Information contained herein is subject to completion or amendment.
Pursuant to Rule 424(b)(5)
Registration File No. 333-33237
Subject to completion, dated June 29, 1999
Preliminary Prospectus Supplement
(To Prospectus dated October 2, 1997)
$12,500,000
GOLDEN STAR RESOURCES LTD.
Up to $8,000,000 Principal Amount of 7.50% Subordinated Convertible
Debentures due 2004
Up to 6,545,454 Units Representing
6,545,454 Common Shares and Warrants to Purchase 3,272,727 Common Shares
Convertible Debentures
- ----------------------
Maturity
The debentures will mature on July , 2004.
Interest
Interest is fixed at an annual rate of 7.50%. Interest is payable on the
debentures on January 15 and July 15 of each year, beginning on January 15,
2000. Interest on the debentures will accrue from July , 1999.
Conversion
The holder of a debenture has the option to convert any part of his debenture
into common shares of our company upon the payment of a conversion price of
$0.75 per common share, subject to adjustment.
Redemption
The debentures may not be redeemed by us before July 15, 2002. On and after July
15, 2002, we may redeem the debentures at a redemption price as set forth herein
if the closing trading price of the common shares as reported on the close of
business for any 20 consecutive trading days ending not more than five business
days before the date the notice of redemption is given is equal to or greater
than 125% of the conversion price stated above.
Ranking
The debentures are unsecured and will rank behind all existing and future senior
indebtedness, and are effectively subordinated in right of payment to all
indebtedness and other liabilities of our subsidiaries. As of March 31, 1999, we
had approximately $2.5 million of senior indebtedness and our subsidiaries had
approximately $1.0 million of indebtedness and other liabilities.
Listing
We will use our best efforts to list the debentures on a stock exchange in
Canada.
Units
The units consist of one common share and one-half common share purchase
warrant. The price per unit is $0.6875.
Common Shares
Our common shares are traded on the American Stock Exchange under the symbol
"GSR" and on the Toronto Stock Exchange under the symbol "GSC." On June 28,
1999, the closing trading price of our common shares on the American Stock
Exchange was $0.6875 and the closing trading price of our common shares on the
Toronto Stock Exchange was Cdn. $1.00.
Warrants
Each whole warrant is exercisable for one of our common shares at a price of
$0.75 for a period of 18 months after the closing of this offering.
Escrow
Eighty percent of this offering is contingent upon the closing of the
acquisition described in this prospectus supplement. Upon the closing of this
offering, the securities and 80% of the gross proceeds will be placed in escrow
pending completion of the acquisition and the remaining 20% of the proceeds will
be directly delivered to us. If we do not complete the acquisition by December
10, 1999, then (1) the escrowed proceeds from the sale of the units, plus
interest thereon, will be returned to you, (2) the escrowed proceeds from the
sale of the debentures will be delivered to us and all of the debentures will be
delivered to you, and we will then be required to repurchase 80% of the
principal amount of the debentures from each of you pursuant to a special
mandatory redemption and (3) 20% of the debentures and the units will be
delivered to you and will remain outstanding.
Investing in these securities involves certain risks. See "Risk
Factors" beginning on page S-9 of this prospectus supplement and on page 6 of
the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
We expect the closing of this offering to occur on July , 1999.
----------------------
FIRST MARATHON SECURITIES LIMITED
<PAGE>
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
prospectus supplement or the prospectus. If given or made, such information or
representations must not be relied upon as having been authorized. This
prospectus supplement and the prospectus do not constitute an offer to sell or
the solicitation of an offer to buy any securities other than the securities
described in this prospectus supplement or an offer to sell or the solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this prospectus supplement or
the prospectus, nor any sale made under this prospectus supplement or the
prospectus shall, under any circumstances, create any implication that there has
been no change in our affairs since the date of this prospectus supplement or
that the information contained or incorporated by reference is correct as of any
time subsequent to the date of such information.
TABLE OF CONTENTS Page
Prospectus Supplement ----
Financial Information.......................................................S-1
Gold Prices and Exchange Rates..............................................S-1
Summary ...................................................................S-2
Risk Factors................................................................S-8
Special Note Regarding Forward-Looking Statements..........................S-14
The Acquisition............................................................S-15
The Bogoso Property........................................................S-25
Use of Proceeds............................................................S-38
Price Range of Common Shares...............................................S-40
Dividend Policy............................................................S-40
Description of the Convertible Debentures..................................S-40
Description of the Common Shares...........................................S-53
Description of the Warrants................................................S-53
Certain United States Federal Income Tax Considerations....................S-54
Certain Canadian Federal Income Tax Considerations.........................S-60
Plan of Distribution.......................................................S-62
Experts....................................................................S-64
Legal Matters..............................................................S-64
Glossary of Terms..........................................................S-64
Index to Financial Statements..............................................S-66
Prospectus
Available Information.........................................................2
Enforcement of Certain Civil Liabilities......................................3
Incorporation of Certain Documents by Reference...............................3
Canadian Prospectus...........................................................4
Special Note Regarding Forward-Looking Statements.............................4
Reporting Currency and Financial Information..................................4
The Company...................................................................5
Risk Factors..................................................................5
Use of Proceeds..............................................................13
Ratio of Earnings to Fixed Charges...........................................13
Description of Share Capital.................................................15
Description of Warrants......................................................17
ii
<PAGE>
Page
----
Description of Convertible Debt Securities...................................17
Plan of Distribution.........................................................28
Experts......................................................................29
Legal Matters................................................................29
iii
<PAGE>
FINANCIAL INFORMATION
Since May 1992, our reporting currency has been the United States
dollar. Historically, however, we have raised a substantial amount of our equity
capital in Canadian dollars through offerings in Canada.
Financial information and the financial statements have been prepared
in accordance with generally accepted accounting principles in Canada ("Canadian
GAAP"). Differences between generally accepted accounting principles in the
United States ("U.S. GAAP") and Canadian GAAP are explained in the notes to our
financial statements, in the notes to Bogoso Gold Limited's financial statements
and in the notes to the pro forma financial information set forth in this
prospectus supplement.
All amounts in this prospectus supplement and the accompanying
prospectus or incorporated by reference herein or therein are expressed in
United States dollars, unless otherwise indicated. References to "Cdn." are to
Canadian dollars.
GOLD PRICES AND EXCHANGE RATES
The high and low closing trading price of gold, as provided by the New
York Commodities Exchange ("COMEX"), for the year ended December 31, 1998 were
$314.50 and $274.60, respectively. The closing trading price per ounce of gold
quoted by the COMEX on June 28, 1999 was $261.50. See "Risk Factors--Declines in
the price of gold have an adverse effect on our stock price and business plan."
S-1
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this
prospectus supplement or in the prospectus. This summary does not contain all of
the information that you should consider before investing in the Debentures or
the Units. You should read the entire prospectus supplement and prospectus
carefully and the financial statements and the related notes incorporated by
reference in this prospectus supplement and the prospectus. You should also
consider carefully the information set forth under the captions "Risk Factors"
and "Special Note Regarding Forward-Looking Statements" in this prospectus
supplement and the prospectus.
THE COMPANY
Golden Star Resources Ltd. ("Golden Star," the "Company" or "we") is an
international gold and diamond exploration and development company with a
diverse portfolio of projects, and a 30% non-operating equity interest in the
Omai mine in Guyana. The proposed acquisition (the "Acquisition") of Bogoso Gold
Limited ("BGL") referred to below represents a major shift in our business
strategy from exploration and development into gold production as a mine
operator. Prior to the Acquisition, our core focus has been on the acquisition,
exploration and development of gold and diamond projects and, if appropriate,
the execution of partnership arrangements with major mining companies to develop
and operate mines. We currently have projects in various stages of advancement
in Guyana, French Guiana (through our approximately 71% owned publicly-traded
subsidiary, Guyanor Ressources S.A.), Suriname and Brazil in South America, and
in Ivory Coast and Kenya in Africa.
THE ACQUISITION
BGL is the owner of an operating gold mine and related assets (the
"Bogoso Property") located on the Ashanti Trend in the Republic of Ghana. The
outstanding common shares of BGL (the "BGL Shares") are now owned as follows:
o The Government of Ghana (10%)
o A consortium of banks (the "Banks") (90%)
The Banks acquired their ownership interest in the BGL Shares in
exchange for a portion of the debt owed to them by BGL. BGL owes a total of
approximately $33.6 million (the "BGL Debt") to certain of the Banks. See "The
Acquisition--The Acquisition Agreement--Overview." The Acquisition involves the
purchase of the BGL Shares owned by the Banks and all of the BGL Debt by us and
Anvil Mining NL, a public exploration and development company whose shares are
listed on the Australian Stock Exchange ("Anvil"). The BGL Debt consists of
approximately $28.3 million of interest bearing debt plus accrued interest and
$5.3 million of shareholder advances ("Shareholder Advances") made to BGL by one
of the Banks. The Government of Ghana is entitled to receive approximately
$460,000 of the Shareholder Advances to be repaid by BGL. The remaining BGL Debt
will be repaid by BGL 100% to us and Anvil.
The purchase price for the Acquisition is an initial payment of $12
million on the day that we complete the acquisition. If we commence commercial
production from sulphide mineralized material at the Bogoso Property in the
future, we have agreed to pay an additional $5 million to the Banks on the first
anniversary of such commencement.
Assuming the completion of the total offering covered by this
prospectus supplement, and without giving effect to the exercise of the
Warrants, we expect to receive net proceeds, after
S-2
<PAGE>
deducting approximately $1.3 million for agency fees and offering expenses, of
approximately $11.2 million. The remaining cash requirements for the $12 million
initial purchase price for the acquisition will be funded out of working
capital. To the extent that the net proceeds of this offering are less than
$11.0 million, we intend to borrow the balance of the initial purchase price for
the Bogoso Property under a credit facility (the "Credit Facility").
On completion of the Acquisition, the BGL Shares and BGL Debt will be
directly or indirectly owned as follows:
% of BGL Shares % of BGL Debt
--------------- -------------
Golden Star 70% 77.8%
Anvil 20% 22.2%
The Government of Ghana 10% Nil
The Acquisition represents a major shift in our business strategy.
Prior to the Acquisition, we have historically operated as an exploration and
development company rather than a production company. The Acquisition represents
our initial move into mine operations. We are also pursuing other mining
opportunities including, without limitation, opportunities within Ghana.
We believe that we enhance our financial and operational flexibility by
expanding our production activities through selective acquisition of producing
mines. The enhanced cash flows and liquidity provided by production activities
can be used to cover debt service, operations and development costs while we
consolidate and rationalize our exploration and development activities. We
intend to continue to focus primarily on the gold and diamond sectors, our
historical areas of expertise, within focused geographic areas to achieve
synergies and economies of scale across separately acquired businesses.
As discussed in more detail under the captions "The Bogoso
Property--Reserves and Mineralized Material," we currently estimate that BGL's
mining operations have a life of approximately 12 months based upon existing
reserves of oxide and transition ore at current rates of production. Existing
mineralized material, if converted to reserves at historical conversion rates,
would be expected to extend the existing mine life by up to 8 months, and
sub-grade stockpile material is expected to be sufficient for a further six
months of production, for total anticipated mine life of up to 26 months,
effective March 31, 1999. During this time, we currently anticipate that cash
flow from operations will be sufficient to fund the operating and exploration
costs of the Bogoso Property, our debt service obligations on the Debentures and
on the Credit Facility, if any.
BGL also has existing sulphide mineralized material of approximately
10.3 million tonnes grading 3.3 grams gold per tonne. While the type of mineral
process used by previous owners of the BGL Property to process sulphide ore at
BGL proved unsuccessful, we intend to re-examine the feasibility of processing
the sulphide mineralized material using technology currently used in other
mining operations on similar sulphide mineralized material on the Ashanti Trend.
We are also considering various other transactions that offer the
potential to enhance our operations and financial flexibility at the Bogoso
Property. In particular, we are exploring other mining opportunities in the
region of the Bogoso Property that would provide us with the opportunity to
extend the mine life of the Bogoso Property.
S-3
<PAGE>
RECENT DEVELOPMENTS
Liquidity and Capital Resources
As at May 31, 1999, we held cash and short term investments of
approximately $2.0 million as compared to cash and short term investments of
$13.0 million as at March 31, 1998 and $7.4 million as at December 31, 1998. The
May 31, 1999 cash balance excludes $2.2 million of cash provided as a deposit to
a lending institution as credit support for a letter of credit issued by such
lending institution for a $2.0 million deposit for the Acquisition. The Banks
may draw on the $2.0 million letter of credit and retain the $2 million if we
breach our obligations under the acquisition agreement for the purchase of the
Bogoso Property. The letter of credit is cancellable only in limited
circumstances. If the Acquisition is not completed and we lose our deposit, our
ability to continue as a going concern could be materially and adversely
affected. See "Risk Factors--We currently lack adequate liquidity and capital
resources."
We currently anticipate consolidated total expenditures of $3.8 million
for the balance of 1999, before giving effect to the Acquisition or costs
relating to the Acquisition and to this offering, with consolidated net
expenditures of $3.3 million after recoveries from joint venture partners and
other working capital changes.
Based on current gold prices of approximately $260, revenues from the
Bogoso Property are anticipated to be sufficient to cover all operating and
capital costs for BGL. Cash flow from the Bogoso Property in excess of operating
and capital costs will be used to pay interest and principal on the BGL Debt
purchased by us and Anvil. Any remaining cash will be distributed to us through
dividends on BGL common shares. We will receive all of the interest and
principal distributions from BGL until we recover the $12.0 million initial
purchase price plus all associated acquisition and financing costs incurred by
us. Based on current gold prices, cash distributions to us from Bogoso are
expected to be sufficient to cover the interest on the Debentures and to fund
Golden Star's other operating requirements for at least the next 12 months.
If the necessary approvals from the Government of Ghana are not
provided and the Acquisition is not completed, although we will retain 20% of
the offering proceeds for working capital, we will need to seek alternative
sources of financing to continue to implement our business strategy and fund our
exploration and development activities. To the extent we are unable to secure
such additional financing, our ability to continue as a going concern could be
materially and adversely affected. See "Risk Factors--We currently lack adequate
liquidity and capital resources."
Management Changes
Following completion of the Acquisition, Mr. James Askew, the President
and Chief Executive Officer of our company, will become Chairman of BGL's Board
of Directors and Mr. Peter Bradford, the current Managing Director of Anvil,
will become Managing Director of BGL. Mr. Colin Smith, formerly General Manager
of Ashanti Goldfield's Obuasi mine, will continue in his role as a consultant to
BGL.
We also made important changes in our management in late 1998 and early
1999. Mr. Askew was appointed our President and Chief Executive Officer on March
8, 1999. Prior to joining us, Mr. Askew was President and Chief Executive
Officer of Rayrock Resources. From 1986 to 1996, Mr. Askew served as President
and Chief Executive Officer of Golden Shamrock Mines, Ltd. Before being acquired
by Ashanti Goldfields Limited in October 1996, Golden Shamrock
S-4
<PAGE>
operated four mines, including two mines in Ghana, and had a $20 million annual
exploration budget. Mr. Pierre Gousseland, Chairman of the Company since January
1, 1998, acted as Chief Executive Officer during the interim period following
Mr. David Fennell's resignation as President and Chief Executive Officer on
October 27, 1998.
Rio Tinto Joint Venture
Through our 71% owned subsidiary, Guyanor Ressources S.A., we have
entered into a joint venture with Rio Tinto Mining and Exploration Limited with
respect to all diamond exploration and development conducted in French Guiana.
Under the terms of the agreement, Rio Tinto has an option to earn a 70%
participating interest by funding exploration and development expenditures to a
total of $17 million or by having reached a decision to commence with the
development and mining of diamonds in French Guiana, whichever first occurs. As
part of its total expenditure commitments, Rio Tinto must complete a minimum
expenditure of $750,000 by the first anniversary of the agreement and incur
expenditures of not less than $3.75 million by the fifth anniversary of the
agreement.
BUSINESS STRATEGY
Our business strategy is to pursue, by way of exploration, development
and acquisition, significant interests in gold and diamond mines that generate
shareholder value in a low gold price environment. Our business strategy is
dependent on the availability of adequate capital and is comprised of the
following elements:
o Mergers and acquisitions. In view of the current gold market environment, we
intend to focus on transactions that offer the potential to provide cash or cash
flows. Such transactions will be evaluated based on the then prevailing gold
price. We continue to pursue new opportunities and may, if warranted, make
selective acquisitions, particularly when such acquisitions complement our shift
toward emphasizing production activities. Various transactions being considered
include merging with other companies and acquisitions of operating mines, such
as the Bogoso Property.
o Joint ventures with major mining companies. We intend to continue to leverage
our capital by entering into partnership arrangements with major mining
companies that have the technical skills and financial resources to explore and
develop existing mineral exploration properties. This strategy enables us to
transfer a portion of the business and financial risks associated with
particular projects to our partners and, therefore, minimize our expenditures.
Our recently announced agreement with Rio Tinto is an example of this strategy.
o Consolidate exploration and development activities. We plan to continue to
rationalize our existing portfolio of exploration and development properties,
advancing only the most promising projects and generally reducing general and
administrative costs wherever feasible. We also intend to evaluate our most
advanced projects to determine possible development scenarios using the existing
gold price. To preserve financial resources, early and intermediate stage
exploration and development projects have been or are being placed on care and
maintenance.
S-5
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Use of Proceeds........................... We intend to use approximately $11.2 million of the net
proceeds from this offering, together with existing working
capital, to finance the Acquisition referred to in this prospectus
supplement. If we raise less than $11.0 million in net proceeds
from this offering, we intend to borrow the balance of the
initial purchase price for the Bogoso Property under the Credit
Facility. See "Use of Proceeds."
Escrow Arrangements; Return of
Purchase Price........................ Eighty percent of this offering is contingent upon the closing of
the Acquisition. Upon the closing of this offering, the
securities and 80% of the gross proceeds will be placed in
escrow pending completion of the Acquisition and the
remaining 20% of the proceeds will be directly delivered to us.
If we do not complete the acquisition by December 10, 1999,
then (1) the escrowed proceeds from the sale of the Units, plus
interest thereon, will be returned to you, (2) the escrowed
proceeds from the sale of the Debentures will be delivered to
us and all of the Debentures will be delivered to you, and we
will then be required to repurchase 80% of the principal
amount of the Debentures from each of you pursuant to a
special mandatory redemption and (3) 20% of the Debentures
and the Units will be delivered to you and will remain outstanding.
See "The Acquisition--The Acquisition Agreement--Conditions for
Closing" and "Use of Proceeds--Escrow Arrangements" and
"Description of the Debentures--Special Mandatory Redemption."
Broker Warrants........................... As part of the compensation payable to the agents in
connection with this offering, and assuming the completion of
the total offering covered by this prospectus supplement, we
will issue to the agents (1) upon completion of this offering,
common share purchase warrants to purchase 625,000 common
shares and (2) upon completion of the Acquisition, common
share purchase warrants to purchase an additional 625,000
common shares. See "Plan of Distribution."
Exchange Listings for Common Our common shares trade on the American Stock Exchange
Shares................................ under the symbol "GSR" and on the Toronto Stock Exchange
under the symbol "GSC."
The Debentures
Debentures Offered........................ $8,000,000 aggregate principal amount of 7.50% Subordinated
Convertible Debentures due 2004.
Maturity.................................. July [ ], 2004.
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Interest.................................. 7.50% per annum on the principal amount, payable semi-
annually in arrears in cash on January 15 and July 15 of each
year, commencing on January 15, 2000.
Conversion Rights......................... The Debentures will be convertible into common shares of our
company at any time, at the conversion rate of 1,333 common
shares per $1,000 principal amount of Debentures. Holders of
Debentures called for redemption will be entitled to convert the
Debentures up to and including, but not after, the date fixed
for redemption.
Subordination............................. The Debentures are subordinated to our present and future
Senior Indebtedness (as defined below). The Debentures are
also effectively subordinated in right of payment to all
indebtedness and other liabilities of the our subsidiaries. As of
March 31, 1999, the aggregate amount of outstanding
consolidated Senior Indebtedness of our company was
approximately $2.5 million. As of March 31, 1999, our
subsidiaries owed approximately $1.0 million of indebtedness.
The indenture will not restrict the incurrence of Senior
Indebtedness or other indebtedness by us or any of our
subsidiaries.
Optional Redemption....................... The Debentures are not redeemable before July __, 2002. The
Debentures shall be redeemable at our option at the redemption
prices set forth herein, plus any accrued interest on and after
July __, 2002 if the last reported Market Price (as defined
below) of our common shares as reported on the close of
business for any 20 consecutive trading days ending not more
than five business days before the giving of notice of such
redemption is at least 125% of the conversion price. See
"Description of the Convertible Debentures--Redemption
--Optional Redemption."
Additional Amounts and Redemption......... We will pay Additional Amounts (as defined below), subject to
for Taxation Reasons certain exceptions, in order that the holders of the Debentures
receive the full amount of the principal, premium, if any, and
interest specified therein without deduction for or on account of
Canadian withholding taxes. In the event that we must pay Additional
Amounts, the Tax Affected Debentures (as defined below) will be
redeemable at our option, in whole but not in part, at 100% of the
principal amount thereof, plus any accrued interest to the redemption
date (together with any Additional Amounts payable in respect of
Canadian withholding taxes).
Exchange Listing for Debentures........... We will use our best efforts to list the Debentures on a stock
exchange in Canada.
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
The Units
<S> <C>
Units .................................... Each Unit consists of one Common Shares and one-half of one
Warrant at no additional cost. The price per unit is $0.6875.
Each whole Warrant entitles the holder to purchase one
common share for a price of $0.75 for a period of 18 months
after the closing of this offering.
Common Shares Outstanding
Following the Offering................ 36,183,686 shares, excluding 6,022,727 shares to be reserved
for issuance upon exercise of Warrants issued to purchasers of
common shares, broker warrants and warrants held by the
lender under the Credit Facility. This amount excludes
3,907,924 shares to be reserved for issuance pursuant to other
warrants and employee benefit and stock option plans.
</TABLE>
Ratio of Earnings to Fixed Charges
We have not had earnings as described in Rule S-X Item 503 for any of the
last five years. As such we have had a deficiency in the ratio of earnings to
fixed charges as follows:
Ratio of Earnings
to Fixed Charges
Deficiency
------------------------
March 31, 1999 $ 6,000
1998 $ 36,000
1997 $ 22,000
1996 $ 189,000
1995 $ 8,000
1994 $ -
------------------------
Our head office is located at 1660 Lincoln Street, Suite 3000, Denver,
Colorado 80264-3001, and our registered and records office is located at 19th
Floor, 885 West Georgia Street, Vancouver, British Columbia V6C 3H4. The main
telephone number of our head office is (303) 830-9000.
S-8
<PAGE>
RISK FACTORS
You should carefully consider the following risks and the risks set
forth in the accompanying prospectus as well as the other information contained
or incorporated by reference into this prospectus supplement and the
accompanying prospectus before purchasing the Debentures or the Units.
We currently lack adequate liquidity and capital resources.
We have limited financial resources. To date, and for the reasonably
foreseeable future, our existing exploration and development activities have not
generated, and are not expected to generate, substantial cash flows.
As at May 31, 1999, we held cash and short term investments of
approximately $2.0 million as compared to cash and short term investments of
$13.0 million as at March 31, 1998 and $7.4 million as at December 31, 1998. The
May 31, 1999 cash balance excludes $2.2 million of cash provided as a deposit to
a lending institution as credit support for a letter of credit issued by such
lending institution for a $2.0 million deposit for the Acquisition. The Banks
may draw on the $2.0 million letter of credit and retain the $2 million if we
breach our obligations under the acquisition agreement for the purchase of the
Bogoso Property. The letter of credit is cancellable only in limited
circumstances. If the Acquisition is not completed and we lose our deposit, our
ability to continue as a going concern could be materially and adversely
affected.
The execution of our business strategy going forward will require
significant expenditures, including debt service on the Debentures and, to the
extent that the net proceeds from this offering are less than $11 million, on
the Credit Facility. Following the Acquisition, such expenditures may exceed
revenues and free cash flows generated by BGL and our other operations.
Although we will retain 20% of the gross proceeds of this offering if
we do not complete the Acquisition, we would need to pursue other capital
raising activities. As stated in Note 3 to our consolidated financial statements
for the fiscal year ended December 31, 1998 incorporated by reference in this
prospectus supplement and in our auditors' report with respect to the financial
statements, the failure to raise additional capital could materially and
adversely affect our operations and our ability to continue as a going concern.
The current low world market price of gold adversely affects our
ability to obtain financing and therefore our abilities to develop our current
portfolio of properties. If these conditions persist for an extended period of
time, we may, in the future, be unable to continue our exploration or
development programs and fulfill our obligations under our agreements with our
partners or under our permits and licenses. We cannot assure you that in the
future 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.
Declines in the price of gold have an adverse effect on our stock price and
business plan.
We described certain risks associated with fluctuating gold prices
under "Risk Factors--Risks Associated With The Fluctuation of Gold Prices" in
the accompanying prospectus. The price of our common shares and our business
plan have been and may in the future be significantly adversely affected by
recent or sustained declines in the price of gold. Gold prices often vary widely
and are affected by numerous factors beyond our control, such as the sale or
purchase of gold by various central banks and financial institutions, inflation
or deflationary conditions, fluctuation of the United
S-9
<PAGE>
States dollar and foreign currencies, global and regional demand, and the
political and economic conditions of major gold-producing countries throughout
the world. The weakness of gold prices is illustrated in the following table
which sets forth the average of the daily closing price per ounce for gold for
the periods indicated:
January 1, 1999
to Year Ended
June 28, 1999 December 31,
---------------------- -------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
$280.63 $294.30 $340.00 $388.00 $384.00 $384.00
At June 28, 1999, the closing price for gold was $261.50 per ounce.
We continue to experience substantial losses.
We have reported net losses of approximately $22.2 million in 1998,
$26.6 million in 1997, $7.8 million in 1996, $12.2 million in 1995 and $8.8
million in 1994. We expect to report a net loss in the current year and may
incur losses in the future. Future operating losses may make financing our
operations and our business strategy or raising additional capital difficult or
impossible, materially and adversely affecting our operations and our ability to
continue as a going concern.
Through the Acquisition, we are shifting our business strategy away from mineral
exploration toward an emphasis on mining operations.
The Acquisition represents a shift in our business strategy toward
mining production rather than focusing on mineral exploration. We are also
currently pursuing other mining opportunities. We may not be successful in
implementing this shift in strategy. Any business acquired, including the Bogoso
Property, may be difficult to integrate into our existing operations or may not
perform as well as expected. If we are unable to successfully implement our
business strategy, this could have a material adverse effect on our financial
condition and results of operations.
Our shift in business strategy could strain our management, financial
and other resources. We also cannot assure you that this shift in business
strategy will not interfere with our existing operations. Following the
Acquisition, we intend to operate the Bogoso mine, a role in which we have
limited experience. The Acquisition will also demand substantial management
resources and the shifting of our management focus away from other business
concerns.
We may not be able to extend the life of the mine beyond existing reserves.
Existing oxide and transition ore reserves at the Bogoso Property are
expected to be sufficient to maintain feed to the processing mill for
approximately 12 months, effective March 31, 1999, and sub-grade stockpile
material is expected to be sufficient for a further 6 months of production.
While existing mineralized material, if converted to reserves at historical
conversion rates, is anticipated to extend mine life by up to a further 8
months, there is no assurance that such mineralized material will ever be
classified as reserves or will prove to be economic. Furthermore, it is
essential that we discover additional oxide mineralized material and establish
reserves to extend the life of the mining operation. Actual results from mining
and processing existing resources of mill feed may also differ materially from
historical production rates and costs. Any of these factors could result in our
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inability to generate sufficient cash flow to cover our operating and
exploration expenses on the Bogoso Property and to service the Debentures and
any amounts under the Credit Facility, which would adversely affect our
financial liquidity and results of operations.
The technology and cost of production of sulphide mineralized material at the
Bogoso Property may prove infeasible or uneconomic to warrant processing the
material.
While sulphide mineralized material exists on the Bogoso Property,
technology used by previous owners to process sulphide ore has proved
unsuccessful. While we intend to re-examine the feasibility of processing the
sulphide mineralized material using other proven technology, there can be no
assurance this would become feasible under any circumstances.
If we determine that mining of sulphide mineralized material is
feasible, we would need to establish sufficient reserves of sulphide ore to
justify establishing such an operation. There is no assurance that such reserves
exists, or can be established. Furthermore, mining and processing of sulphide
ore would require significant amounts of capital necessary for the design and
construction of such an operation. We do not currently have access to such
capital and funding may be unavailable, whether from internal or external
sources, in the necessary amounts and on acceptable terms, or at all.
Cash flows from operation of the Bogoso Property may be insufficient to meet our
obligations.
Cash flows from operation of the Bogoso Property may be insufficient to
cover future operating and exploration costs at the mine and to service the
Debentures and any amounts owing under the Credit Facility. In addition,
operating and exploration costs could be materially higher than previously
estimated. Insufficient cash flows at BGL or higher than expected costs could
result in a significant deterioration in our ability to conduct mining and
exploration activities as well as significant penalties under the Credit
Facility if drawn upon.
If we do not complete the Acquisition, we will retain 20% of your investment and
return the balance to you with interest.
The completion of the Acquisition is dependent upon, among other
things, the prior approval of the Ghanaian government, a process which could
require several months to complete. Eighty percent of your investment in this
offering will be placed in escrow and will not be released until immediately
before the completion of the Acquisition to fund a portion of the $12 million
initial payment for the Bogoso Property. If we do not complete the Acquisition,
your proportionate share of the escrowed proceeds from the sale of the Units
will be returned to you with interest. The escrowed proceeds from the sale of
the Debentures will be delivered to us, the Debentures will be released to you
and we will be required to repurchase 80% of the principal amount of the
Debentures (on a pro rata basis) pursuant to a special mandatory redemption at a
purchase price equal to the principal amount of the Debentures being purchased,
plus accrued and unpaid interest. We will also retain 20% of the gross proceeds
from the sale of the Debentures and Units. There can be no assurance as to the
duration of the governmental approval process or that we will ultimately receive
approval to complete the Acquisition. See "The Acquisition--The Acquisition
Agreement--Conditions for Closing" and "Description of the Convertible
Debentures--Special Mandatory Redemption."
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We may have insufficient funds available to service our obligations under the
Debentures after the anticipated mine life at the Bogoso Property expires.
We may experience difficulties in satisfying our obligations under the
Debentures because the mine life at the Bogoso Property is expected to be
shorter than the term of the Debentures. Currently, we anticipate the mine life
to be 26 months from March 31, 1999 while the term of the Debentures is five
years. If we are unable to extend the mine life beyond its anticipated
usefulness or are not successful in generating sufficient free cash flow from
other operations or sources, our ability to repay amounts outstanding under the
Debentures would be materially and adversely affected.
Our obligations following this offering may strain our financial position and
impede our business strategy.
After this offering, we will have a significant amount of indebtedness
under the Debentures and, potentially, the Credit Facility. This indebtedness
may have important consequences, including the following:
o increasing our vulnerability to general adverse economic and
industry conditions;
o limiting our ability to obtain additional financing to fund
future working capital, capital expenditures, operating and
exploration costs and other general corporate requirements;
o requiring us to dedicate a significant portion of our cash
flow from operations to make debt service payments, which
would reduce our ability to fund working capital, capital
expenditures, operating and exploration costs and other
general corporate requirements;
o limiting our flexibility in planning for, or reacting to,
changes in our business and the industry; and
o placing us at a disadvantage when compared to those of our
competitors that have less debt relative to their
capitalization.
The payment of principal and interest on our indebtedness is dependent on the
ability of our subsidiaries and joint ventures to make distributions to us.
We are a holding company that conducts a significant amount of our
operations through foreign (African and South American) subsidiaries and joint
ventures, and substantially all of our assets consist of equity in such
subsidiaries and joint ventures. Accordingly, we are and will be dependent on
our ability to obtain funds from our subsidiaries and joint ventures to service
our indebtedness, including the Debentures and the Credit Facility, if drawn
upon.
Payment of principal and interest on the Debentures is junior in right of
payment to existing and future senior debt, and effectively junior in right of
payment to the obligations of our subsidiaries.
The Debentures will be unsecured and subordinated in right of payment
in full to all existing and future Senior Indebtedness of our company. As a
result of such subordination, in the event of a bankruptcy, liquidation or
reorganization of our company or upon acceleration of the Debentures due to an
event of default, our assets would be available to pay obligations on the
Debentures only after
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all Senior Indebtedness had been paid in full, and there might not be sufficient
assets remaining to pay amounts due on any or all of the Debentures then
outstanding. The Debentures are structurally subordinated to the liabilities,
including trade payables, of our subsidiaries.
The indenture governing the Debentures does not prohibit or limit the
incurrence of Senior Indebtedness or the incurrence of other indebtedness and
other liabilities by our company or our subsidiaries, and the incurrence of
additional indebtedness and other liabilities by us or our subsidiaries could
adversely affect our ability to pay our obligations on the Debentures. At March
31, 1999, we had approximately $2.5 million of outstanding consolidated Senior
Indebtedness and our subsidiaries had approximately $1.0 million of outstanding
indebtedness. We may from time to time incur additional indebtedness, including
Senior Indebtedness, and our subsidiaries may from time to time incur other
additional indebtedness and liabilities. See "Description of the
Debentures--Subordination" and "Use of Proceeds."
A court could take action detrimental to the interest of holders of the
Debentures.
The rights of the trustee under the indenture governing the Debentures
to enforce remedies are likely to be significantly impaired by the restructuring
provisions of applicable Canadian federal bankruptcy, insolvency and other
restructuring legislation if the benefit of such legislation is sought with
respect to our company. For example, both the Bankruptcy and Insolvency Act
(Canada) and the Companies' Creditors Arrangements Act (Canada) contain
provisions enabling an "insolvent person" to obtain a stay of proceedings
against its creditors and others and to prepare and file a proposal for
consideration by some or all of its creditors to be voted on by the various
other classes of its creditors. Such a restructuring proposal, if accepted by
the requisite majorities of the creditors and if approved by the court, would be
binding on persons (such as holders of the Debentures) who might not otherwise
be willing to accept it. Moreover, this legislation permits, in certain
circumstances, the insolvent debtor to retain possession and administration of
its property, even though it may be in default under the applicable debt
instrument.
The powers of the court under the Bankruptcy and Insolvency Act and
particularly under the Companies' Creditors Arrangements Act have ben exercised
broadly to protect a restructuring entity from actions taken by creditors and
other parties. Accordingly, it is impossible to predict if payments under the
Debentures would be made following commencement of or during such a proceeding,
whether or when the trustee could exercise its rights under the indenture or
whether and to what extent holders of the Debentures would be compensated for
any delays in payments, if any, of principal and interest.
It may be difficult to resell the Debentures.
Prior to this offering, there has been no trading market for the
Debentures. We will use our best efforts to list the Debentures on an exchange
in Canada. However, we may not be successful. Although the agents have advised
us that they currently intend to make a market in the Debentures, they are not
obligated to do so and may discontinue such market making at any time without
notice. In addition, such market making activity will be subject to the limits
imposed by the Securities Act of 1933 and the Securities Exchange Act of 1934.
Accordingly, there can be no assurance that any market for the Debentures will
develop or, if one does develop, that it will be maintained. This would be
particularly true if we do not complete the Acquisition and only 20% of the
Debentures remain outstanding following the termination of the Acquisition. If
an active market for the Debentures fails to develop or be sustained, the
trading price of the Debentures could be materially adversely affected.
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Difficulties in preserving relations with employees at BGL could have an adverse
effect on our financial condition and results of operations.
Thirty-two percent of the staff at BGL currently work in the mining
department and all of the junior staff are members of the Ghana Mineworkers'
Union. The management at BGL are presently involved in the renegotiation of the
collective agreement covering the junior staff. In the event those or other
future staff members were to engage in a strike or other work stoppage because
of disagreement over the collective agreement or otherwise, we could experience
a significant disruption of our operations at the Bogoso Property and higher
ongoing labor costs, which could have a material adverse effect on our business,
financial condition and results of operations.
