U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
|X| Annual report under Section 13 or 15 (d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1997
|_| Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 for the transition period from _____________to _____________
Commission File Number 33-28562
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TOUCAN GOLD CORPORATION
(Name of Small Business Issuer in Its Charter)
Delaware 75-2661571
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8201 Preston Road
Suite 600
Dallas, Texas 75225
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(Address of Principal Executive Offices) (Zip code)
(214) 890-8088
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(Issuer's Telephone Number, Including Area Code.)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange
------------------- on Which Registered
NONE ---------------------
N/A
Securities registered under Section 12(g) of the Exchange Act: None
------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes X No
-------------------- --------------------
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year. $ 0
State the aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of March 31, 1998 was $2,592,110 based upon
the average bid and ask price of the common stock on such date of $0.750 per
share on the OTC Electronic Bulletin Board of Nasdaq. For purposes of this
computation, all executive officers, directors and 10% stockholders were deemed
affiliates. Such a determination should not be construed as an admission that
such executive officers, directors or 10% stockholders are affiliates.
As of March 31, there were 7,714,600 shares of the common stock, $.01 par value,
of the registrant issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X
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Toucan Gold Corporation
Page Number
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PART I .......... ...........................................................1
Items 1 and 2. Description of Business and Property...........................1
Item 3. Legal Proceedings.....................................................7
Item 4. Submission of Matters to a Vote of Security-Holders...................7
PART II ......................................................................8
Item 5. Market for Common Equity and Related Stockholder Matters..............8
Item 6. Management's Discussion and Analysis of Financial Condition or Plan
of Operation.........................................................10
Item 7. Financial Statements.................................................13
Report of Independent Certified Public Accountants...........................F-2
Consolidated Balance Sheet as of December 31, 1997...........................F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and the period from November 3, 1995 to December 31,
1997................................................................F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996.............................................F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and the period from November 3, 1995 to December 31,
1997................................................................F-6
Notes to Financial Statements................................................F-7
PART III .....................................................................14
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act....................14
Item 10. Executive Compensation..............................................16
Item 11. Security Ownership of Certain Beneficial Owners and Management......16
Item 12. Certain Relationships and Related Transactions......................19
Item 13. Exhibits, List and Reports on Form 8-K..............................21
SIGNATURES....................................................................23
INDEX TO EXHIBITS........................................................INDEX-1
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PART I
Items 1 and 2. Description of Business and Property
General
Toucan Gold Corporation (the "Company" or "Toucan") was organized in the
State of Delaware on July 22, 1996. The Certificate of Incorporation of Toucan
authorizes a class of 30,000,000 shares of common stock, par value $.01 per
share (the "Company Common Stock"), and 2,000,000 shares of preferred stock, par
value $.01 per share. The Company was formed for the purposes of reincorporating
Starlight Acquisitions, Inc., a Colorado corporation ("Starlight"), in the State
of Delaware (the "Reincorporation"). Starlight was incorporated on January 20,
1989. The Reincorporation was effected by merging (the "Merger") Starlight into
the Company, which, prior to the Reincorporation, was a wholly owned subsidiary
of Starlight, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"). Upon completion of the Merger, Starlight ceased to exist, and
Toucan continued to operate the business of Starlight under the name Toucan Gold
Corporation. The Reincorporation became effective on July 29, 1996. As a result
of the Reincorporation, each then outstanding share of Starlight common stock,
no par value (the "Starlight Common Stock"), was converted into one share of
Company Common Stock. Existing warrants (the "Starlight Warrants") to purchase
an aggregate of 100,000 shares of Starlight Common Stock at an exercise price of
$4.00 per share were exchanged into warrants (the "Toucan Warrants") to purchase
an aggregate of 100,000 shares of Company Common Stock at an exercise price of
$4.00 per share.
The Share Exchange
Effective May 10, 1996, Toucan Mining Limited, an exploration stage company
incorporated on November 3, 1995 under the laws of the Isle of Man (British
Isles) ("Toucan Mining"), became a wholly owned subsidiary of Starlight when
Starlight acquired all of the outstanding capital stock of Toucan Mining in
exchange for 4,534,999 shares of Starlight Common Stock (the "Share Exchange)
pursuant to a Share Exchange Agreement (the "Share Exchange Agreement"). As a
result of the Share Exchange, each shareholder of Toucan Mining received seven
shares of Starlight Common Stock for each share of common stock of Toucan Mining
held by such shareholder. The shares of Starlight Common Stock received by the
Toucan Mining shareholders in the Share Exchange were issued in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act") and, therefore, are restricted securities. The Starlight
Warrants issued in connection with Starlight's initial public offering expired
pursuant to their terms prior to the Share Exchange and the Starlight Warrants
were issued on May 10, 1996 to purchase an additional 100,000 shares of
Starlight Common Stock at an exercise price of $4.00 per share, which were
immediately exercisable and expire on the later of (i) the eighteenth month
anniversary of the issuance date or (ii) the six month anniversary of the
closing of the first registration of securities by the Company. The new
Starlight Warrants were issued to former officers and directors of Starlight in
consideration of, among other things, their agreement to indemnify Toucan Mining
and Starlight with respect to certain representations in the Share Exchange
Agreement and the cancellation of their prior warrants to purchase Starlight
Common Stock. The Starlight Warrants provided for certain piggy-back
registration rights with respect to the shares of Starlight Common Stock
underlying the Starlight Warrants. Pursuant to the Reincorporation, the
Starlight Warrants were exchanged into the Toucan Warrants to purchase an
aggregate of 100,000 shares of Company Common Stock at an exercise price of
$4.00 per share. The holders of the Toucan Warrants have certain piggy-back
registration rights with respect to the shares of Company Common Stock
underlying the Toucan Warrants. The Toucan Warrants are immediately exercisable
and expire on the six month anniversary of the closing of the first registration
of securities by the Company.
Toucan Mining Limited
General. Toucan conducts its operations primarily through its wholly owned
subsidiary, Toucan Mining. The principal executive office of Toucan Mining is
located at Celtic House, Victoria Street, Douglas, Isle of Man IM99 1QZ. In
turn, Toucan Mining conducts its operations primarily through its wholly owned
subsidiary, Mineradora de Bauxita Ltda. ("MBL"), which is an authorized mining
company organized under the laws of Brazil. The shares of MBL are held in trust
by related Brazilian parties for the benefit of Toucan Mining. The registered
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office of MBL is located at Rua 24 de Outubro n(0) 3313, Santarem, state of
Para, Brazil. In April 1997, MBL set up an operations office for geological and
exploration staff in Cuiaba at Trav. Mestre Joao Monge Guimarae 82 - Cuiaba
Mt-Brazil. In November 1997, MBL set up a small warehouse to process and store
drilling samples on the outskirts of Cuiaba. The assets of MBL are mineral
claims in the Cuiaba Basin, Mato Grosso, Brazil. See "Description of Exploration
and Mining Concessions" below.
Management. The directors of Toucan Mining are Robert P. Jeffcock, Paraic
O'Dowd and David Karran. Mr. Jeffcock serves as Managing Director of Toucan
Mining and/or President of the Company. See "Directors, Executive Officers,
Promoters, and Control Persons". The directors of MBL are Julio Lambertson
Rabello and Carlos Edvardo Lins E Silva. Igor Mousasticoshvily, a United States
educated and trained geologist, is responsible for the overall negotiation and
management of Toucan Mining and MBL's mining claims. See "Certain Relationships
and Related Transactions". During the last five years, Mr. Mousasticoshvily has
provided consulting services to various Brazilian business interests, especially
in the mining industry. Mr. David Carmichael, a Canadian educated and trained
geologist, is responsible for onsite geology and day-to-day management of MBL.
