses the results of their audit and their
report prior to submitting the consolidated financial statements to the Board of
Directors for approval.
The consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, Chartered Accountants, who were appointed by the
shareholders. The auditors' report outlines the scope of their examination and
their opinion on the consolidated financial statements.
/s/ Pierre Gousseland /s/ Gordon J. Bell
- --------------------- -----------------------
Chairman of the Board Vice President and
Chief Financial Officer
3
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Golden Star Resources Ltd.:
We have audited the consolidated balance sheets of Golden Star Resources Ltd. as
of December 31, 1998 and 1997 and the consolidated statements of operations,
changes in shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about 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 referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1998 and 1997, and the consolidated results of
its operations and cash flows for each of the three years in the period ended
December 31, 1998, in accordance with accounting principles generally accepted
in Canada.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Calgary, Canada
March 5, 1999
Comments by the Auditors for U.S. Readers on Canada-U.S. Reporting Difference
- -----------------------------------------------------------------------------
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 3 of the consolidated financial statements. Our report to the shareholders
dated March 5, 1999, is expressed in accordance with Canadian reporting
standards which do not permit a reference to such conditions and events in the
auditors' report when these are adequately disclosed in the financial
statements.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Calgary, Canada
March 5, 1999
4
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of United States Dollars except share amounts)
<TABLE>
<CAPTION>
ASSETS As of December 31,
1998 1997
---- ----
CURRENT ASSETS
<S> <C> <C>
Cash and short-term investments $ 7,350 $ 17,399
Accounts receivable 511 2,238
Inventories 181 356
Other assets 174 159
-------- --------
Total Current Assets 8,216 20,152
RESTRICTED CASH - 250
DEFERRED EXPLORATION 58,203 65,160
INVESTMENT IN OMAI GOLD MINES LIMITED 1,337 2,126
FIXED ASSETS 685 1,280
OTHER ASSETS 156 154
-------- --------
Total Assets $ 68,597 $ 89,122
======== ========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 921 $ 2,825
Accrued wages and payroll taxes 779 900
-------- --------
Total Current Liabilities 1,700 3,725
LONG-TERM DEBT (Note 10) 2,948 -
OTHER LIABILITIES 56 115
-------- --------
Total Liabilities 4,704 3,840
-------- --------
MINORITY INTEREST 5,422 5,725
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 18) - -
SHAREHOLDERS' EQUITY
SHARE CAPITAL 159,163 158,001
(Common shares, without par value,
unlimited shares authorized.
Shares issued and outstanding:
1998 - 30,292,249; and 1997 - 29,797,432)
Stock option loans (4,012) (4,012)
DEFICIT (96,680) (74,432)
-------- --------
Total Shareholders' Equity 58,471 79,557
-------- --------
Total Liabilities and
Shareholders' Equity $ 68,597 $ 89,122
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Approved by the Board:
By: /s/ Pierre Gousseland By: /s/ Richard A. Stark
-------------------------- ---------------------------
Director Director
5
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of United States Dollars except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUE
Precious metals sales $ - $ 443 $ 1,723
Interest and other 635 1,255 1,078
--------- --------- --------
635 1,698 2,801
--------- --------- --------
COSTS AND EXPENSES
Cost of goods sold - 987 4,097
Depreciation and depletion 230 772 1,246
Exploration expense 443 779 408
General and administrative 7,712 8,936 9,114
Write-offs & abandonment of mineral properties 16,600 22,437 10,365
Gain on disposal of assets - (302) (33)
Interest expense 36 22 189
Foreign exchange loss (gain) 26 92 (2)
Loss on suspension of mining activities - - 2,085
Loss on impairment of inventories and fixed assets - 1,522 -
Recovery of abandonment loss - - (936)
--------- --------- --------
25,047 35,245 26,533
--------- --------- --------
LOSS BEFORE THE UNDERNOTED (24,412) (33,547) (23,732)
Gain on subsidiaries issuance of common shares - - 7,719
Omai preferred share redemption surplus 950 1,388 626
--------- --------- --------
Loss before minority interest (23,462) (32,159) (15,387)
Minority interest 1,214 5,575 7,607
--------- --------- --------
NET LOSS $ (22,248) $ (26,584) $ (7,780)
========= ========= ========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.74) $ (0.92) $ (0.31)
========= ========= ========
WEIGHTED AVERAGE SHARES OUTSTANDING (in millions of shares) 30.2 28.8 25.2
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Stated in thousands of United States Dollars except share amounts)
<TABLE>
<CAPTION>
Common Stock Share Stock
Number of Shares Capital Option Loans Deficit
---------------- ------- ------------ -------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 22,769,872 $106,344 $(1,170) $ (36,786)
Shares Issued 1,780,712 13,574 - -
Shares Issued Under Options 1,059,469 6,744 - -
Shares Issued Under Warrants 331,050 3,983 - -
Issue Costs - (691) - -
Stock Option Loans - - (2,902) -
Stock Option Loan Repayments - - 60 -
Other - - - (3,282)
Net Loss - - - (7,780)
---------- -------- ------- ---------
Balance at December 31, 1996 25,941,103 $129,954 $(4,012) $ (47,848)
Shares Issued 3,085,296 22,840 - -
Shares Issued Under Options 97,833 235 - -
Shares Issued Under Warrants 673,200 5,429 - -
Issue Costs - (457) - -
Net Loss - - - (26,584)
---------- -------- ------- ---------
Balance at December 31, 1997 29,797,432 $158,001 $(4,012) $ (74,432)
Shares Issued 421,357 987 - -
Shares Issued Under Options 73,460 175 - -
Net Loss - - - $ (22,248)
---------- -------- ------- ---------
Balance at December 31, 1998 30,292,249 $159,163 $(4,012) $( 96,680)
========== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
GOLDEN STAR RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of United States Dollars)
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31,
Operating Activities: 1998 1997 1996
----------- ----------- ---------
<S> <C> <C> <C>
Net Loss $(22,248) $(26,584) $ (7,780)
Reconciliation of net loss to net cash used in operating activities:
Depreciation and depletion 230 772 1,246
Premium on Omai preferred share redemption (950) (1,388) (626)
Gain on disposal of assets - (302) (33)
Write offs and abandonment of mineral properties 16,600 22,437 10,365
Recovery of abandonment loss - - (936)
Gain on issuance of common shares by subsidiary - - (7,719)
Write-down of equipment - 1,522 450
Minority interest (1,214) (5,575) (7,607)
Changes in non-cash operating working capital (137) 516 1,990
-------- -------- --------
Net Cash Used in Operating Activities (7,719) (8,602) (10,650)
-------- -------- --------
Investing Activities:
Expenditures on mineral properties, net of joint venture recoveries (9,643) (22,877) (24,279)
Depreciation capitalized as deferred exploration 367 342 -
Proceeds from sale of property interest - - 640
Equipment purchases (50) (353) (1,735)
Omai Preferred Share Redemption 1,738 2,541 1,145
Proceeds from sale of equipment 47 486 -
Other assets and investment (7) 266 787
-------- -------- --------
Net Cash Used in Investing Activities (7,548) (19,595) (23,442)
-------- -------- --------
Financing Activities:
Restricted cash 250 1,765 450
Change in other liabilities (52) 22 (6)
Proceeds from issuance of subsidiary stock - - 19,987
Offering costs of subsidiary stock issues - (25) (1,461)
Increase in minority interest 910 124 518
Issuance of long-term debt 3,169 - -
Repayment of long-term debt (220) - -
Issuance of share capital and warrants, net of issue costs 1,161 28,047 23,610
Stock option loan additions - - (2,841)
-------- -------- --------
Net Cash Provided by Financing Activities 5,218 29,933 40,257
-------- -------- --------
Increase (Decrease) in cash and short-term investments (10,049) 1,736 6,165
Cash and short-term investments, beginning of period 17,399 15,663 9,498
-------- -------- --------
Cash and short-term investments, end of period $ 7,350 $ 17,399 $ 15,663
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
(All tabular amounts in thousands of United States Dollars)
1. Formation of the Company
- -------------------------------
In May of 1992, the shareholders of Golden Star Resources Ltd. ("Golden Star" or
the "Company") and South American Goldfields ("South American"), respectively
agreed to a business combination of the two companies. Neither company was
under common control prior to the amalgamation. This combination was considered
to be an amalgamation under the Canada Business Corporations Act and was
effective May 15, 1992. The amalgamation was treated as a purchase by the
Company for accounting purposes. Concurrent with the amalgamation, the common
shares of the Company were consolidated on a one-for-two basis. The Company's
fiscal year end is December 31, and commencing on May 15, 1992, the Company
changed its reporting currency to the United States dollar. However, if the
Company were to declare a dividend to its shareholders, it would be paid in
Canadian dollars.
2. Description of Business
- ------------------------------
The Company is engaged in the business of exploration, acquisition and
development of precious minerals deposits in both South America and Africa. The
Company's common shares trade on the Toronto Stock Exchange under the symbol
"GSC", and on the American Stock Exchange under the symbol "GSR".
Efforts in South America are focused on property interests in Guyana, Suriname,
French Guiana (through its 71% owned subsidiary Guyanor Ressources S.A.), and
Brazil (through its wholly owned Southern Star Resources Ltd.). The Company is
also actively pursuing new projects in these countries in addition to other
South American countries.
Efforts in Africa are focused on property interests in Kenya and Ivory Coast and
are conducted through the Company's wholly owned subsidiary, Pan African
Resources Corporation.
All of the Company's projects are conducted through agreements with third
parties and national governments and/or pursuant to permits and licenses granted
by appropriate authorities. When deemed appropriate, certain projects are
pursued on a joint venture basis to share the associated risk and to assist in
project funding.
3. Liquidity and Going Concern
- ----------------------------------
The Company must rely primarily on the capital markets to fund its operations
and exploration activities until it can achieve sustained positive cash flow
from mining operations. The Company's ability to continue as a going concern is
dependent upon its ability to raise additional capital to fund its exploration
and development efforts. The current market for gold shares is weak and equity
capital is difficult to obtain. The Company anticipates that additional capital
will be required in 1999 in order to fund operations and exploration activities.
The Company is exploring various transactions which would enable it to have
sufficient capital to continue its operations. Various transactions being
considered include mergers with other companies, acquisitions, and the issuance
of new equity. Other sources for such capital may include, among other things,
the establishment of joint ventures and sale of property interests.
If the current depressed market for gold prices and gold shares continues into
1999, it may be necessary for the Company to modify its 1999 budget to achieve
further reductions in activity and general and administrative expenses. Capital
is allocated to those projects which in the opinion of management, offer the
greatest potential to generate additional reserves and mineralized material. A
significant portion of the exploration and development expenditures for the
Company and its subsidiaries represent discretionary spending and can be
adjusted to reflect, among other things, results of exploration and development
activities and the Company's capital resources. In 1999, the
9
<PAGE>
Company is required to make property rental payments and minimum exploration
expenditures totaling $0.6 million in order to maintain its current property
interests per existing mineral agreements. The Company is negotiating the
reduction or deferral of these payments where possible.
Whether and to what extent alternative financing options are completed by the
Company or its subsidiaries will depend on a number of factors including, among
others, the successful acquisition of additional properties or projects, the
price of gold and management's assessment of the capital markets. The low gold
price adversely affects our ability to obtain financing and therefore our
abilities to develop our current portfolio of properties. We cannot assure you
that additional funding will be available in 1999. This situation affects our
flexibility to invest funds in exploration and development. We may, in the
future, be unable to continue our exploration and development programs and
fulfill our obligations under our agreements with our partners or under or
permits and licenses. Although we have been successful in the past in obtaining
financing though partnership arrangements and sale of equity securities, we
cannot assure you that we will be able to obtain adequate financing on
acceptable terms. If we are unable to obtain such additional financing, we may
need to delay or indefinitely postpone further exploration and development of
our properties. As a result we may lose our interest in some of our properties
and may be obliged to sell some of our properties.
As at December 31, 1998, the Company held consolidated cash and short-term
investments of $7.4 million. Management anticipates consolidated total
expenditures of $7.9 million for 1999, with consolidated net expenditures after
recoveries from joint venture partners and other working capital changes of
approximately $7.2 million. The Company has committed, subject to the
availability of adequate funding, to continue funding on a reasonable best
efforts basis the operations of Guyanor, in the amount of $3.4 million which
amount is included in the net spending of $7.2 million. Without a financing or
other capital raising transaction such as a sale of assets, and based on the
current budget, management expects the Company will have a consolidated cash of
position of $0.3 million as of December 31, 1999 absent any additional
financings or transactions in 1999. This would materially and adversely affect
our operations and our ability to continue as a going concern.
The Company's planned spending during 1999 is anticipated to be directed
primarily toward pre-feasibility work at the Yaou and Dorlin projects,
exploration work at Paul Isnard and St-Elie in French Guiana, and Abacaxis in
Brazil, continued engineering work at Gross Rosebel in Suriname. No field work
is planned for Gross Rosebel; however expenditures have been budgeted for
additional work on the feasibility study related to engineering and
metallurgical work for to the investigation of heap leaching alternatives and
ongoing holding costs of the project.
The Company does not expect to receive cash flow from OGML in 1999 through
redemptions of Class I preferred shares as any redemptions will be utilized to
reduce the debt owed to OGML. The amount of redemptions, if any, is dependent
on the net cash flow of OGML. The Company received $1.7 million from
redemptions of Class I preferred shares in 1998.