BGL intends to terminate the employment of its union employees and
certain of its non-union employees on our about the Acquisition Date. The
termination of these employees will require BGL to pay them an estimated $3
million in severance pay, accrued holiday entitlements and other redundancy
payments. BGL will negotiate with such employees with a view to agreeing on,
among other things, the amount of severance pay that BGL will be required to pay
them and the terms and conditions under which BGL may agree to rehire some or
all of those employees. BGL will set aside approximately $3 million on the
Acquisition Date in a special purpose bank account to pay the estimated amount
of the severance pay owing to its employees. These funds may be insufficient to
cover the final costs of the severance pay. In addition, BGL's negotiations may
not result in satisfactory agreements being reached with all of the terminated
employees.
We are subject to changes in the regulatory environment in Ghana.
Our mining operations and exploration activities in Ghana will be
subject to extensive regulation governing licensing, development, production,
exports, taxes, labor standards, occupational health and safety, water disposal,
toxic substances, environmental protection, mine safety and other matters.
Compliance with these regulation increases the costs of planning, designing,
drilling, developing, constructing, operating and closing mines and other
facilities. We believe that BGL is currently in substantial compliance with
current laws and regulations. However, such laws and regulations are subject to
constant change. Amendments to current laws and regulations governing operations
and activities of mining companies or more stringent implementation or
interpretation thereof could have a material adverse impact on us, cause a
reduction in levels of production and delay or prevent the development our
expansion of the Bogoso Property.
Government regulations limit the proceeds from gold sales which may be
withdrawn from Ghana. Changes in regulations which increase these restrictions
would have a material adverse impact on us as the Bogoso Property will be our
principal cash generating asset.
We are subject to fluctuations in currency exchange rates.
We conduct all of our exploration and development in countries other
than Canada and the United States. Much of our funding has historically been
through equity financing transactions completed in Canada and in Canadian
currency. We currently maintain all or the majority of our working capital in
U.S. dollars or U.S. dollar denominated securities and convert funds to foreign
currencies as payment obligations come due. In addition, we currently have
future obligations which are payable in French francs and receivables
collectible in French francs. Finally, a significant portion of the operating
costs at the Bogoso Property are based on the Ghanaian currency, the Cedis. BGL
is currently required to convert only 20% of the foreign exchange proceeds that
BGL receives from selling gold into Ghanaian Cedis, but the Government of Ghana
may require BGL to convert a higher percentage of such sales proceeds into
Ghanaian Cedis in the future.
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We currently do not actively take steps to hedge against currency
exchange risks. Accordingly, we are subject to fluctuations in the rates of
currency exchange between the U.S. dollar and these currencies, and such
fluctuations may materially affect our financial position and results of
operations.
The regulatory framework in Ghana may delay the completion of the Acquisition or
dilute our interest in BGL.
The Ghana Minerals and Mining (Amendment) Act imposes close
governmental control on the control and ownership of mining companies. Under
this Act, we cannot legally become a controlling shareholder of BGL until we
notify the Minister for Mines and Energy and receive written notification of no
objection. In effect, this Act gives the Minister the power to object to the
change of control of any mining company in Ghana.
The Government of Ghana has the right to participate in the ownership and
control of BGL.
The Ghanaian government currently has a 10% carried interest in BGL.
The Ghanaian Government also has the right to acquire an additional 20% equity
interest in BGL for a price to be determined by agreement or arbitration. There
can be no assurance that the government will not seek to acquire an additional
equity interest in the mine, or as to the purchase price that the Government of
Ghana will pay for any additional equity interest. A reduction in our equity
interest could reduce our income or cash flows from BGL or the Bogoso Property
and amounts available for reinvestment or distribution. The Government of Ghana
also has the right to receive a special share of BGL that will entitle it to
receive notices of and attend but not vote at meetings of the BGL shareholders
and that will require the Government of Ghana to consent to certain
transactions. See "The Bogoso Property--Mining Regime."
Our insurance coverage may be insufficient.
Although we maintain insurance in amounts which we believe to be
reasonable, this insurance may not cover the risks associated with our business.
We may also be unable to maintain insurance to cover these risks at economically
feasible premiums. Such insurance may not continue to be available or may not be
adequate to cover any resulting liability. Moreover, insurance against risks
such as environmental pollution or other hazards as a result of exploration and
production is not generally available to us or to other companies in the
industry on acceptable terms. We might also become subject to liability for
pollution or other hazards which we cannot insure against or which we may elect
not to insure against because of premium costs or other reasons. Losses from
such events may cause us to incur significant costs that could have a material
adverse effect upon our financial performance and results of operations.
We have had to restate estimates of mineralized inventories in the past.
We described certain risks and uncertainties inherent in estimating
reserves and mineralized inventories under "Risk Factors--Uncertainty of Reserve
and Other Mineralization Estimates" in the accompanying prospectus. In the past,
we have had to revise certain estimates we made in calculating mineralized
inventory at two of our projects. Consequently, we prepared new estimates and
put controls in place to address past estimation methods. However, we cannot
assure you that revisions to our estimates will not be required in the future.
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Reduced estimates of reserves and delays in development due to recent declines
in the price of gold.
We described certain risks associated with fluctuating gold prices
under "Risk Factors--Risks Associated With The Fluctuation of Gold Prices" in
the accompanying prospectus. In the past year some of these risks have
materialized because of a continued decline in world gold prices. Accordingly,
over the last year, we have reduced the estimates of our reserves on various
properties. These reductions reflect our decision to re-estimate our reserves
using significantly lower gold prices. If gold prices continue at current levels
or decline further we may initiate additional significant write-downs of these
reserves.
In addition, because of continued lagging gold prices we have postponed
development of the Gross Rosebel project. Should gold prices remain at their
current levels or decline further for an extended period, we may further
postpone development at Gross Rosebel.
We have experienced several management and personnel changes.
We described certain risks associated with our dependence on key
personnel under "Risk Factors-Dependence On Key Personnel" in the accompanying
prospectus. Due to recent changes in our management structure adopted by the
Board of Directors in October 1998, certain key personnel referred to no longer
work for Golden Star. These include our former President and Chief Executive
Officer, David A. Fennell, who resigned in October 1998, and our former
Executive Vice President, Exploration, Adrian Fleming, who resigned in November
1998. James E. Askew was appointed President and Chief Executive Officer on
March 8, 1999, prior to which time Pierre Gousseland served as Acting Chief
Executive Officer. The functions previously carried out by Mr. Fleming are now
delegated to several of our other employees.
We face political risks in French Guiana.
French Guiana has no history or tradition of large-scale commercial
mining. Regulatory risk may increase as projects become more advanced and
applications are made for all of the various permits required to develop a
modern mining operation. This risk includes regulatory-related delays and/or
failures to receive required permits. French Guiana's mining tradition is
small-scale, alluvial gold mining, which began in 1855 and is reported to have
resulted in approximately 5.4 million ounces (175 tonnes) produced since. These
small-scale miners, called orpailleurs, often operate in or near the area being
explored by Guyanor as well as areas most other firms actively explore. Certain
groups of orpailleurs have organized and represent a political force locally
that has sought to gain exclusive preference to near-surface mineralization
throughout French Guiana, regardless of the legal rights of legitimate permit
holders under French law. The issues of orpailleurs preference to near- surface
mineralization is a political risk specific to French Guiana that could lead to
project delays and/or disputes regarding the rights to the near-surface portion
of commercial gold deposits in French Guiana.
You may be subject to adverse tax consequences if we are classified as a Passive
Foreign Investment Company.
Under the United States Internal Revenue Code of 1986, we may be
classified as a passive foreign investment company (a "PFIC"). United States
shareholders of a PFIC are subject to certain adverse tax consequences, as
discussed below. The consequences can be mitigated, under certain circumstances,
if the United States shareholder makes a timely election to treat our company as
a "qualified electing fund" (a "QEF").
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We have been advised by PricewaterhouseCoopers LLP that we should not
be treated as a PFIC with respect to shares purchased by United States
shareholders during the years 1993 through 1998, although we could potentially
be a PFIC with respect to shares acquired by United States shareholders prior to
1993. We also intend to engage PricewaterhouseCoopers LLP, or such other
advisor, in the future to analyze whether we are a PFIC in 1999 and subsequent
years and will continue to notify shareholders of the results of such future
analyses.
There can be no assurance, with or without giving effect to the
contemplated Acquisition, as to whether or not PricewaterhouseCoopers LLP, or
such other advisor, will conclude that we are a PFIC for such period. Moreover,
even if PricewaterhouseCoopers LLP, or such other advisor, concludes that we are
not a PFIC, its conclusion is not binding on the United States Internal Revenue
Service. Accordingly, it is possible that the PFIC rules will apply with respect
to the Debentures and Units purchased in this offering.
You are urged to consult your own tax advisor about the advisability of
making a QEF election with respect to our company and about the possibility of
crediting Canadian taxes paid against United States taxes payable. See "Certain
United States Federal Income Tax Considerations" in this prospectus supplement
and in the accompanying prospectus and "Market for the Registrant's Common
Equity and Related Stockholder Matters--Certain United States Income Tax
Considerations" in our Annual Report on Form 10-K for the year ended December
31, 1998, incorporated by reference in this prospectus supplement and in the
accompanying prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements that are not historical facts contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus are
forward-looking statements. Such forward-looking statements include statements
regarding:
o the timing, costs and terms of the Acquisition and the
financing of the Acquisition;
o the impact the Acquisition has on our future liquidity, cash
flows, financial requirements, operating results and capital
resources;
o the operational and financial performance of BGL following the
Acquisition;
o targets for gold production;
o the impact of our shift in business strategy;
o cash operating costs and expenses;
o percentage increases and decreases in production from our
mines;
o schedules for completion of detailed feasibility studies and
initial feasibility studies;
o potential increases in reserves and production;
o the timing and scope of future drilling and other exploration
activities;
o expectations regarding receipt of permits and commencement of
mining or production;
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o the factors set forth under the caption "Risk Factors" in this
prospectus supplement, the prospectus and in our Report on
Form 10-K for the year ended December 31, 1998;
o anticipated recovery rates; and
o potential acquisitions or increases in property interests.
Factors that could cause our actual results to differ materially from
these statements include changes in gold prices, unanticipated grade,
geological, metallurgical, processing, access, transportation of supplies, water
availability or other problems, results of current exploration activities,
results of pending and future feasibility studies, changes in project parameters
as plans continue to be refined, political, economic and operational risks of
foreign operations, joint venture relationships, availability of materials and
equipment, the timing of receipt of governmental permits, capitalization and
commercial viability, the failure of plant, equipment or processes to operate in
accordance with specifications or expectations, accidents, labor disputes,
delays in start-up dates, environmental costs and risks, the outcome of
acquisition negotiations and general domestic and international economic and
political conditions.
These and other factors are discussed in "Risk Factors," "The
Acquisition," "The Bogoso Property," and "Recent Developments" in this
prospectus supplement and "Risk Factors" in the accompanying prospectus. You are
cautioned not to put undue reliance on forward-looking statements. We disclaim
any intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.
THE ACQUISITION
Overview of Acquisition
The Bogoso Property is an operating gold mine located in Ghana, a
country situated on the west coast of Africa. BGL, a Ghanaian company, owns the
Bogoso Property. The Government of Ghana owns 10% of the BGL Shares. A
consortium of Banks headed by the International Finance Corporation ("IFC") owns
90% of the BGL Shares. BGL owes the BGL Debt of approximately $33.6 million to
two of the Banks. In the Acquisition, we and Anvil propose to acquire directly
or indirectly all of the BGL Shares owned by the Banks and all of the BGL Debt.
The BGL Debt consists of approximately $28.3 million of interest-bearing debt
plus accrued interest and $5.3 million of Shareholder Advances made to BGL. The
Government of Ghana is entitled to receive approximately $460,000 of the
Shareholder Advances to be repaid by BGL. We and Anvil will be entitled to
receive 100% of the remaining BGL Debt.
The Acquisition involves an initial cash payment of $12 million on the
date of closing of the Acquisition. If we commence commercial production of
sulphide mineralized material at the Bogoso Property in the future, we or one of
our affiliates will be required to pay an additional $5 million to the Banks on
the first anniversary of such commencement.
Assuming the completion of the total offering covered by this
prospectus supplement, and without giving effect to the exercise of the
Warrants, we expect to receive net proceeds, after deducting approximately $1.3
million for agency fees and offering expenses, of approximately $11.2 million.
The remaining cash requirements for the $12 million initial purchase price for
the Acquisition will be provided by existing working capital. To the extent that
the net proceeds of this
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offering are less than $11.0 million, we intend to borrow, or arrange for one of
our affiliates to borrow, the difference under the Credit Facility for purposes
of paying the initial purchase price.
Purposes and Effects of the Acquisition
On completion of the Acquisition, the BGL Shares and BGL Debt will be
owned directly or indirectly as follows:
% of BGL Shares % of BGL Debt
--------------- -------------
Golden Star 70% 77.8%
Anvil 20% 22.2%
The Government of Ghana 10% Nil
The Acquisition represents a major shift in our business strategy.
Prior to the Acquisition, we have historically operated as an exploration and
development company rather than a production company. The Acquisition represents
our initial move into mine operations. We are also pursuing other mining
opportunities including, without limitation, opportunities within Ghana.
We believe that we enhance our financial and operational flexibility by
expanding our production activities through selective acquisition of producing
mines. The enhanced cash flows and liquidity provided by production activities
can be used to cover debt service, operations and development costs while we
consolidate and rationalize our exploration and development activities. We
intend to continue to focus primarily on the gold and diamond sectors, our
historical areas of expertise, within focused geographic areas to achieve
synergies and economies of scale across separately acquired businesses.
As discussed in more detail under the captions "The Bogoso
Property--Reserves and Mineralized Material," we currently estimate that BGL's
mining operations have a life of approximately 12 months based upon existing
reserves of oxide and transition ore at current rates of production. Existing
mineralized material, if converted to reserves at historical conversion rates,
would be expected to extend the mine life by up to 8 months, and sub-grade
stockpile material is expected to be sufficient for a further 6 months of
production, for a total anticipated mine life of up to 26 months, effective
March 31, 1999. During this time, we currently anticipate that cash flow from
operations will be sufficient to fund the operating and exploration costs of the
Bogoso Property, the debt service obligations on the Debentures and on the
Credit Facility, if any. On a longer term basis, we hope to discover additional
oxide and transition mineralized material and establish additional reserves, and
to examine the feasibility of introducing a new sulphide mining and processing
operation for the sulphide mineralized material.
We are also considering various other transactions that offer the
potential to enhance our operations and financial flexibility at the Bogoso
Property. In particular, we are exploring other mining opportunities in the
region of the Bogoso Property that would provide us with the opportunity to
extend the life of the Bogoso Property. See "The Bogoso Property--Reserves and
Mineralized Material."
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Heads of Agreement with Anvil
Overview
We expect to enter into a Heads of Agreement (the "Anvil Agreement")
with Anvil, substantially on the terms described below, under which we and
Anvil, pursuant to a joint venture or other arrangement that we and Anvil will
establish, will agree to acquire the BGL Shares and the BGL Debt and operate the
Bogoso Property jointly. Our company will hold a direct or indirect 77.8%
interest ("Participating Interest") in, and Anvil will hold a direct or indirect
22.2% Participating Interest and our company will control, the arrangement.
Loan to Anvil
Our company or one of our affiliates will provide all of the funds for
the initial $12 million purchase price and other acquisition costs for the
Acquisition, including any costs associated with the Credit Facility
(collectively, the "Bogoso Acquisition Costs"). We or our affiliate will provide
Anvil or one of its affiliates a loan (the "Anvil Loan") to fund Anvil's share
of the Bogoso Acquisition Costs. We will charge Anvil interest at a rate of 15%
per year compounded monthly. All of the cash distributions from the Bogoso
Property, including Anvil's share, that are not paid to the Government of Ghana,
will be paid to our company until we have received all of the Bogoso Acquisition
Costs.
Security for Anvil Loan
Anvil will grant a security interest over Anvil's Participating
Interest in the BGL Shares and BGL Debt, and will also cause BGL to grant a
security interest in all of BGL's assets, including the Bogoso Property. In the
event we or our affiliate draw down any funds under the Credit Facility, the
security granted by Anvil will rank second in right of payment behind the
similar security that the lender of the Credit Facility will hold to secure its
repayment. See "--The Credit Facility." If Anvil does not repay the Anvil Loan,
we will be able to enforce the security interests against Anvil's Participating
Interest in the BGL Shares and BGL Debt and against BGL's assets, but we will
not have any other rights against Anvil or Anvil's other assets.
Anvil's Share of the Deposit
If we do not complete the Acquisition for reasons that are not our
fault, but the Banks draw on the $2 million letter of credit for the deposit
referred to under "--The Acquisition Agreement--$2 Million Deposit," Anvil will
pay us Anvil's 22.2% share of such deposit and the other Bogoso Acquisition
Costs. Anvil will make this payment by issuing Anvil common shares ("Anvil
Shares") to us. The number of Anvil Shares that Anvil will issue will be equal
to the amount owed by Anvil divided by the weighted average price of the Anvil
Shares on the Australian Stock Exchange for the ten trading days before the date
that the Banks draw on the letter of credit.
Anvil Shares and Options
In consideration for the Anvil Loan, Anvil will issue to us options
(the "Anvil Options") that will entitle us to purchase, at any time during the
two-year period after we complete the Acquisition, up to 7 million Anvil Shares
at a price of Australian $0.10 per share. Anvil will issue Anvil Options for 3.5
million Anvil Shares as of the date we signed the acquisition agreement and will
issue Anvil Options for the remaining 3.5 million Anvil Shares when we complete
the Acquisition. Anvil will not issue the Anvil Options unless it receives
approval to do so from the Australian Stock Exchange. If Anvil does not receive
approval to issue such Anvil Options to us, Anvil will instead issue 3 million
Anvil Shares to us, 1.5 million to be issued as of the date we signed the
Acquisition Agreement and
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another 1.5 million when we complete the Acquisition. In addition, before
issuing any Anvil Shares, Anvil will give us a pre-emptive right to purchase as
many Anvil Shares as will result in our company owning 19.9% of Anvil's common
shares after we complete such purchase.
BGL's Excess Cash Flow
After BGL has paid sufficient amounts to enable us to repay the Bogoso
Acquisition Costs and interest thereon, excess cash flow from BGL not paid to
the Government of Ghana will be used to repay the BGL Debt to our company and
Anvil (or our respective affiliates) in proportion to our respective
Participating Interests. After BGL has repaid the BGL Debt, excess cash flow may
be used to pay dividends to its shareholders. BGL will pay 10% of the dividends
to the Government of Ghana in proportion to its 10% interest and 90% of the
dividends to our company and Anvil (or our respective affiliates) in proportion
to our respective Participating Interests.
Funding of Expenses
The Government of Ghana's 10% interest in BGL is a carried interest
that entitles it to share rateably in the profits of BGL but does not require it
to pay for any of the associated expenses. We currently expect BGL to generate
sufficient cash flow to cover all of the operating and capital expenses of its
current operations. However, if such cash flow is not sufficient or if BGL
incurs any extraordinary operating or capital costs, our company and Anvil (or
our respective affiliates) will be required to contribute on a pro rata basis
the funds required by advancing shareholder loans to BGL at an interest rate of
the London Inter-Bank Offered Rate ("LIBOR") plus 2%.
Dilution of Participating Interest
If our company or Anvil (or our respective affiliates) fails to pay or
cause to pay its share of any approved BGL expense, the other party may advance
the required funds on its behalf. The advance will be treated as a demand loan
bearing interest at LIBOR plus 3%. If the defaulting party fails to repay that
loan within 60 days, its Participating Interest will be diluted. The dilution
will be a "straightline" dilution under which the Participating Interest of the
defaulting party will be reduced to the percentage that the total of its BGL
contributions bears to the total BGL contributions made by both the defaulting
party and the non-defaulting party. The Participating Interest of the
non-defaulting party will be increased by the corresponding amount.
Conversion to Net Proceeds Interest
If the Participating Interest of either our company or Anvil is diluted
to less than 10%, the remaining Participating Interest of that party will be
automatically converted into a right to receive 5% of the net profits received
from BGL after our company has recouped all of the Bogoso Acquisition
Costs, plus interest thereon.
Management of BGL
So long as we or our affiliate hold at least a 50% Participating
Interest, we will have the right to nominate a majority of the members of the
board of directors of BGL (the "BGL Board"). Immediately after the closing of
the Acquisition, the shareholders of BGL will appoint a new BGL Board
comprising:
o 3 persons nominated by our company;
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o one person nominated by Anvil; and
o one person nominated by the Government of Ghana.
We will have the right to nominate the Chairman of the BGL Board as well as the
Managing Director. The Managing Director will be the chief executive officer of
BGL, and will be responsible for the day-to-day management of the Bogoso
Property under the general direction of the BGL Board and will implement work
plans and budgets approved by the BGL Board. Mr. James Askew, the President and
Chief Executive Officer of our company, will become Chairman of BGL's Board and
Mr. Peter Bradford, the current Managing Director of Anvil, will become Managing
Director of BGL.
Area of Interest
If either our company or Anvil acquires any mineral interest within 50
kilometers of the outer boundaries of the Bogoso Property, it will be obligated
to offer to sell that property to BGL on the same terms and conditions on which
it acquired such mineral interest. We and Anvil also agreed not to compete with
each other with respect to any potential acquisition of any mineral property
within this area of interest.
Transfer of Participating Interest
Neither our company nor Anvil may sell or cause to be sold all or any
portion of our respective Participating Interest in any BGL Shares or the BGL
Debt to any third party except after first granting the other party a first
right to purchase such Participating Interest on the same terms and conditions
offered by such third party. If our company or Anvil becomes insolvent, is
petitioned into bankruptcy, makes an assignment in favor of its creditors, or
commits a material breach of the Anvil Agreement, the other party will have the
right to purchase its Participating Interest for its fair market value as
determined under the Anvil Agreement.
The Acquisition Agreement
Overview
We and Anvil executed and delivered an acquisition agreement on May 28,
1999 under which we jointly agreed to purchase the Banks' interests in BGL. On
the completion date of the Acquisition, the Banks will:
o transfer to us and Anvil (or our respective affiliates) all of the BGL
Shares owned by the Bank Consortium, together with all dividends or
distributions declared or paid on such shares on or after April 1,
1999;
o assign to us and Anvil (or our respective affiliates) the BGL Debt;
o assign to us and Anvil (or our respective affiliates) the security
interests over the Bogoso Property and other assets of BGL that BGL
granted to the Banks as security for the repayment of the BGL Debt (the
"BGL Security"); and
o release BGL from all claims that the Banks may have against BGL other
than the BGL Debt and the BGL Security.
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Purchase Price
We and Anvil jointly agreed to pay or cause our affiliates to pay $17
million to the Banks as follows:
o an initial cash purchase price of $12 million payable on the completion
of the Acquisition; and
o if BGL commences commercial production of sulphide ores at the Bogoso
Property, an additional $5 million plus interest at LIBOR on the first
anniversary of the commencement date.
$2 Million Deposit
We provided a $2 million deposit, refundable only in limited
circumstances, to the Banks by arranging for a letter of credit in that amount,
which our company caused to be delivered to the Banks. The Banks will be
entitled to draw on the letter of credit and apply the deposit against the
initial purchase price on the Acquisition Date. However, if we breach our
obligations under the acquisition agreement or fail to complete the Acquisition
for reasons other than those set forth under "--Conditions for Closing" below,
the Banks will be entitled to draw on the letter of credit and retain the
deposit.
Representations and Covenants of the Banks
The Banks represented that they own the BGL Shares to be sold to us and
the BGL Debt free and clear of encumbrances, and agreed that BGL would not
engage in any extraordinary transactions prior to the Acquisition Date without
our approval. However, the Banks made no representations or warranties about BGL
or the Bogoso Property or about the collectability of the loans that they will
assign to us.
Conditions for Closing
Neither we nor the Banks are obligated to complete the Acquisition
unless we have obtained all of the following approvals:
o approval for the sale of the BGL Shares from the Minister of Mines and
Energy of the Government of Ghana under the Ghanaian mining laws;
o approval for the sale of the BGL Shares from the Bank of Ghana under
the Ghanaian exchange control laws; and
o approval for the sale of the BGL Debt from the Government of Ghana.
We will not be required to complete the Acquisition if:
o any of the Bank's warranties is untrue;
o the Banks breach their obligations;
o an event ("Force Majeure Event") occurs not within our control or the
control of BGL, such as an earthquake, flood, war or similar event,
that prevents the operation of the Bogoso mine.
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Deadline for Satisfying Conditions
We are required to obtain all the above approvals by no later than
August 30, 1999. We may extend this deadline for no more than 90 days on the
occurrence of a Force Majeure Event.
Closing Date
We will be required to complete the Acquisition on the tenth business
day after we have obtained the above approvals if all the other conditions have
been satisfied.
Termination of BGL Employees
BGL will terminate the employment of its union employees and certain of
its non-union employees on or about the Acquisition Date. The termination of
these employees will require BGL to pay them an estimated $3 million in
severance pay, accrued holiday entitlements and other redundancy payments. BGL
will negotiate with these employees with a view to agreeing on, among other
things, the amount of severance pay that BGL will be required to pay them and
the terms and conditions under which BGL may agree to rehire some or all of
those employees.
Allocation of BGL's Cash
As at March 31, 1999, BGL had approximately $10.7 million of cash on
hand. The acquisition agreement requires BGL to use approximately $10 million of
this cash as follows:
o BGL will deposit $6 million into a special purpose bank account on the
Acquisition Date. These funds may be used only to complete
environmental rehabilitation work on the Bogoso Property.
o BGL will deposit an additional $3 million into a special purpose bank
account on the Acquisition Date. These funds will be used to pay the
severance pay, accrued holiday entitlements and other redundancy
payments that BGL may be required to pay to its employees as a result
of the termination of their employment.
o BGL will spend approximately $1 million on programs for the social and
economic development of the community affected by BGL's operations to
help offset the impact of the eventual closure of the Bogoso Property.
All other cash and cash flow from and after March 31, 1999 will accrue to our
benefit and there will be no payments of dividends or interest to the Banks
between April 1, 1999 and the Acquisition Date.
The Credit Facility
Overview
We signed a credit facility letter agreement on May 5, 1999 under which
Elliott Associates, L.P. (the "Lender") agreed to lend to us or our designee up
to $12 million under the Credit Facility for the purpose of financing a portion
of the Acquisition. Assuming that we receive net proceeds from this offering of
approximately $11.2 million, we currently do not intend to borrow any amounts
under the Credit Facility from the Lender; rather we expect to finance the $12
million initial purchase price with the net proceeds of this offering and with
existing working capital. If the net proceeds of
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this offering are less than $11.0 million, we intend to borrow or cause one of
our affiliates to borrow the balance of the initial purchase price under the
Credit Facility simultaneously upon completion of the Acquisition.
Interest
We or our affiliate will pay interest on any amounts outstanding under
the Credit Facility at the rate of 15% per year compounded monthly, payable
monthly in arrears. If we breach our obligations under the Credit Facility, the
interest rate will be increased to 25% per year until we cure the default.
Repayment
If we draw down on the Credit Facility, we will start repaying any
amounts outstanding thereunder 60 days after the date of the Credit Facility
advance in 12 equal monthly instalments, subject to a maximum of $750,000 per
payment, plus interest. We must repay within seven days any principal remaining
unpaid following the final monthly repayment. We are entitled to prepay the
Credit Facility at any time without penalty.
Security
As security for the repayment of any amounts outstanding under the
Credit Facility:
o Golden Star will guarantee the repayment of the Credit Facility;
o we and Anvil (or our respective affiliates) will pledge our
respective BGL Shares and the BGL Debt to the Lender; and
o BGL will grant the Lender a first charge on the Bogoso Property and
other assets of BGL.
Warrants
In connection with the Credit Facility, we issued 1,500,000 common
share purchase warrants to the Lender which entitle it to purchase one of our
common shares at an exercise price equal to $0.7063, subject to antidilution
adjustments. The Lender's right to exercise these warrants will expire on June
9, 2002. We have also agreed that we will issue a further number of warrants, at
the time any amounts under the Credit Facility are advanced, equal to 3,000,000
multiplied by the ratio of (a) the amount of the Credit Facility divided by (b)
$12 million, less 1,500,000. Accordingly, if we borrow less than $6 million, we
will not issue any additional warrants to the Lender.
Each subsequently issued warrant will entitle the Lender to purchase
one of our common shares at an exercise price equal to the average of the
closing prices of our shares on the American Stock Exchange ("AMEX") for the 10
trading days immediately preceding their issuance. In addition, these warrants
will expire three years after the date of their issuance. If we issue any shares
or rights or warrants to purchase our shares for an actual or implied price
below 95% of the exercise price of the existing or any subsequently issued
warrants, the warrant exercise price will be reset to a price equal to such
actual or implied price. The Lender may pay the exercise price for any of the
warrants by reducing any amount outstanding under the Credit Facility.
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Callability of Warrants
If at any time after the date which is the later of 12 months after
issuance or the most recent price reset of the warrants, the closing price for
our shares for 30 consecutive trading days on the AMEX is greater than 200% of
the exercise price of the warrants, we will have the right to redeem up to 50%
of the warrants originally issued on 30 days' notice at no charge to us. If at
any time after the date which is the later of 24 months after issuance or the
most recent price reset, the closing price for our shares for 30 consecutive
trading days on the AMEX is greater than 250% of the exercise price of the
warrants, we will have the right to redeem up to an additional 50% of the
warrants originally issued on 30 days notice at no charge to us.
Share Registration
We are required to register for resale or establish free tradeability
of the shares underlying the warrants and to list such shares for trading on the
AMEX and the Toronto Stock Exchange (the "TSE") by the earlier of:
o the date we register any other shares (excluding any registration of
director, officer or employee, stock option or stock bonus shares on
Form S-8 and as soon as is practicable after the effectiveness of any
registration statement on Form S-4);
o 180 days following the closing or abandonment of the Acquisition; or
o January 31, 2000.
Default Payments and Redemption
Upon any listing and/or registration failure relating to both the AMEX
and the TSE, we will be required to pay a cash penalty equal to 3% per month of
the aggregate value of such shares. Upon any listing and/or registration failure
relating only to the TSE, the penalty will be 1% per month of the aggregate
value of such shares. In the event we fail to make a monthly cash payment on
more than one occasion or continue to make monthly cash payments for a period of
six months or more, we may be required to redeem the warrants and/or any
underlying common shares at a premium over the exercise price or market value of
the warrants or shares, respectively.
Option Premium
We paid a $250,000 option premium to the Lender when we signed the
commitment letter covering the Credit Facility.
Funding Payment
If we (or our affiliates) draw down on the Credit Facility, we (or our
affiliates) will pay an additional interest payment of $250,000 to the Lender on
the date we complete the Acquisition (the "Acquisition Date").
Production Bonus
Regardless of whether the Credit Facility is established or used, for
each continuous 12 month period (the "Production Interval") during the first 72
months following the Acquisition that total production from the Bogoso Property
exceeds 75,000 ounces, we will pay or cause our affiliate to pay
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the Lender a production bonus of $250,000 up to a maximum aggregate production
bonus of $1,250,000.
Conditions Precedent
We will not be entitled to draw down on the Credit Facility unless each
of the following conditions is satisfied:
o we have delivered satisfactory loan documentation and legal opinions to
the Lender;
o the Government of Ghana has approved the Acquisition;
o we have obtained all other applicable governmental and regulatory
approvals;
o we have simultaneously completed the Acquisition; and
o no material adverse change or Force Majeure Event has occurred.
Negative Covenants
While any amounts are outstanding under the Credit Facility, Golden
Star, the borrower under the Credit Facility and BGL will not be permitted to
incur any indebtedness senior to or equal in right of payment to the Credit
Facility, or to make any distributions or debt repayments except as follows:
o to repay the Credit Facility;
o to repay principal and interest owing on the loans Golden Star borrowed
for the Omai mine; or
o to pay Golden Star's ordinary expenses, but only if the borrower under
the Credit Facility holds sufficient funds in escrow to cover Credit
Facility payments for two monthly payment periods.
THE BOGOSO PROPERTY
Introduction
The Bogoso Property comprises an operating gold mine and two mining
leases covering an aggregate area of 95 square kilometers. BGL owns the Bogoso
Property and mines ore from several open pits and processes the ore at a
processing plant that it built on the property in 1991. The plant uses
conventional carbon in leach ("CIL") technology to extract gold from the ore and
has been producing approximately 100,000 to 110,000 ounces of gold each year
since it was built.
The information which follows is extracted in part from a report of SRK
Consulting Engineers and Scientists ("SRK") dated April 1999, entitled "Bogoso
Gold Limited, Validation of Oxide and Sulphide Resources and Reserves" (the "SRK
Report"), and a report of Associated Mining Consultants Ltd. ("AMCL") dated June
1999 and entitled "Bogoso Gold Limited Independent Engineering Report (the "AMCL
Report").
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Background Information on Ghana
Ghana is situated on the west coast of Africa, approximately 750
kilometers north of the equator on the Gulf of Guinea. Accra, the capital city
of Ghana, is on the Greenwich Meridian, the zero line of longitude. Ghana was a
British colony until it achieved independence in 1957. It is now a republic with
a democratically elected government. Ghana has a population of approximately 18
million people. English is the official and commercial language. The total land
area of the country is approximately 238,000 square kilometers in size and is
relatively flat. Ghana has a tropical climate with two rainy seasons and two dry
seasons.
Location of and Access to Bogoso Property
The Bogoso Property is located in western Ghana approximately 35
kilometers northwest of the town of Tarkwa from where it can be reached by
accessible roads. A paved road runs down most of the 18.5 kilometers length of
the property with mining areas connected by gravel haul roads. The road connects
the town of Bogoso in the northeast with the town of Prestea in the southwest. A
sealed road provides access to a sealed airstrip located at the town of Obuasi,
some 115 kilometers to the north.
Mining Laws of Ghana
The mining sector in Ghana is governed primarily by five main laws:
o The Minerals and Mining Law;
o The Minerals and Mining (Amendment) Act;
o The Minerals Royalties Regulations;
o The Minerals Commission Law; and
o The Small Scale Mining Law.
Mining Leases
The Government of Ghana issued a gold prospecting license to BGL on
November 7, 1986, granting BGL the right to prospect for and prove gold in a
prospecting area of approximately 148 square kilometers for a three-year term
commencing on May 12, 1986. On August 21, 1987, the Government of Ghana granted
BGL a 30-year mining lease giving BGL the exclusive right to work, develop and
produce gold in a mining area of 50 square kilometers within this prospecting
area. On August 16, 1988, the Government of Ghana granted BGL a second 30-year
gold mining lease covering an additional 45 square kilometers area adjacent to
the first mining area. Under the above mining leases (the "Mining Leases"), BGL
now holds gold mining rights in a mining area totaling 95 square kilometers,
subject to the payment of nominal annual rents.
Deed of Warranty
On December 17, 1987, the Government of Ghana and BGL entered into a
Deed of Warranty (the "Deed of Warranty") that sets out:
o certain rights of the Government of Ghana to participate in
BGL;
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o certain restrictions relating to the holding of foreign
exchange and the sale of gold by BGL; and
o certain tax concessions and investment assurances granted by
the Government of Ghana.
Mining Regime
The following summarizes the principal aspects of the mining regime
under which BGL owns and operates the Bogoso Property, as set out in the
Ghanaian mining laws, the Mining Leases and the Deed of Warranty.
Government's 10% Carried Interest
The Government of Ghana is entitled at all times to hold a 10% carried
interest in all the rights and obligations of BGL. The Government acquired this
interest for no consideration and is not required to contribute any funds to pay
any BGL expenses.
Government's Right to Acquire Additional Interests
The Government of Ghana is entitled to acquire an additional 20%
interest in BGL. If the Government of Ghana wishes to exercise this right, it
must give reasonable notice to BGL. It must also pay such purchase price for the
additional 20% interest as the Government of Ghana and BGL may agree on at the
time. If they do not agree on the purchase price, the purchase price will be the
fair market value of such interest as determined by arbitration conducted by the
International Centre for the Settlement of Investment Disputes. The Government
of Ghana may also acquire further interests in BGL on terms mutually acceptable
to the Government and BGL.