Since April, 1997, Mr. Carmichael has served as the General Manager of MBL. See
"Certain Relationships and Related Transactions". Prior to that time, Mr.
Carmichael had served as geologist and plant manager for several companies in
Brazil and Chile. Neither Toucan Mining nor MBL are required to have titled
officers.
Mining Claims
As of December 31, 1997, MBL purchased and filed for exploration claims for
approximately 1,370,900 million Hectares [5,293 square miles] ("Ha") (259 Ha to
1 square mile) in the Cuiaba Basin. This area is approximately 160 kilometers
long in a northeast/southwest direction and is from 30-100 kilometers wide. The
claims are located between 15(0) - 16(0) 30' South latitude and between 55(0)
40' - 57(0) West longitude. The large, provincial city of Cuiaba, the capital of
Mato Grosso, is located within MBL's claim area.
MBL is the owner of exploration claims to approximately 1.233,300 Ha [4,762
square miles] that were filed in 1995 with the Departamento Nacional De Produca
Mineral ("DNPM"), the Brazilian governmental agency responsible for regulating
mineral rights. These claims included 303,190 Ha, which were contested by a
previous claimant. The Ministry of Mines and Energy ruled against the previous
claimant, and the decision was published in the Government Gazette on April 22,
1996. Accordingly, MBL's claim to the additional 303,190 Ha became effective on
May 23, 1996, after which MBL was able to apply to the DNPM, which is also an
agency of the Ministry of Mines and Energy, for formal documentation of the
claim. See "Description of Exploration and Mining Concessions" below.
During 1997, the Company was informed by the DNPM that certain of the
Company's claims were subject to the existing claims of others already on record
with the DNPM. Conversely, the DNPM also informed the Company that it was the
owner of claims that were previously believed by the DNPM to be held by others.
As well, Brazilian law prohibits mining activity on claims located inside the
city limits of designated Brazilian cities. As a result, the Company was forced
to surrender those claims that it held which were subject to such law. The net
effect of these series of changes is that the Company's claims were reduced by
37,385 Ha of its overall claims to approximately 1,370,900 Ha.
In November 1996, the Company entered into an agreement with a Brazilian
individual (the "seller") to acquire twenty-five (25) additional priority claims
in the Cuiaba Basin. Pursuant to this agreement, the seller granted to two
representatives (the "Representatives") of the Company an irrevocable
power-of-attorney over all twenty-five (25) claims in the aggregate in the
Cuiaba Basin in exchange for the Company (i) paying to the seller an initial
payment in cash; (ii) paying to the seller additional payments in cash and
issuing shares of Company Common Stock the amounts of both to be determined by
the number of claims the DNPM certifies is held with priority, having good,
clean and transferable title. The Representatives have executed an agreement
with Toucan Mining pursuant to which the Representatives hold the power of
attorney and such claims in trust on behalf of Toucan Mining. See "Description
of Exploration and Mining Concessions" and "Market for Common Equity and Related
Stockholder Matters - Recent Sales of Unregistered Securities" below.
The Representatives now hold on behalf of the Company an irrevocable power
of attorney, over all of such claims, which entitles the Company, upon payment
for such claims as hereinabove provided, to transfer such claims as hereinabove
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provided, to transfer such claims to MBL or another subsidiary of Toucan Mining.
Fifteen (15) of the twenty-five (25) claims, which cover approximately 119,584
Ha, have been certified by the DNPM as held in priority, with good, clean and
transferable title. Legal title to these fifteen (15) claims is in the process
of being transferred to MBL or such other subsidiary of Toucan Mining pursuant
to the power-of-attorney. There is no assurance that the remaining ten (10)
claims will be certified by the DNPM and transferred to the Company.
The Company has previously reported that sixteen (16) of the twenty-five
(25) claims had been certified by the DNPM. In March of 1998, however, the
Company was informed by the DNPM that the seller did not hold priority title on
one of the sixteen (16) claims. As a result, the Company currently holds
priority claim on only fifteen (15) claims.
On November 18, 1997, Igor Mousasticoshvily acquired 10,000 Ha of priority
exploration claims (the "Mousasticoshvily Claims") in the Cuiaba Basin for a
purchase price of $150,000. On December 8, 1997, the Company agreed to purchase
the Mousasticoshvily Claims for $150,000 consisting of a cash payment of $50,000
with the remaining $100,000 balance being paid in shares (the "Acquisition
Shares") of Company Common Stock valued at $.75 per share (i.e., 133,333 shares)
and the issuance to Mousasticoshvily of warrants (the "Acquisition Warrants") to
purchase 133,333 shares of Company Common Stock at an exercise price of $1.50.
The Acquisition Warrants will be exercisable until January 1, 2000. See "Market
for Common Equity and Related Stockholder Matters--Recent Sales of Unregistered
Securities."
Quadros Claims.
On December 20, 1996, the DNPM issued to Professor Alvaro Pizatto Quadros
("Quadros") a certificate granting Quadros priority in the eight (8) claims
located in the Cuiaba Basin (the "Quadros Claims"). In early 1997, the Company
authorized the purchase of the Quadros Claims by MBL, through MBL's agent, Mr.
Igor Mousasticoshvily, for the sum of $100,000. During 1997, Quadros granted an
irrevocable power of attorney over the Quadros Claims to Mr. Mousasticoshvily
for the benefit of MBL. In March 1998, the Company was informed that the DNPM
had mistakenly issued Quadros the priority certificate in four (4) of the eight
(8) Quadros Claims. As a result, the Company is currently in discussions with
the DNPM to determine its priority rights, if any, with respect to the four (4)
Quadros Claims mistakenly certified to Quadros and is considering what other
remedies it may have under Brazilian law with respect to such four (4) Quadros
Claims.
Access to Claims. The Cuiaba Basin has a network of hard top roads that are
generally in good condition. MBL's claims are also criss-crossed with sand and
gravel roads, the majority of which are well maintained. Daily scheduled
commercial air service is available to and from Cuiaba.
Mining Operations
The following discussion of MBL's mining operations includes a discussion
of Brazilian law. The discussion of Brazilian law matters represents the
Company's current understanding of applicable Brazilian law based on it and its
advisors' and consultants' review of information relating thereto made available
to them as of the date hereof.
Description of Exploration and Mining Concessions. Under the Brazilian
Federal Constitution, all mineral resources belong to Brazil. The government of
Brazil does not grant outright ownership of a mineral deposit to a mining
company. Exploration and mining of mineral resources may be carried out only
following the grant of an exploration permit or mining concession by the DNPM,
which administers the Brazilian Mining Code and other laws and regulations
governing prospecting and mining operations in Brazil. Mining concessions are
granted only to Brazilian companies that have been duly authorized by the
Ministry of Mines and Energy to act as a mining company. In 1995, the Brazilian
government approved a constitutional amendment that eliminated the requirement
of Brazilian control of mining companies, so that a Brazilian mining company can
be 100% foreign owned and still qualify as a mining company.
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Under Brazilian law, in order to obtain a mining concession, a mining
company must first obtain an exploration permit (referred to herein as a claim).
The first step in obtaining a mining claim is filing an application with the
DNPM, which must include an exploration plan as well as comply with certain
other requirements.
Under Brazilian law, if a claim is granted, the granting of the claim will,
in due course, be published by the Brazilian authorities in the Government
Gazette. Such publication can occur from one to twenty years from the date of
the claimant making such application with respect to such claim. Once the claim
is published in the Government Gazette an annual tax of $0.90 per Ha is payable
on the published claim.