4. Summary of Significant Accounting Policies
- -------------------------------------------------
These consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"). The following
policies have been adopted by the Company.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its more than 50% owned subsidiaries. All material intercompany balances and
transactions have been eliminated. Certain reclassifications have been made to
the 1997 and 1996 notes to the consolidated financial statements to conform to
the 1998 presentation. The consolidated group includes the following as of
December 31, (all entities are 100% owned by the Company, unless otherwise
noted):
10
<PAGE>
<TABLE>
<CAPTION>
1998: 1997:
- ----- -----
<S> <C>
Golden Star Holdings Ltd. Golden Star Holdings Ltd.
Venezuela Investments Ltd. Venezuela Investments Ltd.
Golden Star Management Ltd. Golden Star Management Ltd.
Pan African Resources Corporation Pan African Resources Corporation
(63.9%)
Southern Star Resources Ltd. Southern Star Resources Ltd.
Guyanor Ressources S.A. (71%) Guyanor Ressources S.A. (69.3%)
Societe de Travaux Publics Societe de Travaux Publics
et de Mines Auriferes en et de Mines Auriferes en
Guyane ("SOTRAPMAG") (99%) Guyane ("SOTRAPMAG") (99%)
Societe des Mines de St-Elie ("SMSE") (100%) Societe des Mines de St-Elie ("SMSE") (50%)
Caystar Holdings Ltd. Caystar Holdings Ltd.
</TABLE>
Cash and Short-term Investments
Cash and short-term investments consist primarily of high credit quality United
States and Canadian money market investments and fixed and variable income
commercial paper, which are capable of reasonably prompt liquidation, and are
stated at amortized cost, which approximates market value.
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash investments. The Company
restricts investment of temporary cash balances to financial institutions with
high credit standing. The Company strives to minimize its credit risk through
diversification of investment and financial institutions.
Inventories
Gold inventory includes gold and gold concentrate and is recorded at its
estimated market value. Materials and supplies are valued at the lower of
average cost or replacement cost.
Restricted Cash
In certain countries where the Company conducts business, the governments
require performance bonds to be placed for certain amounts of the agreed-upon
exploration expenditures. The cash collateralizing these bonds is shown as a
non-current asset as the funds are not available for use in operations until the
bond amounts are reduced or released by the governments.
Deferred Exploration
Acquisition, administration, exploration and development costs of mineral
properties are capitalized and will be depleted on a unit of production basis at
such time as production commences or charged against income if the property is
abandoned. Administration costs incurred after commencement of production will
be charged against operations in the period incurred.
Fixed Assets
Fixed assets are stated at cost and include buildings, machinery, equipment and
vehicles. Depreciation is computed using the straight-line method at rates
calculated to depreciate the cost of the assets less their anticipated residual
values, if any, over their estimated useful lives. The net book value of fixed
assets at property locations is charged
11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
against income if the site is abandoned and it is determined that the assets
cannot be economically transferred to another project or sold.
Foreign Currencies and Foreign Currency Translation
Certain South American and African currencies are not readily negotiable outside
their respective countries. United States of America funds transferred to these
countries are used to purchase local currency to be used for labor, local
supplies, and other items associated with the exploration and development of
mineral properties. Accordingly, cash balances in these countries have been
reclassified to deferred exploration.
As the functional currency of the Company is the U.S. Dollar, monetary assets
and liabilities are translated at the rate of exchange prevailing at the end of
the period. Non-monetary assets and liabilities are translated at the rates of
exchange prevailing when the assets were acquired or the liabilities assumed.
Revenue and expense items are translated at the average rate of exchange during
the year. Translation gains or losses are included in the determination of net
income for the period. Fully integrated foreign subsidiary accounts are
translated using the same method.
Canadian currency in these financial statements is denoted as "Cdn$", French
currency is denoted as "FF", and Brazilian currency is denoted as "R".
Net Loss per Share
Net loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding during the year. Common share equivalents
are not included as the effect would be anti-dilutive.
Investment in Omai Gold Mines Limited
The investment in Omai Gold Mines Limited ("OGML") is accounted for using the
equity method. Redemptions of preferred shares of OGML are allocated to the
Investment in Omai account and to Premium on Omai Preferred Share Redemption on
the basis of the Company's share of costs incurred as a percentage of the total
value of the preferred shares.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments are comprised of short-term investments,
accounts receivable, restricted cash, the investment in OGML, accounts payable,
accrued liabilities, accrued wages, payroll taxes and long-term debt. The fair
value of cash and short-term investments, accounts receivable, accounts payable,
accrued liabilities and accrued wages and payroll taxes equals their carrying
value due to the short-term nature of these items. The fair value of restricted
cash is equal to the carrying value as the cash is invested in short-term high
quality instruments. The fair value of the Company's investment in OGML cannot
be determined with sufficient reliability, and information concerning the terms
and conditions of this investment is contained in Note 10. The fair value of
the Company's long-term debt is equal to the value of the OGML Preferred I
Shares contained in Note 10.
12
<PAGE>
NOTES TO THE CONSELIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
5. Inventories
- ------------------
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Gold Inventory $ - $ 53
Materials and Supplies 181 303
----- -----
$ 181 $ 356
===== =====
</TABLE>
In December 1996, the Company initiated a program to discontinue alluvial mining
operations conducted by SOTRAPMAG. An evaluation of the materials and supplies
inventories held by SOTRAPMAG and used in the alluvial mining operations was
conducted. As a result, inventories totaling $0.3 million were deemed obsolete
and were charged to loss in 1996. (See Note 8.) In September 1997, the
remaining materials and supplies inventories of $0.08 million held by SOTRAPMAG
were charged to loss.
6. Sale of Common Shares and Warrants by Subsidiaries
- ---------------------------------------------------------
Issuances of Common Shares and Warrants by Guyanor Ressources S.A.
On October 30, 1996, Guyanor obtained the approval of a final prospectus
entitling Guyanor to list its Class B common shares for trading on the Nouveau
Marche of the Bourse de Paris in France, and for the sale of 1.0 million of its
Class B shares (the "Offering"). Trading of Guyanor's Class B shares on the
Nouveau Marche began on October 30, 1996. The offering of Guyanor shares in
Europe was completed on November 5, 1996, and as a result, Guyanor received net
proceeds of approximately FF45.5 million (approximately $8.9 million), and the
Company's interest in Guyanor was reduced to approximately 68%. Because the
price per Class B share issued exceeded the net book value per common share
(including both Class A and Class B shares), the Company recorded a gain of
approximately $5.4 million in connection with this transaction.
On October 9, 1997, the Company and Guyanor announced that the Company had
agreed to acquire an additional 1,000,000 Class B common shares of Guyanor at a
price of FF11.57 or Cdn$2.71. The total consideration of FF11,570,000 or
Cdn$2,710,000 for the shares will be satisfied by reducing the equivalent amount
of funds advanced to Guyanor by the Company. The Class B common shares were
issued on October 30, 1997, and the transaction resulted in an increase in the
Company's interest in Guyanor from 68.5% to 69.3%.
On June 16, 1998, the Company and Guyanor announced that the Company had agreed
to acquire an additional 2,380,000 Class B common shares of Guyanor at a price
of FF9.53 or Cdn $2.34. The total consideration of FF22,681,400 or
Cdn$5,579,624 for the shares will be satisfied by reducing the equivalent amount
of funds advanced to Guyanor by the Company. The Class B Shares were issued on
June 12, 1998, and the transaction resulted in an increase in the Company's
interest in Guyanor from 69.3% to 71%.
Issuances of Common Shares and Warrants by Pan African Resources Corporation
On February 5, 1996, Pan African Resources Corporation, a Yukon company ("PARC
Yukon"), and a subsidiary of the Company, completed a private placement of 13.2
million units at Cdn$1.00 per unit. Each unit consisted of one common share and
one-half of one common share purchase warrant of PARC Yukon. Each whole warrant
("Series A Warrant") entitled the holder to purchase one common share of PARC
Yukon at Cdn$1.25 until November 1, 1996. On February 6, 1996, PARC Yukon was
amalgamated under the Yukon Business Corporation Act with Humlin Red Lake Mines
Limited, an Ontario corporation ("Humlin"). The amalgamated company is referred
to as PARC. As a result of the amalgamation, each share issued under the PARC
Yukon private placement was deemed exchanged for 1.001 share of PARC and each
series A Warrant was deemed exchanged for one PARC Series A Warrant. As a
result of the private placement and the amalgamation, the Company's interest was
reduced to approximately 60% of the 45.3 million outstanding shares of PARC.
PARC, as a result of the amalgamation, became a publicly traded company in
Canada on February 8, 1996, with its common shares quoted on the Canadian
Dealing Network.
13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
The private placement generated net proceeds of approximately $9.0 million after
payment of commissions and expenses. Because the price per common share issued
exceeded the net book value per common share, a gain of approximately $2.0
million was recorded by the Company in the first quarter of 1996. During the
year ended December 31, 1996, PARC received $1.0 million in proceeds from
exercise of 1,063,500 of the Series A warrants. On October 31, 1996, PARC
extended the exercise date of its $1.25 Series A Warrants issued from November
1, 1996, to January 31, 1997. On January 31, 1997, the remaining 5,536,500
unexercised warrants expired.
Prior to the amalgamation with Humlin, indebtedness totaling $12.3 million owed
by Pan African Resources Corporation, a Barbados company ("PARC Barbados"), and
a wholly-owned subsidiary of PARC Yukon, to the Company as of December 11, 1995,
was converted by the Company, under the terms of two convertible debentures
between PARC Barbados and the Company, into 24.9 million common shares of PARC
Barbados. Upon completion of these loan conversions, 24.9 million PARC Barbados
shares held by the Company were surrendered for cancellation in exchange for the
issuance to the Company of 7.975 million warrants of PARC Barbados, each warrant
entitling the Company to purchase one share of PARC Barbados at Cdn$1.50 until
July 15, 1997. After the PARC amalgamation, the PARC Barbados warrants were
surrendered to PARC Barbados in exchange for the issuance by PARC to the Company
of 7.975 million PARC Series B warrants. Each PARC Series B warrant entitles
the Company to purchase one PARC common share at Cdn$1.50 until July 15, 1997.
In addition, the Company forgave indebtedness owed to it by PARC Barbados of
$0.3 million, incurred for funding of PARC Barbados' exploration activities from
December 1995 through completion of the private placement.
In May 1997, PARC entered into a demand revolving line of credit with Golden
Star, whereby Golden Star 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 PARC Common Shares at a conversion
price of Cdn$0.38 per share. As a result, Golden Star's interest in PARC
increased to 63.9%.
7. Purchase of PARC Minority Interest
- -----------------------------------------
On April 21, 1998, the Company completed a Plan of Arrangement that resulted in
the purchase of all of the outstanding shares held by minority shareholders of
PARC. As a result, the Company issued 388,574 of its common shares with a
market value of $0.9 million to the minority shareholders of PARC. As a result
of this transaction, the Company allocated the amount of purchase price in
excess of the value of the assets acquired of approximately $1.8 million to the
Comoe and Ndori properties.
The following is the pro-forma income and loss for the Company for the twelve
months ended December 31, 1998 and 1997, showing the results of operations had
the transaction been completed on January 1, 1997:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
<S> <C> <C>
Revenue $ 635 $ 1,698
Net Loss $ (21,039) $ (29,877)
Net Loss per Share $ (0.73) $ (1.04)
</TABLE>
8. Suspension of Alluvial Mining Operations at SOTRAPMAG
- ------------------------------------------------------------
The alluvial operations conducted through SOTRAPMAG experienced continuing
operating losses since their acquisition in 1994 with operating losses of $1.8
million in 1995 and $2.4 million in 1996. As a result of the conclusions from a
report by outside consultants in 1996, management decided to discontinue the
alluvial operations conducted by SOTRAPMAG. Closure procedures, including land
rehabilitation and Company-provided outplacement services were substantially
completed by the end of 1997.
The Company, through its ownership interest in Guyanor, incurred charges to 1996
earnings totaling $3.2 million, including $0.8 million resulting from the write-
down of certain fixed assets and inventories, $1.1 million for the
14
<PAGE>
THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ----------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
write-down of certain capitalized exploration costs related to the alluvial
mining operations, $0.1 million for accrual of land rehabilitation and mine
closure costs, and $1.1 million for accrual of the severance and other social
costs associated with the discontinuation of alluvial production. All accruals
for future obligations are included in current liabilities. In 1997, the Company
incurred, through its ownership interest in Guyanor, additional losses on
impairment of assets of $1.5 million offset by gains on sales of assets of $0.3
million.
15
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
<TABLE>
<CAPTION>
9. Deferred Exploration
- ---------------------------
December 31, 1998 December 31, 1997
------------------------ -----------------------
GUYANA
<S> <C> <C>
Eagle Mountain $ 1,364 $ 1,136
Quartz Hill 1,347 1,347
Five Star Diamond - 2,360
Five Stars Gold (Makapa) 819 3,684
BHP Gold Projects - 333
Guyana Diamond Permits - 109
Other 57 97
------- -------
3,587 9,066
------- -------
SURINAME
Benzdorp / Lawa 3,352 3,344
Gross Rosebel 14,543 13,892
Headley's Right of Exploration 313 311
Thunder Mountain 456 453
Saramacca 1,973 1,862
Sara Kreek 588 581
Tempati Reconnaissance 347 344
Tapanahony Reconnaissance 234 251
Kleine Saramacca 107 107
Lawa / Antino 2,109 2,096
Ulemari Reconnaissance 237 291
Other 283 (17)
------- -------
24,542 23,515
------- -------
FRENCH GUIANA (Guyanor Ressources S.A.)