Special Government Share
The Government of Ghana is entitled to acquire a special share in any
mining company at any time for no consideration or such consideration as the
Government of Ghana and BGL may agree. The special share will constitute a
separate class of shares with such rights as the Government of Ghana and BGL may
agree. In the absence of such agreement, the special share will have the
following rights:
o the special share will carry no voting rights, but the holder
will be entitled to receive notice of and attend and speak at
any general meeting of the members or any separate meeting of
the holders of any class of shares;
o the special share may only be issued to, held by or
transferred to the Government or a person acting on behalf of
the Government;
o the written consent of the holder of such special share must
be obtained for all amendments to the organizational documents
of the company, the voluntary winding-up or liquidation of the
company or the disposal of any mining lease or the whole or
any material part of the assets of the company; and
o the holder of the special share will be entitled to the
payment of a nominal sum of 1,000 Ghanaian Cedis in a
winding-up or liquidation of the company in priority to any
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payment to other members and may require the company to redeem
the special share at any time for a nominal sum of 1,000
Cedis.
BGL has not issued or been requested to issue, any such special share to the
Government of Ghana.
Government's Rights to Purchase Gold
The Government of Ghana has a pre-emptive right to purchase all gold
and other minerals produced by BGL. The purchase price will be such price as the
Government of Ghana and BGL may agree on, or the price established by any gold
hedging arrangement between BGL and any third party approved by the Government,
or the publicly quoted market price prevailing for the minerals or products as
delivered at the mine or plant where the right of preemption was exercised. The
purchase price must be paid in foreign exchange. The Government of Ghana has
agreed to take no preemptive action pursuant to its right to purchase such gold
or other minerals so long as BGL sells gold in accordance with procedures for
selling gold approved by the Bank of Ghana.
External Bank Accounts
BGL is entitled to establish and maintain external bank accounts
outside of Ghana that are held in trust for BGL by a trustee approved by the
Government of Ghana. BGL must deposit into these external accounts such
percentage of the gross proceeds of all sales of gold in foreign currency as the
Minister for Finance and Economic Planning of Ghana may approve. BGL is
currently permitted to deposit 80% of such sales proceeds into its external
accounts. BGL is required to pay the other 20% to the Central Bank of Ghana
which then converts the same into Ghanaian Cedis for deposit into BGL's internal
account.
BGL is entitled to use funds in such external accounts to pay the
following:
o principal, interest and other costs and fees of foreign
exchange loans borrowed for the Bogoso Property;
o compensation payable in foreign exchange to expatriate
personnel, suppliers, consultants and contractors and
acquiring spare parts and other inputs required for its mining
operations;
o the costs of recovery, export and sale of gold, silver or
other minerals from the Bogoso Property; and
o dividends to the BGL shareholders.
Royalties
A holder of a mining lease is required to pay a royalty of not less
than 3% and not more than 12% of the total revenues earned from the lease area.
The royalty is payable on a quarterly basis. The Government of Ghana levies a
royalty on BGL based on the profitability of its mining operations. The royalty
is determined by the application of an operating ratio expressed in terms of the
percentage which the operating margin bears to the value of gold from mining
operations in every year.
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Income Tax
BGL is required to pay income tax on profits from its mining operations
up to a maximum rate of 35%. BGL may also incur an additional profit tax under
the Additional Profit Tax Law chargeable on the value at the end of each tax
year of its carry-forward cash balance at the rate of 25%. BGL has to date not
been liable to pay any such additional profit tax.
Tax Concessions
BGL is not required to deduct or withhold taxes from any payment made
from its external account of:
o any interest or other costs paid by BGL in respect of any
foreign exchange loans borrowed by BGL;
o any payments made by BGL in foreign exchange for fees payable
to contractors or consultants; or
o any dividends paid by BGL to its shareholders.
Employment of Ghanaian Citizens
BGL is required to give preference for employment to citizens of Ghana
to the maximum possible extent consistent with safety, efficiency and economy.
BGL is also required to provide appropriate training programs for Ghanaian
employees. Except with respect to unskilled personnel, BGL may employ
non-Ghanaian personnel subject to quotas that the Government of Ghana has
established.
Preference for Ghanaian Goods and Services
BGL is required to give preference to Ghanaian materials, products and
services if their prices, quality and delivery dates are comparable to or better
than those of foreign suppliers.
Termination of Mining Lease
BGL is entitled to terminate any of its Mining Leases by giving nine
months' written notice to the Government of Ghana at any time. The Government of
Ghana is entitled to terminate any Mining Lease if:
o BGL fails to make any required payments on time or fails to
comply with any other obligation under the Mining Lease after
receiving three months' written notice; or
o BGL becomes insolvent or bankrupt, enters into an arrangement
with its creditors or goes into voluntary or involuntary
liquidation; or
o BGL makes a false or reckless statement to the Government
relating to the Mining Lease.
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Disposition of Assets upon Termination or Expiry
Upon the termination or expiration of any Mining Lease, all of BGL's
immovable assets and fully depreciated moveable assets in the lease area will
become the property of the Government of Ghana at no cost to the government. In
addition, the Government of Ghana will have a right of first refusal to purchase
any of BGL's moveable assets that have not been fully depreciated for their
depreciated cost. The Government of Ghana may also require BGL to remove or
destroy any of BGL's assets in the lease area, or remove or destroy such assets
at BGL's cost.
Remediation of Mining Area
BGL is required to take all reasonable measures to leave the mining
areas in good condition following the termination or expiration of any Mining
Lease.
Transfer Restrictions
BGL may not assign its rights under the Mining Leases or permit a
change of control of its stock to take place except with the prior written
consent of the Government of Ghana.
Investment Assurances
The Government of Ghana has agreed that:
o it will not expropriate BGL's interest in the Bogoso Property
unless it pays prompt, fair and reasonable compensation in
such amount as may be determined by agreement or by
arbitration by the International Centre for the Settlement of
Investment Disputes;
o no BGL shareholder will be compelled to cede any interest in
BGL or the Bogoso Property to any person except to the
Government of Ghana through the exercise of its rights to
participate in BGL as expressly set out in the Concession
Agreement (as defined below); and
o if new laws and conditions come into effect that unfairly
affect the interests of either BGL or the Government of Ghana,
they will each make every effort to agree, cooperate,
negotiate and take such other action as may be necessary to
redress the imbalance that the new laws or conditions created.
Geology of the Surrounding Region
The Bogoso Property lies within the West African Precambrian shield, a
geological formation that hosts three important Lower Proterozoic sedimentary
and volcanic sequences that are particularly important for gold mining: the
Lower Birimian, Upper Birimian and the Tarkwaian. The area is dominated by a
major northeast-southwest trending structural feature referred to as the Ashanti
Trend, which extends for over 200 kilometers and hosts the main deposits of the
Ghana Gold Belt. This structure is closely aligned with the faulted contact zone
between the metasedimentary and metavolcanic units of the Birimian and the
clastic rocks of the Tarkwaian.
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Geology of the Bogoso Property
In the Bogoso area, the faulted contact zone is known as the Main Crush
Zone and passes through the central part of the Bogoso Property for its entire
18.5 kilometers length. The Main Crush Zone lies within a structural corridor
that varies in width from 1,000 to 2,500 meters. Some 90% of the gold mined to
date at the Bogoso Property has come from the Main Crush Zone with the larger
deposits being located at bends and junctions along this major fault. Additional
faults and splays in the structural corridor may also be prospective for gold,
but very little work has been undertaken historically in this area. The area's
oxide ores tend to have fine grained free gold that has been liberated during
the weathering of preexisting sulphides. Oxidation extends from the top of hills
to the valley floors and below into a transition zone of up to 20 meters thick
that directly overlies sulphide mineralization.
Historical Mining Operations
Gold was first mined at the Bogoso Property at the beginning of this
century. In 1935, Marlu Gold Mining Areas Ltd. started mining high grade oxide
ore from a series of open pits extending south from Bogoso North to Buesichem,
just beyond the southern boundary of the Bogoso Property. Marlu also mined a
small amount of ore from underground at Bogoso North, Marlu and Bogoso South.
Marlu was mining the Buesichem pit when it shut down the mine operations in
1955. According to BGL's records, during its 20-year period of operations
between 1935 and 1955, Marlu produced over 900,000 ounces of gold at an average
recovered grade of 3.73 grams gold per tonne.
Description of the Bogoso Property
Recent History
Billiton PLC, then a unit of Royal Dutch Shell group, took control of
the Bogoso Property in the late 1980s. The initial feasibility study established
a mineable reserve of 5.96 million tonnes grading 4.0 grams of gold per tonne,
of which 461,000 tonnes (or less than 8%) comprised oxide ore. The feasibility
study forecast gold recoveries of 83% from sulphide ores and 78% from oxide ore,
and estimated a waste-to-ore ratio of 5.6:1. Construction of a mining and
processing facility was completed in 1991. The facility was designed to process
oxide ores by using conventional CIL technology at a design capacity of 1.36
million tonnes per annum, and to process sulphide ores by using flotation,
fluid-bed roasting and CIL technology at a design capacity of 0.9 million tonnes
per annum.
Billiton encountered serious operational difficulties with the
fluid-bed roaster, which did not function as anticipated because the sulphide
level in the concentrate was less than expected and because the clay content of
the feed was higher than expected. Mechanical problems also occurred. As a
result, Billiton closed the flotation circuit and roaster in early 1994.
Following closure of the roaster, Billiton focused the Bogoso operations on
oxide ore. The CIL plant had an annual capacity of approximately two million
tonnes of oxide ore. However, only a few months of oxide ore reserves were
available at that time. Basic exploration has been successful in adding to the
available quantity of oxide ore since 1994. In that time the mine has operated
as an oxide-only operation. Operating cash flows have funded all the exploration
costs.
Production History
Since commencing operations in 1991, the Bogoso plant has processed
over 13 million tonnes of oxide and sulphide ore to produce over 800,000 ounces
of gold. The average waste-to-ore ratio
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<PAGE>
has been approximately 4.6:1. The following table summarizes the production
statistics for the Bogoso mine since commencement of operations.
<TABLE>
<CAPTION>
Total Gold
Oxide Ore Sulphide Ore Production
Fiscal Year -------------------------------------- -------------------------------------- ----------
Ended Grams gold Grams gold
June 30, Tonnes per tonne Tonnes per tonne ounces
----------------- ---------------- ---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
1991 444,090 3.87 448,140 4.85 61,848
1992 459,453 2.68 601,364 5.02 78,077
1993 204,688 2.85 912,533 3.82 89,507
1994 1,398,782 2.70 101,054 3.50 98,832
1995(1) 827,250 2.37 0 -- 50,945
1996 1,767,043 2.27 0 -- 111,495
1997 1,972,214 1.91 0 -- 103,719
1998 1,916,824 2.12 0 -- 110,837
July 1998 to
May 1999 2,042,124 2.21 0 -- 124,834
========= ==== ========= ========== =======
Total/Wt.
Average 11,032,468 2.36 2,063,091 4.38 830,094
</TABLE>
(1) In 1995 the Bogoso plant operated for only six months as the change to
an oxide only operation was completed.
Reserves and Mineralized Material
The following table sets out BGL's reported current proven and
probable, open pittable oxide and transition reserves as well as other
mineralized material in addition to reserves as at March 31, 1999, as confirmed
by SRK. BGL performs assaying on site using the fire assay technique. BGL also
engages third parties to perform regular independent check assays. SRK
independently audited BGL's reserves and mineralized material in April 1999. In
addition to reserves and mineralized material, we also intend to process
existing low grade stockpiles and such additional material that will be added
through the mining of current reserves and mineralized material. We expect gold
recoveries for oxide and transition material to be 86% and 60%, respectively.
Mineralized material does not represent reserves and has not been
included in the proven and probable reserve estimates below because even though
enough drilling and trenching indicate a sufficient amount and grade to warrant
further exploration or development expenditures, these mineral deposits do not
qualify under the United States Securities and Exchange Commission standards as
being commercially minable until further drilling, metallurgical work and other
economic and technical feasibility factors based upon such work are resolved.
Mineralized material is reported only if the potential exists for
reclassification to reserves following additional drilling and/or final
technical, economic, and legal factors have been determined for the project.
BGL's mining operations has an estimated mine life of 12 months
effective March 31, 1999, based upon existing reserves of oxide and transition
ore at current rates of production. While operation of the mine with limited
reserves has continually been the case since 1994, BGL has been
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<PAGE>
successful in continuing to discover additional mineralized material and
establish reserves. Existing mineralized material, if converted to reserves at
historical conversion rates, would be expected to extend the existing mine life
by up to 8 months, and sub-grade stockpile material is expected to be sufficient
for a further six months of production, for a total anticipated mine life of up
to 26 months at March 31, 1999.
BGL Mine Reserves and Mineralized Material as of March 31, 1999
<TABLE>
<CAPTION>
Grade
'000 grams gold In situ
Reserves and Mineralized Material tonnes per tonne Ounces
- ------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Oxide
Proven and Probable Reserves................... 1,963 2.6 164,091
Mineralized Material(1)(2)..................... 905 1.7 N/A
Transition
Proven and Probable Reserves................... 232 3.3 24,615
Mineralized Material(3)........................ 2,767 2.8 N/A
Total Oxide and Transition
Proven and Probable Reserves................... 2,195 2.7 187,156
Mineralized Material........................... 3,672 2.6 N/A
</TABLE>
- -----------------
(1) Mineralized Material is equivalent to measured and indicated resources
under Canadian (CIM) and Australian (JORC) definitions.
(2) BGL's historical conversion rate of oxide mineralized material to
reserves is approximately 70%.
(3) BGL's historical conversion rate of transition mineralized material to
reserves is approximately 35%.
BGL also has existing sulphide mineralized material totaling
approximately 10.3 million tonnes grading 3.3 grams gold per tonne. While
technology used by previous owners of the BGL Property to process sulphide ore
at BGL proved unsuccessful, we intend to re-examine the feasibility of
processing the sulphide mineralized material using technology currently used in
other mining operations on similar sulphide mineralized material on the Ashanti
Trend.
Oxide Exploration
Although the oxide resources within the Main Crush Zone have largely
been identified, three other prospective areas remain: Coffee Plantation, Bogoso
South and Boppo North. Several prospects have also been identified on
subordinate splays to the Main Crush Zone. AMCL is of the opinion that
additional oxide resources remain to be identified in small (20,000 ounces)
deposits.
We believe that the potential exists for discovering additional oxide
mineralization. Exploration for oxide resources will require a sustained effort
for the foreseeable future in order to maintain the feed from the Bogoso
concession to the mill. BGL currently expects to spend approximately $1.0
million the next 12 months in connection with such exploration.
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<PAGE>
Sulphide Plans
BGL's defined sulphide mineralized material lies beneath only five of
the existing 37 open pits from which oxide mineralization has been mined (Bogoso
North, Marlu, Dumasi, Chujah and Nankafa). Most of the exploration and
evaluation work associated with the sulphide mineralized material took place in
the late 1980s and served as the basis for Billiton's feasibility study which
led to the construction of BGL's mining and processing facilities.
We intend to initiate studies to investigate the work required for
additional exploration metallurgical test work and engineering that would be
needed to conduct a full feasibility study for the potential development of a
new sulphide mining and processing operation on the Bogoso Property. See "Risk
Factors--The technology and cost of production of sulphide mineralized material
at the Bogoso Property may prove infeasible to warrant processing the material."
The Bogoso Mine
Infrastructure
A 15 to 20 meter wide, well-maintained gravel haul road connecting the
mining operations runs through the Bogoso Property. The Bogoso Property is
connected to the national hydroelectric power grid and also has its own
multi-unit power generating backup system (6.4 Megawatts).
Telephone, fax and e-mail connections operate at the mine site.
Mining Operations
Since 1991, the mine has conducted open pit mining from 37 separate
pits. Currently, BGL is working three open pits (Chujah 2 East, Chujah 3 South
and Ablifa) for oxide ore. BGL operates the mine 24 hours a day, 359 days per
year. The pits are developed on lenses, or pods, of mineralization that may be
as narrow as 2 meters or may be in excess of 20 meters wide. Ore pod lengths
range from 10 meters to in excess of 100 meters and repeat at various intervals
along the strike. Any one pit may exploit one or more pods. BGL uses a cut off
grade of approximately 1.0 to 1.2 grams gold per tonne depending on the haul
distances. The mine carries out drill and blast (light) operations on 6 meter
lifts with mining on 3 meter benches, using dozer rip lines and rotary air blast
drilling for grade control.
Mining Fleet
The mining fleet consists of excavators, 50 tonne haul trucks, front
end loaders, bulldozers, graders and other vehicles. Fleet capacity is
approximately 25,000 tons of ore and waste per day. Most of the fleet has been
in operation since 1991 and, without refurbishment, would be nearing the end of
normal, current economic life. BGL recently started purchasing additional
second-hand equipment and commenced a program to refurbish and/or overhaul
existing equipment that may be successful in extending equipment life for
several more years.
Processing Plant
Ore from the mine is crushed and conveyed to a crushed ore stockpile.
Stockpile ore is conveyed to a two-stage grinding circuit consisting of a
semi-autogenous grinding mill and a [ball mill]. The CIL circuit consists of
five tanks equipped with mechanical agitators. Gold recovery has ranged between
80 to 90% (average 86%) depending on the type of material being processed. The
sulphide flotation and thickening circuit is still in place, but the roaster and
associated equipment has
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<PAGE>
been sold. An oxygen injection facility is currently being added to the leach
tanks. Gold ore is produced on site and transported weekly to Accra before being
flown out to Europe or South Africa for refining.
Environmental and Rehabilitation Costs
BGL has adopted World Bank environmental standards and complied with
the environmental requirements imposed by Ghanaian laws and guidelines. In
addition, BGL has completed significant work over the past 12 to 18 months to
identify the outstanding reclamation liability and commenced rehabilitation
work. Such rehabilitation work includes:
o stabilize, contour and vegetate waste dumps;
o stabilize and vegetate open excavations, and in those cases where
transition or sulphide ore is exposed, to backfill all or part of the
pit; and
o carry out studies and trials on revegetation concepts, mine closure
liabilities and acid rock drainage.
Monthly expenditures for ongoing rehabilitation work, including the
capping of sulphide material and the contouring and revegetation of waste dumps,
have been approximately $170,000. On the Acquisition Date, BGL is required to
set aside $6 million from BGL's existing cash into a special-purpose bank
account that will be used to fund environmental rehabilitation work. Based on
current available information, we believe that this amount will be sufficient to
cover existing environmental rehabilitation work. See "The Acquisition--The
Acquisition Agreement--Allocation of BGL's Cash."
Personnel
BGL currently employs approximately 585 employees. The following table
sets out the percentage split among the various departments:
Manning
Department Level
---------------------------------------------------- -----------
Mining.............................................. 32%
Maintenance......................................... 27%
Metallurgy.......................................... 18%
Finance, Administration, Supply, Other.............. 23%
Total............................................... 100%
BGL employs approximately 477 junior staff. Most of them are Ghanaians
and all of them are members of the Ghana Mineworkers' Union. That union and BGL
signed a collective agreement that sets out the terms and conditions of the
employment of BGL's junior staff. BGL employs approximately 99 senior staff,
excluding approximately 17 expatriate employees, pursuant to individual
employment agreements. If BGL terminates the employment of any Ghanaian
employee, BGL will be required to make severance payments to that employee equal
to 20% of the employee's base salary for his or her last year of employment for
each year of completed service.
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<PAGE>
Contract Work
BGL contracts catering, brush cutting, specialist mechanical,
exploration drilling, tire repair and fuel supply.
Current Production and Operating Costs
In 1998, BGL produced approximately 110,000 ounces of gold per year
from mining and processing approximately 1.9 million tonnes of ore per year at
an average head grade of 2.2 to 2.3 grams gold per tonne and a stripping ratio
of approximately 5.3:1. For the six months from July to December 1998, cash
operating costs averaged $234 per ounce. The costs during this period were
inflated by non-recurring contract mining charges related to a temporary
increase in waste stripping in the Chujah 3 South and the Chujah 2 East pits.
BGL completed the stripping before the end of November 1998. The BGL mining
fleet has now been increased and the ad-hoc use of contractors is not expected
to be required in the future.
For the 5 months from January 1999 to May 1999, cash operating costs
averaged $203 per ounce, which indicates a decrease in cash operating costs from
levels experienced in previous years. Cost reductions in 1999 have resulted
primarily from (a) increased ore production, (b) improved productivity, (c)
marginally better recoveries on the ore coming from the Chujah 3 South and
Chujah 2 East pits and (d) lower waste-to-ore ratios.
Potential Operating Cost Improvements
Based on our due diligence in preparation for the Acquisition and on
the information currently available to us, we anticipate that cost reductions
achieved over the last nine months can be maintained or improved. We intend to
attempt to achieve further savings from measures such as the following:
Grade Control
The mining operation consistently shows a positive ore production
variance and a negative grade variance. These variances suggest the possibility
of excessive mining dilution or occasional feed from subgrade stockpiles. Better
grade control methods should generate improved mill head grade and higher
recovery that will reduce cash costs.
Oxygen Plant
BGL recently completed the installation of an oxygen plant at a total
capital cost of $160,000. The oxygen plant is intended to enhance recoveries in
the mill process.
Labor Costs
Labor charges represent a high proportion of cash operating costs.
Based on our preliminary review in conjunction with existing BGL management, we
believe that cost savings can be achieved through a reduction in the number of
local and expatriate staff and through improved productivity.
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<PAGE>
Capital Costs
We anticipate that budgeted capital expenditures of approximately $2.5
million for the next 12 months at the Bogoso Property will be covered by cash
flows from operations at the Bogoso Property.
Gold Sales
BGL currently sells gold produced at the Bogoso Property on the spot
market. We intend to implement, at the earliest possible date, a gold hedging
program to protect against declines in the price of gold while maintaining
participation in upward movements in the gold price. Such a hedging program and
any gold sales or marketing agreements that BGL may enter into will require the
approval of the Government of Ghana.
USE OF PROCEEDS
Assuming the completion of the total offering covered by this
prospectus supplement, and without giving effect to the exercise of the
Warrants, we estimate the net proceeds to us from the sale of the Debentures and
Units, after deducting an estimated $1.3 million for agency fees and offering
expenses, to be approximately $11.2 million. We will pay 50% of the agents' fees
upon completion of this offering and, if the Acquisition is completed, the
remaining 50% upon completion of the Acquisition. We will use the $11.2 million
of net proceeds, together with existing working capital, to fund the
Acquisition. To the extent the net proceeds of this offering are less than $11.0
million, we intend to borrow the balance of the initial purchase price for the
Bogoso Property under the Credit Facility. See "The Acquisition--The Credit
Facility."
Escrow Arrangements
Eighty percent of this offering is contingent on the completion of the
Acquisition. We will retain 20% of the gross proceeds from this offering for our
general working capital needs, whether or not we complete the Acquisition.
Eighty percent of the gross proceeds from this offering, together with all of
the Debentures and the Units, will be deposited with Chase Manhattan Bank in an
escrow account pursuant to Rule 15c2-4 promulgated under the United States
Securities Exchange Act of 1934 in equal proportions of Debentures and Units.
Chase Manhattan Bank will invest and reinvest the gross proceeds in the escrow
account into investments such as direct U.S. government obligations,
certificates of deposit with banks that are members of the Federal Reserve
System, or commercial paper of U.S. corporations having high credit ratings
among various applicable U.S. credit ratings agencies.
The funds and securities placed in escrow will be released immediately
before completion of the Acquisition. If we do not complete the Acquisition by
December 10, 1999, you will receive your Debentures, 20% of the Units purchased
and 80% of the gross proceeds attributable to the sale of the Units, together
with interest from the date we complete this offering. We will receive 80% of
the Units, which we will cancel, and the escrowed proceeds attributable to the
sale of the Debentures. We will then be required to repurchase 80% of the
principal amount of the Debentures (on a pro rata basis) pursuant to a special
mandatory redemption at a purchase price equal to the principal amount being
repurchased, plus accrued and unpaid interest. See "The Acquisition--The
Acquisition Agreement--Conditions for Closing," "--Deadline for Satisfying
Conditions" and "Description of the Debentures--Special Mandatory Redemption."
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<PAGE>
PRICE RANGE OF COMMON SHARES
Our common shares are traded on the American Stock Exchange under the
symbol "GSR" and on the Toronto Stock Exchange under the symbol "GSC." The
following table sets forth, for the periods indicated, the high and low sale
prices of our common shares for the American Stock Exchange and the Toronto
Stock Exchange.
<TABLE>
<CAPTION>
American Toronto
Stock Exchange Stock Exchange
----------------------------------- -----------------------------------
High Low High Low
---------------- ---------------- ---------------- ----------------
(U.S.$) (Cdn.$)
<S> <C> <C> <C> <C>
1996
First Quarter............ $ 16.25 $ 5.19 $ 22.00 $ 7.25
Second Quarter........... 19.13 12.88 26.00 17.25
Third Quarter............ 19.75 11.75 27.10 16.75
Fourth Quarter........... 21.00 12.75 28.25 18.00
1997
First Quarter............ $ 16.75 $ 10.13 $ 22.45 $ 14.25
Second Quarter........... 10.75 6.50 14.80 9.25
Third Quarter............ 8.13 4.00 11.00 5.55
Fourth Quarter........... 6.75 2.19 9.65 3.20
1998
First Quarter............ $ 4.81 $ 2.75 $ 7.00 $ 4.00
Second Quarter........... 4.50 2.06 6.50 3.05
Third Quarter............ 2.19 0.94 3.10 1.51
Fourth Quarter........... 2.75 0.94 4.10 1.45
1999
First Quarter............ 1.31 0.68 1.95 0.95
April 1 - June 28........ $ 1.06 $ 0.63 $ 1.56 $ 0.86
</TABLE>
DIVIDEND POLICY
We have not declared or paid cash dividends on our common shares since
our inception and do not expect to do so in the near future. In determining
whether to pay dividends in the future, our Board of Directors will consider our
then current business results, cash requirements and financial condition.
DESCRIPTION OF THE CONVERTIBLE DEBENTURES
The Debentures will be issued under a supplemental indenture, to be
dated the date of this closing of this offering, between our company and The
Chase Manhattan Bank, as trustee. The summary of certain provisions of the
indenture and the Debentures combined in this prospectus supplement or the
prospectus does not purport to be complete and are subject to, and are qualified
in their entirety by reference to, the detailed provisions of the Debentures and
the indenture, including the definitions of certain terms in the indenture.
References to interest and any other amounts payable in respect of the
Debentures shall include any Additional Amounts payable in respect of the
Debentures.
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<PAGE>
General
The Debentures will be unsecured subordinated obligations of our
company and will mature on July __, 2004. The Debentures will bear interest at
the rate of 7.50% per annum from July __, 1999, payable semiannually on January
15 and July 15 of each year, commencing on January 15, 2000.
The Debentures will be convertible into common shares at the conversion
price of $0.75, subject to adjustment upon the occurrence of certain events
described under "--Conversion Rights," at any time prior to the close of
business on the maturity date, unless previously redeemed.
The Debentures will be redeemable by us (1) in the event of certain
developments involving Canadian withholding taxes as described below under
"--Redemption--Redemption for Taxation Reasons," at a redemption price of 100%
of the principal amount of the Debentures to be redeemed, plus accrued interest
to the redemption date and (2) at the option of our company, on or after July
__, 2002 if the reported closing trading price on the American Stock Exchange
(the "Market Price") of our common shares as reported on the close of business
for any 20 of the 25 consecutive trading days immediately prior to the date
notice of redemption is given is at least 125% of the Conversion Price.
The Debentures will be unsecured obligations of our company and are
subordinated in right of payment to all our existing and future Senior
Indebtedness (as defined) and are effectively subordinated in right of payment
to all indebtedness and other liabilities of our subsidiaries. Neither the
Debentures nor the indenture limits or restricts the amount of or the terms and
conditions of other indebtedness which may be incurred or issued by us or our
subsidiaries or contains any financial or similar covenants of, or restrictions
on, our company.
Form and Denomination
The Debentures will be issued only in fully registered form, without
exception. The Debentures may be issued in denominations of $1,000 and integral
multiples thereof. No service charge will be made for any registration of
transfer or exchange of Debentures, but we may require payment of a sum
sufficient to cover any tax or other government charge payable in connection
therewith.
We will issue certificates for the Debentures in definitive, fully
registered, non-global form, without interest coupons.
We have initially appointed the trustee at its corporate trust office
as paying agent, transfer agent, registrar and conversion agent for the
Debentures. In such capacities, the trustee will be responsible for, among other
things:
o maintaining a record of the holdings of Debentures and
accepting Debentures for exchange and registration of
transfer;
o ensuring that payments of principal, premium, if any, and
interest in respect of the Debentures received by the trustee
from our company are duly paid to the Holders (as defined
below) of Debentures;
o transmitting to our company any notices from holders;
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<PAGE>
o accepting conversion notices and related documents, and
transmitting the relevant items to our company; and
o delivering certificates for common shares issued on conversion
of the Debentures.
We will cause each transfer agent to act as a registrar and will cause
to be kept at the office of each transfer agent a register in which, subject to
such reasonable regulations as it may prescribe, we will provide for the
registration of the Debentures and registration of transfers of the Debentures.
We may designate one or more other offices or agencies where the Debentures may
be presented or surrendered for any or all of such purposes and may from time to
time rescind such designations. However, no such designation or rescission will
in any manner relieve us of our obligation to maintain an office or agency in
New York City. We will cause notice of any resignation, termination or
appointment of the trustee or any paying agent, transfer agent or conversion
agent, and of any change in the office through which any such agent will act, to
be provided to holders of the Debentures.
Conversion Rights
The registered holder of any Debenture has the right, at the Holder's
option, to convert any portion of the principal amount of a Debenture that is an
integral multiple of $1,000 into common shares at any time prior to the close of
business on the maturity date, unless previously redeemed, at a conversion price
of $0.75 per share (subject to adjustment as described below). The right to
convert a Debenture called for redemption will terminate at the close of
business on the date of redemption (the "Redemption Date") for such Debenture.
The right of conversion attaching to any Debenture may be exercised by
the holder by delivering the Debenture at the specified office of a Conversion
Agent (see "--Payment and Conversion"), accompanied by a duly signed and
completed notice of conversion. The conversion date will be the date on which
the Debenture and the duly signed and completed notice of conversion are so
delivered. As promptly as practicable on or after the conversion date, we will
issue and deliver to the trustee a certificate or certificates for the number of
full common shares issuable upon conversion, together with payment in lieu of
any fraction of a share; such certificate will be sent by the trustee to the
appropriate Conversion Agent for delivery to the holder. The common shares
issuable upon conversion of the Debentures will be fully paid and nonassessable
and will rank equal in right of payment with our other common shares outstanding
from time to time. Any Debenture surrendered for conversion during the period
from the close of business on any Regular Record Date to the opening of business
on the next succeeding Interest Payment Date (except Debentures called for
redemption on a Redemption Date during such period) must be accompanied by
payment of an amount equal to the interest payable on such Interest Payment Date
on the principal amount of Debentures being surrendered for conversion. In the
case of any Debenture which has been converted after any Regular Record Date but
before the next Interest Payment Date, interest which is payable on such
Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest shall be paid to the holder
of such Debenture on such Regular Record Date. No other payment or adjustment
for interest, or for any dividends in respect of common shares, will be made
upon conversion. Holders of common shares issued upon conversion will not be
entitled to receive any dividends payable to holders of common shares as of any
record time before the close of business on the conversion date. No fractional
shares will be issued upon conversion but, in lieu thereof, an appropriate
amount will be paid in cash by our company based on the Market Price of our
common shares at the close of business on the day of conversion.
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<PAGE>
A holder delivering a Debenture for conversion will not be required to
pay any taxes or duties in respect of the issue or delivery of common shares on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the common shares
in a name other than that of the holder of the Debenture. Certificates
representing common shares will not be issued or delivered unless all taxes and
duties, if any, payable by the holder have been paid.
The conversion price is subject to adjustment upon the occurrence of
certain events, including, without duplication:
(1) the payment of dividends (and other distributions) in any
class of our equity capital;
(2) the issuance to all holders of our common shares of rights or
warrants entitling them to subscribe for or purchase common
shares at less than the then current market price (determined
as of the record date for stockholders entitled to receive
such rights, option or warrants) of such common shares;
(3) the subdivision, consolidation and reclassification of common
shares;
(4) a distribution consisting exclusively of cash (excluding any
cash portion of distributions referred to in (6) below, or
cash distributed upon a consolidation, amalgamation,
arrangement or merger to which the next succeeding paragraph
applies) to all holders of any class of common shares in an
aggregate amount that, combined together with:
(A) other such all-cash distributions made within the
preceding 12 months in respect of which no adjustment
has been made; and
(B) any cash plus the fair market value of other
consideration payable in respect of any tender offer
(of the type described in (5) below) by our company
or any of our subsidiaries for any class of common
shares concluded within the preceding 12 months in
respect of which no adjustment has been made,
exceeding 12.5% of our market capitalization (for this purpose
being the product of the current Market Price per share of the
applicable common shares on the record date for such
distribution times the number of shares of all classes of
common shares outstanding) on such date;
(5) the payment to holders of any class of our common shares in
respect of an issuer bid, tender offer or other offer to
purchase made by us or any subsidiary of our company for
common shares at a price in excess of 110% of the current
market price per share of such common shares on the trading
day next succeeding the last date tenders or other available
actions may be made pursuant to such issuer bid, tender offer
or other offer or exchange offer; and
(6) the distribution to all holders of common shares of evidences
of indebtedness of our company, shares of capital shares, cash
or assets (including securities, but excluding those
dividends, rights, warrants and distributions referred to
above, dividends and distributions paid exclusively in cash
and consolidations, amalgamations, arrangements and mergers to
which paragraph (4) applies).
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<PAGE>
In case of any consolidation, or merger of our company with or into any
other corporation (other than a wholly-owned subsidiary of our company) or any
merger of any other corporation (other than a wholly-owned subsidiary of our
company) into our company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of our common shares), or
in case of any sale or transfer of all or substantially all of the assets of our
company to any other corporation (other than a wholly-owned subsidiary of our
company) and treating our company and each of our subsidiaries as a single
consolidated entity and treating any sale by a subsidiary as a sale of our
company for such purpose, each Debenture then outstanding will, during the
period such Debenture will be convertible (as described below), become
convertible only into the kind and amount of securities and other property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of common shares into which such Debenture was convertible immediately
prior thereto (assuming such holder of common shares failed to exercise any
rights of election and that such Debenture was then convertible); provided that
such securities and other property receivable constitutes a "prescribed
security," as that term is defined under the Income Tax Act (Canada). See
"Certain Canadian Federal Income Tax Considerations."
If at any time we make a distribution of property to our shareholders
which would be taxable to such shareholders as a dividend for United States
federal income tax purposes (e.g., distributions of evidences of indebtedness or
assets of our company, but generally not dividends on common shares or rights to
subscribe for common shares) and, pursuant to the anti-dilution provisions of
the indenture, the number of shares into which Debentures are convertible is
increased, such increase may be deemed for U.S. federal income tax purposes to
be the payment of a taxable dividend to holders of Debentures. See "Certain
United States Federal Income Tax Considerations--Adjustments to Conversion
Price."
Subordination
The payment of the principal of, premium, if any, and interest on, and
the redemption of, the Debentures is subordinated in right of payment to the
extent set forth in the indenture to the prior payment in full of the principal
of, premium, if any, interest and other amounts owing in respect of all Senior
Indebtedness of our company. The principal amount of outstanding unconsolidated
Senior Indebtedness of our company was approximately $2.5 million at March 31,
1999. Senior Indebtedness includes:
(1) indebtedness, obligations and other liabilities (contingent or
otherwise) of our company for money borrowed, or evidenced by
bonds, debentures, notes or similar instruments;
(2) reimbursement obligations and other liabilities (contingent or
otherwise) of our company with respect to letters of credit or
banker's acceptances issued for the account of our company and
interest rate protection agreements and currency exchange or
purchase agreements;
(3) obligations and liabilities (contingent or otherwise) related
to capitalized lease obligations;
(4) indebtedness, obligations and other liabilities (contingent or
otherwise) of our company related to agreements or
arrangements designed to protect our company or any of our
subsidiaries against fluctuations in commodity prices,
including, without limitation, commodity futures contracts or
similar hedging instruments;
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(5) indebtedness of others of kinds described in the preceding
clauses (1) through (4) that we have assumed, guaranteed or
otherwise assured the payment of directly or indirectly;
(6) any indebtedness of another person of the type described in
the preceding clauses (1) through (5) secured by any mortgage,
pledge, lien or other encumbrance on property owned or held by
our company; and
(7) any and all deferrals, renewals, extensions and refundings of,
or amendments, modifications or supplements to, any
indebtedness, obligation or liability described in clauses (1)
through (6) whether or not there is any notice to or consent
of the holders of Debentures;
unless, in any case, in the instrument creating or evidencing such
indebtedness, obligation, liability, guaranty, assumption, deferral,
renewal, extension or refunding, it is expressly stated that such
indebtedness, obligation, liability, guarantee, assumption, deferral,
renewal, extension or refunding, it is expressly stated that such
indebtedness, obligation, liability, guarantee, assumption, deferral,
renewal, extension or refunding is not senior in right of payment to
the Debentures or that such indebtedness is equal in right of payment
with or junior to the Debentures.