The granting of an exploration claim conveys the right to explore the area
covered by the claim. Claims are granted for a three-year term, renewable on
request, subject to an annual fee. Exploration must begin in accordance with the
exploration plan forming part of the application within a specified period of
the claim being granted. The claim may be canceled at the discretion of the DNPM
if the claim holder suspends exploration for a period of more than three
consecutive months or 120 non-consecutive days. The holder of a terminated claim
may reapply to regain the claim area. The onus is on the claim holder to notify
the DNPM of any changes to the exploration plan. On completion of the work, a
final report must be filed with the DNPM describing the results of the
exploration program.
Mining concessions are granted only after exploration demonstrates the
existence of a mineral deposit that is economically exploitable. Therefore, the
report filed by the claimant with the DNPM must include an economic assessment
of the claim area and a feasibility analysis. Moreover, the claimant must
demonstrate to the DNPM that it has the financial capability to carry out the
proposed plan. The application for a concession must also include an
environmental plan, covering water treatment, soil erosion, air quality control,
re-vegetation and reforestation and site reclamation. Once granted, the terms of
the concession will include conditions concerning mitigating environmental
impacts, site safety, construction codes, waste disposal and site reclamation.
Following application, the DNPM may request additional information.
A mining concession grants the right to extract and process the mineral
contained in the deposit in accordance with the plan approved by the DNPM and
allows a mining company to exploit the deposit to exhaustion, usually without a
predetermined or fixed term. The concession holder also has the right to sell,
transfer or lease such rights to a third party subject to DNPM approval. After
the grant of the mining concession is published in the Government Gazette, a
concession holder has 90 days to request possession of the deposit, and initial
work in accordance with the mining plan must begin within six months of the
publishing date. Once begun, mining may not be suspended for a period of more
than six months on penalty of a possible cancellation of the concession at the
discretion of the DNPM. However, management understands that longer suspensions
have been granted by the DNPM. Annual statistical data on production must be
reported to the DNPM, which will also send representatives on periodic site
inspections. Failure to comply with regulations and mining plans may result in
penalties ranging from fines and other restitution to cancellation of the mining
concession and/or prison terms for officers of the company.
The Brazilian Mining Code and the Federal Constitution of Brazil impose on
mining companies requirements relating to, among other things, the manner in
which mineral deposits are exploited, the health and safety of workers, the
protection and restoration of the environment, the prevention of pollution and
the promotion of the health and safety of local communities where the mines are
located. The Mining Code also imposes certain notification and reporting
requirements.
Landowners. The majority of land covered by MBL's claims is a sandy gravely
soil covered in light scrub. Cattle ranching is the principal agricultural
activity. Except where the claims fall within a township such as Cuiaba, the
majority of the land is agricultural and has a low value.
The Brazilian Mining Code requires a claim holder to obtain the consent of
the surface owners to access the surface of the property. This usually entails
some form of an agreement between the claim owner and the surface owner
involving the payment of compensation to the surface owners for damage and loss
of income caused by the use and occupation of their land in connection with
mining activities. In the event that an agreement cannot be reached with the
surface owner, MBL may seek legal recourse under Brazilian law, which provides
that a claim holder has the right of access if conducting mineral exploration
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activities, by seeking a judicial order to determine the amount of surface
damage to the property and to grant the surface owner a royalty on future
production.
Brief History of Previous Operations. Gold mining in the Cuiaba Basin began
around 1719. Mining activity was sporadic, tending to coincide with periods of
high gold price or technical innovations that enabled profitable extraction of
the gold. The most recent phase of activity occurred during the 1980's when a
period of high gold prices coincided with the availability of metal detectors.
Miners quickly realized that by using this equipment, near surface gold
mineralization (nuggets) could be readily located and recovered with the help of
earth moving equipment. Thousands of hectares were stripped of soil and
vegetation. Under present economic conditions, the mining by garimpeiros of the
easily located nugget fields is not feasible as near surface quartz veins and
mineralized host rock are only accessible by using bulk earth and rock moving
equipment, not generally available to the garimpeiros.
Climate. Exploration and mining operations are possible throughout the
year. The rainy season is from December through to April. There are only
occasional thunder storms from May to December. In summer (December - February)
the temperature can reach as high as 45 degrees Centigrade although the mean
temperature is 35 degrees Centigrade.
Environmental Laws. Previous miners have stripped thousands of hectares of
soil and vegetation in the Cuiaba Basin. MBL will arrange to document the
existing environmental condition of its claims to place on record with the
environmental authorities the damage done to the environment by previous
operators. Environmental regulation and protection in Brazil is based on
provisions of the Federal Constitution, and of federal, state and municipal
legislation. Mining and industrial activities require the preparation of an
environmental impact statement and the acquisition of an environmental permit.
In addition, the Mining Code requires the reclamation and restoration of mined
areas.
In March of 1998, Brazilian Federal Law No. 9605, which reclassifies
certain practices against the environment as crimes, became effective. Some of
the activities which are enumerated as "crimes against the environment" include:
(1) performing research, mining or extraction of mineral resources without
authorization and (2) inducing mortality in the animal life existing in rivers,
lakes, dams, ponds, bays or waters under Brazilian jurisdiction. Additionally,
the new law provides for the possibility of forced liquidation of any legal
entity formed or used primarily with the intent to permit, facilitate or cover
up crimes against the environment.
Gold Sales. Gold mined in Brazil must be sold (i) to the Central Bank of
Brazil (via one of their registered agents), (ii) to the Sao Paulo gold exchange
or (iii) to any registered gold buyer in Brazil. The price paid is normally the
London afternoon Gold Fix. On occasion a premium is paid of typically 2%. The
agent charges a commission that is normally between 0.5 - 1.0%. The seller of
the gold is paid in U.S. Dollars.
Brazilian Taxation. In general, Brazilian mining companies are subject to a
25% income tax and an 8% social security contribution. Dividends paid to
shareholders domiciled abroad are subject to a 15% withholding tax by the
Brazilian taxing authority.
Exchange Controls. Exchange transactions are generally controlled by the
Central Bank of Brazil which authorizes a series of banks to act in the foreign
exchange market, selling and buying currencies. There is a commercial rate of
exchange published daily by the Central Bank based upon market results on said
day. A free market, and quotation system exists, mainly dealing with tourist
activities. Both rates have been extremely close since the inception of the
stabilization plan ("Plano Real") several years ago. Subject to certain
registration requirements with the Central Bank of Brazil and compliance with
certain regulations, MBL may repatriate U.S. Dollars earned from its Brazilian
operations to Toucan Mining or the Company through the repayment of loans and
the payment of dividends. On occasions in the past, Brazil has imposed temporary
restrictions on the conversion and remittance of foreign capital, for example
when there was a serious imbalance in Brazil's balance of payments. In such
circumstances, the Company could be adversely affected, if the exchange control
rules were changed to delay or deny remittances abroad from MBL.
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Description of Present Condition of Property; Modernization and Physical
Condition of Plant and Equipment. MBL intends to obtain mining concessions by
undertaking a program of mineral exploration to target and explore selected
areas of its exploration claims to determine which areas are most likely to
contain economic gold mineralization. It may effectuate this program through
joint ventures or other arrangements. In order to facilitate these activities,
the Company, in March 1997, opened an office in Brazil. The Brazilian office is
staffed by fifteen employees and consultants, consisting of geologists, land
personnel, administrative personnel and field hands. MBL conducts its mineral
exploration program through third-party drilling operators.