Dorlin 2,363 1,330
St-Elie 2,377 1,973
Dieu-Merci - 382
Yaou 7,486 7,130
Paul-Isnard / Eau Blanche 4,650 3,629
Paul Isnard Alluvials 1,987 1,987
Dachine 1,481 1,234
Other - 81
------- -------
20,344 17,746
------- -------
AFRICA (Pan African Resources Corporation)
Ivory Coast / Comoe 4,304 2,092
Kenya / Ndori 2,565 1,677
Other - 8
------- -------
6,869 3,777
------- -------
LATIN AMERICAN (Southern Star Resources Ltd.)
Brazil / Andorinhas - 8,490
Brazil / Abacaxis 2,498 2,096
Brazil / Other 275 189
Bolivia / Other - 173
------- -------
2,773 10,948
------- -------
OTHER 88 108
------- -------
TOTAL DEFERRED EXPLORATION COSTS $58,203 $65,160
======= =======
</TABLE>
16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
Deferred Exploration by Country / Geographic Region
<TABLE>
<CAPTION>
French Latin
Total Guyana Suriname Guiana Africa America Other
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995 $ 51,447 $ 9,972 $11,456 $ 16,107 $13,107 $ 792 $ 13
Deferred Exploration
Expenditures 33,481 3,482 11,232 8,878 5,121 4,768 -
Additions & Acquisitions 4,279 812 770 403 768 1,526 -
Write-offs & Property
Abandonments (10,365) (9) - (1,126) (9,230) - -
Joint Venture Recoveries (13,468) (130) (6,405) (6,933) - - -
Proceeds From Sale of
Property Interest (640) - - - (640) - -
Reclass to Other Properties (13) - - - - - (13)
--------------------------------------------------------------------------------
December 31, 1996 64,721 14,127 17,053 $ 17,329 9,126 7,086 -
Deferred Exploration
Expenditures 35,688 3,748 11,483 11,549 3,064 5,749 95
Additions & Acquisitions 2,076 (112) 323 386 46 1,435 (2)
Write-offs & Property
Abandonments (22,437) (8,578) (668) (1,425) (8,459) (3,322) 15
Joint Venture Recoveries (14,888) (119) (4,676) (10,093) - - -
--------------------------------------------------------------------------------
December 31, 1997 65,160 9,066 23,515 17,746 3,777 10,948 108
Deferred Exploration
Expenditures 11,632 968 2,011 4,705 3,100 868 (20)
Additions & Acquisitions 250 - - - - 250 -
Write-offs & Property
Abandonments (16,600) (6,382) - (917) (8) (9,293) -
Joint Venture Recoveries (2,239) (65) (984) (1,190) - - -
--------------------------------------------------------------------------------
December 31, 1998 $ 58,203 $ 3,587 $24,542 $ 20,344 $ 6,869 $ 2,773 $ 88
================================================================================
</TABLE>
The recoverability of amounts shown for deferred exploration is dependent upon
sale or the 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.
In 1999, the Company is required to make property rental payments and minimum
exploration expenditures totaling $0.6 million in order to maintain its current
property interests per existing mineral agreements. The Company is attempting
to negotiate the reduction or deferral of these payments where possible.
The Company reported a net loss of $22.2 million in 1998 as compared to a net
loss of $26.6 million in 1997. During 1998, the Company recorded property
abandonment charges of $16.6 million, including $2.7 million and $3.7 million,
respectively, from the relinquishment of certain diamond and gold properties in
Guyana, $0.9 million for the Dieu Merci property in French Guiana, $8.8 million
for the Andorinhas project and $0.3 million for other property areas in Brazil,
and $0.2 million related to various property interests in Bolivia. The
abandonment of these projects was the result of several factors including
exploration results and the assessment and prioritization of exploration
projects by Management to ensure continued focus on the most promising projects
in the Company's portfolio. Of the $16.6 million of property abandonments
described above, $16.4 million were recorded in the
17
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
fourth quarter of 1998. The abandonments taken in the fourth quarter resulted
from the company's review of annual exploration results, prioritization of
projects, and results of negotiations with property owners.
On July 30, 1998, the Company announced that a preliminary agreement was reached
on the material terms for the exploration and development of the Company's Eagle
Mountain property. Under the terms of the agreement, Omai Gold Mines Limited
("OGML") in which Cambior Inc., the Company and the Government of Guyana hold
65%, 30% and 5% equity interests, respectively, could acquire a 100% interest in
Eagle Mountain by (i) paying the Company $80,000; and (ii) advancing the Company
$3.17 million, as a non-interest bearing loan to be repaid through the normal
redemption of Class I Preference shares owed to the Company. After closing,
OGML will fund 100% of exploration and feasibility costs associated with future
programs at Eagle Mountain through completion of a final feasibility study.
Additionally, if exploration is successful in defining a reserve resulting in a
positive feasibility study and mine development, OGML will pay a 1.5% net
smelter royalty to the Company upon achievement of commercial production. OGML
will also pay to the Company an amount equal to $1.0 million at the end of each
year of commercial production for a period of five years. The closing of the
acquisition was subject to the fulfillment of certain conditions, including the
approval by the Government of Guyana of the transfer of the Eagle Mountain title
to OGML. All conditions were fulfilled and the agreement was executed, effective
December 23, 1998.
On July 24, 1998, the Company announced that an agreement with North Exploration
(Overseas) Pty Limited ("North") for the exploration and development of the
Company's Tanda property, located in central eastern Cote d'Ivoire. Under the
terms of the agreement, North may earn a 60% participating interest in the Tanda
property by spending a minimum of $400,000 on exploration during the first 12
months of the joint venture and a minimum of $3.0 million over a total of 36
months. North also has the option of earning an additional 10% interest, for a
total of 70%, by fully funding feasibility work and providing or arranging, on a
best efforts basis, project financing for any eventual development. North is
acting as manager and operator of the joint venture.
On May 27, 1998, Golden Star and Guyanor announced the resolution of the budget
deadlock with ASARCO Incorporated ("Asarco") regarding the spending levels and
work programs at the Paul Isnard/Eau Blanche and St-Elie/Dieu-Merci gold
projects. Under the termination and settlement agreement reached between Guyanor
and Asarco and subject to certain conditions, Asarco was required to pay Guyanor
amounts totaling approximately $1.0 million. Upon settlement, Asarco
relinquished all rights and obligations under the joint venture agreements.
Accordingly, Guyanor now holds a 100% interest in the St-Elie project, and ,
approximately 89% of the Paul Isnard/Eau Blanche project, with LaSource holding
the remaining 11% interest in Paul Isnard/Eau Blanche. During July 1998,
Guyanor obtained the consent of LaSource and all amounts owing Guyanor by Asarco
were fully paid.
In December 1996, PARC was granted an option by San Martin Mining and Investment
Company Limited ("San Martin") relating to the Ndori property in Kenya. Under
the terms of PARC's option to acquire 75% of the Ndori property, PARC has made
payments to San Martin totaling $0.6 million and must make minimum annual
expenditures of $0.6 million for each of two years. PARC was required to
relinquish 50% of the original property area in 1998 and must relinquish a
further 25% of the original area in 1999.
In January 1997, PARC announced the sale of its 80% interest in Lafayette Mining
Gabon Ltd. ("LMGL"), the indirect holder of the Eteke Exploration Permit, to
Lafayette Holdings Corp., the 20% minority interest owner of LMGL. Lafayette
Holdings Corp. exercised its right of first refusal under the LMGL shareholder
agreement and purchased PARC's 80% interest in LMGL for $640,000. As a result,
the Company wrote off deferred exploration expenses related to the Eteke
Exploration Permit totaling $5.3 million in the fourth quarter of 1996. The
Company's share of this charge, after minority interest, was $3.1 million.
The Company also incurred a charge to earnings in the fourth quarter of 1996 of
$4.0 million for write-down of capitalized costs for the Dul Mountain Project in
Ethiopia. The majority of the property area did not meet the Company's
standards and the Company has relinquished the Concession area, with minimal
work on the area performed in 1997. The Company's share of this write-down was
$2.3 million after minority interest.
18
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
In the fourth quarter of 1996, the Company decided to discontinue alluvial
mining operations at SOTRAPMAG and, as a result, wrote-off certain capitalized
exploration costs related to the alluvial operations in 1996 totaling $1.1
million. (See Note 8.)
10. Investment in Omai Gold Mines Limited
- ---------------------------------------------
During 1991, the Company acquired a 35% common share equity interest for a
nominal amount in OGML, a Guyanese company established to build and operate the
Omai Mine in Guyana. This common share equity interest was reduced to 30% on
April 1, 1993 pursuant to the exercise of an option granted to Cambior.
In addition, the Company received approximately $11.0 million of Class I
redeemable preferred shares of OGML in recognition of cumulative exploration
costs amounting to $5.0 million incurred to date by the Company on the Omai
project with the remainder incurred by a former joint venture partner. In
accordance with the Omai Mineral Agreement, these preferred shares are required
to be redeemed quarterly with a minimum redemption amount equal to 10% of the
operating cash flow, as defined, of OGML. The Company received preferred share
redemptions of $1.1 million, $2.5 million and $1.7 million in 1996, 1997 and
1998 respectively. These amounts are allocated to the Investment in OGML account
and to Premium on Omai Preferred Share Redemption on the basis of the Company's
share of costs incurred as a percentage of the total value of the Class I
preferred shares.
On December 23, 1998, OGML advanced to the Company $3.17 million, as an
unsecured non-interest bearing loan to be repaid on a dollar-for-dollar basis as
and when Class I preferred shares of OGML held by GSR are redeemed by OGML from
time to time. The loan is non-interest bearing until September 30, 2010. After
this date the loan bears interest at the US Dollar prime rate per annum,
compounded quarterly until repayment in full with interest on overdue interest
at the same rate. Of the $1.7 million of Class I preferred shares redeemed in
1998 approximately $0.2 million was used to reduce the outstanding loan balance.
As of December 31, 1998, the Company owed OGML approximately $2.9 million under
this loan. The full balance was classified as long-term debt as of December 31,
1998.
Under the equity method of accounting, equity investors are required to record
their share of the net loss of the investee to the extent that these losses do
not exceed the investment in common share equity of the investee. Accordingly,
the Company has not recorded its share of OGML's loss for the years ended
December 31, 1996, 1997, and 1998. The Company will commence recognition of
equity income when its share of accumulated income exceeds the amount of
unrecognized equity losses.
19
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
Details regarding the Company's investment in the common and preferred share
equity and its share of equity losses not recorded are as follows:
Common Preferred
Shares Shares
-------- ---------
December 31, 1995 $ - $ 3,798
Less:
Preferred Share Redemptions - (1,145)
Add:
Premium on Preferred Share Redemptions - 626
-------- ---------
December 31, 1996 $ - $ 3,279
Less:
Preferred Share Redemptions - (2,541)
Add:
Premium on Preferred Share Redemptions - 1,388
-------- ---------
December 31, 1997 $ - $ 2,126
Less:
Preferred Share Redemptions - (1,738)
Add:
Premium on Preferred Share Redemptions - 950
-------- ---------
December 31, 1998 $ - $ 1,338
======== =========
The Company's Share of
Accumulated Losses at:
December 31, 1996 $ (2,713)
========
December 31, 1997 $ (1,507)
========
December 31, 1998 $ (628)
========
Summarized Financial Information of OGML:
As of December 31,
1998 1997
======== ========
Current assets $ 24,550 $ 25,175
Non-current assets 189,818 200,367
Current liabilities 12,815 11,671
Non-current liabilities 149,013 162,629
Redeemable preferred shares:
Class I 3,107 5,305
Class II - -
Class III 50,243 50,243
The Class III Redeemable Preferred Shares carry a 15% cumulative dividend. As
of December 31, 1998 and 1997, approximately $57.4 million and $42.6 million of
dividends were accrued and unpaid on these shares.
20
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Revenues $135,345 $145,087 $107,199
Expenses 131,849 139,309 104,463
-------- -------- --------
Net income $ 3,496 $ 5,778 $ 2,736
======== ======== ========
At December 31, 1998 and 1997, the difference between the Company's carrying
value of its investment in OGML and its equity share of net assets was as
follows:
As of December 31,
1998 1997
---- ----
30% of OGML net assets $15,761 $15,373
Carrying value of investments 1,337 2,126
------- -------
Difference $14,424 $13,247
======= =======
This difference between the Company's equity share of OGML net assets and its
carrying value has not been recorded.
On August 19, 1995, a failure occurred in the main section of the tailings dam
at the Omai Mine. The failure resulted in the discharge of cyanide-contaminated
water into the Omai River, which in turn flowed into the Essequibo River. The
discharge began on August 19, 1995, and continued until the leakage was fully
controlled by Omai personnel on August 24, 1995. To minimize environmental
damage, a portion of the discharged water was diverted into the Fennell Pit, the
main source of gold at the Omai Mine. Production at the Omai Mine was suspended
from August 19, 1995, until February 4, 1996, when operations resumed.