Such Senior Indebtedness shall continue to be Senior Indebtedness and
be entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
No payment on account of principal of, premium, if any, or interest on,
or redemption of, the Debentures may be made by us if there is a default in the
payment of principal, premium, if any, or interest (including a default under
any redemption obligation) or other amounts with respect to any Senior
Indebtedness beyond any applicable grace period or if any other event of default
with respect to any Senior Indebtedness, permitting the holders thereof to
accelerate the maturity thereof, has occurred and have not been cured or waived
or has not ceased to exist after written notice to us and the trustee by any
holder of Senior Indebtedness. Upon any acceleration of the principal due on the
Debentures or payment or distribution of assets of our company to creditors upon
any dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest or other amounts due on all Senior
Indebtedness must be paid in full before the holders of the Debentures are
entitled to receive any payment thereon. By reason of such subordination, in the
event of insolvency, creditors of our company who are holders of Senior
Indebtedness may recover more, ratably, than the holders of the Debentures, and
such subordination may result in a reduction or elimination of payments to the
holders of the Debentures.
In addition, the Debentures are structurally subordinated to all
indebtedness and other liabilities (including trade payables and lease
obligations) of our subsidiaries, as any right of our company to receive any
assets of our subsidiaries upon their liquidation or reorganization (and the
consequent right of the holders of the Debentures to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors (including trade creditors), except to the extent that we are
recognized as a creditor of such subsidiary, in which case the claims of our
company would still be subordinate to any security interest in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
our company. As of March 31, 1999, there was outstanding approximately $1.0
million of indebtedness and other liabilities of subsidiaries of our company
(excluding intercompany indebtedness).
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The indenture does not limit our ability to incur Senior Indebtedness
or any other indebtedness.
Redemption
Optional Redemption
Subject to the discussion under "--Redemption for Taxation Reasons"
below, the Debentures may not be redeemed at our option before July __, 2002.
The Debentures may be redeemed, in whole or in part, at our option on or after
July __, 2002 and before July __, 2004, at the redemption prices specified
below, upon not less than 30 nor more than 60 days' prior notice as provided
under "--Notices" below. However, the Debentures will be redeemable at our
option on or after July __, 2002 if the last reported Market Price of our common
shares as reported on the close of business for any 20 of the 25 consecutive
trading days immediately prior to the date notice of redemption is given is
equal to or greater than 125% of the Conversion Price.
The redemption prices (expressed as a percentage of principal amount)
are as follows for the 12-month period beginning on April 1 of the following
years, in each case together with accrued interest to the date of redemption:
Redemption
Year Price
---- -----
2002.................................................... 103.750%
2003.................................................... 101.875%
2004.................................................... 100.000%
After April 1, 2004, the Redemption Price will be equal to 100% of the
principal amount of the Debentures to be redeemed, together with accrued
interest to the date of redemption.
Redemption for Taxation Reasons
We may redeem the Debentures, in whole but not in part, at 100% of the
principal amount thereof, together with accrued interest thereon to the
redemption date, if we have become or would become obligated to pay, on the next
date on which any amount would be payable with respect to the Debentures, any
Additional Amounts (as described below under "--Payment of Additional Amounts)
as a result of a change in the laws (including any regulations promulgated
thereunder) of Canada (or any political subdivision or taxing authority thereof
or therein), or any change in any official position regarding the application or
interpretation of such laws or regulations, which change is announced or becomes
effective after the date the Debentures are issued; provided that we determine,
in our business judgment, that our obligation to pay Additional Amounts cannot
be avoided by our use of reasonable measures available to us (not including
substitution of our company as the obligor under the Debentures).
Special Mandatory Redemption
If we do not complete the Acquisition by the earlier of (i) December
10, 1999 and (2) that date on which the Acquisition is terminated or abandoned
(the "Acquisition Failure Date"), each holder of Debentures will receive
delivery of the Debentures purchased, and the escrowed proceeds from the sale of
the Debentures will be delivered to us. We will then be required to repurchase,
as soon as possible but in any event, within 30 days of the Acquisition Failure
Date, 80% of the principal amount of the Debentures (on a pro rata basis)
pursuant to a special mandatory redemption
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at a purchase price equal to the principal amount of the Debentures being
purchased plus accrued and unpaid interest. Failure to complete the Acquisition
will not constitute an event of default under the indenture. Failure to comply
with the provisions of the special mandatory redemption will, however,
constitute an event of default under the indenture.
Holders of Debentures will be obligated to surrender Debentures held by
them to us pursuant to the special mandatory redemption. Notice of the special
mandatory redemption will be delivered to holders of Debentures promptly
following the Acquisition Failure Date.
Payment and Conversion
The principal of Debentures is payable in U.S. dollars, against
surrender thereof at the Corporate Trust Office of the trustee in the Borough of
Manhattan, The City of New York. Payment of any installment of interest on the
Debentures will be made to the person in whose name such Debentures (or any
predecessor Debenture) is registered at the close of business on the January 1
or July 1 (whether or not a Business Day) immediately preceding the relevant
Interest Payment Date (a "Regular Record Date"). Payments of such interest will
be made at the office or agency maintained for that purpose, or, at our option,
by a dollar check drawn on a bank in New York City mailed to the holder at such
holder's registered address.
Any payment on the Debentures due on any day which is not a Business
Day need not be made on such day, but may be made on the succeeding Business Day
with the same force and effect as if made on such due date, and no interest
shall accrue on such payment for the period from and after such date. "Business
Day," when used with respect to any place of payment, place of conversion or any
other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in such place of
payment, place of conversion or other place, as the case may be, are authorized
or obligated by law or executive order to close; provided, however, that a day
on which banking institutions in New York, New York are authorized or obligated
by law or executive order to close shall not be a Business Day for certain
purposes.
Debentures may be surrendered for conversion at the Corporate Trust
Office of the trustee in the Borough of Manhattan, The City of New York.
Debentures surrendered for conversion must be accompanied by appropriate notices
and any payments in respect of interest or taxes, as applicable, as described
above under "--Conversion Rights."
We have initially appointed the Trustee as Paying Agent and Conversion
Agent. The Company may at any time terminate the appointment of any Paying Agent
or Conversion Agent and appoint additional or other Paying Agents and Conversion
Agents, except that until the Debentures have been delivered to the Trustee for
cancellation, or monies sufficient to pay the principal of, premium, if any, and
interest on the Debentures have been made available for payment and either paid
or returned to our company as provided in the indenture, we will maintain an
office or agency in the Borough of Manhattan, The City of New York for surrender
of Debentures for conversion (but only in the circumstances described in the
second sentence of the immediately preceding paragraph). Notice of any such
termination or appointment and of any change in the office through which any
Paying Agent or Conversion Agent will act will be given in accordance with
"--Notices" below.
Interest payable on Debentures on any redemption date that is an
Interest Payment Date will be paid to the holders of record as of the
immediately preceding Regular Record Date.
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All monies deposited with the Trustee or any Paying Agent, or then held
by our company, in trust for the payment of principal of, premium, if any, or
interest on any Debentures which remain unclaimed at the end of two years after
such payment has become due and payable will be repaid to our company, and the
holder of such Debenture will thereafter look only to our company for payment
thereof.
Payment of Additional Amounts
All payments made by our company under or with respect to the
Debentures will be made free and clear of and without withholding or deduction
for or on account of any present or future tax, duty, levy, impost, assessment
or other governmental charge imposed or levied by or on behalf of the Government
of Canada or of any province or territory thereof or by any authority or agency
therein or thereof having power to tax (collectively, "Taxes"), unless we are
required to withhold or deduct Taxes by law or by the interpretation or
administration thereof. If we are so required to withhold or deduct any amount
for or on account of Taxes from any payment made under or with respect to the
Debentures, we will pay such additional amounts ("Additional Amounts") as may be
necessary so that the net amount received by each holder (including Additional
Amounts) after such withholding or deduction will not be less than the amount
the holder would have received if such Taxes had not been withheld or deducted;
provided that no Additional Amounts will be payable with respect to a payment
made to a holder (an "Excluded Holder") (1) with which we do not deal at arm's
length (within the meaning of the Income Tax Act (Canada)) at the time of making
such payment or (2) which is subject to such Taxes by reason of its being
connected with Canada or any province or territory thereof otherwise than by the
mere holding of Debentures or the receipt of payments thereunder. We will also
(1) make such withholding or deduction and (2) remit the full amount deducted or
withheld to the relevant authority in accordance with applicable law. We will
furnish to the holders of the Debentures, within 30 days after the date the
payment of any Taxes is due pursuant to applicable law, certified copies of tax
receipts evidencing such payment by our company. We will indemnify and hold
harmless each holder (other than an Excluded Holder) and upon written request
reimburse each such holder for the amount of (a) any Taxes so levied or imposed
and paid by such holder as a result of payments made under or with respect to
the Debentures, (b) any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, and (c) any Taxes imposed with
respect to any reimbursement under (a) or (b), but excluding any such Taxes on
such holders' net income.
At least 30 days before each date on which any payment under or with
respect to the Debentures is due and payable, if we will be obligated to pay
Additional Amounts with respect to such payment, we will deliver to the trustee
an Officers' Certificate stating the fact that such Additional Amounts will be
payable, stating the amounts so payable and setting forth such other information
as is necessary to enable the trustee to pay such Additional Amounts to holders
on the payment date.
Amalgamations, Mergers and Sales of Assets by Our Company
The indenture provides that we will not consolidate with or merge into
any other corporation (other than a wholly-owned subsidiary of our company) or
convey, transfer, sell or lease our properties and assets substantially as an
entirety (treating our company and each subsidiary of our company as a single
consolidated entity and treating any sale by a subsidiary or of a subsidiary
(including a merger) as a sale by our company for such purpose) to any
corporation (other than a wholly-owned subsidiary of the company), and that we
will not permit any corporation (other than a wholly owned subsidiary of our
company) to consolidate with or merge into our company or convey, transfer or
lease its properties and assets substantially as an entirety to our company,
unless:
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o we will consolidate with or merge into another corporation or
convey, transfer or lease our properties and assets
substantially as an entirety (treating our company and each
subsidiary of our company as a single consolidated entity and
treating any sale by a subsidiary or of a subsidiary
(including a merger) as a sale by our company for such
purpose) to any corporation, where the corporation formed by
such consolidation or into which we are merged or the
corporation which acquires by conveyance or transfer, or which
leases, the properties and assets of our company substantially
as an entirety (treating our company and each subsidiary of
our company as a single consolidated entity and treating any
sale by a subsidiary or of a subsidiary (including by merger)
as a sale by our company for such purpose), will be organized
and existing under the laws of the United States of America or
a state thereof or the District of Columbia, or the laws of
Canada or a province thereof, and such corporation will
expressly assume, by an indenture supplemental hereto,
executed and delivered to the trustee, in form satisfactory to
the trustee, the due and punctual payment of the principal of
and any premium and interest on all the Debentures and the
performance or observance of every covenant of the indenture
on the part of our company to be performed or observed;
o the trustee will have received an opinion of counsel to the
effect that the transaction will not result in the successor
being required to make any deduction or withholding on account
of any Taxes from any payments in respect of the Debentures,
which deduction or withholding is greater than any deduction
or withholding to which we were subject prior to the
transaction;
o immediately after giving effect to such transaction (treating
any indebtedness which becomes an obligation of our company,
or any subsidiary, as a result of such transaction as having
been incurred by our company, or such subsidiary, at the time
of such transaction), no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event
of Default, will have happened and be continuing;
o we have delivered to the trustee an officers' certificate and
an opinion of counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction,
such supplemental indenture, comply with the article of the
indenture addressing such consolidation, merger, conveyance,
transfer or lease, and that all conditions precedent herein
provided for relating to such transaction have been complied
with; and
o the securities or other property receivable in connection with
such transaction constitute prescribed securities.
Events of Default
Events of Default under the indenture include, among others:
o a default in the payment of any interest upon any Debentures
when the same becomes due and payable, and continuance of such
default for the period of 30 days (whether or not such failure
is a result of the subordination provisions relating to the
Debentures);
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o a default in the payment of the principal of (or premium, if
any, on) any Debenture at its maturity (whether or not such
failure is a result of the subordination provisions relating
to the Debentures);
o a default in the performance of our company, or a breach of
any covenant or warranty of our company in the indenture or of
any other covenant to which we or any Significant Subsidiary
may become subject, with respect to the Debentures and
continuance of such default or breach for a period of 90 days
after written notice to our company by the trustee or to our
company and the trustee by the holders of at least 25% in
principal amount of the Debentures outstanding;
o a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by our company or any
Significant Subsidiary having an aggregate principal amount
outstanding of at least $10,000,000 or under any mortgage,
indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for
money borrowed by our company or any Significant Subsidiary
having an aggregate principal amount outstanding of at least
$10,000,000, whether such indebtedness now exists or shall
hereafter be created, after the expiration of any applicable
grace period with respect thereto;
o failure to comply with the provisions of the special mandatory
redemption; and
o certain events of bankruptcy, insolvency or reorganization
involving our company or any Significant Subsidiary.
As used in this document, "Significant Subsidiary" means any subsidiary
that would be a significant subsidiary as defined under the Regulation S-X under
the Securities Act of 1933 and Securities Exchange Act of 1934.
Subject to the provisions of the indenture relating to the duties of
the trustee in case an Event of Default shall occur and be continuing, the
trustee is under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless such holders
have offered to the Trustee reasonable indemnity. Subject to such provisions for
the indemnification of the trustee, the holders of a majority in aggregate
principal amount of the outstanding Debentures have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee or exercising any trust or power conferred on the trustee.
If an Event of Default has occurred and is continuing, either the
trustee or the holders of at least 25% in principal amount of the outstanding
Debentures may accelerate the maturity of all Debentures. However, after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of outstanding Debentures may, under
certain circumstances, rescind and annul such acceleration, if all Events of
Default, other than the non-payment of accelerated principal, have been cured or
waived as provided in the indenture. For information as to the waiver of
defaults, see "--Modification and Waiver."
No holder of any Debenture has any right to institute any proceeding
with respect to the indenture or for any remedy thereunder, unless the holder
has previously given to the trustee written notice of a continuing Event of
Default and the holders of at least 25% in aggregate principal amount of the
outstanding Debentures have made written request, and offered reasonable
indemnity, to the trustee to institute such proceeding as trustee. In addition,
the trustee must not have received from
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the holders of a majority in aggregate principal amount of the outstanding
Debentures a direction inconsistent with such request or failed to institute any
such proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a Debenture for the enforcement of payment of the
principal of, premium, if any, or interest on such Debenture on or after the
respective due dates expressed in such Debenture or of the right to convert such
Debenture in accordance with the indenture.
We are required to furnish to the trustee annually a statement as to
our performance of certain of our obligations under the indenture and as to any
default in such performance.
Modification and Waiver
Modifications and amendments of the indenture may be made, and certain
past defaults by our company may be waived, with the consent of the holders of
not less than a majority in aggregate principal amount of the Debentures at the
time outstanding. However, no such modification or amendment may, without the
consent of the holder of each outstanding Debenture affected thereby:
o change the maturity or stated maturity of the principal of, or
any installment of interest on, any Debenture;
o reduce the principal amount of, or the premium, if any, or
interest on, any Debenture;
o reduce the amount payable upon a redemption;
o change the place or currency of payment of principal of,
premium, if any, or interest on, any Debenture;
o impair the right to institute suit for the enforcement of any
payment on or with respect to any Debenture;
o adversely affect the right to convert Debentures;
o modify the subordination provisions in a manner adverse to the
holders of the Debentures;
o reduce the above-stated percentage of outstanding Debentures
necessary to modify or amend the indenture; or
o reduce the percentage of aggregate principal amount of
outstanding Debentures necessary for waiver of compliance with
certain provisions of the indenture or for waiver of certain
defaults.
The holders of a majority in aggregate principal amount of the
outstanding Debentures may waive compliance by our company with certain
restrictive provisions of the indenture by written consent. The holders of a
majority in aggregate principal amount of the outstanding Debentures also may
waive any past default under the indenture, except a default in the payment of
principal, premium, if any, or interest, by written consent.
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Transfer and Exchange
We have initially appointed the trustee as security registrar and
transfer agent, acting through its Corporate Trust Offices in New York City. We
reserve the right to vary or terminate the appointment of the security registrar
or of any transfer agent or to appoint additional or other transfer agents or to
approve any change in the office through which any security registrar or any
transfer agent acts.
In the event of a redemption of less than all of the Debentures for any
of the reasons set forth above under "--Redemption," we will not be required (1)
to issue or register the transfer or exchange of Debentures during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of Debentures and ending at the close of business on the
day of such mailing, or (2) to register the transfer of or exchange any
Debenture, or portion thereof, called for redemption, except that in the case of
any Debenture to be redeemed in part, the portion thereof may not be redeemed.
Notices
Notices to holders of Debentures will be given by mail to the addresses
of such holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of such mailing.
Notice of a redemption of Debentures will be given at least once not
less than 30 nor more than 60 days prior to the redemption date (which notice
shall be published in accordance with the procedures described above) and will
specify the redemption date.
Replacement of Debentures
Debentures that become mutilated, destroyed, stolen or lost will be
replaced by our company at the expense of the holder upon delivery to the
trustee of the mutilated Debentures or evidence of the loss, theft or
destruction thereof satisfactory to our company and the trustee. In the case of
a lost, stolen or destroyed Debenture, indemnity satisfactory to the trustee and
our company may be required at the expense of the holder of such Debenture
before a replacement Debenture will be issued.
Governing Law
The Indenture and the Debentures are governed by and construed in
accordance with the laws of the State of New York, United States of America. We
will submit to the jurisdiction of any federal or state court in New York City,
Borough of Manhattan, for purpose of all legal actions and proceedings
instituted in connection with the Debentures and the indenture. We have
appointed CT Corporation, New York, New York as our authorized agent upon which
process may be served in any such action.
The Trustee
In case an Event of Default occurs (and is not cured), the trustee will
be required to use the degree of care of a prudent person in the conduct of his
own affairs in the exercise of its powers. Subject to such provisions, the
trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request of any of the holders of Debentures, unless
they shall have offered to the trustee reasonable security or indemnity.
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DESCRIPTION OF THE COMMON SHARES
As at May 31, 1999, there were 29,638,231 common shares of our company
outstanding and held of record by approximately 833 shareholders. Our
shareholders are entitled to receive dividends as, when and if declared by our
board of directors out of funds legally available therefor, except that if any
preferred shares of our company are outstanding at the time, the payment of
dividends on common shares will be subject to any preferential rights attaching
to any other class or series of shares of our company.
Our shareholders are entitled to one vote for each common share on all
matters voted on by shareholders, including the election of directors.
Shareholders do not have any conversion, redemption or preemptive rights. In the
event of dissolution, liquidation or winding up of our company, shareholders are
entitled to share rateably in any assets remaining after the satisfaction in
full of the prior rights of creditors, including holders of our company's
indebtedness, and the aggregate liquidation preference of any other class or
series of shares then outstanding. All outstanding common shares are fully paid
and non-assessable.
At our June 15, 1999 annual general meeting, we extended our
Shareholders' Rights Plan, dated April 24, 1996, to June 30, 2004.
DESCRIPTION OF THE WARRANTS
The Warrants will be issued directly from our company to the
warrantholders. The Warrants are subject to the terms stated in each Warrant
certificate and warrantholders are referred to the Warrant certificates for a
statement thereof. The following summaries of certain provisions of the Warrants
do not purport to be complete, and are subject to the principal provisions to be
included in the Warrant certificates. Except as described below, each whole
Warrant will entitle a warrantholder to purchase one common share of our company
at the exercise price of $0.75 per share (the "Exercise Price"), subject to
certain adjustments upon the occurrence of certain events as described below.
The Warrants will be exercisable immediately upon the closing of the offering.
Warrants not exercised on or prior to January __, 2001 will become void and all
rights in respect thereof will cease as of that time.
The Warrants provide that the Exercise Price and the number of common
shares issuable upon exercise of each Warrant will be adjusted in the event of
any stock split, a stock combination, a stock dividend or a spin-off with
respect to our common shares. If we conduct certain rights offerings, the
Warrants provide that the Exercise Price will be adjusted, or, in certain
situations, a warrantholder will instead receive cash. The Warrants further
provide that in case of any capital reorganization of our company, any
reclassification of our company's common shares, any consolidation or merger of
our company with or into any other person, or any sale, lease or transfer to any
person of all or substantially all of the assets of our company to any other
person, the warrantholder of each outstanding Warrant will have the right, upon
subsequent exercise of the Warrant, to receive the kind and amount of stock,
other securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or transfer that would
have been received by such warrantholder upon the exercise of the Warrant had
such Warrant been exercised immediately prior to that event, and the exercise
price will be adjusted appropriately.
Fractional common shares will not be issued upon exercise of the
Warrants. Instead, a cash adjustment based on the last sale price of our common
shares as reported on the American Stock
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Exchange on the date of exercise will be made. The Warrants do not confer upon a
warrantholder any voting, preemptive or other rights as a shareholder of our
company.
Warrants may be exercised at any time between the date we complete this
offering and 18 months thereafter by the surrender to our company of a duly
executed certificate evidencing the Warrants accompanied by payment in full by a
certified or official bank check, payable to the order of our company, for the
exercise price multiplied by the number of common shares to be acquired pursuant
to such exercise.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income
tax considerations applicable to holders of the Warrants ("U.S. Warrant
Holders"), Common Shares ("U.S. Shareholders") and Debentures that acquire the
Debentures at their original issue at their original offering price ("U.S.
Debenture Holders") who are U.S. persons (together, "U.S. Holders"). This
summary is for general information purposes only and is based on the United
States Internal Revenue Code of 1986, Treasury regulations promulgated
thereunder, and judicial and administrative interpretations thereof, all as in
effect on this date and all of which are subject to change. We have not sought a
ruling from the Internal Revenue Service ("IRS") with respect to the application
of any of the foregoing authorities to the operation of our company. The tax
treatment to a U.S. Holder may vary depending upon his particular situation.
Certain holders (including, but not limited to, persons that are not United
States persons, banks, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, persons subject to the alternative minimum tax,
persons having a "functional currency" other than the United States dollar and
holders that will hold Debentures or Units as a position in a "straddle," as
part of a "synthetic security" or hedge, or a part of a "conversion transaction"
or other integrated investment) may be subject to special rules not discussed
below. The following summary is limited to U.S. Holders who will hold the Common
Shares and Debentures as "capital assets" within the meaning of Section 1221 of
the Internal Revenue Code and do not actually or constructively own 10% or more
of our voting stock. Additionally, the discussion below does not address the
effect of any state, local or foreign tax law on a U.S. Holder.
Accordingly, all prospective U.S. Holders are urged to consult their
own tax advisors with respect to the purchase, ownership and disposition of
Common Shares, Warrants and Debentures.
As used herein, the term "United States person" means:
o an individual who is citizen or resident of the United States;
o a partnership, corporation or other entity organized in or under the
laws of the United States or any state thereof;
o an estate, the income of which is subject to U.S. federal income tax,
regardless of source; or
o a trust if (a) a court within the United States is able to exercise
primary supervision over the administration of the trust, and (b) one
or more United States persons have the authority to control all
substantial decisions of the trust.
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Taxation of Debentures
Income Inclusion
For United States federal income tax purposes payments, including any
Additional Amounts and any amount of Canadian tax withheld with respect to such
payments, with respect to the Debentures should constitute interest that will
generally be taxable to a U.S. Note Holder as ordinary income at the time
received or accrued, in accordance with such holder's method of accounting.
Source of Interest and Foreign Tax Credit
Interest paid with respect to the Debentures generally will be treated
as having a source outside of the United States. Subject to certain complex
limitations set forth in the Internal Revenue Code, as modified by the United
States-Canada income tax treaty, U.S. Note Holders may elect to claim a credit
against their United States federal income tax liability for Canadian income tax
withheld (if any) from interest received in respect of Debentures. Interest paid
with respect to the Debentures will be treated as "passive" or "financial
services" income (or, if Canadian withholding tax at a rate of 5% or more were
to be imposed, as "high withholding tax interest" income) for purposes of
computing the foreign tax credit. The rules relating to the determination of the
foreign tax credit are complex and prospective purchasers should consult their
personal tax advisors to determine whether and to what extent they would be
entitled to such credit. U.S. Note Holders that do not elect to claim foreign
tax credits may instead claim a deduction for Canadian income tax withheld (if
any).
Sale, Exchange and Retirement
Subject to the "PFIC" discussion below, upon the sale, exchange,
retirement or redemption of a Note, a U.S. Note Holder generally will recognize
capital gain or loss equal to the difference between the amount realized upon
the sale, exchange, retirement or redemption (other than amounts received that
are attributable to accrued interest not previously included in income, which
amounts will be taxable as ordinary income) and the adjusted tax basis of the
Note. Capital gain or loss will be long-term capital gain or loss if the holding
period for the Note is more than one year. For U.S. Note Holders that are not
corporations, including individuals, the maximum federal income tax rate for
such holders on long-term capital gain will be 20% for most capital assets
(including the Debentures) held for more than one year. The deductibility of
capital losses sustained with respect to the Debentures is subject to
limitations. In the case of a U.S. Note Holder who is a "United States resident"
as defined in Section 865 of the Internal Revenue Code, any gain with respect to
Debentures will generally be treated as U.S. source. Losses with respect to
Debentures in the case of a U.S. Note Holder who is a United States resident as
defined in Section 865 of the Internal Revenue Code will generally be allocated
to reduce United States source income.
Adjustments to Conversion Price
The conversion price of the Debentures is subject to adjustment under
certain circumstances. See "Description of Debentures - Conversion Rights."
Section 305 of the Internal Revenue Code may treat a U.S. Note Holder as
receiving a constructive distribution, taxable as a dividend to the extent of
our company's current or accumulated earnings and profits, in the case of
certain adjustments in the conversion rate of the Debentures that may occur in
limited circumstances, particularly an adjustment to reflect a taxable dividend
to holders of the Common Shares. See "Passive Foreign Investment Company Rules."
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Conversion of Debentures into Common Shares
Generally, no gain or loss will be recognized for United States federal
income tax purposes on a conversion of the Debentures into Common Shares. Cash
paid instead of fractional shares of Common Shares will, however, result in
capital gain (or loss) to the extent of the difference between the amount of
cash paid and the portion of the adjusted basis of the Note allocable to such
fractional share. The adjusted basis of Common Shares received on conversion
will equal the adjusted basis of the Note converted, reduced by the portion of
such adjusted basis allocated to any fractional Common Share deemed exchanged
for cash and increased by any additional amount paid upon such conversion. The
holding period of the Common Shares received on conversion will include the
period during which the converted Debentures were held. As further described
below and subject to the PFIC discussion below, gain or loss will be recognized
upon the subsequent sale or exchange of the Common Shares acquired by conversion
of Debentures, measured by the difference between the amount realized upon the
sale or exchange and the cost basis of the Common Shares so acquired.
Taxation of Warrants
Exercise of Warrant
No gain or loss will be recognized by U.S. Warrant Holders upon the
exercise of the Warrant. The cost basis of the Common Shares acquired upon such
exercise will be the cost basis of the Warrant plus any additional amount paid
upon the exercise of the Warrant. As further described below, gain or loss will
be recognized upon the subsequent sale or exchange of the Common Shares acquired
by the exercise of the Warrant, measured by the difference between the amount
realized upon the sale or exchange and the cost basis of the Common Shares so
acquired.
Sale or Exchange of Warrant
If a Warrant is not exercised, but is sold or exchanged (whether
pursuant to redemption or otherwise), gain or loss will be recognized upon such
event, measured by the difference between the amount realized by the holder of
the Warrant as a result of sale, exchange or redemption and the cost basis of
the Warrant. See "- Taxation of Debentures - Sale, Exchange, Retirement" for a
description of the rules applicable to capital gains and losses.
Expiration of Warrant
If a Warrant is not exercised and is allowed to expire, the Warrant
will be deemed to be sold or exchanged on the date of expiration. In this event,
the holder of the Warrant will recognize a capital loss to the extent of the
cost basis of the Warrant.
Taxation of Common Shares
Amount Includible in Income
Subject to the PFIC rules described below, for United States federal
income tax purposes, dividends paid by our company (including any Canadian tax
withheld thereon) will constitute ordinary dividend income to the extent of our
company's current or accumulated earnings and profits as determined for U.S.
Federal income tax purposes, and to the extent in excess of earnings and
profits, will first be applied against and reduce the shareholder's basis in
such holder's stock, and to the extent in excess of such basis will be treated
as gain from the sale or exchange of property. Because
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we are not a U.S. corporation, dividends that we pay will not be eligible for
the dividends-received deduction generally available to corporations.
Foreign Tax Credit
Subject to limitations set forth in the Internal Revenue Code, as
modified by the United States-Canada income tax treaty, U.S. Shareholders may
elect to claim a credit against their United States federal income tax liability
for Canadian income tax withheld from dividends received in respect of Common
Shares. Dividends paid with respect to the Common Shares will be treated as
"passive" income (or, if Canadian withholding tax at a rate of 5% or more were
to be imposed, as "high withholding tax interest" income) for purposes of
computing the foreign tax credit. The rules relating to the determination of the
foreign tax credit are complex and prospective U.S. Shareholders should consult
their personal tax advisors to determine whether and to what extent they would
be entitled to such credit. U.S. Shareholders that do not elect to claim foreign
tax credits may instead claim a deduction for Canadian income tax withheld.
Sale of Common Shares
Subject to the "PFIC" discussion below, the sale of Common Shares
generally will result in the recognition of gain or loss in an amount equal to
the difference between the amount realized on the sale and the holder's adjusted
basis in the Common Shares. See "--Taxation of Debentures--Sale, Exchange,
Retirement" for a description of the rules applicable to capital gains and
losses.
Passive Foreign Investment Company Rules
Under the Internal Revenue Code, we may be classified as a PFIC. U.S.
shareholders of a PFIC and holders of options (such as the Warrants and
Debentures) to acquire PFIC stock are subject to certain adverse tax
consequences. These consequences can be mitigated for a U.S. shareholder (but
not for holders of options), under certain circumstances, if such shareholder
makes a timely election to treat our company as a QEF. All U.S. Holders are
therefore urged to consult their own tax advisors about the advisability of
making a QEF election with respect to our company. All U.S. Holders are also
urged to consult their own tax advisers about the possibility of crediting
Canadian taxes paid by our company against U.S. tax payable.
Definition of a PFIC
A PFIC is a corporation not formed in the United States (a "Non-U.S.
Corporation") and either (1) 75% or more of its gross income is passive income
or (2) 50% or more of the average value of its assets produce, or are held for
the production of, passive income. Passive income for these purposes includes
interest, dividends, and certain rents and royalties. For purposes of the
foregoing tests, if a Non-U.S. Corporation owns at least 25% by value of the
stock of another corporation, it is treated as if it instead owned its
proportionate share of the other corporation's assets and received directly its
proportionate share of the other corporation's income.
We have been advised by PricewaterhouseCoopers LLP that we should not
be treated as a PFIC with respect to shares purchased by U.S. shareholders
during 1993, 1994, 1995, 1996, 1997 and 1998, although we could potentially be a
PFIC with respect to shares acquired by U.S. shareholders prior to 1993. We also
intend to engage PricewaterhouseCoopers LLP or such other advisor in the future
to analyze whether we are a PFIC in 1999 and subsequent years and will continue
to notify shareholders of the results of such future analyses. The PFIC analysis
involves a
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complex analysis of many factors, including, among other things, the price of
gold and the cash flow of OGML. For example, without increasing the amount of
income and assets that produce active income through the development or
acquisition of producing mines, a modest increase in the specific factors
mentioned in the preceding sentence could result in our becoming a PFIC.
For purposes of determining our PFIC qualification, we take into
consideration our proportionate share of the income and assets attributable to
our subsidiaries in which we hold at least a 25% interest (by value). If as a
result of the contemplated acquisition, we generate gross income from mining
operations, it is possible that we will not qualify as a PFIC in future years
due to improvement in our ratio of active to passive income.
There can be no assurance, with or without the contemplated
acquisition, as to whether or not PricewaterhouseCoopers LLP, or such other
advisor, will conclude that we are a PFIC for such period. Moreover, even if
PricewaterhouseCoopers LLP, or such other advisor, concludes that we are not a
PFIC, its conclusion is not binding on the United States Internal Revenue
Service. Accordingly, it is possible that the PFIC rules will apply with
respect to the Units and Debentures purchased in this offering.
Consequences of PFIC Classification if No QEF Election Made
If we are classified as a PFIC, U.S. Shareholders who do not make
timely QEF Elections (as discussed below) will be subject to a number of special
adverse tax rules. For example, gain recognized on disposition of PFIC stock or
the receipt of an "excess distribution" from a PFIC is (1) treated as if it were
ordinary income earned ratably on each day in the taxpayer's holding period for
the stock at the highest marginal rate in effect during the period in which it
was deemed earned and (2) subject to an interest charge as if the resulting tax
had actually been due in such earlier year or years. (An excess distribution is
the amount of any distribution received by the U.S. Shareholder during the
taxable year that exceeds 125% of the immediately preceding three year average
of distributions received from the corporation, subject to certain adjustments.)
Although the matter is not free from doubt, it is likely that proposed United
States Treasury Regulations would be interpreted as applying the foregoing rules
to gain on the disposition of convertible debt such as the Debentures and
possibly to amounts that would otherwise be treatable as dividend. These
proposed regulations also provide that the holding period of PFIC stock acquired
upon the exercise of an option would include the period the option was held. The
applicability of the QEF Election to such stock will not, however, avoid the
adverse tax consequences upon its disposition unless the holder makes a Deemed
Sale Election described below.
Proposed United States Treasury Regulations broadly define a
disposition to include, subject to certain exceptions, any transaction or event
that constitutes an actual or deemed transfer of property for any purpose under
the Internal Revenue Code, including a sale, exchange, gift, transfer at death,
and the pledging of PFIC stock to secure a loan. The foregoing rules will
continue to apply with respect to a U.S. Holder who held our common shares while
we met the definition of a PFIC even if we cease to meet the definition of a
PFIC. Again, although the matter is not free from doubt, it is likely that
proposed United States Treasury Regulations would be interpreted as applying the
foregoing rules to a disposition of convertible debt such as the Debentures.
The proposed PFIC regulations herein were proposed to be effective in
April 1992 and may apply to all post-1986 years. However, there can be no
assurance that such regulations will be adopted in their present form.
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Consequences of PFIC Classification if QEF Election Made
Most of the foregoing adverse tax consequences can be avoided if (1)
the U.S. shareholder makes a timely election to treat our Company as a QEF (a
"QEF Election") for the first year of the shareholder's holding period in which
we are a PFIC, or in a year for which the shareholder also makes the "Deemed
Sale Election" described below and (2) we provide the U.S. shareholder with a
"PFIC Annual Information Statement" pursuant to temporary Regulations issued by
the United States Internal Revenue Service. An election to treat our company as
a QEF would not, however, apply to convertible debt such as the Debentures or
the Warrants, although it would apply to stock acquired upon conversion or
exercise.
U.S. shareholders of a PFIC who make a QEF Election, however, will be
taxable currently on their pro rata share of the PFIC's ordinary earnings and
net capital gain, unless they make a further election to defer payments of tax
on amounts included in income for which no distribution has been received,
subject to an interest charge. Special adjustments are provided to prevent
inappropriate double taxation of amounts so included in a U.S. shareholder's
income upon a subsequent distribution or disposition of the stock.