The Company has completed a 5,000 meter reverse circulation drilling
program involving six separate locations in the Cuiaba District on which
artisanal mine workings ("nugget patches") have taken place. The Company
believes that these nugget patches are de facto geochemical anomalies reflecting
the possible presence of disseminated gold mineralization in the subsurface. A
total of 73 holes were drilled to an average depth of 69 meters and sampled at
one-meter intervals. In addition to intersecting variable quantities of "visible
gold" at all six of the localities tested, drilling has revealed the presence of
metasediments with imbedded metavolcanic rocks of Proterozoic age. Approximately
5,000 samples weighing approximately 25 kg. were split, and approximately 3 kg.
from each sample were sent for assay testing at two well-known Canadian
laboratories.
An assay test is a chemical test performed on a sample of ore or minerals
to determine the amount of valuable minerals contained in such sample. An assay
test does not constitute, and should not be read as, a reserve report
reflectingn proven or probable reserves.
The Company's drilling program was designed to penetrate the upper
saprolite and geochemically sample lower saprolitic material. Management
expected any gold mineralization in the lower saprolite to be finer grained,
more homogeneous and reliably sampled by reverse circulation drilling. However,
the assay reports reflected a wide variation of results ranging from less than 5
parts per billion to 23.64 grams per ton. Because such results can occur when
sampling "coarse gold" mineralization, management conducted additional testing
of the samples utilizing a commonly practiced manual inspection technique, which
have revealed the presence of "visible gold" in some of the samples, many of
which appeared, on the basis of the prior assay, to have negligible gold
content. Based on such testing, management believes that the weathering of the
saprolite extends deeper into the surface than was originally estimated and that
its drilling did not sample the lower saprolite. Because of the indication of
coarse gold mineralization, management concluded that it could not rely upon the
individual values obtained in the original assay. Accordingly, management
resubmmitted 132 larger samples containing "visible gold" for re-assaying to one
of the Canadian laboratories in order to use such laboratory's special method of
sample preparation and testing suited for the detection and measurement of
coarse gold mineralization. Most of the later assayed samples were found to
contain consistently higher gold content than the previously assayed samples.
Management believes almost all of the drilling to date has intersected
fringe-type mineralization of the type often found adjacent to stronger
potential economic mineralization.
Management is encouraged by the results of the overall geochemical testing
program and believes that the new sample collection and processing method will
more accurately reflect the level and grade of gold mineralization present in
the upper saprolite. Accordingly, subject to raising additional capital, the
Company has planned a detailed program on the six previously mentioned locations
and their adjacent areas of advanced technology soil geochemistry testing and
detailed ground geophysics using electrical and magnetic methods. The program
will also cover further geological mapping of the remaining nugget patches. More
reverse circulation drilling on all of these areas (testing appropriately larger
samples) is expected to follow. This program is expected to take fourteen (14)
months and is designed to establish whether there are potential orebodies in the
upper saprolite in these areas. This program could involve joint ventures and
other arrangements that may result in a dilution of the Company's interest in
its mining claims.
Additional regional exploration, to be carried out concurrently with the
detailed "nugget patch" exploration, is planned and will be aimed at identifying
the mineralization potential of all MBL claims in order to discard those without
any potential. This is to be carried out by revision of all geologic information
and supported by Landsat Thematic Mapper, extensive field work, and a regional
airborne geophysical survey over the area of highest potential. The Company has
commissioned a 4,300 kilometer aerial geophysical survey of part of its priority
claims and is currently awaiting appropriate governmental licenses prior to
proceeding with this aspect of the exploration program.
At this time, MBL is an exploration stage company and has no probable or
proven reserves as defined by the rules and regulations of the Commission.
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Exploration and Development Risks
The exploration for and development of mineral deposits involves
significant risks that even a combination of careful evaluation, experience and
knowledge may not eliminate. While the discovery of gold reserves may result in
substantial rewards, few properties that are explored are ultimately developed
into producing mines. Major expenses may be required to establish gold reserves,
to develop metallurgical processes and to construct mining and processing
facilities at a particular site. There can be no assurance that the exploration
programs planned by the Company, Toucan Mining and/or MBL will result in a
profitable commercial mining operation. There is aggressive competition within
the mining industry for the discovery and acquisition of properties considered
to have commercial potential. The Company, Toucan Mining and MBL will compete
with other interests, many of which have greater financial resources than they
will have, for the opportunity to participate in promising projects. Significant
capital investment is required to achieve commercial production from successful
exploration efforts.
Whether a mineral deposit will be commercially viable depends on a number
of factors, some of which are the particular attributes of the deposit, such as
size, grade and proximity to infrastructure, as well as gold prices which are
highly cyclical and government regulations, including regulations relating to
prices, taxes, royalties, land use, importing and exporting of minerals 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 investment capital.
The economic feasibility of prospective projects, such as the mineral
claims in the Cuiaba Basin, is based upon, among other things, estimates of
reserves, metallurgic characteristics, recoverability, capital and operating
costs of such projects and future gold prices. These and other prospective
projects are also subject to the successful completion of feasibility studies,
issuance of necessary permits and receipt of adequate financing.
Development projects have no operating history upon which to base estimates
of future cash operating costs and capital requirements. In particular,
estimates of reserves, metal recoveries and cash operating costs are to a large
extent based upon the interpretation of geologic data obtained from drill holes
and other sampling techniques and 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 various metals from the ore, comparable facility and equipment costs,
anticipated climate conditions and other factors. As a result, it is possible
that actual cash operating costs and economic returns of any and all development
projects may materially differ from the costs and returns initially estimated.
In addition, exploration activities and mining operations generally involve
a high degree of risk. If MBL were to discover gold reserves and bring them into
production, MBL would be subject to all of the hazards and risks normally
encountered in the exploration, development and production of gold, including
unusual and unexpected geology formations, rock bursts, cave-ins, flooding and
other conditions involved in the drilling and removal of materials, and which
could result in damage to, or destruction of, mines, equipment and other
producing facilities, damage to life or property, environmental damage and
possible legal liability. Although adequate precautions to minimize risk will be
taken, mining operations are subject to hazards (such as equipment failure or
failure of retaining dams around tailings, disposal areas), which may result in
environmental pollution and consequent liability.
Employees.
As of March 31, 1998, the Company employed eleven (11) individuals.
Item 3. Legal Proceedings
The Company is not a party to any pending legal proceeding, nor is the
Company's property the subject of a pending legal proceeding.
7
<PAGE>
Item 4. Submission of Matters to a Vote of Security-Holders
No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 1997 to a vote of the Company's stockholders through the
solicitation of proxies or otherwise.
8
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company Common Stock is listed on the OTC Electronic Bulletin Board of
NASDAQ. The following table indicates the quarterly high and low bid price for
the Company Common Stock on the OTC Electronic Bulletin Board for the period
during 1997 and for the first quarter of fiscal year ending December 31, 1998.
Such inter-dealer quotations do not necessarily represent actual transactions,
and do not reflect retail mark-ups, mark-downs or commissions.
OTC ELECTRONIC
BULLETIN BOARD
BID PRICE
HIGH LOW
Calendar 1997
1st Quarter $ 2.125 $ 1.250
2nd Quarter $ 1.469 $ 0.438
3rd Quarter $ 1.375 $ 0.406
4th Quarter $ 2.125 $ 0.406
Calendar 1998
1st Quarter $ 1.500 $ 0.688
On March 31, 1998, the bid price of the Company Common Stock as reported on
the OTC Electronic Bulletin Board was $0.750.