As a consequence of the Omai tailings dam failure, OGML has been named as a
defendant in a variety of civil proceedings in Guyana. Such proceedings are
currently being settled, without admission of liability, or being contested in
good faith, as applicable. Amounts claimed under currently instituted
proceedings against OGML do not exceed $0.4 million in the aggregate and
insurance coverage may be available to OGML in relation to a substantial portion
of these claims.
OGML and its shareholders, including the Company, may become involved as
defendants, plaintiffs or otherwise in a variety of additional legal proceedings
in Guyana or elsewhere in relation to this incident. There can be no assurance
that such additional litigation will not result in material additional costs
arising from out-of-court settlements, damage awards or other sanctions against
OGML or the Company. Moreover, there can be no assurance that all or any of
such additional costs will be covered by appropriate insurance.
11. Fixed Assets
- --------------------
As of December 31,
1998 1997
---- ----
Machinery & equipment $ 2,851 $ 3,239
Accumulated depreciation (2,166) (1,959)
------- -------
$ 685 $ 1,280
======= =======
In December 1996, the Company initiated a program to discontinue alluvial mining
operations conducted by SOTRAPMAG. An evaluation of the fixed assets held by
SOTRAPMAG and used in the alluvial mining operations was conducted. As a
result, fixed assets totaling $0.4 million were deemed obsolete and were charged
to loss for 1996. (See Note 8) During 1997, the Company sold certain
machinery and equipment from the mine site and recognized gains of $0.3 million.
In September 1997, the decision was made that the remaining assets were not
saleable and would be written off and charged to loss.
21
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
12. Share Capital
- ---------------------
a) Issuance of Share Capital
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.
No shares were issued under either Registration Statement or the Canadian
prospectuses as of December 31, 1998.
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. These shares
were issued under the Company's shelf prospectus in the United States and Canada
dated September 25, 1996 and October 15, 1996, respectively.
On April 21, 1998, the Company completed a Plan of Arrangement that resulted in
the purchase of all of the outstanding shares held by minority shareholders of
Pan African Resources Corporation ("PARC"). As a result, the Company issued
388,574 of its common shares with a market value of $0.9 million to the minority
shareholders of PARC.
b) Stock Option Plan
Stock Options
As a result of changes in U.S. securities laws, the Company adopted a new stock
option plan, the 1997 Stock Option Plan (the "1997 Plan"). Under this plan, the
Employees' and Directors' Plans were combined into one plan. The Company
obtained shareholder approval for this plan on June 10, 1997. The Employees'
and Directors' Plans were terminated as of June 10, 1997, and the outstanding
options were assumed under the 1997 Plan. Options granted under the 1997 Plan
are non-assignable and are exercisable for a period of ten years or such other
date as stipulated in a stock option agreement between the Company and an
optionee. The maximum number of shares issuable under the plan is 5,600,000.
The number of common shares vested and exercisable under the plan at December
31, 1998, was 3,317,770. The number of common shares vested and exercisable
under the plan as of December 31, 1997, was 3,352,681.
Stock Option Loans
As of December 31, 1998, and 1997, employees had exercised their rights under
employee stock option loan agreements and purchased 1,029,012 and 1,029,012
common shares, respectively, against which there were outstanding loans of
Cdn$5.3 million and Cdn$5.3 million, respectively. Of the 1998 and 1997
outstanding loan balances, approximately Cdn$5.3 million and Cdn$5.3 million,
respectively, relate to loans to two employees, one a former officer and
currently a director, and the other a former officer of the Company. These
loans are non-interest bearing and must be repaid within five years from the
date of exercise unless the loan term is extended by vote of the Board of
Directors. The shares are held by a trustee and, in the event of non-payment,
the sole recourse for repayment and recovery of the loans shall be as against
pledged shares. In the event that the loans are not repaid and the shares are
sold at a loss, only the net proceeds will be credited to share capital. The
average exercise price
22
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
of the underlying shares regarding outstanding loans as at December 31, 1998,
and 1997 was Cdn$5.26 for both periods. The loans outstanding at December 31,
1998, are due as follows:
1999 $4,012
2000 -
2001 -
2002 -
------
$4,012
======
As a result of the resignation of David Fennell as President and Chief Executive
Officer from the Company on October 27, 1998, outstanding stock option loans in
the amount of Cdn$4.4 million were due and payable 30 days after his departure
from the Company. The Company has been informed that there will be no repayment
of these loans. Due to the non-recourse nature of these loans the Company is in
the process of canceling the Cdn$4.4 million of share loans and the
corresponding 667,792 outstanding common shares. This cancellation process is
expected to be completed in the second quarter of 1999.
Schedule of Stock Option Activity
Shares Under Option Price (Cdn$)
------------------- ------------
Shares Under Option at
December 31, 1995 2,991,550 $2.76 to $17.00
Activity:
Granted 992,250 $9.50 to $14.40
Exercised (1,059,469) $2.76 to $16.20
Canceled (40,100) $7.63 to $16.20
----------
Shares Under Option at
December 31, 1996 2,884,231 $2.76 to $24.40
Activity:
Granted 1,221,450 $3.40 to $18.50
Exercised (97,833) $2.76 to $9.25
Canceled (50,500) $7.63 to $16.20
----------
Shares Under Option at
December 31, 1997 3,957,348 $3.40 to $24.40
Activity:
Granted 209,500 $1.55 to $6.65
Exercised (73,460) $3.40
Canceled (596,658) $3.40 to $23.00
----------
Shares Under Option at
December 31, 1998 3,496,730 $1.55 to $24.40
========== ===============
c) Stock Bonus Plan
In December 1992, the Company established an Employees' Stock Bonus Plan (the
"Bonus Plan") for any full-time or part-time employee (whether or not a
Director) of the Company or any of its subsidiaries who has rendered meritorious
services which contributed to the success of the Company or any of its
subsidiaries. The Bonus Plan provides that a specifically designated committee
of the Board of Directors of the Company may grant bonus common shares on terms
that it may determine, within the limitations of the Bonus Plan and subject to
the rules of applicable regulatory authorities. The maximum number of common
shares issuable under the Bonus Plan is 320,000.
On January 1, 1996, a total of 30,712 common shares were declared for certain
employees under the Bonus Plan as compensation for 1995. A total of 60,296
common shares were issued in December 1997 pursuant to the December 9, 1997
bonuses. During 1998, a total of 32,783 common shares were issued to certain
employees
23
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
pursuant to the Bonus Plan. The Company recognized compensation expenses related
to bonuses under the Bonus Plan during both 1998 and 1997 of $0.1 million. In
connection with the bonus common shares allocated in 1998 and 1997, with one
exception paid by the Company as authorized by the Compensation committee, each
of the employees is responsible to pay any applicable income taxes which may be
assessed as a result of the issuance of such bonus common shares.
d) Warrants
On February 2, 1994, the Company closed a private placement of 2.5 million
Special Warrants at a price of Cdn$21.00 per Special Warrant for gross proceeds
of Cdn$52.5 million. Each Special Warrant entitled the holder thereof to receive
one common share and one half of one common share purchase warrant at no
additional cost. One whole common share purchase warrant was exercisable at a
price of Cdn$25.00 up to July 31, 1995. As a result of the Plan of Arrangement
between the Company and its shareholders effected on March 14, 1995, warrant
holders were entitled to receive, upon the exercise of two warrants and a
payment of Cdn$25.00, one common share of the Company and one-fifth of one Class
B common share of Guyanor. On July 24, 1995 the Company announced that it had
obtained all necessary approvals for a one-year extension of the expiration date
of the Company's common share purchase warrants to July 31, 1996. During 1996,
129,250 of the Company's common share purchase warrants were exercised for
proceeds of $2.4 million. On July 31, 1996, the remaining 1,120,750 of these
warrants expired unexercised.
On March 6, 1996, the Company completed a public offering in Canada of 1.75
million units at a price of Cdn$10.50 per unit for total proceeds of $12.9
million (Cdn$18.375 million). Each unit consisted of one common share and one-
half of a common share purchase warrant. Each whole warrant was exercisable into
one common share of the company for a period of 12 months at a price of
Cdn$11.00. During 1996, 201,800 of the Company's Cdn$11.00 warrants were
exercised for proceeds of $1.6 million. All of the remaining Cdn$11.00 warrants
were exercised in 1997 for proceeds of $5.4 million.
(e) Shareholder Rights Plan
In April 1996, the Company's Board of Directors adopted a Shareholder Rights
Plan (the "Rights Plan"). The Rights Plan is designed to expire in June 1999.
Under the Rights Plan, the Company issued one right (a "Right") for each common
share of the Company outstanding on April 24, 1996. The Company will also issue
one Right for each common share issued in the future. The Rights were issued
pursuant to the Rights Agreement dated April 24, 1996, between the Company and
The R-M Trust Company (now CIBC Mellon Trust Company) as rights agent. Each
Right will entitle the holder to purchase from the Company one common share at
$200, subject to adjustments and the provisions of the Rights Plan. The Board
may, at any time, redeem the rights until their expiration and may amend the
rights under certain limited circumstances until they become exercisable.
f) Other
Under the terms of an agreement dated September 10, 1987, South American
acquired all of the outstanding interest in the GuyGold Syndicate ("Syndicate")
for consideration of Cdn$1,750,000. The assets of the Syndicate consisted of
interest in mineral properties, each of which consisted of a 20 square mile
block, pursuant to an agreement negotiated with the Government of Guyana. As at
December 31, 1996, all of the mineral properties were abandoned except for the
Quartz Hill property. A further 76,923 common shares will be issued if and when
Quartz Hill is brought into production. All members of the Syndicate were
directors or former directors of the Company and three were former officers.
The Company's potential obligations under this agreement may be affected by the
terms of the new agreement with OGML. (See Note 17)
13. Income Taxes
- --------------------
Losses carried forward for income tax purposes in Canada, approximating Cdn$35.0
million are available for the reduction of future years' taxable incomes. These
losses expire as follows (in thousands):
24
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
CDN$
-------
1999 $ 2,266
2000 1,664
2001 1,702
2002 5,524
2003 6,525
2004 7,531
2005 9,752
-------
Total $34,964
=======
No recognition has been given in these financial statements to any potential tax
savings that may arise from the application of these losses. The Company's
effective tax rate is nil.
14. Operations by Geographic Area
- -------------------------------------
Information on the Company's continuing operations by geographic area for the
years ended December 31, 1998, 1997 and 1996 is shown below. During the periods
presented, the Company had one customer who accounted for 100% of sales.
However, because the Company is principally selling a commodity, concentration
of credit risk is not considered significant.
Operating Net Identifiable
Revenues (Loss) Assets
--------- ------ ------------
1998
South America $ 8 $(18,448) $52,711
Africa - (6) 6,865
Corporate 627 (3,794) 9,021
--------- ------ ------------
Total $ 635 $(22,248) $68,597
==============================================================================
1997
South America $ 539 $(16,833) $64,702
Africa 71 (6,237) 3,936
Corporate 1,088 (3,514) 20,484
--------- ------ ------------
Total $ 1,698 $(26,584) $89,122
==============================================================================
1996
South America $ 1,811 $ (5,760) $65,283
Africa 224 (5,706) 12,893
Corporate 766 3,686 18,107
--------- ------ ------------
Total $ 2,801 $ (7,780) $96,283
==============================================================================
15. Generally Accepted Accounting Principles in Canada and the United States
- -------------------------------------------------------------------------------
The financial statements have been prepared in accordance with accounting
principles generally accepted 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 accounting principles generally
accepted 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 charged to expense as
incurred. As such, the majority of costs charged to Exploration Expense
and Abandonment 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.
25
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
(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 moving of corporate headquarters to the United States, the
reporting currency was changed to the U.S. Dollar. As such, for the
financial statements for the period 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 OGML 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, since the Company has adopted the
disclosure provisions of APB 25 "Accounting for Stock Issued to Employees".
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. 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.
(f) The gains on subsidiaries issuance of common shares recorded under Canadian
GAAP in respect of the Guyanor public offering and the PARC private
placement as discussed in Note 6 are not appropriate under U.S. GAAP.
(g) The Company eliminated its accumulated deficit through the amalgamation
(defined as a 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.
(h) 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.
The Company has no available-for-sale securities as of December 31, 1998.
(i) 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 the requirements for accrual under U.S. GAAP were
not satisfied as of December 31, 1996. These charges were recorded in 1997
as all requirements had been met.
(j) Under U.S. GAAP, items such as foreign exchange gain and losses are
required to be shown separately in derivation of Comprehensive Income.
26
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
Had the Company followed GAAP in the United States, certain items on the
statements of operations and balance sheets would have been reported as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
----------------------- -------------------- --------------------
<S> <C> <C> <C>
Net loss under Canadian GAAP $(22,248) $(26,584) $ (7,780)
Net effect of the deferred exploration expenditures
on loss for the period (a) 4,901 1,189 (10,231)
Effect of recording compensation expense under
stock option plans (d) - (83) (85)
Foreign exchange loss 26 92 (2)
Reversal of the gain on subsidiary's issuance of
common stock (f) - - (7,719)
Reversal of the loss for severance accruals (i) - (1,115) 1,115
Effect of Omai Preferred Share Redemption (c) 788 1,152 520
-------- -------- --------
Loss under U.S. GAAP before minority interest (16,533) (25,349) (24,182)
Minority interest as adjusted 1,138 (1,489) (1,097)
-------- -------- --------
Net Loss under U.S. GAAP $(15,395) $(26,838) $(25,279)
Other comprehensive income foreign exchange loss (j) (26) (92) 2
-------- -------- --------
Comprehensive income (j) (15,421) (26,930) (25,277)
======== ======== ========
Basic and diluted net loss per share under U.S. GAAP $(0.51) $(0.94) $(1.00)
======== ======== ========
</TABLE>
(For items (a) to (j), see page 79.)