A U.S. shareholder makes a QEF Election by filing a Form 8621 with its
tax return. In the case of stock owned through a U.S. entity, the election
generally must be made at the entity level. A QEF Election must be filed by the
due date, taking into account extensions, for filing the U.S. shareholder's
income tax return for the taxable year for which the election is made. A copy of
the Form 8621 must also be filed with the Philadelphia Internal Revenue Service
Center. Once made, the election is effective for the shareholder's taxable year
for which it is made and all subsequent taxable years, and may not be revoked
without the consent of the Secretary of the Treasury. If a U.S. shareholder
wishes to make a QEF Election subsequent to the first year of his holding period
for stock of a Non-U.S. Corporation that is a PFIC, the U.S. shareholder may
further elect to recognize gain (the "Deemed Sale Election") as if it had sold
the QEF stock on the first day of the taxable year in which the QEF election is
made if (1) the U.S. shareholder holds stock in the PFIC on that day and (2) the
shareholder can establish the fair market value of such stock on that day.
In the event that we are classified as a PFIC, we intend to comply with
the reporting requirements prescribed by temporary Treasury regulations. In
particular, we will maintain information so that ordinary earnings and net
capital gains of our company may be determined. However, future regulations may
contain reporting and record-keeping requirements that are so onerous that it
would not be practicable for our company to comply. If, after review of the
requirements, we determine that it would not be practicable to comply, we will
so notify our shareholders.
Mark to Market Election
A U.S. Holder of "marketable stock" under the PFIC rules may be able to
avoid the imposition of the special tax and interest charge by making a
"mark-to-market election." For these purposes, the Treasury is authorized to
issue regulations that would treat options as "marketable stock." The Treasury
has not, however, issued any guidance with respect to this issue at the current
time, so it is unclear whether a "mark-to-market election" can be made in
respect of an option such as the Warrants and the Debentures.
Generally, pursuant to this election, a U.S. holder would include in
ordinary income, for each taxable year during which such stock is held, an
amount equal to the increase in value of the stock, which increase will be
determined by reference to the value of such stock at the end of the current
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taxable year as compared with its value as of the end of the prior taxable year.
U.S. Holders desiring to make the mark-to-market election should consult their
tax advisors with respect to the application and effect of making such election.
Information Reporting and Backup Withholding
Certain information reporting requirements may apply to the payments
with respect to and the proceeds from the sale, exchange or redemption of the
Debentures made to U..S. Holders, other than certain exempt recipients such as
corporations. A 31% backup withholding tax will apply to these payments if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such U.S. Holder's federal income tax liability
if the required information is furnished to the United States Internal Revenue
Service.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material Canadian federal
income tax consequences generally applicable to the acquisition, ownership and
disposition of the Debentures and Units offered hereunder. This summary
addresses such consequences only to persons who at all times are at arm's length
with our company and are not, and are not deemed to be, residents of Canada for
purposes of the Income Tax Act (Canada) (the "ITA"), who are United States
persons who will hold such Debentures and Units as capital property and who will
not use or hold such property in carrying on a business in Canada (a
"Non-Resident Holder"). For this purpose, United States person has the meaning
given above (under the heading "Certain United States Income Tax
Considerations").
This summary is based on the current provisions of the ITA and
regulations thereunder and all specific proposals to amend the ITA publicly
announced prior to the date hereof by the Minister of Finance (Canada) and the
current administrative practices and policies of Revenue Canada, Customs, Excise
and Taxation ("Revenue Canada"). It has been assumed that all specific proposals
to amend the ITA will be enacted in substantially their present form and that no
other relevant amendments to the ITA will come into force. However, no assurance
can be given to this effect. Except for the foregoing, this summary does not
take into account or anticipate any changes in law, whether by legislative,
administrative or judicial decision or action, nor does it take into account
provincial, territorial or foreign income tax legislation or considerations
which may differ from those described herein. See "Certain United States Federal
Income Tax Considerations" herein.
This summary is not exhaustive of all possible Canadian federal income
tax consequences to all Non-Resident Holders and in particular: (1) may not be
applicable where the Non-Resident Holder is a non-resident insurer carrying on
an insurance business in Canada and elsewhere; and (2) will not be applicable to
a Non-Resident Holder that is not liable to tax in the United States such as a
limited liability company. Nor should these comments be interpreted as legal or
tax advice to any particular Non-Resident Holder, each of whom should consult
its own tax advisors with respect to their particular circumstances.
Taxation of Common Shares and Warrants
Allocation of Cost of Unit
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Each Unit acquired hereunder will have a cost of $0.6875. Non-Resident
Holders will be required to allocate the cost of each Unit on a reasonable basis
between the Common Share and one-half Warrant in order to determine their
respective costs for purposes of the ITA. We will allocate the full amount of
$0.6875 received for each Unit to the Common Share and a nil amount to the
one-half Warrant. We believe such an allocation to be reasonable, but it will
not be binding on Revenue Canada.
The cost of each Common Share and one-half Warrant acquired by a
Non-Resident Holder will be averaged with the adjusted cost base of identical
Common Shares or one half Warrants then owned by the Non-Resident Holder for the
purpose of determining the adjusted cost base of each Common Share and each
one-half Warrant to the Non-Resident Holder.
Exercise, or Expiry of Warrants
No gain or loss will be realized by a Non-Resident Holder of a one-half
Warrant upon the exercise of the Warrant and the consequent acquisition of
Common Shares. When Warrants are exercised, the Non-Resident Holder's cost of
the Common Shares acquired thereby will generally be the aggregate of the
Non-Resident Holder's adjusted cost base of the Warrant immediately before its
exercise and the exercise price paid for the Common Share, which cost must then
be averaged with the adjusted cost base of all Common Shares of the Non-Resident
Holder for purposes of subsequently computing the adjusted cost base of each
Common Share of the Non-Resident Holder. In the event of the expiry of an
unexercised Warrant, the warrant holder will realize a capital loss equal to the
adjusted cost base, if any, of the Warrant to such Non-Resident Holder.
Interest
Interest paid or credited to a Non-Resident Holder on return of the
escrowed proceeds of sale of the Units will be subject to withholding tax in
Canada. The Canada-United States Income Tax Convention, 1980, as amended (the
"Treaty") provides that the normal 25% rate of withholding tax on interest is
reduced to 10% if paid to a Non-Resident Holder.
Dividends
Dividends (including deemed dividends) paid or credited on the Common
Shares to a NonResident Holder will be subject to withholding tax in Canada. The
Treaty provides that the normal 25% rate of withholding tax on the gross amount
of such dividends is reduced to 15% if paid to a Non-Resident Holder. The Treaty
provides for a further reduction of the withholding tax rate to 5% if the
Non-Resident Holder is a company ( any body corporate or any entity which is
treated as a body corporate for tax purposes) which is a resident of the United
States and which owns at least 10% of our voting stock.
Disposition of Common Shares and Warrants
A Non-Resident Holder will not be subject to tax under the ITA in
respect of a capital gain realized upon the disposition or deemed disposition
(such as would arise on the death of an individual Non-Resident Holder) of a
Common Share or Warrant unless such property is "taxable Canadian property" to
the Non-Resident Holder. A Common Share or Warrant will be taxable Canadian
property to a Non-Resident Holder if at any time during the 60-month period
ending at the time of disposition of such property, the Non-Resident Holder,
persons with whom the Non-Resident Holder did not deal at arm's length, or the
Non-Resident Holder together with all such persons owned (or
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had an option, including a conversion right, to acquire) 25% or more of the
issued shares of any class of our capital stock.
However, under the Treaty, a Non-Resident Holder to whom a Common Share
or Warrant represents taxable Canadian property will not be liable to tax in
Canada in respect of a capital gain realized on the disposition of such property
unless:
o the value of our common shares is derived principally from real
property situated in Canada (including mineral properties in Canada and
rights in relation thereto), or
o the Non-Resident Holder was a resident of Canada for 120 months during
any period of 20 consecutive years preceding the disposition of such
property and was a resident of Canada at any time during the 10 years
immediately preceding such disposition and owned such property (or
property for which the property was substituted) at the time the
Non-Resident Holder ceased to be a resident of Canada.
Taxation of Debentures
No Withholding tax on payments
The payment by our company of interest, principal or premium, if any,
on the Debentures and the redemption of the Debentures will be exempt from
Canadian withholding tax.
Conversion of Debentures
The conversion of a Debenture into Common Shares pursuant to the terms
of the Debenture will be deemed not to be a disposition by a Non-Resident Holder
of the Debenture for purposes of the ITA. The cost to such holder of the Common
Shares so acquired will be deemed to be the adjusted cost base to such holder of
the Debenture immediately before conversion.
Disposition of Debenture
No taxes imposed by the ITA will be payable by a Non-Resident Holder of
a Debenture upon the disposition or redemption of such Debenture, unless such
Debenture constitutes taxable Canadian property of such holder by virtue of the
conversion privilege attached thereto and the Treaty relief referred to above is
not available. See the discussion of taxable Canadian property under the
heading "Disposition of Common Shares and Warrants."
PLAN OF DISTRIBUTION
Under an Agency Agreement, dated July __, 1999 (the "Agency
Agreement"), Maples Partners Group and HSBC Securities, Inc. (the "Agents") have
agreed to act as our agents in offering the Securities to the public on a best
efforts basis. Pursuant to the Agency Agreement, Maples Partners Group and HSBC
Securities, Inc. have been retained in connection with the offering in the
United States and, through their affiliates, elsewhere.
We have agreed to pay the Agents an agency fee of 2.75% of our gross
proceeds upon closing, and a further 2.75% of the gross proceeds upon completion
of the Acquisition, and to reimburse the Agents for certain expenses incurred in
connection with this offering. The Agents propose to offer the Debentures and
the Units directly to the public at the offering price to be set forth in the
pricing supplement to this prospectus supplement.
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The Agents are not obligated to and do not intend to purchase any of
the Debentures or Units. We anticipate that the Agents will obtain indications
of interest from potential investors for the amount of the offering, and the
filing of the pricing supplement will not occur until indications of interest
have been received by the Agents for the full amount of the offering.
Confirmations and prospectuses will be delivered to all investors at the time of
pricing, informing investors of the closing date. The closing of this offering
may take place only if all of the Securities are sold.
We will retain 20% of the gross proceeds from this offering for our
general working capital needs, whether or not we complete the Acquisition.
Eighty percent of the gross proceeds from this offering, together with the
Debentures and the Units, will be deposited with Chase Manhattan Bank. The funds
will be placed in escrow pursuant to Rule 15c2-4 promulgated under the United
States Securities Exchange Act of 1934 in equal proportions of Debentures and
Units. Chase Manhattan Bank will invest and reinvest the gross proceeds in the
escrow account into investments such as direct U.S. government obligations,
certificates of deposit with banks that are members of the Federal Reserve
System, or commercial paper of U.S. corporations having high credit ratings
among various applicable U.S. credit ratings agencies.
The funds and securities placed in escrow will be released immediately
before completion of the Acquisition. If we do not complete the Acquisition by
December 10, 1999, each investor will receive its portion of the funds placed in
the escrow account, attributable to the Units, together with interest from the
date we complete this offering. The purchaser's proportionate interest in the
remaining Units would then be returned to us for cancellation.
The escrowed proceeds from the sale of the Debentures will, however, be
delivered to us and the Debentures will be delivered to each holder thereof. We
will then be required to repurchase 80% of the principal amount of the
Debentures (on a pro rata basis) pursuant to a special mandatory redemption of a
purchase price equal to the principal amount being repurchased, plus accrued and
unpaid interest. See "The Acquisition -- The Acquisition Agreement -- Conditions
for Closing" and "--Deadline for Satisfying Conditions."
We have agreed to indemnify the Agents against certain liabilities,
including liabilities under the United States Securities Act of 1933 and the
securities laws of Canada, and to contribute to payments that the Agents may be
required to make in respect thereof.
Assuming the completion of the total offering covered by this
prospectus supplement, we will issue and deliver to the Agent (1) upon the
closing of this offering, common share purchase warrants to purchase 625,000
common shares and (2) upon completion of the Acquisition, common share purchase
warrants to purchase an additional 625,000 common shares. Each warrant is
exercisable for one of our common shares at a cost of $0.75 per common share.
These common share purchase warrants will be exercisable for 12 months from the
time of closing of this offering. In addition to acting as Agent, First
Marathon, an affiliate of Maple Partners Group, may, from time to time, provide
investment banking services for our company and receive fees for such services.
We will enter into a registration rights agreement with the Agents
requiring us to register for resale the common shares underlying the Agent's
warrants on any registration statement filed on behalf of the Lender. See "The
Acquisition--The Credit Facility--Share Registration."
We and our directors and officers have agreed that we will not issue or
sell any common shares or financial instruments convertible or exchangeable into
common shares until 90 days after the closing date, without prior consent of the
Agents.
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EXPERTS
The consolidated balance sheets of our company as of December 31, 1998
and 1997 and the consolidated statements of operations, shareholders' equity and
cash flows for each of the three years ended December 31, 1998, 1997 and 1996,
included in our annual report on Form 10-K for the year ended December 31, 1998,
incorporated by reference in this prospectus supplement have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The balance sheets of BGL as of June 30, 1998 and 1997 and the
statements of income and expenditure, accumulated deficit and cash flow for the
years ended June 30, 1998, 1997 and 1996, included in this prospectus supplement
have been so included in reliance on the report of PricewaterhouseCoopers,
chartered accountants, given on the authority of that firm as experts in
accounting and auditing.
Our ore reserves and mineralized material set forth in the table under
the heading "The Bogoso Property--Description of the Bogoso Property--Reserves
and Mineralized Material" have been verified by SRK Consulting Engineers and
Scientists and all other information with respect to production, grade and mine
life under the heading "The Bogoso Property" has been verified by Associated
Mining Consultants, Ltd., and such information has been included in this
prospectus supplement in reliance upon the authority of said firms as experts in
mining, geology and ore reserve and mineralized material determinations.
LEGAL MATTERS
Koffman Kalef, Vancouver, British Columbia, will issue opinions
relating to the validity of the Common Shares covered by this document, the
corporate standing of our company and certain tax matters. Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York, will issue an opinion relating to the
validity of the Debentures and the Warrants covered by this document and to
certain tax matters.
GLOSSARY OF TERMS
Oxide Resources: Those mineralized resources where sulphide minerals
have been oxidized as a result of the action of
groundwater.
Sulphide Resources: Those mineralized resources occurring principally as
sulphide minerals which have not been weathered or
oxidized.
S-64
<PAGE>
Transition Resources: Those mineral resources which have been partially
oxidized by the action of groundwater and consist of a
mixture of sulphide and oxide minerals.
S-65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
A. Bogoso Gold Limited - Historical Financial Statements
1. Auditors' Opinion..................................................S-67
2. Balance Sheets as of March 31, 1999
and June 30, 1998 and 1997.........................................S-68
3. Statements of Income and Expenditure for the nine months
ended March 31, 1999 and 1998 and for the years ended June
30, 1998, 1997 and 1996............................................S-69
4. Statements of Accumulated Deficit for the nine months ended
March 31, 1999 and for the years ended June 30, 1998, 1997
and 1996...........................................................S-70
5. Statements of Cash Flow for the nine months ended March
31, 1999 and 1998 and for the years ended June 30, 1998,
1997 and 1996......................................................S-71
6. Notes to the Financial Statements...........................S-72 - S-94
B. Golden Star Resources Ltd. - Pro Forma Consolidated Financial Statements
1. Overview...........................................................S-95
2. Pro Forma Consolidated Balance Sheet as of March 31, 1999..........S-96
3. Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1998.......................................S-97
4. Pro Forma Consolidated Statement of Operations for the
three months ended March 31, 1999..................................S-98
5. Notes to the Pro Forma Consolidated Balance Sheet as of
March 31, 1999 and Statements of Operations for the three
months ended March 31, 1999 and the year
ended December 31, 1998....................................S-99 - S-101
S-66
<PAGE>
AUDITORS' REPORT TO THE MEMBERS OF
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
We have examined the financial statements of Bogoso Gold Limited for the
three years ended June 30, 1998, 1997 and 1996.
Respective responsibilities of Directors and Auditors
The company's Directors are responsible for the preparation of the
financial statements. It is our responsibility to express an independent
opinion, based on our audit, on those financial statements prepared by the
Directors.
Basis of opinion
We conducted our audits in accordance with generally accepted auditing
standards, which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. It also includes an assessment of the accounting principles
used and significant estimates and judgments made by the directors, and an
evaluation of the overall adequacy of the presentation of the financial
statements.
We planned and performed our audits so as to obtain all the information and
explanations which we considered necessary for the purposes of our audit.
We believe that our audits provide us with a reasonable basis for our
opinion.
As discussed in Note 20 of the financial statements, the company had
accumulated losses as of June 30, 1998. This factor along with other
matters set forth in Note 20 indicates that the company's ability to
continue as a going concern requires continued support from existing and/or
prospective shareholders.
Opinion
In our opinion, the company has kept proper books and the financial
statements, which are in agreement with the books, give a true and fair
view of the state of the company's affairs at June 30, 1998, 1997 and 1996
and of the loss and cash flow of the company for the years ended June 30,
1998, 1997 and 1996 in conformity with generally accepted accounting
principles and comply with the Ghana Companies Code 1963, (Act 179).
Chartered Accountants September 11, 1998
S-67
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogoso Gold Limited)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
Note US $'000 US $'000 US $'000
-------- -------- --------
<S> <C> <C> <C> <C>
Fixed assets 3 24,232 27,692 30,591
Development expenditure 4 14,155 18,648 24,430
Deferred assets 5 1,573 973 3,709
------ ------ ------
39,960 47,313 58,730
------ ------ ------
Current assets
Inventories 6 8,002 6,041 9,332
Accounts receivable 7 1,494 1,396 1,025
Cash and short term deposits 8 10,673 15,901 16,620
------ ------ ------
20,169 23,338 26,977
------ ------ ------
Current liabilities 9 (8,693) (11,882) (24,848)
------ ------ ------
Net current assets 11,476 11,456 2,129
------ ------ ------
Total assets less current liabilities 51,436 58,769 60,859
------ ------- -------
Less:
Long term liabilities 10 (29,647) (28,232) (58,616)
Environmental rehabilitation provision 11 (12,980) (12,105) (10,500)
------ ------ ------
(42,627) (40,337) (69,116)
------ ------ ------
8,809 18,432 (8,257)
====== ====== ======
Represented by:
Stated capital 12 78,293 78,292 18,222
Accumulated deficit (69,484) (59,860) (51,150)
Shareholders'advances 13 - - 24,671
------ ------ ------
8,809 18,432 (8,257)
====== ====== ======
Director....................................... Approved by and signed on behalf of the Board
of Directors on .......................... 1998
Director.......................................
</TABLE>
The notes on pages S-72 to S-94 form an integral part
of these financial statements.
S-68
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
STATEMENTS OF INCOME AND EXPENDITURE
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine months Nine months
ended March ended March Year ended Year ended Year ended
31, 1999 31, 1998 June 30, 1998 June 30, June 30,
1997 1996
Note US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Sales proceeds 29,713 28,300 35,872 38,856 43,985
Less: Royalties on sales (889) (846) (1,076) (1,166) (1,290)
------- ------- ------- ------- -------
Net sale proceeds 28,824 27,454 34,796 37,690 42,695
Cost of sales
Depreciation of fixed assets 2(b) (6,657) (2,892) (5,990) (4,107) (9,801)
Amortization of development
expenditure 2(c) (4,493) (2,272) (5,856) (2,537) (3,534)
Other cost of sales (19,303) (15,890) (19,286) (18,651) (13,130)
------- ------- ------- ------- -------
(30,453) (21,054) (31,132) (25,295) (26,465)
Gross operating profit (loss) (1,629) 6,400 3,664 12,395 16,230
General and administrative
expenses (6,425) (6,639) (12,332) (14,427) (18,247)
Loan and other interest
waived 10(d) - - 6,293 - -
Other income 309 1,167 778 2,533 2,136
------- ------- ------- ------- -------
Net operating (loss)/ profit
before interest expense (7,745) 928 (1,597) 501 119
Interest expense (1,879) (5,315) (7,113) (7,190) (7,625)
------- ------- ------- ------- -------
Net loss before taxation 15 (9,624) (4,387) (8,710) (6,689) (7,506)
Taxation 16 - - - - -
------- ------- ------- ------- -------
Net loss for the year (9,624) (4,387) (8,710) (6,689) (7,506)
======= ======= ======= ======= =======
</TABLE>
The notes on pages S-72 to S-94 form an integral part
of these financial statements.
S-69
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
STATEMENTS OF ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
(Unaudited)
Nine months
ended Year ended Year ended Year ended
March 31, June 30, June 30, June 30,
1999 1998 1997 1996
US$'000 US$'000 US$'000 US$'000
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulated deficit brought forward (59,860) (51,150) (44,461) (36,955)
Loss for the year transferred from
statement of income and expenditure (9,624) (8,710) (6,689) (7,506)
------- ------- ------- -------
Accumulated deficit carried forward (69,484) (59,860) (51,150) (44,461)
======= ======= ======= =======
</TABLE>
The notes on pages S-72 to S-94 form an integral part
of these financial statements.
S-70
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine months Nine months
ended ended Year ended Year ended Year ended
March 31, March 31, June 30, June 30, June 30,
1999 1998 1998 1997 1996
Note US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net cash inflow from operating
activities (a) 19 3,512 8,935 8,882 17,476 19,338
----- ----- ----- ------ ------
Net cash outflow from investment
and servicing of finance:
Interest paid (2,205) (1,820) (1,773) (1,327) (3,977)
Interest received 310 544 415 785 450
Net cash outflow from
investment and servicing ______ ______ ______ ______ ______
of finance (b) (1,895) (1,276) (1,358) (542) (3,527)
------ ------ ------ ------ ------
Cash flow from investing
activities:
Purchase of tangible fixed
assets and development
expenditure (3,197) (3,776) (3,187) (3,251) (2,945)
Sale of tangible fixed assets 16 (1) 5 116 146
Deferred mine and plant
expenditure (1,223) - (1,128) (2,199) (1,273)
------ ------ ------ ------ ------
Net cash outflow from investing
activities (c) (4,404) (3,777) (4,310) (5,334) (4,072)
------ ------ ------ ------ ------
Net inflow before financing
(a+b+c) (2,787) 3,882 3,214 11,600 11,739
------ ------ ------ ------ ------
Cash flow from financing
activities:
Repayment of deferred
liabilities - - - - (3,471)
Repayment of loans (2,411) (3,462) (3,933) (4,082) (3,672)
------ ------ ------ ------ ------
Net cash outflow
from financing (d) (2,441) (3,462) (3,933) (4,082) (7,143)
------ ------ ------ ------ ------
(Decrease) / increase in cash and
cash equivalents (a+b+c+d) (5,228) 420 (719) 7,518 4,596
Cash and cash equivalents at
beginning of period 15,901 16,620 16,620 9,102 4,506
------ ------ ------ ------ ------
Cash and cash equivalents at end
of period 10,673 17,040 15,901 16,620 9,102
====== ====== ====== ====== ======
</TABLE>
The notes on pages S-72 to S-94 form an integral part
of these financial statements.
S-71
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS
1. The Company
Bogoso Gold Limited (the company), formerly known as Billiton Bogosu
Gold Limited until November 14, 1997, was granted a prospecting licence
by the Government of Ghana on August 16, 1988 to work, develop and
produce gold in a defined concession area at Bogoso, Western Region,
Ghana, for a period of thirty years.
Under an agreement signed on November 30, 1994, and effective July 1,
1994, the Shell Group transferred its assets of Billiton Group to
Billiton Group (BVI) Limited, a company incorporated in the British
Virgin Islands whose ultimate holding company was Gencor Limited, a
company incorporated in South Africa.
On July 1, 1997, the company was owned 82% by Billiton Group (BVI)
Limited, with 8% held by International Finance Corporation and the
remaining 10% held by the Government of Ghana.
On April 27, 1998, the 82% holding was transferred to Orogen Holdings
(BVI) Limited due to a reorganisation within Gencor Limited.
Subsequently, this shareholding was transferred to Gencor Bogoso
Holdings (BVI) Limited on May 19, 1998.
As part of a Shareholders Reorganisation Agreement effective June 30,
1998, the 82% shareholding of Gencor was transferred to a Consortium of
nine banks, namely, International Finance Corporation, Credit Lyonnais,
The Sumitomo Bank Limited, Ecobank Transnational Inc., Societe
Generale, Bank Austria, Bank Internationale a Luxembourg, DB (Belgium)
Finance N.V./S.A. and Deutsche Investitions und
Entwicklungsgesellschaft GmbH. In addition, advances, loans and
interest payable of US$60,070,000 effective June 30, 1998 was converted
into 540,639 Class A Shares. See Note 12 to the financial statements
for details of the shareholdings as at June 30, 1998.
2. Accounting policies
The following are the significant accounting policies adopted by the
company in the preparation of these financial statements:
(a) Basis of accounting
The financial statements have been prepared under the
historical cost convention.
S-72
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED JUNE 30, 1998
2. Accounting policies (Continued)
(b) Fixed assets
These assets have been valued at cost less accumulated
depreciation. They are depreciated over their expected useful
lives, with varying lives between different groups of assets
ranging from five to ten years.
Change in method of depreciation:
With effect from July 1, 1997, the company changed its
estimate in calculating the depreciation charge for the plant
and machinery only.
The new method assumes the estimated remaining economic life
of the assets to be to June 30, 2003. Previously these assets
were depreciated over lives of between five and ten years.
The change in estimate was adopted as the board of directors
considered at its meeting on September 8, 1998 that the
remaining life of the assets was limited based on the present
economic projections.
As a result of this change in estimated remaining economic
life of the assets, the selected assets carried on the balance
sheet at July 1, 1997 will be written off in the profit and
loss account over an estimated remaining economic life to June
30, 2003. The financial effect was that at June 30, 1998 the
net book value of fixed assets was reduced by an additional
depreciation charge of $735,000 to $5,990,000 for the year.
(c) Development expenditure
Development expenditure is valued at cost and is amortised on
a straight line basis, taking into consideration the estimated
economic life of the specific project, which is reviewed on a
regular basis and to the extent to which this value exceeds
its recoverable amount that excess is fully written off in the
financial year in which this is determined.
Change in method of amortisation:
With effect from July 1, 1997, the company changed its method
of calculating the amortisation charge on its development
expenditure from a unit of production basis to straight line.
In addition, the new method assumes the estimated remaining
economic life of the project to be to June 30, 2003.
S-73
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2. Accounting policies (Continued)
(c) Development expenditure (Continued)
The change in method and estimate were adopted as the board of
directors considered at its meeting on September 8, 1998 that
the remaining life of the project was limited based on the
present economic projections.
As a result of this change in method of amortisation and
estimated remaining economic life of the project, the
development expenditure on the balance sheet at July 1, 1997
will be written off in the profit and loss account over an
estimated remaining economic life to June 30, 2003. The
financial effect was that at June 30, 1998, the net book value
of development expenditure was reduced by additional
amortisation of $3,377,000 to $5,856,000 for the year.
(d) Deferred assets
Deferred assets mainly represent costs for major overhauls of
equipment to improve the equipment or extend their useful
lives. These costs are deferred and amortised over the
remaining useful lives of the equipment.
(e) Functional currency
The functional currency of the company is the United States
dollar since the capital invested, the financing of the
company and all sales proceeds are in United States dollars,
and approximately 70% of expenditures are dollar related, with
the remaining 30% being in Ghanaian currency.
(f) Foreign currency translation
Current assets and liabilities denominated in foreign
currencies are translated into the functional currency (United
States dollars) at the rates of exchange ruling at the balance
sheet date. Items in the statement of income and expenditure
are translated at the average rate for the period. Gains and
losses arising from the translation of balances are dealt with
through the income and expenditure statement.
(g) Inventories
Inventories have been valued at the lower of cost (weighted
average cost basis), and net realisable value (being estimated
sales proceeds less expenses incurred in making the sale).
S-74
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2. Accounting policies (Continued)
(g) Inventories (Continued)
For ore and gold inventories, cost comprises all direct
production costs and attributable operating expenses,
including depreciation.
For consumable and spare parts, cost comprises direct purchase
costs. Where appropriate, provision for obsolescence has been
included in the inventory valuation.
(h) Accounts receivable
Accounts receivable are shown at nominal value less, where
necessary, provision for bad and doubtful debts.
(i) Cash and short term deposits
Cash and short term deposits includes all cash balances and
highly liquid investments with an original maturity of three
months or less. Cash at bank and in hand is shown at nominal
value.
(j) Long-term and short-term liabilities
These are shown at nominal value.
(k) Net sales proceeds
These are the proceeds from the sale of gold bullion, after
deduction of sales taxes, discounts, excise duties, and
similar levies.
The sale of gold bullion was to Billiton Marketing and Trading
B.V. (BMT), under the terms of the Gold Refining and Marketing
Agreement dated January 18, 1990. This agreement ended on June
30, 1998. An agreement for gold purchase and refining has been
agreed with Societe Generale and is pending execution upon
formal termination of the BMT agreement.
(l) Cost of sales
These are the historical costs of direct production and
production support activities, including related depreciation,
salaries and wages.
(m) General and administrative expenses
The administrative expenses include related depreciation,
salaries and wages.
All amounts as of and for the nine months ended March 31, 1999 and 1998
are unaudited.
S-75
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
3. Fixed Assets
Land & Plant & Mobile Other Capital
Buildings Machinery Equipment Equipment WIP Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cost
At July 1, 1997 9,024 39,060 13,511 3,689 1,606 66,890
Additions 12 50 858 367 1,900 3,187
Transfers/ disposals 37 130 (299) 100 (607) (639)
------- ------- ------- ------- ------- -------
At June 30, 1998 9,073 39,240 14,070 4,156 2,899 69,438
------- ------- ------- ------- ------- -------
Additions 85 1,306 454 400 965 3,210
Transfers/ disposals - - (478) - - (478)
------- ------- ------- ------- ------- -------
At March 31, 1999 9,158 40,546 14,046 4,556 3,864 72,170
------- ------- ------- ------- ------- -------
Accumulated Depreciation
At July 1, 1997 4,095 17,557 11,511 3,136 - 36,299
Charge for the year 1,267 3,477 1,188 58 - 5,990
Transfers/ disposals - - (532) (11) - (543)
------- ------- ------- ------- ------- -------
At June 30, 1998 5,362 21,034 12,167 3,183 - 41,746
------- ------- ------- ------- ------- -------
Charge for the year 1,419 4,127 797 314 - 6,657
Transfers/ disposals - - (465) - - (465)
------- ------- ------- ------- ------- -------
At March 31, 1999 6,781 25,161 12,499 3,497 - 47,938
------- ------- ------- ------- ------- -------
Net book value
At March 31, 1999 2,377 15,385 1,547 1,059 3,864 24,232
===== ====== ===== ===== ===== ======
At June 30, 1998 3,711 18,206 1,903 973 2,899 27,692
===== ====== ===== ===== ===== ======
At June 30, 1997 4,929 21,503 2,000 553 1,606 30,591
===== ====== ===== ===== ===== ======
<CAPTION>
4. Development expenditure
(Unaudited)
March 31, 1999 June 30, 1998 June 30, 1997
US$'000 US$'000 US$'000
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year 18,648 24,430 25,370
Expenditure for the year - 74 1,597
Less: Amortisation during
the year (See Note 2(c)) (4,493) (5,856) (2,537)
------ ------ ------
Balance at end of year 14,155 18,648 24,430
====== ====== ======
</TABLE>
S-76
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
5. Deferred assets
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
US$'000 US$'000 US$'000
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year 973 3,709 4,733
Expenditure for the year 1,223 1,128 2,199
Less: Amortisation during the year
(see Note 2(d)) (623) (3,864) (3,223)
------- ------- -------
Balance at end of year 1,573 973 3,709
======= ======= =======
6. Inventories
Ore 1,915 784 1,568
In-process 734 563 1,083
Finished - 398 -
------- ------- -------
2,649 1,745 2,651
Consumables and spare parts 5,353 4,296 6,681
------- ------- -------
8,002 6,041 9,332
======= ======= =======
</TABLE>
S-77
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
7. Accounts receivable
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
Note US$'000 US$'000 US$'000
------- ------- -------
<S> <C> <C> <C>
Sundry receivables 1,052 914 654
Employee advances 271 186 56
Prepaid expenses 171 296 315
------ ------ ------
1,494 1,396 1,025
====== ====== ======
8. Cash and short term deposits
Balance held within Ghana 505 320 1,177
Balances held externally 10,168 15,581 15,443
------ ------ ------
10,673 15,901 16,620
====== ====== ======
9. Current liabilities
Long-term liabilities - current portion 9(a) 3,952 3,956 15,152
Loan interest payable 9(b),10 - 4,049 5,300
Amounts owed to suppliers 1,143 1,490 975
Amounts owed to group companies - - 157
Accruals and other payables 22 3,598 2,387 3,264
------ ------ ------
8,693 11,882 24,848
====== ====== ======
</TABLE>
S-78
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
9. Current liabilities (Continued)
(Unaudited)
March 31, 1999 June 30, 1998 June 30, 1997
Note US$'000 US$'000 US$'000
------- ------- -------
<S> <C> <C> <C> <C>
(a) Long-term liabilities - current portion
International Finance Corporation 10 2,937 2,937 7,707
Deutsche Investitions und
Entwicklungsgesellschaft GmbH 10 1,015 1,019 2,615
Consortium of Banks (ex New Billiton loan) 10 - - 4,830
------ ------ ------
(b) Loan interest payable 3,952 3,956 15,152
====== ====== ======
International Finance Corporation - 3,024 2,328
Deutsche Investitions und
Entwicklungsgesellschaft GmbH - 1,025 816
Consortium of Banks (ex New Billiton loan) - - 2,156
------ ------ ------
- 4,049 5,300
====== ====== ======
10. Long term liabilities
International Finance Corporation 10(b)
Tranche 1 4,826 6,608 9,544
Tranche 2 13,630 13,630 13,630
------ ------ ------
18,456 20,238 23,174
Less: Current portion Tranche 1 9(a) (2,937) (2,937) (7,707)
------ ------ ------
15,519 17,301 15,467
------ ------ ------
Deutsche Investitions und 10(c)
Entwicklungsgesellschaft GmbH
Tranche 1 1,619 2,150 3,207
Tranche 2 4,471 4,471 4,525
------ ------ ------
6,090 6,621 7,732
Less : Current portion Tranche 1 9(a) (1,015) (1,019) (2,615)
------ ------ ------
5,075 5,602 5,117
------ ------ ------
Consortium of Banks (ex New Billiton loan) 10(d) - - 13,800
Less: Current portion 9(a) - - (4,830)
------ ------ ------
- - 8,970
------ ------ ------
International Finance Corporation - advance 5,329 5,329 5,329
Interest payable on International Finance
Corporation Loan 2,775 - -
Interest payable on DEG loan 949 - -
Interest payable on shareholders advances 10(e) - - 21,324
Due to Billiton International Metals B.V. 10(f) - - 2,409
------ ------ ------
29,647 28,232 58,616
====== ====== ======
</TABLE>
S-79
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10. Long term liabilities (Continued)
(a) The loans are secured by a first fixed and floating charge on
fixed assets and the mining leases; the assignment of the
rights of the company under the Gold Refining and Marketing
Agreement; a charge on the foreign exchange retention accounts
of the company under the Foreign Exchange Retention Account
Agreement; and the assignment of insurances.
(b) International Finance Corporation loans, which totaled
US$43,000,000 are divided into six loans comprising an A1 loan
of US$9,570,000, an A2 loan of US$4,430,000, a B1 loan of
US$16,400,000, a B2 loan of US$7,600,000, a C1 loan of
US$3,400,000 and a C2 loan of US$1,600,000.
The A1, B1 and C1 loans were repayable in 15 semi-annual
instalments which commenced on October 1, 1993 and thereafter
each six months, with the final instalment due on October 1,
2000, attracting interest at libor plus 2.125% per annum on
the principal outstanding.