As of March 31, 1998, there were approximately 344 holders of record of
the Company Common Stock.
The Company has not declared or paid any cash or other dividends on the
Company Common Stock to date for the last two (2) fiscal years and in any
subsequent period for which financial information is required and has no
intention of doing so in the foreseeable future.
Recent Sales of Unregistered Securities
The following contains information for all securities that the Company sold
within the past year without registering the securities under the Securities
Act:
1. On December 23, 1997, the Company completed a private placement of an
aggregate of 400,000 shares (the "Investor Shares") of Company Common Stock
to three of its existing stockholders at a purchase price of $.75 per share
of Company Common Stock. Roy G. Williams, Zalcany Limited ("Zalcany") and
Mustardseed Estates Limited purchased 68,000, 292,000 and 40,000 shares of
Company Common Stock, respectively. Along with each share of Company Common
Stock sold in the private placement, the Company granted to the holder
thereof a warrant (the "Investor Warrants") to purchase one share of
Company Common Stock at an exercise price of $1.50. The Investor Warrants
will be exercisable until January 1, 2000. The proceeds of the private
placement will be used for the Company's working capital purposes.
2. On November 18, 1997 Mousasticoshvily, a consultant to MBL, acquired 10,000
Ha of priority exploration claims (the "Mousasticoshvily Claims") in the
Cuiaba Basin for a purchase price of $150,000. On December 8, 1997, the
Company agreed to purchase the Mousasticoshvily Claims for $150,000
consisting of a cash payment of $50,000 with the remaining $100,000 balance
being paid in shares (the "Acquisition Shares") of Company Common Stock
valued at $.75 per share (i.e., 133,333 shares) and the issuance to
Mousasticoshvily of warrants (the "Acquisition Warrants") to purchase
133,333 shares of Company Common Stock at an exercise price of $1.50. The
Acquisition Warrants will be exercisable until January 1, 2000. As of the
9
<PAGE>
end of fiscal year ended December 31, 1997, neither the Acquisition Shares
nor the Acquisition Warrants had been issued.
3. On November 1, 1996, the Company, pursuant to the exemption from
registration provided by Regulation S of the Securities Act of 1933, as
amended (the "Securities Act"), completed the offering (the "Yorkton
Offering") of 1,600,000 Units for aggregate gross proceeds of $4 million.
Each Unit consisted of one share of Company Common Stock, par value $.01
per share and one Company Common Stock share purchase warrant (the "Company
Warrants"). Each Company Warrant entitles the holder to subscribe for one
additional share of Company Common Stock at a price of $3.50 per share at
any time prior to the close of business on the first anniversary of the
original date of issue of the Company Warrants, subject to adjustment in
connection with certain anti-dilution provisions. The price of the Units
was $2.50 per Unit. During October 1997, the expiration date of the Company
Warrant was extended to January 31, 1998. As a result of such adjustment,
the Company Warrants have expired according to their terms.
Certain of the net proceeds of the Yorkton Offering were to be used by MBL
or another Brazilian mining subsidiary of the Company to acquire mining
claims in the Cuiaba Basin. These claims, which number twenty-five (25) in
the aggregate, are in the process of being acquired pursuant to the
following agreement and understanding:
(i) The Company will make an initial payment to the seller in the amount of
$500,000. Upon receiving this initial payment, the seller will grant to the
Representatives of the Company an irrevocable power-of-attorney over all
twenty-five (25) Claims.
(ii) The Company will pay to the seller cash in the amount of $36,000 for
each claim that the DNPM certifies is held with priority, having good,
clean and transferable title. See "Description of Exploration and Mining
Concessions".
(iii) The Company will issue to the seller 12,000 shares of the Company
Common Stock for each claim that DNPM certifies is held with priority,
having good, clean and transferable title.
(iv) The Company will issue to the seller a bonus payment of 50,000 shares
of the Company Common Stock if and when the seller transfers good and clean
title to all twenty-five (25) claims to the Company.
4. The initial payment of $500,000 has been made by the Company to the seller.
Hence, the Representatives on behalf of the Company now hold an irrevocable
power of attorney over all such claims, which entitles the Company, upon
payment for such claims as hereinabove provided, to transfer such claims to
MBL or another subsidiary of Toucan Mining. In December 1996, fourteen (14)
of the twenty-five (25) claims were certified by the DNPM as held in
priority, with good, clean and transferable title. In April 1997, two (2)
additional claims were certified by the DNPM as held in priority, with
good, clean and transferrable title. As noted above, in March of 1998, the
Company was informed by the DNPM that the seller did not hold priority
title on one of the sixteen (16) claims. As a result, the Company currently
holds priority claim on only fifteen (15) claims. Accordingly, the Company
is obligated to issue to seller 180,000 (15 x 12,000) shares of Company
Common Stock. The shares of Company Common Stock to be issued in connection
with this transaction have been authorized, but as of December 31, 1997,
they have not been issued.
5. On September 27, 1997, the Company granted options to purchase, in the
aggregate, 100,000 shares of Company Common Stock to two separate
individuals in their capacities as employees of the Company. The options
allowed each individual to purchase 50,000 shares of Company Common Stock
at an exercise price of $1.00 per share.
(i) The first block of options, allowing the grantee to purchase
50,000 shares of Company Common Stock, was granted to David
Carmichael. Mr. Carmichael serves as the General Manager for MBL.
10
<PAGE>
These options would vest in increments of 17,000, 17,000 and 16,000.
The initial grant of options to purchase 17,000 shares vested on the
date of grant. The remaining blocks of 17,000 and 16,000 options will
vest on April 1, 1998 and April 1, 1999, respectively, only in the
event that Mr. Carmichael is employed with the Company on those dates.
(ii) The second block of options, allowing the grantee to purchase
50,000 shares of Company Common Stock, was granted to L. Clark Arnold,
a Director and Vice President - Exploration, whose responsibility is
overseeing the Company's exploration program, for his continuing
contributions to the Company in discharging such responsibilities. Mr.
Arnold options vested on the date of grant and are exercisable up
until September 27, 1999.
On September 27, 1997, the Company granted 50,000 shares of Company Common
Stock to Mr. Jay Lutsky, for his continuing contributions as an investor
relations consultant to the Company. Mr. Lutsky also served as an officer
and a director of Starlight Acquisitions, Inc.
6. On February 2, 1998, the Company granted options to purchase, in the
aggregate, 250,000 shares of Company Common Stock to two separate
individuals in their capacities as Directors of the Company. The options
allowed Robert P. Jeffcock and Robert A. Pearce to purchase 200,000 and
50,000 shares of Company Common Stock, respectively, at an exercise price
of $1.00 per share. Mr. Jeffcock and Mr. Pearce received their options as
part of their remuneration for services rendered to the Company. Each
individual's options vested on the date of grant and are exercisable up
until December 31, 1999.
The securities placements described in paragraphs 1, 2, 4, 5 and 6 above
were effectuated pursuant to the exemption from registration set forth in
Section 4(2) and Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"); therefore, such securities are "restricted securities" under
Rule 144 of the Securities Act.
Item 6. Management's Discussion and Analysis of Financial Condition or
Plan of Operation
Effective May 10, 1996, Starlight acquired all of the outstanding capital
stock of Toucan Mining in exchange for shares of Starlight Common Stock. As a
result of the Share Exchange, a change in control of Starlight occurred, whereby
Toucan Mining is deemed to have acquired Starlight. See "Notes to the
Consolidated Financial Statements."