Under U.S. GAAP the Omai preferred share redemption would be included with costs
and expenses before the caption "Loss Before the Undernoted" on the consolidated
statements of loss and deficit. Weighted average common shares outstanding are
substantially the same under U.S. GAAP as under Canadian GAAP for the periods
presented.
27
<PAGE>
NOTES TO THE CONSOLIDATED FINANICIAL STATEMENTS - (Continued)
- -------------------------------------------------------------
(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>
December 31, 1998 December 31, 1997
-------------------------- --------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Cash (e) $ 7,350 $ 3,145 $ 12,458 $ 12,458
Short term investments (e) - 1,590 4,941 1,999
Marketable securities (h) - - - -
Other current assets 866 866 2,753 2,753
Restricted cash - - 250 250
Deferred exploration (a) 58,203 18,183 65,160 20,239
Investment in OGML (c) 1,337 - 2,126 -
Long-term investments (e) - 2,615 - 2,942
Other assets 841 841 1,434 1,435
-------- --------- -------- ---------
Total Assets $ 68,597 $ 27,240 $ 89,122 $ 42,076
======== ========= ======== =========
Liabilities (i) $ 4,704 $ 4,704 $ 3,840 $ 3,840
Minority interest (a) 5,422 5,637 5,725 7,076
Share capital, net of stock
option loans (g) 155,151 152,360 153,989 151,200
Cumulative translation
adjustments (b) - 1,595 - 1,595
Accumulated comprehensive
income - (593) - (567)
Deficit (a) (c) (d) (f) (i) (96,680) (136,463) (74,432) (121,068)
-------- --------- -------- ---------
Total Liabilities and
Shareholders' Equity $ 68,597 $ 27,240 $ 89,122 $ 42,076
======== ========= ======== =========
</TABLE>
(For items (a) to (i), see page 79.)
Under U.S. GAAP, receivables would be separately disclosed as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------------
<S> <C> <C>
Receivables from employees $ 55 $ 396
Receivables from joint venture partners 96 805
Interest receivable 72 85
Other 288 952
Allowance for doubtful accounts - -
----- ------
Total Receivables $ 511 $2,238
===== ======
</TABLE>
Of the December 31, 1998 and 1997 accounts receivable balance, $0.05 million and
$0.1 million respectively, relates to loans to two officers of the Company.
28
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
Statement of Changes in Shareholders' Equity Under U.S. GAAP
<TABLE>
<CAPTION>
(i)
Common (b) Accumulated
Stock Stock Cumulative Unrealized Accumulated
Number of Share Option Translation Gains on Comprehensive
Shares Capital Loans Adjustment Investments Deficit Income
--------- ------- ------ ----------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 22,769,872 $ 95,666 $(1,170) $ 1,595 $ 127 $(65,668) $ (477)
Shares Issued 1,780,712 13,574 - - - - -
Shares Issued Under Options 1,059,469 6,744 - - - - -
Shares Issued Under Warrants 331,050 3,983 - - - - -
Issue Costs - (691) - - - - -
Stock Option Loans - - (2,902) - - - -
Stock Option Loan Repayments - - 60 - - - -
Reclass of Gain of Subsidiary Stock (f) - 7,719 - - - - -
Stock Based Compensation Expense (d) - 85 - - - - -
Accumulated Unrealized Gains on
Investments (i) - - - - (127) - -
Other - - - - - (3,282) -
Comprehensive Income (j) - - - - - - 2
Net Loss (a) (c) (d) (f) (I) - - - - - (25,279) -
---------- -------- ------- --------- ------------ --------- --------
Balance at December 31, 1996 25,941,103 127,080 (4,012) 1,595 - (94,229) (475)
Shares Issued 3,085,296 22,840 - - - - -
Shares Issued Under Options 97,833 235 - - - - -
Shares Issued Under Warrants 673,200 5,429 - - - - -
Issue Costs - (457) - - - - -
Stock Based Compensation Expense (d) - 83 - - - - -
Comprehensive Income (j) - - - - - - (92)
Net Loss (a) (c) (d) (f) (i) - - - - - (26,838) -
---------- -------- ------- --------- ------------ --------- --------
Balance at December 31, 1997 29,797,432 155,210 (4,012) 1,595 - (121,068) (567)
Shares Issued 421,357 987 - - - - -
Shares Issued under Options 73,460 175 - - - - -
Comprehensive Income (j) - - - - - - (26)
Net Loss (a)(c)(d)(f)( i ) - - - - - (15,395) -
---------- -------- ------- --------- ------------ --------- --------
Balance at December 31, 1998 30,292,249 $156,372 $(4,012) $(1,595) $ - $(136,463) $(593)
========== ======== ======= ========= ------------ ========= ========
</TABLE>
Statements of Cash Flows Under U.S. GAAP
<TABLE>
<CAPTION>
Net Cash Provided By (Used In): Operating Activities Investing Activities Financing Activities
---------------------------- ---------------------------- --------------------------
Canadian U.S. Canadian U.S. Canadian U.S.
For the Years Ended, GAAP GAAP GAAP GAAP GAAP GAAP
- -------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 $ (7,719) $(14,792) $ (7,548) $ 2,743 $ 5,218 $ 2,327
December 31, 1997 $ (8,602) $(27,045) $(19,595) $(2,670) $29,933 $30,009
December 31, 1996 $(10,650) $(30,024) $(23,442) $(3,963) $40,257 $40,331
</TABLE>
The statements of cash flows reflect the impact of the previously discussed
adjustments (a) (c) (d) (f) and the following non-cash items:
U.S. GAAP does not permit the presentation of non-cash items in investing
or financing activities in the consolidated statements of cash flows, and
consequently, deferred exploration costs and share capital and warrants
would be reduced by $0.5 million, $0.0 million and $0.9 million for the
years ended December 31, 1996, 1997 and 1998, respectively.
U.S. GAAP Tax Considerations
U.S. GAAP changes the Company's method of accounting for income taxes from
the deferred method, as recorded under Canadian GAAP, to an asset and
liability approach. Under the asset and liability method,
29
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMETNS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Use of the asset and liability method has no effect on the U.S.
GAAP financial statements as the Company has concluded that a full
valuation allowance must be applied to the deferred tax asset resulting
from the Company's net operating loss carryforwards. (See Note 13) For the
years ended December 31, 1998 and 1997, the Company has recorded no current
tax expense under Canadian or U.S. GAAP due to the cumulative net losses
incurred by the Company. Under U.S. GAAP, the Company would not record any
deferred tax expense based on the same rationale.
The Company operates in Africa, French Guiana, Guyana, Suriname and Brazil.
In Africa and French Guiana, the Company is currently negotiating its tax
position with the related governments and as such, the differences between
the book bases and tax bases of the Company's assets and liabilities cannot
be determined.
Certain of the Company's operations are subject to Canadian taxes including
the office headquarters, Guyana and Suriname which are all divisions of the
Company.
Summarized below are the components of deferred taxes:
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------
1998 1997
-------------------------- --------------------------
<S> <C> <C>
Temporary differences relating to net assets:
Other current assets $ 62 $ 81
Property & equipment 405 396
Deferred exploration 21,076 18,587
Investment in OGML 1,120 1,781
Offering costs 1,103 1,103
Tax loss and credit carryforwards 10,201 8,806
-------- --------
Gross deferred tax asset 33,967 30,754
-------- --------
Valuation allowance (33,967) (30,754)
-------- --------
Net deferred tax assets $ - $ -
======== ========
</TABLE>
The valuation allowance increased by $3.2 million in 1998 due to the taxable
losses and increase in temporary differences. Any income tax benefits resulting
from utilization of net operating loss carry forwards existing at May 15, 1992,
the date of the quasi-reorganization under U.S. GAAP, would be excluded from
results of operations and credited directly to share capital, resulting in lower
earnings than would be reported absent the quasi-reorganization (see (g) above).
Stock Based Compensation Plans
At December 31, 1998, the Company has two stock-based compensations plans, which
are described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans in its U.S. GAAP presentations. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under the plans
consistent with the method described in Statement of Financial Accounting
Standards No. 123, the Company's consolidated net loss and loss per share under
U.S. GAAP would have been increased to the pro forma amounts indicated below:
30
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
<S> <C> <C> <C>
Net loss under U.S. GAAP As reported $(15,272) $(26,930)
Pro forma $(19,831) $(32,660)
Net Loss per share under U.S. GAAP As reported $ (0.51) $ (0.94)
Pro forma $ (0.66) $ (1.13)
</TABLE>
Under the 1997 Stock Option Plan ("GSR Plan"), the Company may grant options to
employees, consultants and directors of the Company or its subsidiaries for up
to 5,600,000 shares of common stock. Under the GSR Plan, the options may take
the form of non-qualified stock options, the exercise price of each option shall
not be less than the market price of the Company's stock on the date of grant,
and an option's maximum term is ten years or such other shorter term as
stipulated in a stock option agreement between the Company and the optionee.
Options under the GSR Plan are granted from time to time at the discretion of
the Board of Directors. Options granted under the GSR Plan vest over periods
ranging from immediately to four years from the date of grant and vesting
periods are determined at the discretion of the Board of Directors.
Under the Guyanor Ressources S.A. Stock Option Plan (the "Guyanor Plan"),
Guyanor may grant options to its employees for up to 4,367,889 shares of Class B
common shares. The options may take the form of non-qualified stock options,
the exercise price of each option shall not be less than (i) the equivalent of
the Canadian Dollar amount equal to the closing price of the shares on the
Toronto Stock Exchange on the trading day immediately prior to the day the
option is granted and (ii) 80% of the average closing price on the Noveau Marche
of the Bourse de Paris during the 20 consecutive trading days immediately
preceding the date the option is granted. An option's term is ten years.
Options under the Guyanor plan are granted from time to time at the discretion
of Guyanor's Board of Directors and vest over periods ranging from immediately
to three years.
The Pan African Resources Corporation Stock Option Plan (the "PARC Plan") was
canceled upon the completion of the Plan of Arrangement discussed in Note 7.
The fair value of each option grant is estimated on the date of grant for all
plans using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998
GSR Plan Guyanor Plan PARC Plan
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected volatility 105.9% N/A N/A
Risk-free interest rate 4.37% to 5.70% N/A N/A
Expected lives 5 years N/A N/A
Dividend yield 0% N/A N/A
1997
GSR Plan Guyanor Plan PARC Plan
--------------------------------------------------------------------------------
Expected volatility 79% 56% 81%
Risk-free interest rate 5.74% - 6.55% 5.92% 6.16% - 6.53%
Expected lives 5 years 5 years 5 years
Dividend yield 0% 0% 0%
1996
GSR Plan Guyanor Plan PARC Plan
--------------------------------------------------------------------------------
Expected volatility 55% 73% 93%
Risk-free interest rate 5.30% to 6.77% 5.50% to 6.39% 5.25% to 6.28%
Expected lives 5 years 5 years 5 years
Dividend yield 0% 0% 0%
</TABLE>
31
<PAGE>
The following tables summarize information about stock options under the GSR
Plan:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
GSR Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,957 $10.79 2,884 $13.07 2,991 $ 9.40
Granted 210 $ 2.47 1,221 $ 5.08 992 $19.34
Exercised (73) $ 3.40 (98) $ 3.30 (1,059) $ 6.37
Forfeited (597) $15.27 (50) $17.31 (40) $12.23
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,497 $10.40 3,957 $10.79 2,884 $13.07
Options exercisable at year-end 3,318 3,353 2,221
Weighted-average fair value of
options granted during the year $ 1.90 $ 5.08 $19.34
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Number Number
GSR Plan Outstanding Weighted-Average Weighted-Average Exercisable at Weighted-Average
Range of Exercise at Dec. 31, 1998 Remaining Exercise Price Dec. 31, 1998 Exercise Price
Prices (Cdn$) (000) Contractual Life (Cdn$) (000) (Cdn$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.55 to $2.76 217 7.83 $ 2.00 217 $ 7.83
$3.40 to $7.63 1,553 7.75 $ 5.26 1,374 $ 5.50
$8.05 to $12.05 255 7.28 $ 9.39 255 $ 9.39
$12.15 to $17.90 683 5.43 $14.36 683 $14.36
$18.45 to $24.40 789 6.86 $19.72 789 $19.72
- ------------------------------------------------------------------------------------------------------------------------------------
3,497 3,318
</TABLE>
The following tables summarize information about stock options for the Guyanor
plan:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Guyanor Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 3,143 $3.60 2,726 $3.97 1,611 $2.13
Granted - - 511 $1.64 1,306 $6.04
Exercised (11) $1.64 (40) $2.68 (191) $2.35
Forfeited (97) $5.07 (54) $5.08 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 3,035 $3.56 3,143 $3.60 2,726 $3.97
Options exercisable at year-end 3,035 2,213 1,591
Weighted-average fair value of N/A
options granted during the year $1.64 $6.04
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Number
Guyanor Plan Number Outstanding Weighted-Average Weighted-Average Exercisable at Weighted-Average
Range of Exercise at Dec. 31, 1998 Remaining Exercise Price Dec. 31, 1998 Exercise Price
Prices (Cdn$) (0000) Contractual Life (Cdn$) (000) (Cdn$)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.64 to $3.30 2,557 6.94 $2.35 2,456 $2.38
$9.20 to $12.40 478 7.80 $0.04 478 $7.80
- ------------------------------------------------------------------------------------------------------------------------------------
3,035 2,934
</TABLE>
32
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
The following tables summarize information about stock options for the PARC
plan:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
PARC Plan (000) (Cdn$) (000) (Cdn$) (000) (Cdn$)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,338 $0.90 2,357 $0.90 - -
Granted - - 48 $0.69 2,367 $0.90
Exercised - 0 - (10) $0.99
Forfeited (2,338) $0.90 (67) $0.86 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year - - 2,338 $0.90 2,357 $0.90
Options exercisable at year-end - 1,765 1,161
Weighted-average fair value of
options granted during the year N/A $0.69 $0.90
</TABLE>
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", effective for financial statements for periods ending after December 15,
1997. The Statement requires dual presentation of basic and diluted earnings
per share on the face of the income statement. The Company adopted the
Statement effective December 31, 1997, for U.S. GAAP reporting.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structure", effective for financial statements for periods ending after
December 15, 1997. The Statement requires disclosures about certain preferences
and rights of outstanding securities and certain information about redeemable
capital stock. At this time the Company has no preferential or redeemable
securities that are subject to the new disclosure requirements of the Statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
effective for financial statements for periods beginning after December 15,
1997. The Statement establishes standards for reporting and display of
comprehensive income and its components in financial statements. Comprehensive
income for the Company will include items which have historically been included
in Shareholders' Equity, such as unrealized gains or losses on marketable equity
securities and foreign exchange gains and losses. The Company has complied with
the requirements of this statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", effective for financial statements for
periods beginning after December 15, 1997. The Statement requires the Company
to report certain information about operating segments in its financial
statements and certain information about its products and services, the
geographic areas in which it operates and its major customers. The Company has
complied with the disclosure requirements of the Statement.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Post-retirement Benefits", effective for fiscal years
beginning after December 15, 1997. The Statement standardizes the disclosure
requirements for pensions and other post-retirement benefits to provide
information that is more comparable and concise. At this time the Company has
no pension or other post-retirement benefit plans that are subject to the
requirements of the Statement.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (FAS 133).