The A2, B2 and C2 loans are repayable in 20 semi-annual
instalments which were to commence on April 1, 1995 and
thereafter each six months with the final instalment due on
October 1, 2004, attracting interest at libor plus 2.5% per
annum on the principal outstanding. BGL has notified IFC
pursuant to Section 3.03 (h) of the IFC Rescheduling and
Amendatory Agreement that there is insufficient cash available
to be able to repay the respective principal instalments of
the A2, B2 and C2 loans which fell due commencing April 1,
1995.
The company did make payments of interest in respect of the
A2, B2, and C2 loans in October 1997 but not in April 1998 for
the year ended June 30, 1998 and such interest is due on the
next interest payment date thereafter unless demanded or paid
beforehand. In respect of the amount of such payment due and
unpaid, interest at 1% above libor plus 2.125% per annum is in
effect from the date any such amount became due until the date
of actual payment.
(c) Deutsche Investitions und Entwicklungsgesellschaft GmbH loans,
which totaled DM25,000,000 (approximately US$14.1 million at
June 30, 1998) are divided into two loans comprising an A1
loan of DM17,100,000 (approximately US$9.6 million) and an A2
loan of DM7,900,000 (approximately US$4.5 million).
S-80
<PAGE>
(d) BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10. Long term liabilities (Continued)
The A1 loan was repayable in 15 semi-annual instalments which
commenced on October 1, 1993 and thereafter each six months
with the final instalment due on October 1, 2000 attracting
interest at the rate of 8.125% per annum on the principal
outstanding.
The A2 loan is repayable in 20 semi-annual instalments which
commenced on April 1, 1995 and thereafter each six months with
the final instalment due on October 1, 2004, attracting
interest at the rate of 8.75% per annum on the principal
balance outstanding. BGL has notified the DEG, pursuant to
Article 7.1 (d) that the relevant Tranche 2 cash availability
is insufficient for the company to be able to repay the
respective principal instalments of the A2 loan which fell due
commencing April 1, 1995.
The company did make a payment of interest in respect of the
A2 loan in October 1997 but not in April 1998 for the year
ended June 30, 1998 and such interest shall be payable on the
next interest payment date thereafter, unless demanded or paid
beforehand. Interest at 10.75% per annum on the balance
outstanding is in effect from the date any such amount became
due until the date of actual payment.
(d) The company obtained loans totaling US$13,800,000 divided into
a Tranche A loan of US$8,800,000 and Tranche B loan of
US$5,000,000, under the terms of the Billiton Loan Amending
Agreement.
The Tranche A loan is repayable in 20 semi-annual installments
commencing on April 1, 1995 and thereafter each six months
with the final installment due on October 1, 2004, attracting
interest at the rate of libor plus 2.5% per annum on the
principal balance outstanding. Penalty interest is charged at
1% above the relevant interest rate if payment is not made.
The Tranche A loan was transferred to the Consortium of nine
banks, the main shareholders of the company effective June 30,
1998. At this date, the Consortium converted the Tranche A
loan of US$8,800,000 and the cumulative interest of
US$2,275,000 into Class A Shares (See Note 14).
The Tranche B loan of US$5,000,000 and the cumulative interest
of US$1,293,000 was waived on June 30, 1998.
S-81
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
10. Long term liabilities (Continued)
(e) Interest on shareholders' advances of US$24,324,000 was
converted into Class A Shares effective June 30, 1998 (See
Note 14).
(f) This represents the balance of the Billiton International
Metals (BIM) current account with Billiton Bogosu Gold Limited
prior to Gencor's takeover of Shell's interest in the Company.
The balance of US$2,409,000 was written off during the year.
11. Environmental rehabilitation provision
Costs are estimated based primarily upon environmental and regulatory
requirements and are accrued and charged to expense over the expected
economic life of the operation. The environmental rehabilitation
provision to meet closure costs is currently made at the rate of US$1
per milled ton of ore
12. Stated capital
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
No. of shares No. of shares No. of shares
------------- ------------- -------------
<S> <C> <C> <C>
Authorised shares
-----------------
Class A shares 18,000,000 18,000,000 18,000,000
Class B shares 2,000,000 2,000,000 2,000,000
------------- ------------- -------------
20,000,000 20,000,000 20,000,000
============= ============= =============
<CAPTION>
(Unaudited)
March 31, June 30, June 30,
1999 1998 1997
Issued: No. of shares Amount US$'000 No. of shares Amount US$'000 No. of shares Amount US$'000
------ ------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Class A shares 704,639 78,293 704,639 78,293 164,000 18,222
Class B shares 78,293 - 78,293 - 18,222 -
------------- -------------- ------------- -------------- ------------- --------------
782,932 78,293 782,932 78,293 182,222 18,222
============= ============== ============= ============== ============= ==============
</TABLE>
The company issued 540,639 additional Class A Shares for the conversion
of advances, loans and interest payable of US$60,070,000 as at June 30,
1998 (See Note 14).
S-82
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FOR THE YEAR ENDED JUNE 30, 1998
12. Stated capital (Continued)
In addition, the Government of Ghana was issued 60,071 Class B Shares
for no consideration, to maintain their proportionate 10% ownership of
the company.
The shareholders of the company as at March 31, 1999, June 30, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1999 June 30, 1998 June 30, 1997
Number Number Number
Class A shares ------ ------ ------
<S> <C> <C> <C>
International Finance Corporation 216,270 216,270 14,578
DEG-Deutsche Investitions und
Entwicklungsgesellschaft mbH 158,004 158,004 -
Societe Generale 91,140 91,140 -
Credit Lyonnais 76,897 76,897 -
Bank Austria AG 45,566 45,566 -
DB (Belgium) Finance N.V./S.A 45,566 45,566 -
The Sumitomo Bank Limited 31,331 31,331 -
Banque International a Luxembourg 28,477 28,477 -
Transnational Incorporated 11,388 11,388 -
Gencor Bogoso Holdings (BVI) Limited - - 149,422
------- ------- -------
704,639 704,639 164,000
Class B shares
Government of Ghana 78,293 78,293 18,222
------- ------- -------
Total Shares 782,932 782,932 182,222
======= ======= =======
<CAPTION>
13. Shareholders' advances
(Unaudited)
March 31, 1999 June 30, 1998 June 30, 1997
Note US$'000 US$'000 US$'000
---- ------- ------- -------
Consortium of Banks 14 - - 24,671
------- ------- -------
- - 24,671
======= ======= =======
</TABLE>
S-83
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
13. Shareholders' advances (Continued)
Shareholders' advances represented interest bearing foreign currency
advances made under the terms of the Revised Shareholders Financing
Agreement of March 22, 1994. These advances attracted interest at the
rate of 10% per annum.
In accordance with letters of consent from the shareholders, the
Consortium of Banks advance amounting to US$24,671,000 and accrued
interest of US$20,008,000 were converted into Class A Shares effective
June 30, 1998. The IFC accrued interest of US$4,316,000 was also
converted into Class A Shares effective June 30, 1998, however, the
advance of US$5,329,000 was reclassified as a long-term liability and
will not accrue any further interest on the remaining principal from
June 30, 1998 (See Note 14).
14. Advances, loans and interest payable converted into Class A Shares
A summary of the components of advances, loans and interest payable
converted into 540,639 Class A Shares effective June 30, 1998 is as
follows:
<TABLE>
<CAPTION>
US$'000
Note Principal Interest Total
---- --------- -------- -----
<S> <C> <C> <C> <C>
Consortium of Banks
- Advance 13 24,671 20,008 44,679
- Loan 10(d) 8,800 2,275 11,075
------ ------ ------
33,471 22,283 55,754
------ ------ ------
International Finance Corporation 13 - 4,316 4,316
------ ------ ------
33,471 26,599 60,070
====== ====== ======
</TABLE>
S-84
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
15. Net loss before taxation is stated
after charging/(crediting)
(Unaudited) (Unaudited)
March 31, 1999 March 31, 1998 June 30, 1998 June 30, 1997 June 30, 1996
US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Auditors' remuneration 19 11 22 13 12
Bad and doubtful debts 2 136 350 47 -
Directors' fees 22 5 6 6 -
Director's emoluments 100 162 162 125 6
Director's compensation for loss of office
6 62 68 - -
Exchange (gain)/loss 143 (470) (210) (1,599) -
Interest received (310) (543) (415) (785) -
Inventory write down 38 1,791 2,078 64 791
Loss/(profit) on disposal of assets (16) 1 16 (116) -
Roaster write-off - - - - 4,921
Rehabilitation expenditure 1,570 1,648 2,125 6,363 4,500
</TABLE>
16. Taxation
The company has no taxation charge for the nine months ended March 31,
1999 or the year ended June 30, 1998 (1997: Nil) as there are
significant tax losses to carry forward.
17. Capital commitments
Capital expenditure authorised but not yet expended as at March 31,
1999 and at June 30, 1998 was $1,081,000 and $6,483,000, respectively
(1997: $4,488,000).
S-85
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
18. Contingent liabilities
(a) Hedged gold
The company had no hedged gold contracts as at March 31, 1999 and
June 30, 1998 (1997: $8,090,584).
(b) Staff car loans
The company has guaranteed car loans to senior staff provided
through Barclays Bank of Ghana Limited. The balance guaranteed as
at March 31, 1999 and June 30, 1998 amounted to $28,361 and
$43,085, respectively (1997: $67,302).
19. Net cash inflow from operating activities
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine months ended Nine months ended Year ended Year ended Year ended
March 31, 1999 March 31, 1998 June 30, 1998 June 30, 1997 June 30, 1996
US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net operating (loss)/profit
before interest expense (7,745) 928 (1,597) 501 119
Depreciation 6,657 2,892 5,990 4,107 9,801
Amortisation of development
expenditure 4,493 2,272 5,856 2,537 3,534
Amortisation of deferred assets
623 972 3,864 3,223 -
Decrease in inventories (1,961) 2,934 3,291 860 3,298
(Increase)/decrease in accounts
receivable (98) (449) (371) 2,008 511
(Decrease)/increase in creditors
864 (507) (519) 852 149
(Decrease)/increase in long term
liabilities 648 831 (735) 6,000 3,763
Loan and interest waiver - - (6,293) - -
Exchange (gain)/loss on loans
357 (395) (205) (1,711) (1,424)
Loss/(profit) on disposal of
assets (16) 1 16 (116) 37
Interest income (310) (544) (415) (785) (450)
------- ------- ------- ------- -------
3,512 8,935 8,882 17,476 19,338
======= ======= ======= ======= =======
</TABLE>
S-86
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
20. Going concern
The company has accumulated losses of $59,860,000 as at June 30, 1998
due to trading losses over the past years as a result of high cost of
servicing a heavy debt portfolio and the declining gold price, as well
as working capital problems with the non-payment of external debt and
limited finance available for an on-going capital renewal program.
Shareholders have converted $60,070,000 of advances, loans and interest
payable into stated capital (See Note 14) in addition to deferring
payments due on long terms loans (See Note 10). The company is also
actively looking for a strategic investor to provide additional funds
for future expansion of operations based on the ore availability.
A major exploration program has been undertaken to identify oxide
proved and probable ore reserves to extend the life of the mine. In
addition, the exploration work has identified highly prospective
targets and investigations are underway into alternative sources of ore
such as the treatment of tailings.
21. Reclassification
The prior years comparative figures have been reclassified where
applicable to be consistent with the current year's presentation.
22. Generally Accepted Accounting Principles in the United States and
Canada
The financial statements have been prepared in accordance with
accounting principles generally accepted in and in compliance with the
Ghana Companies Code 1963 (Act 179), 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 or Canada.
Differences which materially affect these financial statements are:
(a) Under U.S. GAAP, items such as foreign exchange gains and
losses are required to be shown separately in the derivation
of comprehensive income. Under Canadian GAAP, foreign exchange
gains and losses related to the translation of foreign
currency loans would be deferred and amortised over the
remaining period of the loan. As the currency of measurement
is the U.S. Dollar, loans denominated in deutschmarks are
considered foreign currency loans.
(b) Under U.S. GAAP, changes in accounting policies are accounted
for in the year of change and includes the cumulative effect
of that accounting change. Under Canadian GAAP, changes are
applied retroactively to prior period financial statements by
restating the prior years' financial statements and the prior
year opening retained earnings balance in the earliest year
reported. In June 1998, the company changed its method of
amortization of development expenditure costs from units of
production to straight line.
S-87
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22. Generally Accepted Accounting Principles in the United States and
Canada (Continued)
(c) Under U.S. GAAP, extraordinary items are usually limited to
unusual and infrequent events. Such items are reported
separately in the statement of operations, net of taxes, and
included in the determination of net income. Under Canadian
GAAP, gains and losses from the extinguishment of debt
generally do not meet the criteria for extraordinary items.
During the year ended June 30, 1998, creditors forgave
portions of certain loans as discussed Note 10.
(d) Under U.S. and Canadian GAAP, basic earnings per share of
common stock is calculated on the weighted average number of
common shares outstanding during the period and is required
for each period presented. Per share amounts are reflected for
income before extraordinary items, the cumulative effect of a
change in accounting principle and for net income.
(e) Under U.S. and Canadian GAAP, the impact of a change in
accounting estimate is recorded in the current reporting
period, typically three-month quarters. As of June 30, 1998,
the company changed the estimated remaining useful lives of
its plant and machinery and mine to five years, effective as
of July 1, 1997. Under U.S. and Canadian GAAP, the impact of
the change in estimate would have been recorded as of April 1,
1998, resulting in a lower charge for depreciation and
amortization for the year ended June 30, 1998.
S-88
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22. Generally Accepted Accounting Principles in the United States and
Canada (Continued)
Had the company followed GAAP in the United States, certain items on
the statements of operations would have been reported as follows:
Statement of operations
(Stated in thousands of United States Dollars except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine months Nine months
ended ended Year ended Year ended
March 31, March 31, June 30, June 30,
1999 1998 1998 1997
US$'000 US$'000 US$'000 US$'000
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss as presented (9,624) (4,387) (8,710) (6,689)
Foreign exchange gain (a) (214) (75) (6) (75)
Change in accounting estimate (e) - - 3,084 -
Extraordinary gain on extinguishment of debt
(c) - - (6,293) -
------- ------- ------- -------
Income before extraordinary item (9,838) (4,462) (11,925) (6,764)
Extraordinary gain on extinguishment of debt
(c) - - 6,293 -
Cumulative effect of change in accounting
principle (b) - - 1,083 -
------- ------- ------- -------
Net income (loss) under U.S. GAAP (9,838) (4,462) (4,549) (6,764)
Other comprehensive income - foreign
exchange gain (a) 214 75 6 75
------- ------- ------- -------
Comprehensive income (a) (9,624) (4,387) (4,543) (6,689)
======= ======= ======= =======
Per share data (d):
Extraordinary gain on extinguishment of debt - - 34.32 -
======= ======= ======= =======
Cumulative effect of change in accounting
principle - - 5.91 -
======= ======= ======= =======
Basic and diluted net loss per share under
U.S. GAAP (12.29) (24.07) (24.77) (36.71)
======= ======= ======= =======
Weighted average shares outstanding (basic
and diluted) 782,932 182,222 183,369 182,222
======= ======= ======= =======
Reconciliation to Canadian GAAP:
Net loss under U.S. GAAP (9,838) (4,462) (4,549) (6,764)
Amortisation of foreign exchange gain (a) 91 47 28 50
Cumulative effect of change in accounting
principle applied retroactively 2,797 1,140 1,521 1,083
------- ------- ------- -------
Net loss under Canadian GAAP (6,950) (3,275) (3,000) (5,631)
======= ======= ======= =======
Net loss per share under Canadian GAAP (8.88) (17.97) (16.36) (30.90)
======= ======= ======= =======
</TABLE>
S-89
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22. Generally Accepted Accounting Principles in the United States and
Canada (Continued)
The effect of differences in accounting under U.S. GAAP and Canadian
GAAP on the balance sheets, statement of changes in shareholders'
equity and statements of cash flow are as follows:
Balance Sheet
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
As Canadian U.S. As Canadian U.S.
presented GAAP GAAP presented GAAP GAAP
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Fixed assets 27,692 28,243 28,243 30,591 30,591 30,591
Development
expenditure (b) 18,648 22,702 21,181 24,430 25,513 24,430
Accumulated
comprehensive
income - - 81 - - 75
Accumulated deficit (59,860) (54,253) (55,774) (51,150) (50,142) (51,225)
Total shareholders'
equity 18,432 24,121 22,600 (8,257) (7,174) (8,257)
(Unaudited)
March 31, 1999
--------------
As presented Canadian GAAP U.S GAAP
US$'000 US$'000 US$'000
------- ------- -------
Fixed assets 24,232 24,658 24,658
Development expenditure (b) 14,155 20,730 17,933
Accumulated comprehensive
income - - 295
Accumulated deficit (69,484) (62,815) (65,612)
Total shareholders' equity 8,809 15,773 12,976
Under U.S. GAAP, accruals and other payables would be separately disclosed as follows:
March 31, June 30, June 30,
1999 1998 1997
US$'000 US$'000 US$'000
------- ------- -------
Accrued payroll, taxes and bonus 597 494 779
Accrued redundancy costs 355 356 208
Accrued royalties 345 222 296
Accrued electricity 400 116 244
Accrued mining department costs 434 - -
Other accrued liabilities 1,467 1,199 1,737
------- ------- -------
Total accruals and other payables 3,598 2,387 3,264
======= ======= =======
</TABLE>
S-90
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22. Generally Accepted Accounting Principles in the United States and
Canada (Continued)
Statement of Changes in Shareholders' Equity Under U.S. GAAP
<TABLE>
<CAPTION>
Accumulated
Other Total
Stated Comprehensive Shareholder Shareholders'
Class A Class B Capital Deficit Income Advances Equity
Shares Shares US$'000 US$'000 US$'000 US$'000 US$'000
------ ------ ------- ------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 164,000 18,222 18,222 (44,461) - 24,671 (1,568)
Comprehensive Income:
Net income (loss) 1997 (6,764) (6,764)
Translation adjustments 75 75
-------
Comprehensive Income: (6,689)
Shares issued
Issue costs
Shareholder advances - - - - - - -
------- ------- ------- ------- ------- ------- -------
Balance at June 30, 1997 164,000 18,222 18,222 (51,225) 75 24,671 (8,257)
Comprehensive Income:
Net income (loss) 1998 (4,549) (4,549)
Translation adjustments 6 6
------- -
Comprehensive Income: (4,543)
Shares issued 540,639 60,071 60,071 60,071
Shareholder advances - - - - - (24,671) (24,671)
------- ------- ------- ------- ------- ------- -------
Balance at June 30, 1998 704,639 78,293 78,293 (55,774) 81 22,600
Comprehensive Income:
Net income (loss) 1999 (9,838) (9,838)
Translation adjustments 214 214
-------
Comprehensive Income: (9,624)
Shares issued
Shareholder advances - - - - - - -
------- ------- ------- ------- ------- ------- -------
Balance at March 31, 1999 704,639 78,293 78,293 (65,612) 295 - 12,976
======= ======= ======= ======= ======= ======= =======
</TABLE>
S-91
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22. Generally Accepted Accounting Principles in the United States and
Canada (Continued)
Statements of Cash Flow Under U.S. GAAP
(Stated in thousands of United States Dollars)
<TABLE>
<CAPTION>
Net Cash Provided by (Used in): Operating Activities Investing Activities Financing Activities
As presented U.S. GAAP As presented U.S. GAAP As presented U.S. GAAP
For the Nine months ended US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- ------- ------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999 (Unaudited) 3,512 1,633 (6,299) (4,420) (2,441) (2,441)
For the Years ended,
--------------------
June 30, 1998 8,882 7,524 (5,668) (4,310) (3,933) (3,933)
June 29, 1997 17,746 16,934 (5,876) (5,334) (4,082) (4,082)
</TABLE>
Cash paid for interest for the nine months ended March 31, 1999 and the
years ended June 30, 1998 and 1997 was $2,205,000, $1,773,000 and
$1,327,000 respectively.
U.S. GAAP does not permit the presentation of non-cash items in
investing or financing activities in the statements of cash flows.
Under the company's current reporting, no such transactions were
included in the statements of cash flows. The company did, however,
convert $60,070,000 in shareholder advances plus accrued interest to
Class A shares as described in Note 14.
US GAAP Tax Considerations
U.S. GAAP changes the company's method of accounting for income taxes
to an asset and liability approach. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the
future tax consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Use of the assets and liability method has no
effect on the U.S. GAAP financial statements as the company as
concluded that a full valuation allowance must be applied to the
deferred tax assets resulting from the company's net operating loss
carryforwards. For the years ended June 30, 1998 and 1997 and the nine
months in the periods ended March 31, 1999 and 1998, the company has
recorded no current tax expense under U.S. GAAP due to the cumulative
net losses incurred by the company. Under U.S. GAAP, the company would
not record any deferred tax expense based on the same rationale.
S-92
<PAGE>
Summarized below are the components of deferred taxes:
<TABLE>
<CAPTION>
(Unaudited)
As of March 31, As of June 30, As of June 30,
1999 1998 1997
US$'000 US$`000 US$`000
-------------- ------------- -------------
<S> <C> <C> <C>
Temporary differences relating to net liabilities:
Accrued environmental liabilities 4,543 4,237 3,675
Tax loss and credit carryforwards 7,415 10,347 10,924
------- ------ ------
Gross deferred tax asset 11,958 14,584 14,599
Valuation allowance (11,958) (14,584) (14,599)
------- ------ ------
Net deferred tax assets - - -
======= ====== ======
</TABLE>
The valuation allowance decreased by approximately $2.6 million due to
smaller capital expenditure allowances in the current period based on
the company's curtailed spending. The statuatory tax rate in Ghana is
35%, while the company's effective rate is nil.
S-93
<PAGE>
BOGOSO GOLD LIMITED
(Formerly Billiton Bogosu Gold Limited)
NOTES TO THE FINANCIAL STATEMENTS (Continued)
22. Generally Accepted Accounting Principles in the United States and
Canada (Continued)
Impact of Recently lssued 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 has complied with the requirements of
this 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 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS No. 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 comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction add, if it is, the type of
hedge transaction. At this time the company has no derivative
instruments that are subject to the requirement of this statement.
S-94
<PAGE>
GOLDEN STAR RESOURCES LTD.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Pro Forma Consolidated Balance Sheet as of March 31, 1999, and
the Pro Forma Consolidated Statements of Operations for the year ended December
31, 1998 and for the three months ended March 31, 1999 give effect to the
acquisition of Bogoso Gold Limited ("BGL").
We and Anvil Mining N.L. ("Anvil") intend to acquire BGL from a consortium of
banks (the "Banks") by purchasing 90% of the common shares of BGL and 100% of
the debt (the "Debt") owed by BGL to the Banks. We will own 70% of the common
shares of BGL and 77.8% of the Debt. Anvil will own a 20% common share interest
and 22.2% of the Debt. The remaining 10% common share interest will continue to
be held by the Government of Ghana.
The purchase price for the Acquisition is an initial payment of $12.0 million,
of which $9,336,000 is for our account and $2,664,000 is for the account of
Anvil. Under an agreement with Anvil, our Company will provide all of the funds
for the initial $12.0 million purchase price and all other acquisition costs
collectively (the "Acquisition Costs"). We will provide a loan to Anvil (the
"Note Receivable") to fund Anvil's share of the Acquisition Costs. The Note
Receivable will bear an annual interest rate of 15% compounded monthly. All cash
distributions from the Bogoso Property will be paid to us until we have received
all of the Acquisition Costs plus interest thereon.
The Pro Forma Consolidated Financial Statements give effect to the acquisition
described above under the purchase method of accounting and are based on the
assumptions and adjustments described in the Notes to the Pro Forma Consolidated
Financial Statements contained elsewhere in this Prospectus Supplement. For
purposes of these Consolidated Pro Forma Financial Statements, it was assumed
that the transactions for which the pro forma effects are shown were completed
March 31, 1999 for the Pro Forma Consolidated Balance Sheet and January 1, 1998
for the Pro Forma Consolidated Statements of Operations.
The fair value of the consideration will be allocated to the assets and
liabilities acquired based upon the fair values of such assets and liabilities
at the date of the acquisition and may be revised subject to final purchase
price allocation and valuation. The preliminary estimates and assumptions as to
the value of the assets and liabilities of BGL are based upon information
available at the date of preparation of the Pro Forma Consolidated Financial
Statements, and will be adjusted upon the final determination of such fair
values. The items awaiting final allocation include materials and supplies
inventories and certain liabilities. It is anticipated that final allocation of
the BGL purchase price will not differ materially from the preliminary
allocation.
The unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the historical financial statements included and incorporated
by reference herein, and other financial data of GSR and BGL included elsewhere
in this Prospectus Supplement.
THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS BELOW DO NOT PURPORT TO
REPRESENT WHAT THE RESULTS OF OPERATIONS OR FINANCIAL CONDITION WOULD HAVE
ACTUALLY BEEN OR WHAT OPERATIONS WOULD BE IF THE TRANSACTIONS THAT GIVE RISE TO
THE PRO FORMA ADJUSTMENTS HAD OCCURRED ON THE DATES ASSUMED AND ARE NOT
INDICATIVE OF FUTURE RESULTS.
S-95
<PAGE>
Golden Star Resources Ltd.
Pro Forma Consolidated Balance Sheet
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Historical Historical
March 31, March 31,
1999 1999 Pro Forma
GSR BGL Adjustments Combined
-------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Assets
Cash and Short Term Investments $ 5,158 $ 10,673 1 $ 12,500 $ 5,831
1 (500)
1 (12,000)
1 (3,000)
1 (7,000)
Accounts Receivable 506 1,494 2,000
Note Receivable from Anvil - - 1 2,664 2,664
Inventories 172 8,002 - 8,174
Other Assets 91 - - 91
-------- -------- -------- --------
Total Current Assets 5,927 20,169 (7,336) 18,760
Restricted Cash - - 1 10,000 10,000
Deferred Exploration 59,621 - 59,621
Mining Properties - 39,960 1 (30,504) 9,456
Investment in Omai Gold Mines Limited 1,150 - - 1,150
Fixed Assets 537 - - 537
Other Assets 136 - 1 500 636
-------- -------- -------- --------
$ 67,371 $ 60,129 $(27,340) $100,160
======== ======== ======== ========
Current Liabilities
Accounts Payable and Accrued Liabilities 575 4,742 1 1,300 6,617
Current Portion of Long Term Debt 3,951 1 (3,701) 250
Accrued Wages and Payroll Taxes 724 - - 724
-------- -------- -------- --------
Total Current Liabilities 1,299 8,693 (2,401) 7,591
Long Term Debt 2,536 29,647 1 (29,647) 2,536
Convertible Debentures - - 1 5,989 5,989
Other Liabilities 35 12,980 1 (2,980) 10,035
-------- -------- -------- --------
Total Liabilities 3,870 51,320 (29,039) 26,151
Minority Interest 5,303 - 1 3,997 9,300
Share Capital 159,163 78,293 1 4,500 163,663
1 (78,293)
Equity Component of Convertible
Debentures - - 1 2,011 2,011
Stock Option Loans (4,012) - - (4,012)
Accumulated Deficit (96,953) (69,484) 1 69,484 (96,953)
-------- -------- -------- --------
Total Shareholders' Equity 58,198 8,809 (2,298) 64,709
-------- -------- -------- --------
Total Liabilities and Shareholders' Equity $ 67,371 $ 60,129 $(27,340) $100,160
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this Pro Forma
Consolidated Balance Sheet.
S-96
<PAGE>
Golden Star Resources Ltd.
Pro Forma Consolidated Statement of Operations
(Stated in thousands of United States Dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Year For the Year Pro Forma
Ended December Ended December For the Year
31, 1998 31, 1998 Pro Forma Ended December 31,
GSR BGL Adjustments 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Gold Sales $ - $ 35,432 $ - $ 35,432
Interest and Other 635 227 - 862
----------- ----------- ----------- -----------
635 35,659 - 36,294
COSTS AND EXPENSES
Cost of Goods Sold - 23,130 - 23,130
Royalties - 1,062 - 1,062
Depreciation 230 13,258 (a) (12,338) 1,150
Amortization - 1,325 (a) (1,325) -
General and Administrative 7,712 10,097 - 17,809
Exploration Expense 443 - - 443
Write-Offs & Abandonment of Mineral
Properties 16,600 - - 16,600
Interest Expense 36 4,936 (b) (4,936) 1,314
(c) 600
(c) 250
(c) 428
Other Income - (6,419) (b) 6,293 (126)
Foreign Exchange Loss (Gain) 26 236 (b) (236) 26
----------- ----------- ----------- -----------
25,047 47,625 (11,264) 61,408
LOSS BEFORE THE UNDERNOTED (24,412) (11,966) 11,264 (25,114)
Omai Preferred Share Redemption Surplus 950 - - 950
----------- ----------- ----------- -----------
Net Loss before Minority Interest (23,462) (11,966) 11,264 (24,164)
Minority Interest Loss 1,214 (d) (1,337) (123)
----------- ----------- ----------- -----------
Net Loss $ (22,248) $ (11,966) $ 9,927 $ (24,287)
----------- ----------- ----------- -----------
BASIC AND FULLY DILUTED NET LOSS PER SHARE $ (0.74) $ - $ (0.66)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 30.2 - 6.4 36.6
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this unaudited Pro Forma
Consolidated Statement of Operations.
S-97
<PAGE>
Golden Star Resources Ltd.
Pro Forma Consolidated Statement of Operations
(Stated in thousands of United States Dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three Pro Forma
Months Ended Months Ended For the Three
March 31, 1999 March 31, 1999 Pro Forma Months Ended
GSR BGL Adjustments March 31, 1999
-------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
REVENUE
Gold Sales $ - $ 11,145 $ - $ 11,145
Interest and Other 166 25 - 191
----------- ----------- ----------- -----------
166 11,170 - 11,336
COSTS AND EXPENSES
Cost of Goods Sold - 7,253 - 7,253
Royalties - 337 - 337
Depreciation 54 2,384 (a) (2,154) 284
Amortization - 307 (a) (307) -
General and Administrative 698 1,641 - 2,339
Exploration Expense 47 - - 47
Other Income - (79) - (79)
Interest Expense 6 616 (c) 63 289
(c) 148
(c) 72
(b) (616)
Foreign Exchange Loss (Gain) (22) (202) (b) 202 (22)
----------- ----------- ----------- -----------
783 12,257 (2,592) 10,448
LOSS BEFORE THE UNDERNOTED (617) (1,087) 2,592 888
Omai Preferred Share Redemption Surplus
225 - - 225
----------- ----------- ----------- -----------
Net Loss before Minority Interest (392) (1,087) 2,592 1,113
Minority Interest Loss 119 - (d) (192) (73)
----------- ----------- ----------- -----------
Net Loss $ (273) $ (1,087) $ 2,400 $ 1,040
----------- ----------- ----------- -----------
Net Earnings (Loss) Per Share - Basic $ (0.01) $ - $ 0.03
=========== =========== ===========
Net Earnings (Loss) Per Share - Fully
Diluted $ $ $ 0.02
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC 30.2 - 6.6 36.8
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING -
DILUTED - 57.4 57.4
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this unaudited Pro Forma
Consolidated Statement of Operations.
S-98
<PAGE>
GOLDEN STAR RESOURCES LTD.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation of Pro Forma Consolidated Balance Sheet
The accompanying Pro Forma Consolidated Balance Sheet as of March 31,
1999 gives effect to the proposed acquisition of BGL as if such
transaction had occurred on March 31, 1999.
We and Anvil Mining N.L. ("Anvil") intend to acquire BGL from a
consortium of banks (the "Banks") by purchasing 90% of the common
shares of BGL and 100% of the debt (the "Debt") owed by BGL to the
Banks. We will own 70% of the common shares of BGL and 77.8% of the
Debt. Anvil will own a 20% common share interest and 22.2% of the Debt.
The remaining 10% common share interest will continue to be held by the
Government of Ghana.
The purchase price for the acquisition is an initial payment of $12.0
million, of which $9,336,000 is for our account and $2,664,000 is for
the account of Anvil. Under an agreement with Anvil, our Company will
provide all of the funds for the initial $12.0 million purchase price
and all other acquisition costs collectively (the "Acquisition Costs").
We will provide a loan to Anvil (the "Note Receivable") to fund Anvil's
share of the Acquisition Costs. The Note Receivable will bear an annual
interest rate of 15% compounded monthly. All cash distributions from
the Bogoso Property will be paid to us until we have received all of
the Acquisition Costs plus interest thereon.
Assets and liabilities assumed have been recorded at estimated fair
market value. After completion of the acquisition, approximately
$3,000,000 will be paid out to BGL employees as a result of the
termination of these employees on the Acquisition Date. This amount has
been reflected as restricted cash. In addition, $7,000,000 of cash
acquired has been reflected as restricted cash to pay for the assumed
mine site rehabilitation ($6,000,000) and economic and social
development for the mine area community at the eventual closure of the
Bogoso Property ($1,000,000).
The Company will also be required to pay the sellers an additional
$5,000,000 on the first anniversary of commencement of sulfide
production at BGL. Due to the uncertain nature of this contingent
consideration, no liability has been recorded as part of the purchase
price allocation.
The following allocation of the purchase price reflects the fair market
values of assets and liabilities acquired in the contemplated
transaction as of March 31, 1999.
Costs of Acquisition (in Thousands)
Purchase Price $12,000
Transaction Costs 1,800
Less:
Anvil Note Receivable (2,664)
-------
Cost of Acquisition $11,136
=======
Allocation of Purchase Price
Cash $10,673
Accounts Receivable 1,494
Inventories 8,002
Mining Assets 9,956
Accounts Payable (4,992)
Long-Term Liabilities (10,000)
Minority Interest (3,997)
-------
Total Purchase Price Allocated $11,136
=======
S-99
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Pro Forma Consolidated Statement of Operations Adjustment
The accompanying Pro Forma Consolidated Statements of Operations assume
that the proposed acquisition of BGL had occurred on January 1, 1998.
The acquisition adjustments are as follows:
a. To record the elimination of depreciation and amortization
expense on mining assets acquired as of January 1, 1998.
b. To record the elimination of interest expense and foreign
exchange gains/losses and forgiveness of debt included as
other income related to the debt of BGL.
c. To record the estimated interest expense related to debt
incurred of $8 million at 7.5% as part of the funding for the
acquisition of BGL. To record the accrual of deemed interest
expense for the $250,000 production bonus accrual and the
amortization of $500,000 in financing costs under the credit
facility.
d. To record the 30% minority interest share in the earnings of
BGL.
e. No tax expense is recognized as the Company would have had
sufficient net operating losses to carry forward and offset
against taxable income.
3. Reconciliation of Pro Forma Consolidated Financial Statements to United
States GAAP
The Pro Forma Consolidated Financial Statements have been prepared
using the financial statements of GSR which are in accordance with
Canadian generally accepted accounting principles ("GAAP") which differ
in certain respects from those principles that the Company would have
followed had its financial statements been prepared in accordance with
generally accepted accounting prinicples in the United States. The
presentation of BGL after the purchase price allocation is consistent
with U.S. GAAP. Differences which materially affect these Pro Forma
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. The impact of this adjustment on the Pro Forma
Consolidated Balance Sheet would be a reduction of deferred
exploration by $41.4 million. For the Pro Forma Consolidated
Statements of Operations the impact of this adjustment would be
$4.9 million for the year ended December 31, 1998 and $1.4 million
for the three months ended March 31, 1999.
b. Under U.S. GAAP, the investment in Omai Gold Mines Limited would
have been written off in prior years and, therefore, the entire
Omai Preferred Share Redemption would have been included in
income. Under Canadian GAAP, a portion of the Omai Preferred Share
Redemption is included in income with the remainder reducing the
carrying value of the Company's preferred stock investment. The
impact of this adjustment on the Pro Forma Consolidated Balance
Sheet would be a reduction of Investment in OGML of $1.1 million.
For the Pro Forma Consolidated Statements of Operations, the
impact of this adjustment would be $0.8 million for the year ended
December 31, 1998 and $0.2 million for the three months ended
March 31, 1999.
c. Under U.S. GAAP, no portion of proceeds from the issuance of
convertible debt securities would be accounted for as attributable
to a conversion feature. Under Canadian GAAP, this element of the
proceeds would be treated as additional capital, and accreted over
the period of optional conversion as interest expense. The impact
of this adjustment would increase the Convertible Debentures
balance by $2,011,000 and reduce the Equity Component of
Convertible Debentures as recorded under Canadian GAAP by a
corresponding amount.