Toucan Mining is a development stage company that conducts its operations
primarily through its wholly-owned subsidiary, MBL, which is an authorized
mining company organized under the laws of Brazil. MBL has been financed
entirely by Toucan Mining for the purpose of conducting mineral exploration,
specifically gold exploration.
During July 1996, Starlight formed the Company as a wholly-owned
subsidiary. On July 29, 1996, Starlight merged into the Company, and pursuant to
the terms of the Merger, the outstanding shares of Starlight Common Stock were
canceled in exchange for shares of the Company's Common Stock.
The consolidated financial statements for the fiscal year ended December
31, 1997, reflect the results of Toucan's operations, which consisted of opening
and operating a Brazilian exploration office, completion of a 5,000 meter
reverse circulation drilling program, maintenance of Toucan Mining and MBL's
various claims and purchase of new claims which were capitalized in the
financial statements. Legal, accounting, investor relations, consulting, travel,
subsistence expenses and other general administrative costs were expensed.
The Company has begun a program of mineral exploration to target and
explore selected areas of its mining claims to determine which areas are most
likely to contain economic gold mineralization or to effectuate this program
through joint ventures. In order to facilitate these activities, the Company, in
March 1997, opened an office in Brazil. The Brazilian office is staffed by
fifteen employees and consultants, consisting of geologists, land acquisition
personnel, mapping specialists and various support personnel.
The Company has completed a 5,000 meter reverse circulation drilling
program involving six separate locations in the Cuiaba District on which
artisanal mine workings ("nugget patches") have taken place. The Company
believes that these nugget patches are de facto geochemical anomalies reflecting
the possible presence of disseminated gold mineralization in the subsurface. A
11
<PAGE>
total of 73 holes were drilled to an average depth of 69 meters and sampled at
one-meter intervals. In addition to intersecting variable quantities of "visible
gold" at all six of the localities tested, drilling has revealed the presence of
metasediments with imbedded metavolcanic rocks of Proterozoic age. Samples
weighing approximately 25 kg. were split, and approximately 3 kg. from each
sample were sent for assay testing at two well-known Canadian laboratories.
The Company's drilling program was designed to penetrate the upper
saprolite and geochemically sample lower saprolitic material. Management
expected any gold mineralization in the lower saprolite to be finer grained,
more homogeneous and reliably sampled by reverse circulation drilling. However,
the assay reports reflected a wide variation of results. Because such results
can occur when sampling "coarse gold" mineralization, management conducted
additional testing of the samples utilizing a commonly practiced manual
inspection technique, which revealed the presence of "visible gold" in some of
the samples, many of which had appeared, on the basis of the prior assay, to
have negligible gold content. Based on such testing, management believes that
the weathering of the saprolite extends deeper into the surface than was
originally estimated and that its drilling did not sample the lower saprolite.
Because of the indication of coarse gold mineralization, management concluded
that it could not rely upon the individual values obtained in the original
assay. Accordingly, management resubmitted 132 larger samples containing
"visible gold" for re-assaying to one of the Canadian laboratories that tested
the original samples in order to use such laboratory's special method of sample
preparation and testing suited for the detection and measurement of coarse gold
mineralization. Most of the later assayed samples were found to contain
consistently higher gold content than the previously assayed samples. Management
believes that almost all of the drilling to date has intersected fringe-type
mineralization of the type often found near stronger potential economic
mineralization.
Management is encouraged by the results of the overall geochemmical
testing program and believes that the new sample collection and processing
method will more accurately reflect the level and grade of gold mineralization
present in the upper saprolite. Accordingly, subject to raising additional
capital, the Company has planned a detailed program on the six previously
mentioned locations and their adjacent areas of advanced technology soil
geochemistry testing and detailed ground geophysics using electrical and
magnetic methods. The program will also cover further geological mapping of the
remaining nugget patches. More reverse circulation drilling on all of these
areas (testing appropriately larger samples) is expected to follow. This program
is expected to take fourteen (14) months and is designed to establish whether
there are potential orebodies in the upper saprolite in these areas. This
program could involve joint ventures and other arrangements that may result in a
dilution of the Company's interest in its mining claims.
Additional regional exploration, to be carried out concurrently with the
detailed "nugget patch" exploration, is planned and will be aimed at identifying
the mineralization potential of all MBL claims in order to discard those without
any potential. This is to be carried out by revision of all geologic information
and supported by Landsat Thematic Mapper, extensive field work, and a regional
airborne geophysical survey over the area of highest potential. The Company has
commissioned a 4,300 kilometer aerial geophysical survey of part of its priority
claims and is currently awaiting appropriate governmental licenses prior to
proceeding with this aspect of the exploration program.
However, the program to fully explore and develop its entire claim area
will take several years, and it could involve joint ventures or other
arrangements that may result in a dilution of the Company's interest in its
claims. In the event of encouraging results in a particular area, a more
concentrated study will be undertaken to provide the basis of a feasibility
study for mineral development. MBL will also be working to acquire additional
claims in the Cuiaba Basin and will cease to explore those claims that prove
unproductive.
The Company will incur major expenses to establish the existence of gold
reserves. Accordingly, to fund the Company's exploration program through May
1999 and to pay for normal expenses during that period, the Company believes
that it will need to raise approximately $1.6 million or enter into joint
ventures with industry partners who agree to provide such funds. This amount
does not include any expenditures for lease acquisitions. There can be no
assurance that the Company will be able to raise such capital if needed or on
terms that are favorable to the Company or to enter into such joint ventures on
terms favorable to the Company. The plan will be subject to review depending
upon the results obtained. Costs could rise if, among other things, the weather
proves untypically harsh, unforeseen ground conditions are encountered,
equipment becomes difficult to source, the availability of drilling operators
becoming increasingly scarce and their rates increasing accordingly, or
negotiations with surface owners become prolonged. MBL may spend more or less on
claim acquisitions than currently estimated. There can be no assurance that the
exploration program will result in the discovery of economic gold
mineralization. The Commpany's financial statements have been prepared assuming
that the Company will continue as a going concern. Furthermore, the
recoverability of the cost of mineral rights is dependent on the Company's
ability to continue exploration, establish the existence of economically
recoverable reserves, develop these reserves, and achieve profitable production
or obtain sufficient proceeds from the disposition of the rights. The Company's
financial statements do not include any adjustments that might result from the
outcome of these uncertainties. The matters discussed herein contain
forward-looking statements that involve certain risks, uncertainties and
additional costs detailed herein. The actual results that are achieved may
differ materially from any forward-looking projections, due to such risks,
uncertainties and additional costs.
The Company has raised approximately $3.6 million in net proceeds through
the issuance of 1,600,000 Units at $2.50 per Unit, each Unit consisting of one
share of Company Common Stock and a warrant to purchase a share of Company
Common Stock at an exercise price of $3.50, in an offering exempt from
registration under the Securities Act pursuant to Regulation S. This offering
was completed on November 1, 1996. The expiration date for such warrants was set
at the close of business on October 31, 1997, subject to adjustment in
connection with certain anti-dilution provisions. On October 31, 1997, the
expiration date for the warrants was extended by the Company from October 31,
1997 to January 31, 1998. The warrants have expired by their terms.