FAS 133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999. FAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other
33
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. At this time
the Company has no derivative instruments that are subject to the requirements
of this statement.
Operations by Geographic Area under U.S. GAAP
Information on the Company's continuing operations by geographic area under U.S.
GAAP for the years ended December 31, 1998, 1997 and 1996 is shown below.
Operating earnings from continuing operations are total revenues less operating
expenses of the geographic areas.
<TABLE>
<CAPTION>
Operating Net Identifiable
Revenues Loss Assets
--------- ---- ------------
1998
<S> <C> <C> <C>
South America $ 8 $ (8,626) $18,520
Africa - (3,002) 1,034
Corporate 627 (3,767) 7,686
- -----------------------------------------------------------------------------------------------------------
Total $ 635 $(15,395) $27,240
===========================================================================================================
1997
South America $ 539 $(21,500) $22,666
Africa 71 (2,876) 1,197
Corporate 1,088 (2,554) 18,213
- -----------------------------------------------------------------------------------------------------------
Total $1,698 $(26,930) $42,076
===========================================================================================================
1996
South America $1,811 $(18,431) $27,121
Africa 224 (3,261) 4,944
Corporate 766 (3,585) 14,830
- -----------------------------------------------------------------------------------------------------------
Total $2,801 $(25,277) $46,895
===========================================================================================================
</TABLE>
16. Subsequent Events
- ------------------------
On January 15, 1999, the Board of Directors of Golden Star Resources Ltd.
approved, subject to any necessary regulatory and shareholder approvals, the
amendment of certain stock options. The number of shares that can be purchased
under these outstanding options has been reduced by 20%. The exercise price of
outstanding stock options previously granted by the Corporation to certain
directors and officers ("Insiders"), employees and consultants ("Non-Insiders")
of the Company was amended to Cdn$1.80 (if the exercise price was larger than
Cdn$1.80). The exercise price of the stock options being repriced ranges from
Cdn$2.76 to Cdn$22.40. The total number of shares of the stock options being
repriced is 2,525,780. Of that amount 2,026,780 are held by insiders and
499,000 are held by non-insiders. Upon receiving the necessary approvals, the
insiders options will be reduced to 1,621,424 (a reduction of 405,356) and the
Non-Insiders options will be reduced to 399,200 (a reduction of 99,800).
On March 8, 1999, Mr. James Askew was appointed President and Chief Executive
Officer of the Company. In conjunction with his employment agreement with the
Company, Mr. Askew was granted an option to purchase 1,000,000 shares of the
Company's stock at the price of Cdn$1.80. This option vests as to one-third on
the date of grant and one-third on each of the first and second anniversary
dates.
17. Related Parties
- -----------------------
To consolidate exploration and possible development of the Quartz Hill area with
the adjacent Omai property in 1995, the Company entered into a letter of
understanding with OGML whereby the Company relinquished all of its right,
title, and interest in the Quartz Hill prospecting license in exchange for a
beneficial interest in any prospecting license granted to OGML with respect to
the same area. Under the letter of understanding OGML may acquire 100% of the
Company's beneficial interest by either: (i) making quarterly payments to the
Company equal to 25% of net cash
34
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
flow generated from mining activity on the Quartz Hill property; or (ii) issuing
to the Company, upon commencement of production at Quartz Hill, 1,386,000 Class
IV Preference Shares with a par value of $1.00 per share, i.e., the equivalent
of the approximate historical book value of the Company's investment in the
Quartz Hill property. Such shares would be fully redeemable in equal quarterly
installments during the 36-month period following commencement of commercial
production from Quartz Hill. In January 1997, OGML was awarded prospecting
licenses for the Quartz Hill area and the Omai River area. Execution of a
definitive agreement between Cambior, OGML and the Company is subject to
execution of an acceptable mineral agreement regarding the Quartz Hill and Omai
River properties. This agreement is subject to approval by the Board of
Directors of OGML, and, for certain matters, approval of OGML's shareholders.
18. Commitments and Contingencies
- -------------------------------------
Environmental Regulations
The Company is not aware of any events of material non-compliance in its
operations with environmental laws and regulations which could have a material
adverse effect on the Company's operations or financial condition. 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 requirements that may be enacted within foreign
jurisdictions.
Business Risk
All of the Company's mineral properties are located in developing countries with
the exception of French Guiana, a Departement of France. There are certain
business and political risks inherent in doing business in developing countries.
In particular, the regulatory framework for conducting mining and exploration
activities in these countries, including the tax and general fiscal regimes and
the manner in which mineral rights and title to mineral properties are
established and maintained are often uncertain, incomplete, in a state of flux
or subject to change without notice. Further, in many of the countries in which
the Company's projects are located it may not be economically feasible to
develop a commercial mine unless special tax or other fiscal and regulatory
concessions are obtained from the applicable government and regulatory
authorities. There can be no assurance that the Company will be able to execute
or enforce satisfactory mineral agreements or to obtain satisfactory political
risk insurance on commercially reasonable terms for any or all of its
properties.
Letters of Credit and Guarantee
In 1998, PARC's custom duty obligations in the Ivory Coast expired and the bank
guarantee of $0.25 million was cancelled.
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. In August 1997,
the remaining performance bond requirements were released by the Government of
Eritrea and the bank guarantee and restricted cash collateral supporting the
performance bond were reduced by the remaining $0.7 million. As of September
30, 1997, the Company had no remaining restricted cash balances relating to
Eritrea. The Company's performance bond of $0.45 million for the benefit of the
Ministry of Mines and Energy in Ethiopia guaranteeing the second year
exploration program at the Dul project in Ethiopia expired on October 16, 1997.
The letter of credit collateralizing the performance bond expired on October 31,
1997, and the funds held as restricted cash collateral for the letter of credit
were released in November 1997.
Potential Litigation
On December 17, 1998, SMSE notified Texmine of its intention to terminate the
Dieu-Merci option agreement. After several attempts to substantially reduce or
eliminate the minimum commitments and property payments specified in the
agreement failed, SMSE decided to withdraw from the option agreement. Following
the termination
35
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
- ------------------------------------------------------------
(All tabular amounts in thousands of United States Dollars)
of the option agreement, the owner of the Dieu-Merci project demanded from SMSE
the sum of ff 2,000,0000 (approximately $350,000), which according to Texmine is
owed to it in spite of the termination of the option agreement. SMSE does not
believe that such sum is owed and , therefore, intends to defend itself
vigorously against any legal action that Texmine may take to obtain payment.
There can be no assurance, however, that SMSE will be successful.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
The following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and related notes. The financial
statements have been prepared in accordance with Canadian GAAP. For the U.S.
GAAP reconciliation, see attached consolidated financial statements, as well as
"Results of Operations" below.
Cautionary Statement for Purposes of 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" and
elsewhere in this 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.
37
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Overview
The Company's current business activity focus is the exploration and development
(if warranted) of precious metal and diamond deposits within specific geological
domains. Under Canadian GAAP, expenditures relating to these activities are
capitalized in recognition of the potential future value of prospective targets.
Upon completion of the exploration phase, a decision to proceed to the
development phase requires that these expenditures reflect the cost of the
resultant reserves and be depleted on the unit of production basis over the
estimated total reserve to be mined. A decision to discontinue exploration or
not to proceed to the development stage for a specific project would result in
reducing the capitalized total cost of the exploration program and charging
those costs against income. As such, reported net income or loss for the
Company may be volatile and principally represents investment revenues received
through the investment of idle funds, the surplus received on redemption of
preferred shares in OGML held by the Company, and other revenues, as offset by
those expenditures which cannot be directly attributed to a specific project and
those costs for projects the Company has elected to abandon.
Under U.S. GAAP, exploration and general and administrative expenses related to
projects are charged to expense as incurred, whereas under Canadian GAAP, such
expenses are capitalized as discussed above. Property acquisition costs are
deferred for both Canadian and U.S. GAAP until it is determined whether a
project is commercially feasible. In addition, under U.S. GAAP, compensation
expense is recorded for the excess of the quoted market price over the option
price granted to employees and directors at the date of grant under stock option
plans. Under Canadian GAAP, no compensation expense is recorded for such
awards. The gains on issuance of subsidiary's common stock recorded under
Canadian GAAP in respect of the PARC and Guyanor equity financings would not be
recorded under U.S. GAAP. Under U.S. GAAP, accrued severance and social charges
resulting from the shut-down of alluvial mining operations at SOTRAPMAG would
not have been recorded as of December 31, 1996, as the requirements for accrual
were not satisfied.
The effect of the differences in accounting under Canadian GAAP and U.S. GAAP on
the statement of net loss is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss under Canadian GAAP $ (22,248) $ (26,584) $ (7,780)
Net effect of the deferred exploration expenditures
on loss for the period 4,901 1,189 (10,231)
Effect of recording compensation expense under
stock option plans - (83) (85)
Foreign exchange loss 26 92 (2)
Reversal of the gain on subsidiary's issuance of
common stock - - (7,719)
Reversal of the loss for severance accruals - (1,115) 1,115
Effect of Omai Preferred Share Redemption 788 1,152 520
-------- -------- --------
Loss under U.S. GAAP before minority interest (16,533) (25,349) (24,182)
Minority interest as adjusted 1,138 (1,489) (1,097)
-------- -------- --------
Net Loss under U.S. GAAP $ (15,395) $ (26,838) $ (25,279)
Other comprehensive income foreign exchange loss (26) (92) 2
-------- -------- --------
Comprehensive income (15,421) (26,930) (25,277)
======== ======== ========
Basic and diluted net loss per share under U.S. GAAP $ (0.51) $ (0.94) $ (1.00)
======== ======== ========
</TABLE>
The Company currently has limited cash resources. See "Item 1. - Risk Factors -
Risks associated with our limited financial resources" and "Liquidity and
Capital Resources" and "Outlook" below.
38
<PAGE>
1998 Compared to 1997
The Company reported a net loss of $22.2 million in 1998 as compared to a net
loss of $26.6 million in 1997. During 1998, the Company recorded property
abandonment charges of $16.6 million, including $2.6 million and $3.7 million,
respectively, from the relinquishment of certain diamond and gold properties in
Guyana, $0.9 million for the Dieu Merci in French Guiana, $8.8 million for the
Andorinhas project and $0.3 million for other properties in Brazil, and $0.2
million related to various property interests in Bolivia. The abandonment of
these projects was the result of several factors including exploration results
and the assessment and prioritization of exploration projects by Management to
ensure continued focus on the most promising projects in the Company's portfolio
in light of limited capital available to fund exploration projects. The
objective of the project prioritization is to ensure continued funding of
projects that the Company believes would offer the greatest potential for
meaningful results and new reserves and mineralized material. Of the $16.6
million of property abandonments described above, $16.4 million were recorded in
the fourth quarter of 1998. The abandonments taken in the fourth quarter
resulted from the company's review of exploration results to date,
prioritization of projects, and results of negotiations with property owners.