S-100
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the effect of the above material adjustments on
the Pro Forma Financial Statements:
<TABLE>
<CAPTION>
As of March 31, 1999
Pro Forma CDN GAAP Pro Forma U.S. GAAP
------------------ -------------------
<S> <C> <C>
Assets $100,160 $ 57,573
Liabilities 26,151 28,162
Minority Interest 9,300 9,348
Stockholders' Equity 64,709 20,063
For the Year Ended December 31, 1998
Net (Loss)/Income $(24,287) $(29,762)
For the Three Months Ended March 31, 1999
Net (Loss)/Income $ 1,040 $ (376)
</TABLE>
S-101
<PAGE>
GOLDEN STAR RESOURCES LTD.
COMMON SHARES
PREFERRED SHARES
CONVERTIBLE DEBT SECURITIES
WARRANTS
------------------------
Golden Star Resources Ltd. (the "Company" or "Golden Star") may offer from
time to time (i) common shares without par value (the "Common Shares"), (ii)
first preferred shares (the "Preferred Shares") in one or more series, (iii)
convertible debt securities (the "Convertible Debt Securities"), consisting of
debentures, notes and/or other evidences of indebtedness representing unsecured
obligations of the Company convertible into Common Shares and (iv) warrants (the
"Warrants") to purchase Common Shares, Preferred Shares or Convertible Debt
Securities. The foregoing securities are collectively referred to as the
"Securities." Any Securities may be offered with other Securities or separately.
Securities may be sold for U.S. dollars, foreign currency or currency units,
including the European Currency Unit; amounts payable with respect to any
Convertible Debt Securities may likewise be payable in U.S. dollars, foreign
currency or currency units, including the European Currency Unit, in each case,
as the Company specifically designates. The amounts payable by the Company in
respect of Convertible Debt Securities may be calculated by reference to the
value, rate or price of one or more specified commodities, currencies or indices
as set forth in an accompanying Prospectus Supplement. The Securities will be
offered at an aggregate initial offering price not to exceed U.S. $100,000,000
or the equivalent (based on the applicable exchange rate at the time of sale) if
Convertible Debt Securities of the Company are issued in principal amounts
denominated in one or more foreign currencies or currency units as shall be
designated by the Company.
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN THE SECURITIES.
This Prospectus will be supplemented by one or more accompanying
Prospectus Supplements, which will set forth with regard to the particular
Securities in respect of which this Prospectus is being delivered (i) in the
case of Common Shares, the number of Common Shares and the terms of the offering
thereof, (ii) in the case of Preferred Shares, the designation, aggregate
principal amount and stated value and liquidation preference per share, initial
public offering price, dividend rate (or method of calculation), dates on which
dividends shall be payable, any redemption or sinking fund provisions, any
conversion or exchange rights, whether the Company has elected to offer the
Preferred Shares as depositary shares, any listing of such Preferred Shares on a
securities exchange, and any other terms in connection with the offering and
sale of such Preferred Shares, (iii) in the case of Convertible Debt Securities,
title, aggregate principal amount, currency of denomination, maturity, interest
rate, if any (which may be fixed or variable), or method of calculation thereof,
time of payment of any interest, any terms for redemption at the option of the
Company or the holder, any terms for sinking fund payments, any index or other
method used to determine the amounts payable, the ranking of such Convertible
Debt Securities (whether senior, senior subordinated or subordinated), any
conversion rights, at the option of the Company or the holder, any listing on a
securities exchange, the initial public offering price and any other terms in
connection with the offering and sale of such Convertible Debt Securities, and
(iv) in the case of Warrants, the number and terms thereof, the number of shares
of Common Shares or Preferred Shares or amount of Convertible Debt Securities
issuable upon their exercise, the exercise price, the periods during which the
Warrants are exercisable, any listing of such Warrants on a securities exchange
and any other terms in connection with the offering, sale and exercise of such
Warrants. The Prospectus Supplement will also contain information, as
applicable, about certain United States and Canadian Federal income tax
considerations relating to the Securities in respect of which this Prospectus is
being delivered.
The Company's Common Shares are traded on the American Stock Exchange
under the symbol "GSR" and The Toronto Stock Exchange under the symbol "GSC."
Each Prospectus Supplement will indicate if the Securities offered thereby will
be listed on any securities exchange.
The Company may sell Securities to or through one or more underwriters,
and may also sell Securities directly to other purchasers or through agents. See
"Plan of Distribution." Each Prospectus Supplement will set forth the names of
any underwriters, dealers or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered, the principal amount, if
any, to be purchased by any such Underwriters, and any applicable fee,
commission or discount arrangements with them.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is October 2, 1997.
<PAGE>
No dealer, salesman, or other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this Prospectus or in the Prospectus Supplement
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or any underwriter, agent or
dealer. Neither the delivery of this Prospectus or the accompanying Prospectus
Supplement nor any sale made hereunder shall create, under any circumstances, an
implication that there has been no change in the facts set forth in this
Prospectus or the accompanying Prospectus Supplement, or in the affairs of the
Company since such date. Neither this Prospectus nor the accompanying Prospectus
Supplement constitutes an offer to sell or a solicitation of an offer to buy any
securities other than the securities offered hereby, nor do they constitute an
offer to sell or solicitation of an offer to buy any of the securities offered
hereby in any jurisdiction in which such offer or sale is unlawful or not
authorized or in any jurisdiction in which the person making such offer or
solicitation is not qualified to do so.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files,
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at 450 Fifth Street N.W., Washington, D.C. 20549; and at its
regional offices located at Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511; and 13th Floor, 7 World Trade Center, New York, New York
10048. Copies of such material can be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street N.W., Washington, D.C. 20549, at
prescribed rates. The Company also is subject to the information and reporting
requirements of the securities regulatory authorities of certain provinces of
Canada and files similar reports, proxy statements and other information with
such authorities. Such reports, proxy statements and other information
concerning the Company also can be inspected and copied at the offices of the
American Stock Exchange, 86 Trinity Place, New York, New York 10006 and the
offices of The Toronto Stock Exchange, 2 First Canadian Place, Toronto Ontario,
Canada M5X 1J2. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect of the Securities covered by this Prospectus. This
Prospectus, which forms part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and such
securities, reference is hereby made to such Registration Statement, including
the exhibits filed therewith. The Registration Statement and the exhibits
thereto can be obtained by mail from or inspected and copied at the public
reference facilities maintained by the Commission as provided in the prior
paragraph.
2
<PAGE>
ENFORCEMENT OF CERTAIN CIVIL LIABILITIES
Golden Star Resources Ltd. is a corporation subsisting under the laws of
Canada and certain of its directors and officers, as well as certain of the
experts named herein, are neither citizens nor residents of the United States. A
substantial part of the assets of several of such persons and of the Company are
located outside the United States. As a result, it may be difficult for
investors to effect service of process within the United States upon such
persons or to enforce against them or the Company within the United States
judgment of courts of the United States predicated upon the civil liability
provisions of the federal securities laws of the United States. There is doubt
as to the enforceability against such persons and Golden Star Resources Ltd. in
Canada, in original actions or actions to enforce judgments of United States
courts, of liabilities predicated solely upon the federal securities laws of the
United States.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus:
(1) Annual Report on Form 10-K for the year ended December 31, 1996,
filed with the Commission on March 31, 1997.
(2) Current Reports on Form 8-K, filed with the Commission on March 10,
1997, May 8, 1997 and September 23, 1997.
(3) Quarterly Report on Form 10-Q, filed with the Commission on May 15,
1997.
(4) Quarterly Report on Form 10-Q, filed with the Commission on August
14, 1997.
(5) 1997 Proxy Statement and Information Circular for the 1997 Annual
Meeting of Shareholders, filed with the Commission on April 29,
1997.
(6) The description of the Common Shares contained in the Company's
Articles (incorporated by reference to Exhibit 1.1 to the Company's
Registration Statement on Form 20-F, filed on May 10, 1993).
(7) The Company's Shareholder Rights Plan included in the Company's
Current Report on Form 8-K, filed with the Commission on May 8,
1996.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the Offering
of the Securities offered hereby shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the oral or written request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits, unless such exhibits are specifically incorporated by reference in
such documents). Requests for such copies should be directed to the Secretary,
Golden Star Resources Ltd., 1660 Lincoln Street, Suite 3000, Denver, Colorado
80264, (303) 830-9000.
3
<PAGE>
References in this Prospectus to the term "Golden Star" or to the term
"Company" refer to Golden Star Resources Ltd. and its consolidated subsidiaries,
including, without limitation, Guyanor Ressources S.A. ("Guyanor") and Pan
African Resources Corporation ("PARC"), unless the context otherwise requires.
The information in this Prospectus is qualified in its entirety by the
more detailed information and consolidated financial statements and notes
thereto appearing in this Prospectus or incorporated by reference herein.
CANADIAN PROSPECTUSES
The Company is filing with certain Canadian securities regulatory
authorities a shelf prospectus relating to the potential offering in Canada of
up to 12,000,000 common shares (including the Common Shares offered hereunder)
and a shelf prospectus relating to the potential offering in Canada of
convertible debt securities at an aggregate initial offering price of up to U.S.
$100,000,000 (including the Convertible Debt Securities offered hereunder).
Canadian securities laws do not permit the use of an unallocated (as between
common shares and debt securities) shelf prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and any Prospectus Supplement
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance, or achievements
of the Company to be materially different from any future results, performance,
or achievements express or implied by such forward-looking statements. Such
factors include, among others, gold and diamond exploration and development
costs and results, fluctuation of gold prices, foreign operations and foreign
government regulation, competition, uninsured risks, recovery of reserves,
capitalization and commercial viability and requirements for obtaining permits
and licenses. See "Risk Factors."
REPORTING CURRENCY AND FINANCIAL INFORMATION
For the periods prior to May 15, 1992, the Company's reporting currency
was the Canadian dollar. In addition, the Company historically has raised most
of its equity capital in Canadian dollars. Since May 15, 1992, the Company's
reporting currency has been the United States dollar.
All amounts in this Prospectus and any Prospectus Supplement or
incorporated herein by reference are expressed in United States dollars, unless
otherwise indicated. References to (i) "Cdn" are to Canadian dollars, (ii) "FF"
are to French francs and (iii) "R" are to Brazilian reals.
Financial information is presented in accordance with generally accepted
accounting principles in Canada ("Canadian GAAP"). Differences between generally
accepted accounting principles in the United States ("U.S. GAAP") and Canadian
GAAP as applicable to the Company, are explained in the notes to the Company's
Consolidated Financial Statements incorporated by reference herein.
4
<PAGE>
THE COMPANY
Golden Star is an international gold and diamond exploration company with
a diverse portfolio of active exploration and development projects and an
operating mine in approximately ten countries on two continents. The Company's
core focus is on the acquisition, discovery and development of gold and diamond
projects. Once it identifies such projects, Golden Star's business strategy is,
if appropriate, to enter into partnership arrangements with major mining
companies to develop and operate mines. The Company currently has properties in
various stages of development in Guyana, French Guiana (through its
approximately 68% owned publicly traded subsidiary, Guyanor), Suriname, Brazil
and Bolivia in South America and Eritrea, Ethiopia, Gabon, Ivory Coast, Kenya
and Mali in Africa (through its approximately 64% owned publicly traded
subsidiary, PARC).
Golden Star is a substantial mining exploration organization, with over 70
professional geologists on staff and approximately 550 other employees working
in countries in which the Company has projects. The Company's efforts are
concentrated in a geologic domain known as greenstone belts, which are ancient
volcanic-sedimentary rock assemblages. Greenstone belts are known to be
favorable geologic environments for gold mineralization and account for a
significant proportion of the world's historic gold production. The Company
began its exploration activities in 1985 in the tropical, Proterozoic greenstone
belts of the Guiana Shield and more recently extended its activities to the
geologically related greenstone belts of the Brazilian Shield and the West
African Shield and finally to the greenstone belts of eastern Africa.
The head office of the Company is located at 1660 Lincoln Street, Suite
3000, Denver, Colorado 80264; its telephone number is (303) 830-9000. The
Company's registered and records office is located at 19th Floor, 885 West
Georgia Street, Vancouver, British Columbia V6C 3H4; its telephone number is
(604) 891-3688.
RISK FACTORS
PROSPECTIVE PURCHASERS OF SECURITIES SHOULD CAREFULLY READ THIS
PROSPECTUS, ANY PROSPECTUS SUPPLEMENT DELIVERED HEREWITH, AND THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN AND THEREIN. OWNERSHIP OF SECURITIES INVOLVES
CERTAIN RISKS. IN DETERMINING WHETHER TO PURCHASE SECURITIES, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, AS WELL AS THE OTHER RISK FACTORS AND
INFORMATION SET FORTH IN ANY PROSPECTUS SUPPLEMENT DELIVERED HEREWITH.
RISKS OF EXPLORATION AND DEVELOPMENT
Mineral exploration and development involves a high degree of risk and few
properties which are explored ultimately are developed into commercially
producing mines. The long-term success of the Company's operations will be
substantially and directly related to the cost and success of its exploration
programs. The risks associated with the exploration for new mineralization
include the identification of potential gold mineralization based on surficial
analysis, the attraction and retention of experienced geologists and drilling
personnel, the quality and availability of third party assaying, sampling
errors, geological, geophysical, geochemical and other technical analyses and
other factors. Substantial early stage expenditures are required to outline
mineralized prospects and establish ore reserves through, among other things,
drilling and the preparation of feasibility studies and mine plans, and to
develop and construct the mining and processing facilities at any site chosen
for mining. Although substantial benefits may be
5
<PAGE>
derived from the discovery of a major mineralized deposit, no assurance can be
given that (i) minerals will be discovered in sufficient quantities and/or
grades to constitute reserves or justify commercial operations, (ii) the Company
will be successful in partnering with companies to develop and operate those
properties that are commercially attractive on acceptable or attractive terms or
(iii) the funds required for development can be obtained by the Company or any
of its partners on a timely or commercially reasonable basis. Further, even if
reserves are delineated, it may require a number of years and significant
expenditures until production is possible, during which time the economic
feasibility of a property may change. Additionally, the Company will be reliant
on its partners in each project for technical expertise in the development and
operation phases of the project, and, in certain instances, for financing, until
cash flow is generated from the property for the Company's account. Finally, to
the extent the Company's mineral reserves are produced and sold, the Company
must continually acquire new mineral prospects and explore for and develop new
mineral reserves to replace such reserves.
UNCERTAINTY OF RESERVE AND OTHER MINERALIZATION ESTIMATES
There are numerous uncertainties inherent in estimating proven and
probable reserves and other mineralization, including many factors beyond the
control of the Company. The estimation of reserves and other mineralization is a
subjective process and the accuracy of any such estimate is a function of the
quality of available data and of engineering and geological interpretation and
judgment. Results of drilling, metallurgical testing and production and the
evaluation of mine plans subsequent to the date of any estimate may justify
revision of such estimates. No assurance can be given that the volume and grade
of reserves recovered and rates of production will not be less than anticipated.
Assumptions about prices are subject to great uncertainty and gold prices have
fluctuated widely in the past. Declines in the market price of gold or other
precious metals also may render reserves or other mineralization containing
relatively lower grades of mineralization or requiring more extensive processing
uneconomic to exploit. If the price realized by the Company for its gold bullion
were to decline substantially below the price at which ore reserves were
calculated for a sustained period of time, the Company potentially could
experience reductions in reserves and asset write-downs. Under such
circumstances, the Company may discontinue the development of a project or
mining at one or more of its properties. Further, changes in operating and
capital costs and other factors, including but not limited to short-term
operating factors such as the need for sequential development of ore bodies and
the processing of new or different ore grades, may materially and adversely
affect reserves.
RISKS ASSOCIATED WITH THE FLUCTUATION OF GOLD PRICES
To the extent that the Company has any revenues from operations, such
revenues are expected to be in large part derived from the mining and sale of
gold. The price of gold can fluctuate significantly, and recently has been at
depressed levels compared to its price in the past several years. The price of
gold is affected by numerous factors beyond the Company's control, including
international economic and political trends, inflation expectations, interest
rates, central bank sales and purchases, global or regional consumptive patterns
(such as the development of gold coin programs), speculative activities and
increased production due to new mine developments and improved mining and
production methods. The effect of these factors on the price of gold cannot be
accurately predicted.
The current demand for, and supply of, gold affect gold prices but not
necessarily in the same manner as current demand and supply affect the prices of
other commodities. The potential supply of gold consists of new mine production
plus existing stocks of bullion and fabricated gold held by governments,
financial institutions, industrial organizations and individuals. Since mine
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<PAGE>
production in any single year constitutes a very small portion of the total
potential supply of gold, normal variations in current production do not
necessarily have a significant effect on the supply of gold or on its price. If
gold prices should decline below the Company's cash costs of production and
remain at such levels for any sustained period, the Company could determine that
it is not economically feasible to continue commercial production at any or all
of its mines or to pursue further exploration or development activities on such
properties.
Moreover, at the time the Company's ore reserves are estimated, the
parameters used in estimating such reserves are based on a variety of factors,
including the spot and future prices of gold at the time of such calculation. If
the Company were to determine that its reserves and future cash flows should be
recalculated at significantly lower gold prices than those that were used on the
measurement date, there would likely be a material reduction in the amount of
its gold reserves. Current gold prices are below the prices used in the
calculation of reserves at the Company's Omai, Gross Rosebel and Yaou
properties. In addition, should gold prices continue at current levels for an
extended period, delays in the development of certain projects may occur, and
material write-downs of the Company's investment in mining properties may be
required.
CAPITALIZATION AND COMMERCIAL VIABILITY
The Company has limited financial resources. To date, and for the
reasonably foreseeable future, its exploration and development activities have
not generated and are not expected to generate substantial revenues, which has
caused, and is expected to continue for the reasonably foreseeable future to
cause, the Company to incur losses. In addition, the Company historically has
incurred significant expenditures in connection with its exploration activities
and contemplates doing so for the foreseeable future. The Company's ability to
obtain financing may be negatively affected by the price of gold which recently
has been at depressed levels compared to its price in the past several years.
There can be no assurance that additional funding will be available to the
Company for further exploration or development of its properties or to fulfill
its obligations under any applicable agreements with its partners or the nations
in which the Company is operating. Although the Company has been successful in
the past in obtaining financing through the sale of equity securities and
through partnership arrangements involving several of the Company's properties,
there can be no assurance that the Company will be able to obtain adequate
financing in the future or that the terms of such financing will be favorable,
or that such partnership arrangements will continue to be available for the
Company's properties on acceptable terms. Failure to obtain such additional
financing could result in delay or indefinite postponement of further
exploration and development of the Company's properties with the possible loss
of the Company's interest in such properties.
If the Company proceeds to production on a particular property, commercial
viability will be affected by certain factors that are beyond the Company's
control, including the specific attributes of the deposit (such as mineral grade
and stripping ratio), the fluctuation in metal prices, the costs of constructing
and operating a mine in a specific environment, processing and refining
facilities, the availability of economic sources of energy, adequacy of water
supply, adequate access, government regulations including regulations relating
to prices, royalties, duties, taxes, restrictions on production, quotas on
exportation of minerals, as well as the costs of protection of the environment
and agricultural lands. In addition, a decrease in the price of gold, or a
continuation of the price of gold at depressed levels, could negatively affect
investment demand for the stock of gold exploration or mining companies,
including the Company, or may negatively impact the Company's stock price. The
occurrence of any such factors may materially and adversely affect the Company's
business, financial condition, results of operations and cash flow.
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<PAGE>
RISKS ASSOCIATED WITH DIAMOND EXPLORATION
The exploration and development of diamond deposits involve exposure to
significant financial risks over a significant period of time. Very few
properties which are explored are ultimately developed into producing diamond
mines. Major expenses over a period of several years may be required to
establish reserves by sampling and drilling and to construct mining and
processing facilities at a site. It is impossible to ensure that the current
exploration programs of the Company, or any programs undertaken in the future
will result in a profitable commercial diamond mining operation.
Whether a diamond deposit will be commercially viable depends on a number
of factors, some of which are the particular attributes of the deposit, such as
its size, the size, quantity and quality of the diamonds, proximity to
infrastructure, financing costs and governmental regulations, including
regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of diamonds and environmental protection. The effect of
these factors cannot be accurately predicted, but the combination of these
factors may result in the Company not receiving an adequate return on invested
capital.
MARKETABILITY OF DIAMONDS
The marketability of diamonds which may result from projects undertaken by
the Company will be affected by numerous factors beyond the control of the
Company. These factors include market fluctuations, government regulations,
including regulations relating to prices, taxes, royalties, land tenure, land
use, importing and exporting of diamonds and environmental protection. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in the Company not receiving an adequate return on
invested capital. The price for diamonds is, among other things, based on the
size, cut, color and quality of individual diamonds sold and, to a lesser
extent, the market supply and demand for diamonds in general.
RISKS OF FOREIGN OPERATIONS
In certain countries in which the Company has mineral rights (whether held
directly or indirectly), there are certain laws, regulations and statutory
provisions which, as currently written, could have a material negative impact on
the ability of the Company to develop a commercial mine in such countries. The
range and diversity of such laws and regulations are such that the Company could
not adequately summarize them in this document. Through, among other things, the
negotiation of mineral agreements with the governments of these countries,
management of the Company intends to seek variances or otherwise to be exempted
from the provisions of these laws, regulations and/or statutory provisions.
There can be no assurance, however, that the Company will be successful in
obtaining such mineral agreements, that any such variances or exemptions can be
obtained on commercially acceptable terms or that such agreements will be
enforceable in accordance with their terms.
Further, many of the mineral rights and interests of the Company are
subject to government approvals, licenses and permits. Such approvals, licenses
and permits are, as a practical matter, subject to the discretion of the
applicable governments or governmental officials. No assurance can be given that
the Company will be successful in obtaining any or all of such approvals,
licenses and permits, will obtain them in a timely fashion or will be able to
maintain them in full force and effect without modification or revocation.
8
<PAGE>
The Company's assets and operations are subject to various political,
economic and other uncertainties, including, among other things, the risks of
war or civil unrest, expropriation, nationalization, renegotiation or
nullification of existing concessions, licenses, permits, approvals and
contracts, taxation policies, foreign exchange and repatriation restrictions,
changing political conditions, international monetary fluctuations, currency
controls and foreign governmental regulations that favor or require the awarding
of drilling contracts to local contractors or require foreign contractors to
employ citizens of, or purchase supplies from, a particular jurisdiction. In
addition, in the event of a dispute arising from foreign operations, the Company
may be subject to the exclusive jurisdiction of foreign courts or may not be
successful in subjecting foreign persons to the jurisdiction of courts in the
United States or Canada. The Company also may be hindered or prevented from
enforcing its rights with respect to a governmental instrumentality because of
the doctrine of sovereign immunity. The Company has suspended its operations in
Sierra Leone due to the unstable political situation there and has invoked the
FORCE MAJEURE provisions of the contracts pertaining to its Sierra Leone
operations. Currently, it is not possible for the Company to accurately predict
such developments or changes of law or policy and which, if any, of such
developments or changes may have a material adverse impact on the Company's
operations.
REQUIREMENTS FOR PERMITS AND LICENSES
The operations of the Company require licenses and permits from various
governmental authorities. Except as otherwise described in any Prospectus
Supplement delivered herewith or in documents incorporated by reference in this
Prospectus, management believes that the Company presently holds substantially
all necessary licenses and permits to carry on the activities which it currently
is conducting or expects to conduct in the near term under applicable laws and
regulations in respect of its properties, and also believes the Company is
presently complying in all material respects with the terms of such laws,
regulations, licenses and permits, although the Company is in breach of certain
provisions of such laws, regulations, licenses and permits from time to time.
Such licenses and permits are subject to modification or revocation as discussed
above in "Risks of Foreign Operations," as well as changes in regulations and in
various operating circumstances. While the Company does not believe that any
such breaches will have a material adverse effect on its operations, there can
be no assurance that the Company will be able to obtain or maintain in force all
necessary licenses and permits that may be required for it to conduct further
exploration or commence construction or operation of mining facilities at
properties under exploration or to maintain continued operations at economically
justifiable costs.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the services of certain key officers and
employees, including its Chief Executive Officer, its Chief Financial Officer
and certain of its geologists. Competition in the mining exploration industry
for qualified individuals is intense, and the loss of any of these key officers
or employees if not replaced could have a material adverse effect on the
Company's business and its operations. The Company has entered into agreements
with certain of its officers which provide for payments upon termination without
cause or, in certain cases, upon a change in control of the Company.
OPERATIONAL HAZARDS AND RESPONSIBILITIES
The business of gold mining is generally subject to a number of risks and
hazards, including environmental hazards, the discharge of pollutants or
hazardous chemicals, industrial accidents, labor disputes, encountering unusual
or unexpected geological or operating conditions,
9
<PAGE>
slope failures, cave-ins, failure of pit walls or dams and fire, changes in the
regulatory environment and natural phenomena such as inclement weather
conditions, floods and earthquakes, as well as other hazards. Such occurrences
could result in damage to, or destruction of, mineral properties or production
facilities, personal injury or death, environmental damage, delays in mining,
monetary losses and possible legal liability. The Company or its subsidiaries or
partnership arrangements to which they are parties also may incur liability as a
result of pollution and other casualties. The Company may not be able to insure
fully or at all against such risks, due to political or other reasons, or the
Company may decide not to insure against such risks as a result of high premiums
or for other reasons. Such occurrences, against which it cannot insure, or may
elect not to insure, may delay production, increase production costs or result
in liability. Paying compensation for obligations resulting from such liability
may entail significant costs for the Company and may have an adverse effect on
the Company's financial position. Furthermore, insurance against certain risks
(including certain liabilities for environmental pollution or other hazards as
result of exploration and production) is not generally available to the Company
or to other companies within the industry.
MINING AND PROCESSING
The Company's business operations are subject to risks and hazards
inherent in the mining industry, including but not limited to unanticipated
grade and other geological problems, water conditions, surface or underground
conditions, metallurgical and other processing problems and mechanical equipment
performance problems, the unavailability of materials and equipment, accidents,
labor force and FORCE MAJEURE factors, unanticipated transportation costs and
weather conditions, and prices and production levels of by-products, any of
which can materially and adversely affect, among other things, the development
of properties, production quantities and rates, costs and expenditures and
production commencement dates. In addition, the Company relies upon its partners
to manage the development and operating stages of the projects in which it has
an interest and, therefore, has less control over such matters than would be the
case if the Company were the operator.
In the case of the Company's exploration properties, there generally is no
operating history upon which to base estimates of future operating costs and
capital requirements. The economic feasibility of any individual project is
based upon, among other things, the interpretation of geological data obtained
from drill holes and other sampling techniques, feasibility studies, which
derive estimates of cash operating costs based upon anticipated tonnage and
grades of ore to be mined and processed, the configuration of the ore body,
expected recovery rates of metals from the ore, comparable facility and
equipment costs, anticipated climatic conditions, estimates of labor
productivity and other factors. Such exploration properties also are subject to
the successful completion of final feasibility studies, issuance of necessary
permits and receipt of adequate financing. Accordingly, uncertainties related to
operations are magnified in the case of exploration properties.
As a result of the foregoing risks, expenditures on any and all projects,
actual production quantities and rates and cash operating costs, among other
things, may be materially and adversely affected and may differ materially from
anticipated expenditures, production quantities and rates, and costs, just as
estimated production dates may be delayed materially, in each case, especially
to the extent exploration properties are involved. Any such events can
materially and adversely affect the Company's business, financial condition,
results of operations and cash flows.
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COMPETITION
The Company competes with major mining companies and other natural
resource companies in the acquisition, exploration, financing and development of
new properties and projects. Many of these companies are more experienced,
larger, and better capitalized than the Company. The Company's competitive
position will depend upon its ability to successfully and economically explore,
acquire and develop new and existing mineral resource properties or projects.
Factors which allow producers to remain competitive in the market over the long
term are the quality and size of the ore body, cost of production and operation
generally, and proximity to market. The Company also competes with other mining
companies for skilled geologists, geophysicists and other technical personnel,
which may result in higher turnover and greater labor costs for the Company.
CURRENCY
The Company historically has raised most of its equity capital in Canadian
dollars, primarily maintains its accounts in U.S. dollars and converts such U.S.
dollars into various local currencies on an as needed basis in order to conduct
local operations. 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 Brazilian reals and receivables payable in French francs. The Company
currently does not actively take steps to hedge against such risks.
It is anticipated that, on January 1, 1999, the European Union will
commence the introduction of a single currency (the "Euro"), which will be legal
tender in substitution for the national currencies of those member states that
adopt the Euro. It is anticipated that the Council of the European Union and the
member states will adopt regulations providing specific rules for the
introduction of the Euro. The Company cannot predict when and if the Euro will
be adopted or what effect the adoption of the Euro may have, if any, with
respect to the Company's French franc denominated obligations and receivables.
GOVERNMENTAL REGULATIONS
Management believes that compliance with existing regulations in the
jurisdictions in which the Company operates which are applicable to the
discharge of materials into the environment, or otherwise relating to
environmental protection, will not have a material adverse effect on the
Company's exploration activities, earnings, expenditures or competitive
position. However, there can be no assurance that this will always be the case.
New or expanded regulations, if adopted, could affect the exploration or
development of the Company's mining projects or otherwise have a material
adverse effect on the operations of the Company.
RISK OF COMPANY BEING CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY
Under the United States Internal Revenue Code of 1986, as amended (the
"Code"), the Company may be classified as a passive foreign investment company
(a "PFIC"). United States shareholders of a PFIC are subject to certain adverse
tax consequences. These consequences can be mitigated, under certain
circumstances, if the United States shareholder makes a timely election to treat
the Company as a "qualified electing fund" (a "QEF") or, commencing
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January 1, 1998 (or later for taxpayers other than calendar year taxpayers),
such United States shareholder makes a timely "mark to market election" with
respect to shares deemed owned by such shareholder. The Company has been advised
by Coopers & Lybrand L.L.P. that it should not be treated as a PFIC with respect
to shares purchased by United States shareholders during the years 1993 through
1996, although it could potentially be a PFIC with respect to shares acquired by
United States shareholders prior to 1993. The Company also intends to engage
Coopers & Lybrand L.L.P., or such other advisor, in the future to analyze
whether it is a PFIC in 1997 and subsequent years and will continue to notify
shareholders of the results of such future analyses. There can be no assurance
as to whether or not Coopers & Lybrand L.L.P., or such other advisor, will
conclude that the Company is a PFIC for any such period. Moreover, even if
Coopers & Lybrand L.L.P., or such other advisor, concludes that the Company is
not a PFIC, its conclusion is not binding on the United States Internal Revenue
Service. Accordingly, it is possible that the PFIC rules will apply with respect
to holders of the Securities. If the Company is classified as a PFIC, the
consequences to United States holders of each type of Security may differ; in
particular, neither the QEF election nor the mark to market election may be
available to all types of the Securities. Such consequences will be further
described in the applicable Prospectus Supplement. ALL PROSPECTIVE PURCHASERS OF
THE SECURITIES IN THE UNITED STATES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
ABOUT THE ADVISABILITY OF MAKING A QEF ELECTION OR A MARK TO MARKET ELECTION
WITH RESPECT TO THE COMPANY. ALL PROSPECTIVE PURCHASERS OF THE SECURITIES IN THE
UNITED STATES ALSO ARE URGED TO REVIEW THE PROSPECTUS SUPPLEMENT CAREFULLY AND
TO CONSULT THEIR OWN TAX ADVISERS ABOUT THE POSSIBILITY OF CREDITING CANADIAN
TAXES PAID AGAINST UNITED STATES TAXES PAYABLE.
USE OF PROCEEDS
Unless a Prospectus Supplement indicates otherwise, the net proceeds to be
received by the Company from the issue and sale from time to time of the
Securities will be added to the general funds of the Company to be used to
finance the Company's operations and for other general corporate purposes.
Pending such application, such net proceeds may be invested in short-term
investment grade marketable securities. Each Prospectus Supplement will contain
specific information concerning the use of proceeds from the sale of Securities
to which it relates.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges(1) for the Company and its
subsidiaries was as follows for the six months ended June 30, 1996 and 1997, the
years ended December 31, 1996, 1995, 1994 and 1993 and the periods from May 16,
1992 to December 31, 1992 and July 1, 1991 to May 15, 1992:
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<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
SIX MONTHS YEARS ENDED MAY 16, 1992 JULY 1, 1991
ENDED JUNE 30, DECEMBER 31, TO DECEMBER TO MAY 15,
1997 1996 1996 1995 1994 1993 31, 1992 1992
- ----------- ------------ ------------ ----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
N/M N/M N/M N/M N/M N/M N/M N/M
</TABLE>
- --------------------------
(1) The Company's projects are in the exploration or development stages. As a
result, the Company has reported net losses for each of the periods
presented. The Company has not had any material fixed charge obligations
for each of the periods presented. Therefore, the ratio of earnings to
fixed charges for the Company is not meaningful ("N/M") under both U.S.
GAAP and Canadian GAAP.
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DESCRIPTION OF SHARE CAPITAL
The Company's Articles currently authorize the issuance of an unlimited
number of Common Shares and an unlimited number of Preferred Shares, issuable in
series. As of July 27, 1997, 29,690,136 Common Shares and no Preferred Shares
were outstanding.
COMMON SHARES
The holders of Commons Shares are entitled to receive dividends as, when
and if declared by the Board of Directors of the Company out of funds legally
available therefor, provided that if any Preferred Shares are at the time
outstanding, the payment of dividends on Common Shares or other distributions
(including purchases of Common Shares) will be subject to any preferential
rights attaching to any other class or series of shares of the Company
The holders of Common Shares are entitled to one vote for each share on
all matters voted on by shareholders, including elections of directors. The
holders of Common Shares do not have any conversion, redemption or preemptive
rights. In the event of the dissolution, liquidation or winding up of the
Company, holders of Common Shares are entitled to share ratably in any assets
remaining after the satisfaction in full of the prior rights of creditors,
including holders of the Company's indebtedness, and the aggregate liquidation
preference of any other class or series of shares then outstanding.
On June 11, 1996, the shareholders of the Company confirmed the adoption
of a Shareholder Rights Plan (the "Rights Plan"). Pursuant to the Rights Plan,
the Company issued one right (a "Right") for each Common Share outstanding on
April 24, 1996 and will issue one Right for each Common Share issued in the
future. The terms of the Rights Plan are set forth in the Rights Agreement (the
"Rights Agreement") dated as of April 24, 1996 between the Company and CIBC
Mellon Trust Company as Rights Agent. For additional information on the Rights
Plan and the Rights Agreement, see the Company's Current Report on Form 8-K
filed with the Commission on May 8, 1996, incorporated by reference herein.
Any material United States or Canadian federal income tax consequences
with respect to any offered Common Shares will be described in the Prospectus
Supplement relating to the offering and sale of such Common Shares.
All outstanding Common Shares are, and the Common Shares offered hereby
will be, issued as fully paid and non-assessable.
The registrar and transfer agent for the Common Shares is CIBC Mellon
Trust Company. ChaseMellon Shareholder Services, L.L.C. acts as co-registrar and
co-transfer agent for the Common Shares in the United States.
PREFERRED SHARES
The following is a description of certain general terms and provisions of
the Preferred Shares. The particular terms of any series of Preferred Shares
will be described in the applicable Prospectus Supplement. If so indicated in a
Prospectus Supplement, the terms of any such series may differ from the terms
set forth below.
The summary of the terms of the Company's Preferred Shares contained in
this Prospectus does not purport to be complete and is subject to, and qualified
in its entirety by, the
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provisions of the Company's Articles relating to each series of Preferred
Shares, which will be filed as an exhibit to or incorporated by reference in
this Prospectus at or prior to the time of issuance of any such series of the
Preferred Shares.
The Board of Directors of the Company is authorized to approve the
issuance of one or more series of Preferred Shares without further authorization
of the shareholders of the Company and to fix the number of shares, the
designations, rights, privileges, restrictions and conditions of any such
series.
The applicable Prospectus Supplement will set forth the number of shares,
particular designation, relative rights and preferences and the limitations of
any series of Preferred Shares in respect of which this Prospectus is delivered.