The Company has used certain of the proceeds from the sale of the Units to
finance the purchase of additional mining claims in the Cuiaba Basin, to begin
its exploration program, and for general working capital purposes. If the
purchase of all of such claims is consummated, the aggregate purchase price
would consist of approximately $1,400,000 in cash and 350,000 shares of Company
Common Stock, of which $1,076,000 has been paid to date and 192,000 shares of
12
<PAGE>
Company Common Stock are to be issued for claims that have been acquired to
date. While the Company has an agreement with the owner of such claims with
respect to the purchase terms with respect to the remaining claims, the
Company's obligations thereunder are subject to its review of documentation
relating to such claims. There can be no assurance that the acquisition of the
remaining claims will be consummated.
In order to finance the Company's exploration activities and general
working capital needs, including maintaining its Brazilian office and paying the
personnel of the Brazilian office, the Company will require additional capital.
The Company is exploring several financing alternatives to obtain such
additional capital. The Company is currently funding its day-to-day operations
with a demand loan from Zalcany, a company affiliated with Roy G. Williams,
while it continues to seek additional financing. The loan from Zalcany bears
interest at the annual rate of 10% and is unsecured. As of April 8, 1998, the
principal amount of the loan was $54,000 and shall be repaid with the proceeds
of any additional financing. Zalcany has indicated to the Company an intent to
provide additional short-term financing on the same basis in anticipation of the
Company obtaining longer-term additional financing in a short period of time;
however, Zalcany is not obligated to advance additional funds to the Company.
See Item 7 - Financial Statements Notes to Financial Statements (Note C).
In addition, the Company had entered into a letter of intent (the "Letter
of Intent") with Eldorado Gold Corporation ("Eldorado") pursuant to which
Eldorado would earn a 50% interest on 10% of MBL mining claims to be selected by
Eldorado, through the expenditure of Canadian $5 million by Eldorado within two
years. The Letter of Intent was subject to a number of conditions, including the
negotiation and execution of a definitive agreement within a certain time
period. These conditions were not fulfilled, and the Letter of Intent expired by
its terms. On October 30, 1997, the Vice President of Legal Affairs for Eldorado
sent a letter to the Company confirming that Eldorado and the Company have
agreed to terminate any obligations they may have had to the other party
pursuant to such Letter of Intent or any further agreements in connection
therewith.
Certain of the information contained in this Annual Report on Form 10-KSB
constitutes forward looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended, that involves certain risks, uncertainties and additional costs
described herein. The actual results that are achieved may differ materially
from any forward looking projections, due to such risks, uncertainties and
additional costs. Although the Company believes that the expectations reflected
in such forward looking statements are based upon reasonable assumptions, it can
give no assurance that its expectations will be achieved. Subsequent written and
oral forward looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by reference to such risks,
uncertainties and additional costs.
Item 7. Financial Statements
Filed herewith beginning on page F-1 are the following audited financial
statements of the Company:
Page No.
--------
Report of Independent Certified Public Accountants...........................F-2
Consolidated Balance Sheet as of December 31, 1997...........................F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and the period from November 3, 1995 to December 31, 1997....F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996.................................................F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and the period from November 3, 1995 to December 31, 1997....F-6
Notes to Financial Statements................................................F-7
13
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TOUCAN GOLD CORPORATION
(a development stage company)
December 31, 1997 and 1996
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Toucan Gold Corporation
We have audited the accompanying consolidated balance sheet of Toucan Gold
Corporation as of December 31, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Toucan Gold
Corporation as of December 31, 1997, and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company is in its
development stage and is not generating cash from operations. As discussed in
Note C, additional financing is necessary for the Company to continue its
exploration and development activities. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note C. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
GRANT THORNTON LLP
/s/ Grant Thornton LLP
- ----------------------
Dallas, Texas
March 25, 1998
<PAGE>
<TABLE>
<CAPTION>
Toucan Gold Corporation
(a development stage company)
CONSOLIDATED BALANCE SHEET
December 31, 1997
ASSETS
<S> <C>
Cash $ 504,795
Prepaid expenses 16,375
------------
Total current assets 521,170
Mineral rights 3,087,895
------------
$ 3,609,065
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Amounts payable to related parties $ 131,139
Accrued expenses and other liabilities 67,974
------------
Total current liabilities 199,113
Stockholders' equity
Preferred stock, par value .01 per share; authorized, 2,000,000
shares; issued and outstanding, none -
Common stock, $.01 par value per share; authorized 30,000,000
shares; issued and outstanding 8,039,933 shares 80,399
Additional paid-in capital 4,488,606
Deficit accumulated during the development stage (1,159,053)
------------
Total stockholders' equity 3,409,952
------------
$ 3,609,065
============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
<TABLE>
<CAPTION>
Toucan Gold Corporation
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period
November 3, 1995
(commencement
For the years ended of operations)
December 31, through
1997 1996 December 31,1997
------ ------ ----------------
<S> <C> <C> <C>
Cost and expenses
Legal and professional fees $ 312,007 $ 156,442 $ 470,949
Consulting fees 237,288 24,000 261,288
Travel costs 82,254 114,264 239,071
Public relations 59,613 33,655 93,268
Other 92,553 30,110 122,953
------- ------- ----------
Total cost and expenses 783,715 358,471 1,187,529
Other (income) expense
Interest income (59,168) (17,650) (76,818)
Interest expense - 48,342 48,342
------- ------- ----------
Total other (income) expense (59,168) 30,692 (28,476)
------- ------- ----------
Net loss $ 724,547 $389,163 $ 1,159,053
======= ======= ==========
Loss per share $.09 $.09 $.20
=== === ===
Weighted average shares outstanding 7,476,372 4,210,334 5,717,736
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
Toucan Gold Corporation
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997 and 1996
Deficit
accumulated
Additional during
Common stock paid-in development
Shares Amount capital stage Total
------ ------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 647,857 $ 96,170 $ - $ (45,343) $ 50,827
Recapitalization of Toucan Mining
Limited and merger with Starlight
Acquisitions, Inc. 4,453,602 (50,787) 150,787 - 100,000
Issuance of common stock, net of
expenses of $519,700 2,331,141 28,943 3,899,892 - 3,928,835
Net loss - - - (389,163) (389,163)
--------- --------- --------- ----------- ---------
Balance at December 31, 1996 7,432,600 74,326 4,050,679 (434,506) 3,690,499
Issuance of common stock 607,333 6,073 437,927 - 444,000
Net loss - - - (724,547) (724,547)
--------- --------- --------- ---------- ---------
Balance at December 31, 1997 8,039,933 $ 80,399 $4,488,606 $(1,159,053) $3,409,952
========= ========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
<TABLE>
<CAPTION>
Toucan Gold Corporation
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period
November 3, 1995
(commencement
For the years ended of operations)
December 31, through
1997 1996 December 31,1997
------ ------ ----------------
<S> <C> <C> <C>
Operating activities
Net loss $ (724,547) $ (389,163) $(1,159,053)
Net changes in operating assets and liabilities
Prepaid expenses (10,001) 1,626 (16,375)
Accrued expenses and other liabilities 169,802 (11,289) 199,113
--------- --------- ----------
Net cash used in operating activities (564,746) (398,826) (976,315)
Investing activities
Acquisition and exploration of mineral rights (1,396,453) (1,235,912) (2,721,895)
Financing activities
Net repayments/borrowings from related parties (9,051) (72,260) -
Issuance of common stock, net of expenses 444,000 3,624,835 4,103,005
Proceeds from merger with Starlight Acquisitions, Inc. - 100,000 100,000
--------- --------- ----------
Net cash provided by financing activities 434,949 3,652,575 4,203,005
--------- --------- ----------
Net (decrease) increase in cash (1,526,250) 2,017,837 504,795
Cash at beginning of period 2,031,045 13,208 -
--------- --------- ----------
Cash at end of period $ 504,795 $ 2,031,045 $ 504,795
========= ========== ==========
Cash paid during the year for:
- ------------------------------
Interest $ - $ 48,342 $ 48,342
Noncash investing and financing activities:
Mineral rights were acquired for 24,000 and 168,000 shares of common stock
valued at $30,000 and $336,000 in 1997 and 1996, respectively.