The Company's consolidated share of the write-downs for Guyanor was $0.7
million, net of the minority shareholders' portion of the loss.
Total revenues in 1998 decreased to $0.6 million as compared to $1.7 million in
1997 due to the shutdown of the alluvial mining operations at SOTRAPMAG in April
1997 and the lower interest income earned. Interest and other revenues
decreased from $1.3 million in 1997 to $0.6 million in 1998 due to the decrease
in the average cash balance invested during 1998 as compared to 1997 combined
with lower interest rates during the period. Cost of goods sold were nil for
1998 as compared to $1.0 million for 1997 as a result of the discontinuation of
production at SOTRAPMAG during 1997, with no revenue from gold sales in 1998,
compared to revenue of $0.4 million in 1997. SOTRAPMAG's cost of goods sold
exceeded revenues in 1997 by $0.5 million.
General and administrative expenditures totaled $7.7 million for 1998, as
compared to $8.9 million for 1997. The decrease in general and administrative
expenditures resulted from a $1.8 million reduction in expenses due to the
Company's ongoing cost reduction efforts offset by the $0.6 million paid to
David Fennell under a separation and release agreement. Depreciation expense
decreased $0.3 million as a result of the decrease in the depreciable asset base
due to the write-down of equipment at SOTRAPMAG.
OGML, in which the Company maintains a 30% common share equity interest,
reported net income of $3.5 million for the year ended December 31, 1998,
compared to a net income of $5.8 million for the year ended December 31, 1997.
The Omai Mine produced 327,546 oz of gold in 1998 versus 338,496 oz of gold in
1997. Decreased gold grades and a lower than expected recovery rate were the
reason for the decrease in production in 1998. Approximately $1.7 million was
distributed to the Company in 1998 via the redemption of Class I preferred
shares of OGML, as compared to $2.5 million during 1997.
Under the equity method of accounting, the Company is required to record its
share of OGML's losses to the extent that the losses do not exceed the cost of
the common share investment in OGML. Accordingly, the Company has not recorded
the loss amount, and will commence recognition of future income when its share
of accumulated income exceeds its share of accumulated losses. As of December
31, 1998, the Company's share of cumulative equity loss was $0.6 million as
compared to $1.5 million as at December 31, 1997.
Various factors, such as market price fluctuations of gold, increased production
costs and/or reduced recovery rates may render ore reserves uneconomic or may
ultimately result in a restatement of ore reserves or asset write-downs.
Moreover, short-term factors relating to the ore reserves, such as the need for
orderly development of ore bodies, the processing of variable ore grades, and/or
other potential problems may impair the profitability of the Omai Mine.
39
<PAGE>
1997 Compared to 1996
The Company reported a net loss of $26.6 million in 1997 as compared to a net
loss of $7.8 million in 1996. During 1997, the Company recorded property
abandonment charges of $22.4 million, including $4.2 million and $4.4 million,
respectively, from the relinquishment of certain diamond and gold properties in
Guyana, $0.7 million from the write-off of certain diamond properties in
Suriname, $1.0 million for the Regina Est property and $0.4 million for other
property areas in French Guiana, $2.8 million for portions of property areas in
Cote d'Ivoire, $3.4 million for projects in Mali, $2.0 million for the Galla
Valley project, $1.2 million for certain gold properties in Brazil and $2.1
million related to various property interests in Bolivia. The abandonment of
these projects was the result of several factors including exploration results
and the assessment and prioritization of exploration projects by management to
ensure continued focus on the most promising projects in the Company's
portfolio. The objective of the project prioritization is to ensure continued
funding of projects that the Company believes would offer the greatest potential
for meaningful results and generating reserves and mineralized material. Of the
$22.4 million of property abandonments described above, $12.9 million were
recorded in the fourth quarter of 1997.
The Company's consolidated share of the write-downs for Guyanor and PARC were
$1.0 million and $5.4 million, respectively, net of minority shareholders'
portion of the loss.
The Company, through Guyanor, incurred impairment losses totaling $1.5 million
in 1997 for certain inventories and fixed assets at SOTRAPMAG related to the
shutdown of alluvial mining operations at SOTRAPMAG. These losses were offset
by gains of $0.3 million from the sale of certain equipment from SOTRAPMAG. The
Company's consolidated share of these losses was $0.8 million, net of the
minority shareholders' portion of the loss.
Total revenues in 1997 decreased to $1.7 million as compared to $2.8 million in
1996 principally due to the shutdown of the alluvial mining operations at
SOTRAPMAG in April 1997. Interest and other revenues increased from $1.1
million in 1996 to $1.3 million in 1997 due to the increase in the average cash
balance invested during 1997 as compared to 1996. Cost of goods sold decreased
to $1.0 million for 1997 as compared to $4.1 million for 1996 as a result of the
discontinuation of production at SOTRAPMAG during 1997, with revenue from gold
sales in 1997 of $0.4 million, compared to revenue of $1.7 million in 1996.
SOTRAPMAG's cost of goods sold exceeded revenues in 1997 by $0.5 million and in
1996 by $2.4 million.
General and administrative expenditures totaled $8.9 million for 1997, as
compared to $9.1 million for 1996. Depreciation expense decreased $0.5 million
as a result of the decrease in the depreciable asset base due to the write-down
of equipment at SOTRAPMAG.
OGML, in which the Company maintains a 30% common share equity interest,
reported net income of $5.8 million for the year ended December 31, 1997,
compared to a net income of $2.7 million for the year ended December 31, 1996.
The Omai Mine produced 338,496 oz of gold in 1997 versus 254,950 oz of gold in
1996. The commissioning of the expanded mill facilities in the third quarter of
1996 contributed to higher production levels in 1997. Approximately $2.5
million was distributed to the Company in 1997 via the redemption of Class I
preferred shares of OGML, as compared to $1.1 million during 1996.
Under the equity method of accounting, the Company is required to record its
share of OGML's losses to the extent that the losses do not exceed the cost of
the common share investment in OGML. Accordingly, the Company has not recorded
the loss amount, and will commence recognition of future income when its share
of accumulated income exceeds its share of accumulated losses. As of December
31, 1997, the Company's share of cumulative equity loss was $1.5 million as
compared to $2.7 million as at December 31, 1996.
LIQUIDITY and CAPITAL RESOURCES
- -------------------------------
Consolidated cash and short-term investments as of December 31, 1998 of $7.4
million decreased $10.0 million from $17.4 million as of December 31, 1997. The
reduction is a result of the Company's net exploration expenditures of $9.6
million in 1998 offset by Omai preferred share redemptions of $1.7 million, a
loan from OGML of $3.1 million, transfer of Eagle Mountain concession to OGML in
exchange for $0.08 million and other
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working capital changes. Working capital as of December 31, 1998 decreased by
$9.7 million to $6.7 million from $16.4 million as of December 31, 1997.
On December 23, 1998, OGML, as part of the purchase from the Company of the
Eagle Mountain project, advanced to the Company $3.17 million, as an unsecured
non-interest bearing loan to be repaid on a dollar-for-dollar basis as and when
Class I preferred shares of OGML held by GSR shall be redeemed by OGML from time
to time. The loan is non-interest bearing until September 30, 2010; after this
date the loan bears interest at the US dollar prime rate per annum, calculated
and compounded quarterly until repayment in full with interest on overdue
interest at the same rate. Of the $1.7 million of Class I preferred shares
redeemed in 1998 approximately $0.2 million was used to reduce the outstanding
loan balance. OGML has budgeted for the redemption of $1.3 million of Class I
preferred shares in OGML to be paid to the Company during 1999, compared to $1.7
million received in 1998.
Product and supplies inventories, accounts receivable and other current assets
decreased $1.8 million during the year resulting primarily from a decrease in
outstanding accounts receivable due to reduced exploration spending in 1998 and
collection of outstanding balances owed upon the termination of two joint
ventures.
Cash used in investing activities of $7.5 million in 1998 decreased from $19.6
million in 1997 primarily due to the decrease in exploration expenditures
related to the Company's operations in South America and Africa.
Cash provided by financing activities in 1998 decreased to $5.2 million from
$29.9 million in 1997. The decrease results primarily from share offerings by
the Company in 1997 which did not recur in 1998, offset by the issuance of long-
term debt for the transfer of the Eagle Mountain property to OGML for proceeds
of $3.1 million. Share capital increased by $1.2 million in 1998, compared with
$28.0 million in, 1997, reflecting proceeds from warrant exercises and the May
1997 common stock offering which did not recur in 1998.
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.
No shares had been issued under either Registration Statement or the Canadian
prospectus as of March 13, 1999, and there can be no assurance that the Company
can raise capital using the Registration Statement or the prospectus.
Guyanor Ressources S.A.
Total exploration expenditures for the year ended December 31, 1998, amounted to
$4.7 million, offset by joint venture recoveries of $1.2 million, compared to
1997 expenditures of $11.9 million, offset by 1997 joint venture recoveries of
$10.0 million. Guyanor recorded property write-downs of $0.9 million in 1998
related to the relinquishment of the Dieu Merci Project as compared to $1.0
million related to the relinquishment of the Regina Est property and $0.4
million related to the write-down of other projects in 1997.
On June 12, 1998, the Company acquired an additional 2,380,000 Class B common
shares of Guyanor at a price of FF9.53 or Cdn$2.314. The total consideration of
FF22,681,400 or Cdn$5,579,624 for the shares was satisfied by reducing the
receivable for the equivalent amount of funds advanced to Guyanor by the
Company. The transaction resulted in an increase in the Company's interest in
Guyanor from 69.3% to 71%.
As of December 31, 1998, the Company owned approximately 71% of the outstanding
common shares of Guyanor.
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A preliminary budget prepared by Guyanor estimates total spending for 1999 of
approximately $4.0 million with recoveries from joint venture partners of
approximately $0.7 million for net expenditures of $3.3 million. As at December
31, 1998, Guyanor had $0.1 million in cash. Net expenditures are expected to be
funded by cash on hand, receivables from joint venture partners for work
conducted in 1998 and from working capital provided by Golden Star. Golden Star
has committed to provide sufficient working capital to fund all of Guyanor's
operations for 1999, however, it will be necessary for additional capital to be
obtained by Guyanor or Golden Star for these expenditures to be funded.
Guyana
Total 1998 spending on the Company's projects in Guyana amounted to $0.9 million
with joint venture recoveries of $0.1 million, compared to 1997 spending of $3.6
million. During 1998, the Company incurred $6.4 million of property abandonment
charges related to various gold and diamond properties. The Company has
budgeted approximately $0.4 million for administration and limited exploration
in Guyana during 1999.
Suriname
Activities in Suriname during 1998 focused principally on the Gross Rosebel gold
project in joint venture with Cambior. Total Suriname spending in 1998 amounted
to $2.0 million, offset by joint venture recoveries of $1.0 million, as compared
to 1997 spending of $11.8 million, which was offset by joint venture recoveries
of $4.7 million. Budgeted 1999 exploration and acquisition expenditures for
Suriname are $0.9 million, with budgeted joint venture recoveries of $0.4
million. Expenditures at the Gross Rosebel project are shared equally between
the Company and Cambior.
A study of the Gross Rosebel project was completed in May 1997 as required by
the agreement and then updated. The study estimated the project's proven and
probable gold reserves at 48.6 million tonnes grading 1.6 g Au/t, representing
2.43 million oz in situ using a gold price of $400 per ounce. Reserves have been
subsequently restated as mineralized material using a gold price of $325 per
ounce resulting in 41.4 million tonnes grading 1.6 g Au/t, representing
approximately 2.15 million ounces in situ. Capital costs for development of the
mine are estimated in the study at $175 million. Cambior is obligated to use its
best efforts to arrange debt financing for 65% of mine construction and related
costs, with the Company and Cambior each contributing 50% of the remainder of
such costs. The Company's share of total mine development costs for Gross
Rosebel, based on the feasibility study and subsequent modifications, is
estimated at approximately $25.0 million. Development of the Gross Rosebel
project has been postponed pending resolution of certain development issues and
improvement in gold prices. The Company has not budgeted for any of the $25.0
million development expenditures in 1999. At such time as the decision is made
to proceed with the development of Gross Rosebel, the Company will evaluate
various funding alternatives including the issuance of debt or equity securities
or the sale of other assets to fund the $25.0 million development cost. The
Company and Cambior are also investigating alternative mining and processing
methods such as heap leaching which may lower capital and for operating costs
and enhance the project's economic returns.
Brazil and Bolivia
During 1998, the Company spent approximately $1.2 million on exploration and
project acquisition, compared to $7.1 million in 1997. Anticipated
reconnaissance and exploration expenditures for 1999 of $0.5 million relate
primarily to exploration efforts and property acquisition costs for the Abacaxis
project in Brazil. The Company recorded property write-offs of $8.8 million
for the Andorinhas project and $0.3 million for other projects in 1998.
The Company recorded property write-downs of $0.2 million in 1998 as a result of
relinquishment of the other properties in Bolivia.
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Pan African Resources Corporation
On April 21, 1998, the Company completed a Plan of Arrangement that resulted in
the purchase of all of the outstanding shares held by minority shareholders of
Pan African Resources Corporation ("PARC"). As a result, the Company issued
388,574 of its common shares with a market value of $0.9 million to the minority
shareholders of PARC.