The particular terms of any such series will include the following:
(i) The maximum number of shares to constitute the series and the
designation thereof;
(ii) The annual dividend rate, if any, on shares of the series, whether
such rate is fixed or variable or both, the date or dates from which dividends
will begin to accrue or accumulate, whether dividends will be cumulative and
whether such dividends shall be paid in cash, Common Shares or otherwise;
(iii) Whether the shares of the series will be redeemable and, if so, the
price at and the terms and conditions on which the shares of the series may be
redeemed, including the time during which shares of the series may be redeemed
and any accumulated dividends thereon that the holders of shares of the series
shall be entitled to receive upon the redemption thereof;
(iv) The liquidation preference, if any, applicable to shares of the
series;
(v) Whether the shares of the series will be subject to operation of a
retirement or sinking fund and, if so, the extent and manner in which any such
fund shall be applied to the purchase or redemption of the shares of the series
for retirement or for other corporate purposes, and the terms and provisions
relating to the operation of such fund;
(vi) The terms and conditions, if any, on which the shares of the series
shall be convertible into, or exchangeable for, shares of any other class or
classes of capital stock of the Company or any series of any other class or
classes, or of any other series of the same class, including the price or prices
or the rate or rates of conversion or exchange and the method, if any, of
adjusting the same;
(vii) The voting rights, if any, of the shares of the series;
(viii) The currency or units based on or relating to currencies in which
such series is denominated and/or in which payments will or may be payable;
(ix) The methods by which amounts payable in respect of such series may be
calculated and any commodities, currencies or indices, or price, rate or value,
relevant to such calculation;
(x) Any listing of the shares of the series on a securities exchange; and
(xi) Any other preferences and relative, participating, optional or other
rights or qualifications, limitations or restrictions thereof.
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Any material United States or Canadian federal income tax consequences and
other special considerations with respect to any offered Preferred Shares will
be described in the Prospectus Supplement relating to the offering and sale of
such Preferred Shares.
DESCRIPTION OF WARRANTS
The Company may issue Warrants to purchase Common Shares, Preferred Shares
or Convertible Debt Securities. Warrants may be issued, subject to regulatory
approvals, independently or together with any Common Shares, Preferred Shares or
Convertible Debt Securities, as the case may be and may be attached to or
separate from such Common Shares, Preferred Shares or Convertible Debt
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent (each, a "Warrant Agent"). The Warrant Agent will act solely
as an agent of the Company in connection with the Warrants of such series and
will not assume any obligation or relationship of agency or trust for or with
any holders or beneficial owners of Warrants. The following sets forth certain
general terms and provisions of the Warrants offered hereby. Further terms of
the Warrants and the applicable Warrant Agreement will be set forth in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the following terms of
any Warrants in respect of which this Prospectus is being delivered; (1) the
title of such Warrants; (2) the securities (which may include Common Shares,
Preferred Shares or Convertible Debt Securities) for which such Warrants are
exercisable; (3) the price or prices at which such Warrants will be issued; (4)
the periods during which the Warrants are exercisable; (5) the number of Common
Shares, Preferred Shares or amount of Convertible Debt Securities for which each
Warrant is exercisable; (6) the exercise price for such Warrants, including any
changes to or adjustments in the exercise price; (7) the currency or currencies,
including composite currencies, in which the exercise price of such Warrants may
be payable; (8) if applicable, the designation and terms of the Preferred Shares
with which such Warrants are issued; (9) if applicable, the terms of the
Convertible Debt Securities with which such Warrants are issued; (10) the number
of Warrants issued with each Common Share or Preferred Share or the Convertible
Debt Securities; (11), if applicable, the date on and after which such Warrants
and the related Common Shares, Preferred Shares or Convertible Debt Securities
will be separately transferable; (12) any listing of the Warrants on a
securities exchange; (13) if applicable, a discussion of material United States
or Canadian federal income tax consequences and other special considerations
with respect to any Warrants; and (14) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
DESCRIPTION OF CONVERTIBLE DEBT SECURITIES
The Convertible Debt Securities may be issued from time to time in one or
more series under an indenture among the Company, as issuer, and the trustee
specified in the applicable Prospectus Supplement. The following statements with
respect to the Convertible Debt Securities are subject to the detailed
provisions of the indenture, the form of which is filed as an exhibit to the
Registration Statement. Parenthetical references below are to the indenture (or
the form of security contained therein if so specified) and, whenever any
particular provision of the indenture or any term used therein is referred to,
such provision or term is incorporated by reference as a part of the statement
in connection with which such reference is made, and the statement in connection
with which such reference is made is qualified in its entirety by such
reference.
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The Convertible Debt Securities will constitute either indebtedness
designated as Senior Indebtedness ("Senior Debt Securities"), indebtedness
designated as Senior Subordinated Indebtedness ("Senior Subordinated Debt
Securities") or indebtedness designated as Subordinated Indebtedness
("Subordinated Debt Securities"). Senior Debt Securities, Senior Subordinated
Debt Securities and Subordinated Debt Securities will each be issued under a
separate indenture (individually an "Indenture" and collectively the
"Indentures") to be entered into prior to the issuance of such Convertible Debt
Securities. The Indentures will be substantially identical, except for
provisions relating to subordination. See "Subordination of Senior Subordinated
Debt Securities and Subordinated Debt Securities". There will be a separate
Trustee (individually a "Trustee" and collectively the "Trustees") under each
Indenture. Information regarding the Trustee under an Indenture will be included
in any Prospectus Supplement relating to the Convertible Debt Securities issued
thereunder.
The particular terms of each series of Convertible Debt Securities, as
well as any modification or addition to the general terms of the Convertible
Debt Securities as herein described, which may be applicable to a particular
series of Convertible Debt Securities, are described in the Prospectus
Supplement relating to such series of Convertible Debt Securities and will be
set forth in a filing with the Commission. Accordingly, for a description of the
terms of a particular series of Convertible Debt Securities, reference must be
made to both the Prospectus Supplement relating to such series and to the
description of Convertible Debt Securities set forth in this Prospectus.
GENERAL
The Convertible Debt Securities offered pursuant to this Prospectus will
be limited to $100,000,000 aggregate principal amount (or (i) its equivalent
(based on the applicable exchange rate at the time of sale), if Convertible Debt
Securities are issued with principal amounts denominated in one or more foreign
currencies, composite currencies or currency units as shall be designated by the
Company, or (ii) such greater amount, if Convertible Debt Securities are issued
at an original issue discount, as shall result in aggregate proceeds of
$100,000,000 to the Company). The Indenture provides that additional convertible
debt securities may be issued thereunder up to the aggregate principal amount,
which is not limited by the Indenture, authorized from time to time by the
Company's Board of Directors or any duly authorized committee thereof. So long
as a single Trustee is acting for the benefit of the holders of all the
Convertible Debt Securities offered hereby and any such additional convertible
debt securities issued under the Indenture, the Convertible Debt Securities and
any such additional convertible debt securities are herein collectively referred
to as the "Indenture Securities." The Indenture also provides that there may be
more than one Trustee under the Indenture, each with respect to one or more
different series of Indenture Securities. At any time when two or more Trustees
are acting, each with respect to only certain series, the term "Indenture
Securities" as used herein shall mean the one or more series with respect to
which each respective Trustee is acting and the powers and the trust obligations
of each such Trustee as described herein shall extend only to the one or more
series of Indenture Securities for which it is acting as trustee. The effect of
the provisions contemplating that there might be more than one Trustee acting
for different series of Indenture Securities is that, in that event, those
Indenture Securities (whether of one or more than one series) for which each
Trustee is acting would be treated as if issued under a separate Indenture.
The applicable Prospectus Supplement will set forth a description of the
particular series of Convertible Debt Securities being offered thereby,
including but not limited to: (1) the designation or title of such Convertible
Debt Securities; (2) the aggregate principal amount of such Convertible Debt
Securities; (3) the percentage of their principal amount at which such
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Convertible Debt Securities will be offered; (4) the date or dates on which the
principal of such Convertible Debt Securities will be payable and on which such
Convertible Debt Securities will mature; (5) the rate or rates (which may be
fixed or variable) at which such Convertible Debt Securities shall bear
interest, or the method of determination of such rate or rates at which such
Convertible Debt Securities shall bear interest, if any; (6) the date or dates
from which interest will accrue or the method of determination of such date or
dates, and the date or dates on which any such interest shall be payable; (7)
the currencies or currency units in which such Convertible Debt Securities are
issued or payable; (8) the terms for redemption, extension or early repayment of
such Convertible Debt Securities, if any; (9) if other than denominations of
$1,000 and any integral multiple thereof, the denominations in which such
Convertible Debt Securities are authorized to be issued; (10) the terms and
conditions upon which conversion will be effected, including the conversion
price, the conversion period and other conversion provisions; (11) the
provisions for a sinking fund, if any; (12) whether such Convertible Debt
Securities are issuable as a Global Security or Securities; (13) any index or
formula to be used to determine the amount of payments of principal, premium, if
any, and interest on such Convertible Debt Securities, and any commodities,
currencies, currency units or indices, or value, rate or price, relevant to such
determination; (14) if the principal of, premium, if any, or interest on such
Convertible Debt Securities is to be payable, at the election of the Company or
a Holder thereof, in one or more currencies or currency units other than that or
those in which such Convertible Debt Securities are stated to be payable, the
currencies or currency units in which payment of the principal of, premium, if
any, and interest on such Convertible Debt Securities as to which election is
made shall be payable, and the periods within which and the terms and conditions
upon which such election is to be made; (15) if other than the principal amount
thereof, the portion of the principal amount of such Convertible Debt Securities
of the series which will be payable upon acceleration of the Maturity thereof;
(16) whether such Convertible Debt Securities are subordinate in right of
payment to any Senior Indebtedness of the Company and, if so, the terms and
conditions of such subordination and the aggregate principal amount of such
Senior Indebtedness outstanding as of a recent date; (17) any covenants to which
the Company may be subject with respect to such Convertible Debt Securities;
(18) the applicability of the provisions described under "Defeasance" below;
(19) United States and Canadian Federal income tax consequences, if any; (20)
the provisions for the payment of additional amounts with respect to any
Canadian withholding taxes in certain cases; (21) any term or provision relating
to such Convertible Debt Securities which is not inconsistent with the
provisions of the Indenture; (22) the Trustee; and (23) any other special terms
pertaining to such Convertible Debt Securities. Unless otherwise specified in
the applicable Prospectus Supplement, the Convertible Debt Securities will not
be listed on any securities exchange.
One or more series of Convertible Debt Securities may be sold at a
substantial discount below their stated principal amount, bearing no interest or
interest at a rate which at the time of issuance is below market rates. Any
material United States or Canadian federal income tax consequences and other
special considerations with respect to any series of Convertible Debt Securities
will be described in the Prospectus Supplement relating to any such series of
Convertible Debt Securities.
If the purchase price of any series of Convertible Debt Securities is
denominated in a foreign currency or currencies or a foreign currency unit or
units or if the principal of, premium, if any, and interest on any series of
Convertible Debt Securities are payable in a foreign currency or currencies or a
foreign currency unit or units, the restrictions, elections, general tax
considerations, specific terms and other information with respect to such series
of Convertible Debt Securities will be set forth in the applicable Prospectus
Supplement.
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Convertible Debt Securities may be issued from time to time with payment
terms which are calculated by reference to the value, rate or price of one or
more commodities, currencies, currency units or indices. Holders of such
Convertible Debt Securities may receive a principal amount (including premium,
if any) on any principal payment date, or a payment of interest on any interest
payment date, that is greater than or less than the amount of principal
(including premium, if any) or interest otherwise payable on such dates,
depending upon the value, rate or price on the applicable dates of the
applicable currency, currency unit, commodity or index. Information as to the
methods for determining the amount of principal, premium, if any, or interest
payable on any date, the currencies, currency units, commodities or indices to
which the amount payable on such date is linked and any additional tax
considerations will be set forth in the applicable Prospectus Supplement.
Except as may be set forth in the applicable Prospectus Supplement,
Holders of Convertible Debt Securities will not have the benefit of any specific
covenants or provisions in the applicable Indenture or such Convertible Debt
Securities in the event that the Company engages in or becomes the subject of a
highly leveraged transaction, other than the limitations on mergers,
consolidations and transfers of substantially all of the Company's properties
and assets as an entirety to any person as described below under "Consolidation,
Merger and Sale of Assets".
The Convertible Debt Securities will be general unsecured obligations of
the Company.
Except as otherwise provided in the applicable Prospectus Supplement,
principal, premium, if any, and interest, if any, will be payable at an office
or agency to be maintained by the Company in New York, New York, except that at
the option of the Company interest may be paid by check mailed to the person
entitled thereto.
The Convertible Debt Securities will be issued only in fully registered
form without coupons and may be presented for the registration of transfer or
exchange at the corporate trust office of the Trustee. Not all Convertible Debt
Securities of any one series need be issued at the same time, and, unless
otherwise provided, a series may be reopened for issuances of additional
Convertible Debt Securities of such series.
SENIOR DEBT SECURITIES
The Senior Debt Securities will rank PARI PASSU with all other unsecured
and unsubordinated debt of the Company and senior to the Senior Subordinated
Debt Securities and Subordinated Debt Securities.
SUBORDINATION OF SENIOR SUBORDINATED DEBT SECURITIES AND SUBORDINATED DEBT
SECURITIES
The payment of the principal of, premium, if any, and interest on the
Senior Subordinated Debt Securities and the Subordinated Debt Securities will,
to the extent set forth in the respective Indentures and Indenture Supplements
governing such Senior Subordinated Debt Securities and Subordinated Debt
Securities, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness. Upon any payment or distribution of assets to creditors
upon any liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors, marshalling of assets or any bankruptcy, insolvency or
similar proceedings of the Company, the holders of all Senior Indebtedness will
be entitled to receive payment in full of all amounts due or to become due
thereon before the Holders of the Senior Subordinated Debt Securities or the
Subordinated Debt Securities will be entitled to receive any payment in respect
of the principal
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of, premium, if any, or interest on such Senior Subordinated Debt Securities or
Subordinated Debt Securities, as the case may be. In the event of the
acceleration of the maturity of any Senior Subordinated Debt Securities or
Subordinated Debt Securities, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become due thereon
before the Holders of the Senior Subordinated Debt Securities or Subordinated
Debt Securities, as the case may be, will be entitled to receive any payment
upon the principal of, premium, if any, or interest on such Senior Subordinated
Debt Securities or Subordinated Debt Securities, as the case may be. No payments
on account of principal, premium, if any, or interest in respect of the Senior
Subordinated Debt Securities or Subordinated Debt Securities may be made if
there shall have occurred and be continuing in a default in the payment of
principal of (or premium, if any) or interest on any Senior Indebtedness beyond
any applicable grace period, or a default with respect to any Senior
Indebtedness permitting the holders thereof to accelerate the maturity thereof,
or if any judicial proceedings shall be pending with respect to any such
default. For purposes of the subordination provisions, the payment, issuance or
delivery of cash, property or securities (other than stock, and certain
subordinated securities, of the Company) upon conversion or exchange or a Senior
Subordinated Debt Security or Subordinated Debt Security will be deemed to
constitute payment on account of the principal of such Senior Subordinated Debt
Security or Subordinated Debt Security, as the case may be.
By reason of such provisions, in the event of insolvency, holders of
Senior Subordinated Debt Securities and Subordinated Debt Securities may recover
less, ratably, than holders of Senior Indebtedness with respect thereto.
The term "Senior Indebtedness", when used with respect to any series of
Senior Subordinated Debt Securities or Subordinated Debt Securities, is defined
to include all amounts due on and obligations in connection with any of the
following, whether outstanding at the date of execution of the Indenture or
thereafter incurred, assumed, guaranteed or otherwise created (including,
without limitation, interest accruing on or after a bankruptcy or other similar
event, whether or not an allowed claim therein):
(a) indebtedness, obligations and other liabilities (contingent or
otherwise) of the Company for money borrowed or evidenced by bonds,
debentures, notes or similar instruments;
(b) reimbursement obligations and other liabilities (contingent or
otherwise) of the Company with respect to letters of credit or
bankers' acceptances issued for the account of the Company and
interest rate protection agreements and currency exchange or
purchase agreements;
(c) obligations and liabilities (contingent or otherwise) of the Company
related to capitalized lease obligations;
(d) indebtedness, obligations and other liabilities (contingent or
otherwise) of the Company related to agreements or arrangements
designed to protect the Company against fluctuations in commodity
prices, including without limitation, commodity futures contracts or
similar hedging instruments;
(e) indebtedness of others of the kinds described in the preceding
clauses (a) through (d) that the Company has assumed, guaranteed or
otherwise assured the payment of, directly or indirectly;
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(f) indebtedness of another Person of the type described in the
preceding clauses (a) through (e) secured by any mortgage, pledge,
lien or other encumbrance on property owned or held by the Company;
and
(g) deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or
liability described in the preceding clauses (a) through (f) whether
or not there is any notice to or consent of the Holders of such
series of Senior Subordinated Debt Securities or Subordinated Debt
Securities, as the case may be;
except that, with respect to the Senior Subordinated Debt Securities, any
particular indebtedness, obligation, liability, guaranty, assumption, deferral,
renewal, extension or refunding shall not constitute "Senior Indebtedness" if it
is expressly stated in the governing terms, or in the assumption or guarantee,
thereof that the indebtedness involved is not senior in right of payment to the
Senior Subordinated Debt Securities or that such indebtedness is PARI PASSU with
or junior to the Senior Subordinated Debt Securities and, with respect to
Subordinated Debt Securities, any particular indebtedness, obligation,
liability, guaranty, assumption, deferral, renewal, extension or refunding shall
not constitute "Senior Indebtedness" if it is expressly stated in the governing
terms, or in the assumption or guarantee, thereof that the indebtedness involved
is not senior in right of payment to the Subordinated Debt Securities or that
such indebtedness is PARI PASSU with or junior to the Subordinated Debt
Securities.
In certain circumstances, such as the bankruptcy or insolvency of the
Company, Canadian or U.S. bankruptcy or insolvency legislation may be applicable
and the application of such legislation may lead to different results with
respect to, for example, payments to be made to Holders of Convertible Debt
Securities, or priorities between Holders of the Convertible Debt Securities and
holders of Senior Indebtedness, than those provided for in the applicable
Indenture.
If this Prospectus is being delivered in connection with a series of
Senior Subordinated Debt Securities or Subordinated Debt Securities, the
accompanying Prospectus Supplement or the information incorporated herein by
reference will set forth the approximate amount of Senior Indebtedness
outstanding as of the end of the Company's most recent fiscal quarter.
FORM, EXCHANGE, REGISTRATION, CONVERSION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, the
Convertible Debt Securities will be issued only in fully registered form in
denominations of U.S. $1,000 or integral multiples thereof. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of principal,
premium, if any, and interest on the Convertible Debt Securities will be
payable, and the exchange, conversion and transfer of Convertible Debt
Securities will be registerable, at the office or agency of the Company
maintained for such purposes. No service charge will be made for any
registration of a transfer or exchange of the Convertible Debt Securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
All monies paid by the Company to a Paying Agent for the payment of
principal of, premium, if any, or interest on any Convertible Debt Security
which remain unclaimed for two years after such principal, premium or interest
has become due and payable may be repaid to the Company and thereafter the
holder of such Convertible Debt Security may look only to the Company for
payment thereof.
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EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with respect
to Convertible Debt Securities of any series: (a) failure to pay principal (or
premium, if any) on any Convertible Debt Security of that series at its
maturity, whether or not such failure is a result of the subordination
provisions of the Indenture with respect to such series; (b) failure to pay any
interest on any Convertible Debt Security of that series when due, continued for
30 days, whether or not such failure is a result of the subordination provisions
of the Indenture with respect to such series; (c) failure to make any sinking
fund payment, when due, in respect of any Convertible Debt Security of that
series; (d) failure to perform any other covenant of the Company in the
applicable Indenture or any other covenant to which the Company may be subject
with respect to Convertible Debt Securities of that series (other than a
covenant solely for the benefit of a series of Convertible Debt Securities other
than that series), continued for 90 days after written notice as provided in the
applicable Indenture; (e) failure to pay when due on final maturity (after the
expiration of any applicable grace period), or upon acceleration, any
indebtedness for money borrowed by the Company in excess of U.S. $10 million;
(f) certain events of bankruptcy, insolvency or reorganization; and (g) any
other Event of Default provided with respect to Convertible Debt Securities of
that series.
If an Event of Default with respect to outstanding Convertible Debt
Securities of any series shall occur and be continuing, either the Trustee or
the Holders of at least 25% in principal amount of the outstanding Convertible
Debt Securities of that series, by notice as provided in the applicable
Indenture, may declare the principal amount (or, if the Convertible Debt
Securities of that series are original issue discount securities, such portion
of the principal amount as may be specified in the terms of that series) of all
Convertible Debt Securities of that series to be due and payable immediately,
except that upon the occurrence of an Event of Default specified in (f) above,
the principal amount (or in the case of original issue discount securities, such
portion) of all Convertible Debt Securities shall be immediately due and payable
without notice. However, at any time after a declaration of acceleration with
respect to Convertible Debt Securities of any series has been made, but before
judgment or decree based on such acceleration has been obtained, the Holders of
a majority in principal amount of the outstanding Convertible Debt Securities of
that series may, under certain circumstances, rescind and annul such
acceleration. For information as to waiver of defaults, see "Modification and
Waiver" below.
The Indentures will provide that, subject to the duty of the respective
Trustees thereunder during an Event of Default to act with the required standard
of care, each such Trustee will be under no obligation to exercise any of its
rights or powers under the respective Indentures at the request or direction of
any of the Holders, unless such Holders shall have offered to such Trustee
reasonable security or indemnity. Subject to certain provisions, including those
requiring security or indemnification of the applicable Trustee, the Holders of
a majority in principal amount of the outstanding Convertible Debt Securities of
any series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to such Trustee, or to
exercise any trust or power conferred on such Trustee, with respect to the
Convertible Debt Securities of that series.
No Holder of a Convertible Debt Security of any series will have any right
to institute any proceeding with respect to the applicable Indenture or for any
remedy thereunder, unless such Holder shall have previously given to the
applicable Trustee written notice of a continuing Event of Default and unless
also the Holders of at least 25% in aggregate principal amount of the
outstanding Convertible Debt Securities of the same series shall have made
written requests, and offered reasonable indemnity, to such Trustee to institute
such proceeding as trustee, and the
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Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the outstanding Convertible Debt Securities of the same
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not apply
to a suit instituted by a Holder of a Convertible Debt Security for enforcement
of payment of the principal of and interest on such Convertible Debt Security on
or after the respective due dates expressed in such Convertible Debt Security.
The Company will be required to furnish to the Trustees annually a
statement as to the performance by the Company of its obligations under the
respective Indentures and as to any default in such performance.
MODIFICATION AND WAIVER
Without the consent of any Holder of outstanding Convertible Debt
Securities, the Company and the Trustees may amend or supplement the Indentures
or the Convertible Debt Securities to cure any ambiguity, defect or
inconsistency, or to make any change that does not adversely affect the rights
of any Holder of Convertible Debt Securities. Other modifications and amendments
of the respective Indentures may be made by the Company and the applicable
Trustee with the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Convertible Debt Securities of each series
affected thereby; provided, however, that no such modification or amendment may,
without the consent of the Holder of each outstanding Convertible Debt Security
affected thereby: (a) change the stated maturity of the principal of, or any
installment of principal of, or premium, if any, or interest on any Convertible
Debt Security; (b) reduce the principal amount of, the rate of interest on, or
the premium, if any, payable upon the redemption of, any Convertible Debt
Security; (c) reduce the amount of principal of an original issue discount
security payable upon acceleration of the maturity thereof; (d) change the place
or currency of payment of principal of, premium, if any, or interest on any
Convertible Debt Security; (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Convertible Debt Security
on or after the stated maturity or redemption date thereof; (f) modify the
conversion provisions in a manner adverse to the holders thereof; (g) modify the
subordination provisions applicable to Senior Subordinated Debt Securities or
Subordinated Debt Securities in a manner adverse to the Holders thereof; (h)
reduce the percentage in principal amount of outstanding Convertible Debt
Securities of any series, the consent of the Holders of which is required for
modification or amendment of the applicable Indenture or for waiver of
compliance with certain provisions of the applicable Indenture or for waiver of
certain defaults or (i) modify any of the provisions of certain sections as
specified in the Indenture including the provisions summarized in this
paragraph, except to increase any such percentage or to designate additional
provisions of the Indenture, which, with respect to such series, cannot be
modified or waived without the consent of the Holder of each outstanding
Convertible Debt Security affected thereby.
The Holders of at least a majority in principal amount of the outstanding
Convertible Debt Securities of any series may on behalf of the Holders of all
Convertible Debt Securities of that series waive, insofar as that series is
concerned, compliance by the Company with certain covenants of the applicable
Indenture. The Holders of not less than a majority in principal amount of the
outstanding Convertible Debt Securities of any series may, on behalf of the
Holders of all Convertible Debt Securities of that series, waive any past
default under the applicable Indenture with respect to that series, except a
default in the payment of the principal of, premium, if any, or interest on, any
Convertible Debt Security of that series or in respect of a provision which
under the applicable Indenture cannot be modified or amended without the consent
of the Holder of each outstanding Convertible Debt Security of that series
affected.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of any Holders of any series of
outstanding Convertible Debt Securities, may consolidate with or merge into, or
transfer or lease its assets substantially as an entirety (treating the Company
and each of its Subsidiaries as a single consolidated entity) to, any
corporation, and any other corporation may consolidate with or merge into, or
transfer or lease its assets substantially as an entirety to, the Company,
provided that the corporation (if other than the Company) formed by such
consolidation or into which the Company is merged or which acquires or leases
the assets of the Company substantially as an entirety is organized and existing
under the laws of the United States of America or Canada or any political
subdivision of either, and assumes the Company's obligations under each series
of outstanding Convertible Debt Securities and the Indentures applicable thereto
and that the Trustee is satisfied that the transaction will not result in the
successor being required to make any deduction or withholding on account of
certain Canadian taxes from any payments in respect of the Securities, and that,
after giving effect to such transaction, no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of Default,
shall have occurred and be continuing, and the delivery of an officer's
certificate and an opinion of counsel with respect to compliance with the
foregoing requirements.
DEFEASANCE
If so indicated in the applicable Prospectus Supplement with respect to
the Convertible Debt Securities of a series, the Company at its option will be
released from its obligations to comply with certain covenants specified in the
applicable Prospectus Supplement with respect to the Convertible Debt Securities
of such series, and the occurrence of an event described in clause (d) under
"Events of Default" above with respect to any defeased covenants, and clauses
(e) and (g) under "Events of Default" above shall no longer be an Event of
Default, if the Company irrevocably deposits with the applicable Trustee, in
trust, money, government obligations of the government issuing the currency in
which the Convertible Debt Securities of the relevant series are denominated, or
a combination thereof that through the payment of interest thereon and principal
thereof in accordance with the terms will provide money in an amount sufficient
to pay all the principal of and premium, if any, and interest on the Securities
of such series on the dates such payments are due (up to the stated maturity
date, or the redemption date, as the case may be) in accordance with the terms
of such Convertible Debt Securities. Such a trust may only be established if,
among other things, (a) no Event of Default described under "Events of Default"
above or event that, after notice or lapse of time, or both, would become an
Event of Default under the applicable Indenture, shall have occurred and be
continuing on the date of such deposit, or, with regard to an Event of Default
described under clause (f) under "Events of Default" above or an event that,
after notice or lapse of time, or both, would become an Event of Default
described under such clause (f), shall have occurred and be continuing at any
time during the period ending on the 123rd day following such date of deposit,
(b) the Company shall have delivered an opinion of counsel to the effect that
the Holders of the Convertible Debt Securities will not recognize gain or loss
for United States Federal income tax purposes as a result of such deposit or
defeasance and will be subject to United States Federal income tax in the same
manner as if such defeasance had not occurred, and (c) such covenant defeasance
will not result in the trust being in violation of the Investment Company Act of
1940. In the event the Company omits to comply with its remaining obligations
under the applicable Indenture after a defeasance of such Indenture with respect
to the Convertible Debt Securities of any series as described above and the
Convertible Debt Securities of such series are declared due and payable because
of the occurrence of any undefeased Event of Default, the amount of money and
government obligations on deposit with the applicable Trustee may be
insufficient to pay amounts due on the Convertible
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Debt Securities of such series at the time of the acceleration resulting from
such Event of Default. However, the Company will remain liable in respect to
such payments.
Notwithstanding the description set forth under "Subordination of Senior
Subordinated Debt Securities and Subordinated Debt Securities" above, in the
event that the Company deposits money or government obligations in compliance
with the Indenture that governs any Senior Subordinated Debt Securities or
Subordinated Debt Securities, as the case may be, in order to defease all or
certain of its obligations with respect to the applicable series of Convertible
Debt Securities, the money or government obligations so deposited will not be
subject to the subordination provisions of the applicable Indenture and the
indebtedness evidenced by such series of Convertible Debt Securities will not be
subordinated in right of payment to the holders of applicable Senior
Indebtedness to the extent of the money or government obligations so deposited.
GOVERNING LAW
The Indentures and the Convertible Debt Securities will be governed by,
and construed in accordance with, the laws of the State of New York.
REGARDING THE TRUSTEES
The Indenture contains certain limitations on the right of each Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize for its own account on certain property received in
respect of any such claim as security or otherwise. Each Trustee will be
permitted to engage in certain other transactions with the Company; however, if
it acquires any conflicting interest and there is a default under the
Convertible Debt Securities issued under the applicable Indenture, it must
eliminate such conflict or resign.
BOOK-ENTRY SYSTEM
The Convertible Debt Securities of a Series may be issued in the form of
one or more global certificates representing the Convertible Debt Securities
(the "Global Securities") that will be deposited with a depository (the
"Depository") or with a nominee for the Depository identified in the applicable
Prospectus supplement and will be registered in the name of the Depository or a
nominee thereof. In such a case one or more Global Securities will be issued in
a denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Convertible Debt Securities of the series to be
represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Convertible Debt Securities in definitive
certificated form, a Global Security may be transferred, in whole but not in
part, only to another nominee of the Depository for such series, or to a
successor Depository for such series selected or approved by the Company, or to
a nominee of such successor Depository.
The specific depository arrangement with respect to any series of
Convertible Debt Securities to be represented by a Global Security will be
described in the applicable Prospectus Supplement. The Company expects that the
following provisions will apply to depository arrangements.
Upon the issuance of any Global Security, and the deposit of such Global
Security with or on behalf of the Depository for such Global Security, the
Depository will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Convertible Debt Securities represented by
such Global Security to the accounts of institutions ("participants") that
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have accounts with the Depository or its nominee. The accounts to be credited
will be designated by the underwriters or agents engaging in the distribution of
such Convertible Debt Securities or by the Company, if such Convertible Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in a Global Security will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interests by
participants in such Global Security will be shown on, and the transfer of such
beneficial interests will be effected only through, records maintained by the
Depository for such Global Security or by its nominee. Ownership of beneficial
interests in such Global Security by persons that hold through participants will
be shown on, and the transfer of such beneficial interests within such
participants will be effected only through, records maintained by such
participants. The laws of some jurisdictions may require that certain purchasers
of securities take physical delivery of such securities in certificated form.
The foregoing limitations and such laws may impair the ability to own, pledge or
transfer beneficial interests in such Global Securities.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Convertible
Debt Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise specified in the applicable Prospectus Supplement
and except as specified below, owners of beneficial interests in such Global
Security will not be entitled to have Convertible Debt Securities of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Convertible Debt Securities of
such series in certificated form and will not be considered the holders thereof
for any purposes under the Indenture. Accordingly, each person owning a
beneficial interest in such Global Security must rely on the procedures of the
Depository and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a holder under the Indenture. The Company understands that, under existing
industry practices, if the Company requests any action of holders or an owner of
a beneficial interest in such Global Security desires to give any notice or take
any action a holder is entitled to give or take under the Indenture, the
Depository would authorize the participants to give such notice or take such
action, and participants would authorize beneficial owners owning through such
participants to give such notice or take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
Unless otherwise specified in the applicable Prospectus Supplement,
payments with respect to principal, premium, if any, and interest, if any, on
Convertible Debt Securities represented by a Global Security registered in the
name of a Depository or its nominee will be made to such Depository or its
nominee, as the case may be, as the registered owner of such Global Security.
The Company expects that the Depository for any Convertible Debt
Securities represented by a Global Security, upon receipt of any payment of
principal, premium or interest in respect of such Global Security, will
immediately credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such Global
Security as shown on the records of such Depository. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street names," and will be the
responsibility of such participants. None of the Company, the Trustee or any
agent of the Company or the Trustee shall have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of a Global Security,
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or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
If the Depository for any Convertible Debt Securities represented by a
Global Security is at any time unwilling or unable to continue as Depository or
ceases to be registered or in good standing under the Securities Exchange Act of
1934, as amended, and a successor Depository is not appointed by the Company
within 90 days after the Company receives notice or becomes aware of such
condition, the Company will issue such Convertible Debt Securities in definitive
certificated form in exchange for such Global Security. In addition, the Company
may at any time and in its sole discretion determine not to have any of the
Convertible Debt Securities of a series represented by one or more Global
Securities and, in such event, will issue Convertible Debt Securities of such
series in definitive certificated form in exchange for all of the Global
Security or Securities representing such Convertible Debt Securities.
PLAN OF DISTRIBUTION
The Company may offer and sell the Securities to or through underwriters
or dealers, and also may offer and sell Securities directly to other purchasers
or through agents.
Each Prospectus Supplement will set forth the terms of the offering of the
particular series of Securities to which the Prospectus Supplement relates,
including the name or names of any underwriters, dealers or agents, the purchase
price or prices of the Securities, the proceeds to the Company from the sale of
such series of Securities, the use of such proceeds, any initial public offering
price or purchase price of such series of Securities, any underwriting discount
or commission, any discounts, concessions or commissions allowed or reallowed or
paid by any underwriters to other dealers, any commissions paid to any agents
and the securities exchanges, if any, on which such Securities will be listed.
Any initial public offering price or purchase price and any discounts,
concessions or commissions allowed or reallowed or paid by any underwriter to
other dealers may be changed from time to time.
Sales of Common Shares or Preferred Shares offered pursuant to any
Prospectus Supplement may be effected from time to time in one or more
transactions on the American Stock Exchange or, in appropriate circumstances,
The Toronto Stock Exchange, or in negotiated transactions or any combination of
such methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, or at other negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities for whom
they may act as agents in the form of discounts, concessions or commissions,
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the distribution of
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of Securities by
them may be deemed to be underwriting discounts and commissions under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Company will be described, in the applicable
Prospectus Supplement.
Under agreements which may be entered into by the Company, underwriters
and agents who participate in the distribution of Securities may be entitled to
indemnification by the
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Company against certain liabilities, including liabilities under Canadian and
United States securities legislation.
The Company may grant underwriters who participate in the distribution of
Securities an option to purchase additional Securities to cover over-allotments,
if any.
The place and date of delivery for the Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Securities in respect of which this Prospectus is being delivered (other than
Common Shares) will be a new issue of securities, will not have an established
trading market when issued and will not be listed on any securities exchange.
Any underwriters or agents to or through whom such Securities are sold by the
Company for public offering and sale may make a market in such Securities, but
such underwriters or agents will not be obligated to do so and may discontinue
any market making at any time without notice. No assurance can be given as to
the liquidity of the trading market for any such Securities.
Certain of the underwriters and their affiliates may from time to time
perform various commercial banking and investment banking services for the
Company, for which customary compensation is received.
EXPERTS
The consolidated balance sheets of Golden Star Resources Ltd. as of
December 31, 1996 and 1995 and the consolidated statement of operations,
shareholders' equity and cash flows for the years ended December 31, 1996, 1995
and 1994, included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, incorporated by reference herein have been included in
this Form S-3 in reliance on the report of Coopers & Lybrand, chartered
accountants, given on the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the Securities will be
passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New
York, New York, and by Koffman Birnie & Kalef, Vancouver, British Columbia.
Certain legal matters will be passed upon for the underwriters, if any, by the
counsel named in the applicable Prospectus Supplement.
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