Total exploration and acquisition expenditures in Africa for 1998 amounted to
$3.1 million (compared to $3.1 million in 1997). Expenditures in 1998 primarily
reflect exploration activities in the Ivory Coast and Kenya and a $1.8 million
allocation of excess purchase price over the value of the assets acquired to
these properties as a result of the Plan of Arrangement between the Company and
PARC. During 1998, the Company recorded property abandonments of $0.01 million
for other projects as compared to $8.5 million in 1997. Total budgeted
expenditures on exploration and administration for 1999 are budgeted at $0.1
million representing minimum holding costs for the Company's property interests
in Cote d'Ivoire and Kenya.
In 1998, the Company's obligations under its customs duty obligations in Cote
d'Ivoire were met and the performance bond of $0.25 million was released.
On July 24, 1998, the Company announced an agreement had been reached with North
Exploration (Overseas) Pty Limited ("North") for the exploration and development
of the Company's Tanda property, located in central eastern Cote d'Ivoire.
Under the terms of the agreement, North may earn a 60% participating interest in
the Tanda property by spending a minimum of $400,000 on exploration during the
first 12 months of the joint venture and a minimum of $3.0 million over a total
of 36 months. North also has the option of earning an additional 10% interest,
for a total of 70%, by fully funding feasibility work and providing or
arranging, on a best efforts basis, project financing for any eventual
development. North will act as manager and operator of the joint venture.
Year 2000 Compliance
The Company recognizes the importance of ensuring that its business operations
are not disrupted as a result of Year 2000 problems. The Company has prepared a
three step plan to identify and resolve Year 2000 issues. First, the Company is
compiling an inventory of its Information Technology ("IT") systems, and non-IT
systems (which are those which typically include "embedded" technology such as
microprocessors or chips) and performing a survey of the state of Year 2000
readiness of third party suppliers, vendors, joint venture partners and OGML.
Second, the Company is prioritizing the IT and non-IT systems and vendor
responses. Third, the Company has prepared a Year 2000 testing plan to assess
the ability of IT and non-IT systems to handle the Year 2000. Those systems
that are not Year 2000 compliant are being modified or replaced to ensure that
they are Year 2000 compliant. These steps are in various stages of completion.
The Company anticipates that all steps will be completed by June 30, 1999. The
Company estimates the internal and external cost of Year 2000 compliance to be
approximately $0.1 million.
The Company believes that the greatest risk presented by the Year 2000 problem
is from third parties, such as suppliers and financial institutions who may not
have adequately addressed the problem. A failure of any such third party's
computer or other applicable systems in sufficient magnitude could materially
and adversely impact the Company. The Company is not presently able to quantify
this risk but believes that it is minimal based upon the survey responses
received to date from third party suppliers, vendors, joint venture partners and
OGML.
The Company is undertaking a contingency planning effort to identify
alternatives that could be used to mitigate the effects of Year 2000 related
failures. The Company keeps printed back-up of all material transactions which
could facilitate the continuation of business operations and remediation of data
loss in the event of a system failure.
Effects of the European Monetary Union Currency
Effective January 1, 1999, eleven of the fifteen member countries of the
European Monetary Union ("EMU") adopted a single European currency, the "Euro",
as their common legal currency. During the next three years,
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business conducted within the EMU will be conducted in both the existing
national currency and the Euro. As a result, companies operating in EMU member
states will need to ensure that their financial systems are capable of
processing transactions and properly handle these currencies, including the
Euro. The operations of the Company's 71% owned subsidiary Guyanor Ressources
S.A. are affected by this change. The Company has not had and does not expect a
material impact on its results of operations from foreign currency gains or
losses as a result of the transition to the Euro.
Other Matters
The Company conducts all of its exploration and development of mineral
properties in countries other than Canada and the United States directly and
through joint ventures. To date, the vast majority of all funding has been
through equity financing transactions completed in Canada and in Canadian
currency (with the exception of the Guyanor offering of its Class B shares on
the Nouveau Marche in France and the U.S. $22.7 million raised by the Company in
May 1997). The Company currently maintains all or the majority of its working
capital in U.S. dollars or U.S. dollar denominated securities and converts funds
to foreign currencies as payment obligations come due. Accordingly, the Company
is subject to fluctuations in the rates of currency exchange between the U.S.
dollar and these currencies, and such fluctuations may materially affect the
Company's financial position and results of operations. The Company currently
has future obligations which are payable in French francs and receivables
collectible in French francs. The Company currently does not actively take
steps to hedge against such risks. The Company also utilizes the services of
outside advisors who provide the Company with market information and strategies
to employ in protecting the cash and short term investments held by the Company.
The Company believes that its current activities are in material compliance with
applicable laws and regulations designed to protect the environment, except to
the extent that non-compliance would not have a material adverse effect on the
Company's operations or financial condition. The Company periodically engages
specialists to evaluate potential environmental issues for specific projects.
The results of these evaluations are utilized in the property evaluation
process, where applicable. The Company also evaluates the need for reclamation
reserves in light of current laws and regulations and will make provisions for
such reserves as they become necessary based on the Company's activities in
Africa and South America.
Outlook
The Company must rely primarily on the capital markets to fund its operations
and exploration activities until it can achieve sustained positive cash flow
from mining operations. The Company's ability to continue as a going concern is
dependent upon its ability to raise additional capital to fund its exploration
and development efforts. The current market for gold shares is weak and equity
capital is difficult to obtain. The Company anticipates that additional capital
will be required in 1999 in order to fund operations and exploration activities.
The Company is exploring various transactions which would enable it to have
sufficient capital to continue its operations. Various transactions being
considered include mergers with other companies, acquisitions, and the issuance
of new equity. Other sources for such capital may include, among other things,
the establishment of joint ventures and sale of property interests.
If the current depressed market for gold prices and gold shares continues into
1999, it may be necessary for the Company to modify its 1999 budget to achieve
further reductions in activity and general and administrative expenses. Capital
is allocated to those projects which in the opinion of management, offer the
greatest potential to generate additional reserves and mineralized material. A
significant portion of the exploration and development expenditures for the
Company and its subsidiaries represent discretionary spending and can be
adjusted to reflect, among other things, results of exploration and development
activities and the Company's capital resources. In 1999, the Company is required
to make property rental payments and minimum exploration expenditures totaling
$0.6 million in order to maintain its current property interests per existing
mineral agreements. The Company is negotiating the reduction or deferral of
these payments where possible.
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Whether and to what extent alternative financing options are completed by the
Company or its subsidiaries will depend on a number of factors including, among
others, the successful acquisition of additional properties or projects, the
price of gold and management's assessment of the capital markets. The low gold
price adversely affects our ability to obtain financing and therefore our
abilities to develop our current portfolio of properties. We cannot assure you
that additional funding will be available in 1999. This situation affects our
flexibility to invest funds in exploration and development. We may, in the
future, be unable to continue our exploration and development programs and
fulfill our obligations under our agreements with our partners or under or
permits and licenses. Although we have been successful in the past in obtaining
financing though partnership arrangements and sale of equity securities, we
cannot assure you that we will be able to obtain adequate financing on
acceptable terms. If we are unable to obtain such additional financing, we may
need to delay or indefinitely postpone further exploration and development of
our properties. As a result we may lose our interest in some of our properties
and may be obliged to sell some or our properties.
As at December 31, 1998, the Company held consolidated cash and short-term
investments of $7.4 million. Management anticipates consolidated total
expenditures of $7.9 million for 1999, with consolidated net expenditures after
recoveries from joint venture partners and other working capital changes of
approximately $7.2 million. The Company has committed, subject to the
availability of adequate funding, to continue funding on a reasonable best
efforts basis the operations of Guyanor, in the amount of $3.4 million which
amount is included in the net spending of $7.2 million. Without a financing or
other capital raising transaction such as a sale of assets, and based on the
current budget, management expects the Company will have a consolidated cash of
position of $0.3 million as of December 31, 1999 absent any additional
financings or transactions in 1999. This would materially and adversely affect
our operations and our ability to continue as a going concern.
The Company's planned spending during 1999 is anticipated to be directed
primarily toward pre-feasibility work at the Yaou and Dorlin projects,
exploration work at Paul Isnard and St-Elie in French Guiana, and Abacaxis in
Brazil, continued engineering work at Gross Rosebel in Suriname. No field work
is planned for Gross Rosebel; however expenditures have been budgeted for
additional work on the feasibility study related to engineering and
metallurgical work for to the investigation of heap leaching alternatives and
ongoing holding costs of the project.
The Company does not expect to receive cash flow from OGML in 1999 through
redemptions of Class I preferred shares as any redemptions will be utilized to
reduce the debt owed to OGML. The amount of redemptions, if any, is dependent
on the net cash flow of OGML. The Company received $1.7 million from
redemptions of Class I preferred shares in 1998.
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GOLDEN STAR RESOURCES LTD.
ANNUAL GENERAL MEETING OF SHAREHOLDERS - JUNE 15, 1999
PROXY
THIS PROXY IS SOLICITED BY MANAGEMENT OF THE CORPORATION
(PLEASE SEE NOTES ON REVERSE SIDE)
The undersigned holder of common shares in the capital stock of Golden Star
Resources Ltd. (the "Company") hereby nominates and appoints Pierre Gousseland,
Chairman of the Board of the Company, or failing him, James E. Askew, President
and Chief Executive Officer of the Company, or instead of them or any of them,
________________________________, as the proxy of the undersigned to attend,
act and vote in respect of all common shares registered in the name of the
undersigned at the Annual Meeting of shareholders of the Company to be held at
11:00 a.m. on Tuesday, June 15, 1999 in the Engineer Room of the Ontario Club,
30 Wellington Street West, Toronto, Canada, and at any and all adjournments
thereof. Without limiting the general powers hereby conferred, the said proxy
is directed to vote as follows upon the following matters:
1. To elect the following persons as directors of the Company:
James E. Askew For ______ Withhold ______
David K. Fagin For ______ Withhold ______
Ernest C. Mercier For ______ Withhold ______
Roger D. Morton For ______ Withhold ______
John W. Sabine For ______ Withhold ______
Robert R. Stone For ______ Withhold ______
2. To appoint PricewaterhouseCoopers as the auditor of the Company and to
authorize the Board of Directors to fix the auditor's remuneration:
For ______ Withhold ______
3. To approve, ratify and confirm amendments to the Company's Shareholder
Rights Plan:
For ______ Against ______ Abstain ______
4. To approve amendments to stock options granted to directors and senior
officers of the Company:
For ______ Against ______ Abstain ______
5. To approve by special resolution the continuance of the Company under the
Yukon Business Corporations Act and to approve, ratify and confirm new
Bylaws of the Company as a Yukon corporation:
For ______ Against ______ Abstain ______
6. To approve in advance the issuance of shares, by virtue of exemptions from
registration and prospectus requirements under applicable securities
legislation and transactions which may not be fully marketed public
offerings that may exceed 25% of the Company's issued and outstanding
common shares, subject to all necessary regulatory approvals, as more
particularly set out in the management proxy circular for the Meeting:
For ______ Against ______ Abstain ______
The undersigned hereby revokes any instrument of proxy heretofore given
with reference to the said meeting or any adjournment thereof.
The proxyholder may in his discretion vote with respect to amendments or
variations to matters identified in the Notice of Meeting or to other matters
which may properly come before the meeting or any adjournment thereof.
DATED this ___________ day of ___________________________, 1999.
______________________ ________________________________
Signature Name of shareholder (Please Print)
______________________________
______________________________
Address
<PAGE>
NOTES
1. The shares represented by this proxy will be voted in accordance with the
instructions given herein. IF NO CHOICE IS SPECIFIED HEREIN, OR IF ANY
INSTRUCTIONS GIVEN ARE NOT CLEAR, THE SHARES SHALL BE VOTED AS IF THE
SHAREHOLDER HAD SPECIFIED AN AFFIRMATIVE VOTE, ALL IN THE SAME MANNER AND TO
THE SAME EXTENT AS THE SHAREHOLDER COULD DO IF THE SHAREHOLDER WERE
PERSONALLY PRESENT AT THE MEETING.
2. A SHAREHOLDER HAS THE RIGHT TO APPOINT A PERSON (WHO NEED NOT BE A
SHAREHOLDER) OTHER THAN THE PERSON DESIGNATED IN THIS PROXY TO ATTEND AND
ACT FOR THE SHAREHOLDER AND ON THE SHAREHOLDER'S BEHALF AT THE MEETING. Such
right may be exercised by printing in the space provided the name of the
person to be appointed, in which case only the person so named may vote the
shares at the meeting.
3. This proxy will not be valid unless it is dated and signed by the
shareholder or the shareholder's attorney authorized in writing or, if the
shareholder is a corporation, by a duly authorized officer or attorney of
the corporation, and ceases to be valid one year from its date. If the proxy
is executed by an attorney for an individual shareholder or by an officer or
an attorney of a corporate shareholder, the instrument so empowering the
officer or attorney, as the case may be, or a notarial copy thereof, must
accompany the proxy instrument.
4. To be effective, the instrument of proxy must be received by 5:00 p.m.
(Toronto time) on Friday, June 11, 1999 at the address set forth in the
accompanying return envelope (Attention: Proxy Department, The CIBC Mellon
Trust Company, P.O. Box 12005 STN. BRM B, Toronto, Ontario M7Y 2K5).