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Toucan Gold Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - ORGANIZATION AND NATURE OF OPERATIONS
Organization
------------
Starlight Acquisitions, Inc. (Starlight) was formed in 1989 and was a
publicly-held development stage company with no principal operations since
its incorporation. On May 10, 1996, Starlight merged with Toucan Mining
Limited (Toucan Mining), an Isle of Man corporation which began operations
on November 3, 1995. Pursuant to the terms of the merger agreement, each
stockholder of Toucan Mining received seven shares of Starlight common
stock for each share of Toucan Mining common stock. Immediately after the
merger, the stockholders of Toucan Mining owned approximately 89% of the
outstanding common stock of Starlight. Therefore, the merger has been
accounted for as a reverse merger, whereby Toucan Mining is deemed for
accounting purposes to have acquired Starlight.
During July 1996, Starlight formed Toucan Gold Corporation (Toucan Gold or
the Company), a wholly-owned subsidiary and a Delaware corporation. On July
29, 1996, Starlight merged into Toucan Gold, and pursuant to the terms of
the merger, the outstanding shares of Starlight were canceled in exchange
for shares of Toucan Gold. (See Note G).
Nature of Operations
--------------------
The Company is engaged in acquiring, exploring and developing mineral
rights in Brazil.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Consolidation
-------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Toucan Mining and Mineradora de Bauxita
Ltda. (MBL), a Brazilian company whose shares are held in trust by
Brazilian related parties for the benefit of Toucan Mining. All material
intercompany accounts and transactions have been eliminated.
Mineral Rights
--------------
Acquisition costs of mineral rights and related exploration and development
expenditures are deferred. If deferred expenditures exceed estimated net
realizable values, the assets will be written down to their estimated net
realizable values. Costs relating to abandoned properties will be
written-off when such a decision is made.
7
<PAGE>
Toucan Gold Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Financial Instruments
---------------------
The carrying amounts reported in the balance sheet for cash, payables and
accrued expenses approximate fair value due to the short-term maturity of
these financial instruments.
Use of Estimates
----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE C - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the company as a going concern. However, the Company is a development stage
company which has undertaken a program of mineral exploration to target and
explore selected areas of its claims to determine which areas are most
likely to contain economic gold reserves. The Company has incurred costs of
$3,087,895 for the acquisition of claims and exploration since inception,
November 3, 1995.
The recoverability of the cost of mineral rights is dependent on the
Company's ability to continue exploration, establish the existence of
economically recoverable reserves, develop these reserves, and achieve
profitable production or obtain sufficient proceeds from the disposition of
the rights. The Company's ability to continue exploration is dependent upon
raising additional capital or embarking into joint ventures to fund these
activities. Management is in the process of negotiating with potential
funding sources and joint venture partners.
In view of the matters described in the preceding paragraph, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued successful exploration by the
Company, which in turn is dependent upon the Company's ability to obtain
financing to support such exploration activities. The financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.
8
<PAGE>
Toucan Gold Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE D - MINERAL RIGHTS
Mineral rights include the following as of December 31, 1997:
Consideration paid for priority claims $1,642,000
Other acquisition and exploration costs (Note E) 1,445,895
---------
$3,087,895
=========
The Company owns priority claims for 1,233,317 hectares which were filed in
1995 with the Departamento Nacional De Produca Mineral (DNPM), the
Brazilian governmental agency responsible for regulating mineral rights.
The Company was not required to make any payments to the DNPM or third
parties in relation to the filing of these claims.
In November 1996, the Company entered into a transaction with a Brazilian
individual to acquire 25 additional priority claims, over a period of time,
as each of these claims were confirmed by the DNPM. As of December 31,
1997, the Company had acquired 16 of these claims, approximately 480 square
miles, although the Company was informed by the DNPM that the Seller did
not hold priority title on one of these 16 claims. As a result, the Company
currently holds priority claim on only 15 claims. Consideration paid for
these claims included $1,076,000 in cash and 192,000 shares of common
stock, which were unissued at December 31, 1997. These shares have been
reflected as outstanding as of December 31, 1997 in the accompanying
financial statements.
On December 8, 1997, the Company acquired 10 claims from a stockholder for
$50,000 in cash and 133,333 shares of the Company's common stock. The
stockholder holds the claims on behalf of the Company under an agreement of
beneficial ownership.
NOTE E - RELATED PARTIES
Amounts payable to related parties consist of the following at December 31:
1997 1996
------ ------
Loans $ - $9,051
Amounts due for consulting and other
professional services 131,139 -
------- -----
$131,139 $9,051
======= =====
Advances and repayments during 1996 under the loans were $646,704 and
$767,564, respectively. Interest expense paid to related parties in
relation to these loans was $48,342 in 1996.
9
<PAGE>
Toucan Gold Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE E - RELATED PARTIES - Continued
In 1997 and 1996, the Company made payments of approximately $525,514 and
$307,000, respectively, to related parties, including five stockholders,
for various consulting services including geological surveys and advice,
working with the DNPM to establish beneficial ownership of the priority
claims, Brazilian legal and regulatory advice in relation to the priority
claims, and the registration of MBL. Included in these costs are
approximately $330,000 and $250,000 in 1997 and 1996, respectively, which
are considered to be costs relating to the acquisition and exploration of
mineral rights and have been capitalized as mineral rights as of December
31, 1997. See Note D regarding other related party transactions.
NOTE F - PER SHARE DATA
Loss per share is determined by dividing net loss by the weighted average
number of common shares outstanding during the period. No effect has been
given to assumed exercise of warrants because their effect would be
antidilutive.
NOTE G - STOCK WARRANTS
During 1997, the Company issued warrants to certain individual stockholders
to purchase 633,000 shares of the Company's common stock at exercise prices
ranging from $1.00 to $1.50 per share. The warrants are immediately
exercisable and expire between December 31, 1998 and April 1, 2002.
On November 1, 1996, the Company completed an offering of 1,600,000 units
for gross proceeds of $4 million. Each unit consisted of one share of
common stock, par value $.01 per share, and one common stock share purchase
warrant (the "Company Warrants"). The Company Warrants expired on January
31, 1998.
As described in Note A, Starlight's outstanding shares were cancelled in
exchange for shares of the Company. Additionally, Starlight warrants issued
on May 10, 1996 to purchase an additional 100,000 shares of Starlight
common stock at an exercise price of $4.00 per share were exchanged for the
Company's warrants to purchase 100,000 shares of the Company's common stock
at an exercise price of $4.00 per share. The holders of these warrants have
certain piggy-back registration rights with respect to the shares of the
Company's common stock underlying the warrants. The warrants are
immediately exercisable and expire on the later of January 10, 1998, or the
six month anniversary of closing of the first registration of securities by
the Company.
10
<PAGE>
Toucan Gold Corporation
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE H - INCOME AND OTHER TAXES
At December 31, 1997, the Company had approximately $815,000 of net
operating loss carryforwards which expire through 2012. The Company's
deferred tax asset at December 31, 1997 and 1996 relating to net operating
loss carryforwards was approximately $277,000 and $58,000, respectively. A
valuation allowance for this asset has been recorded in each period.
Accordingly, no tax benefit is reflected in the statements of operations.
Under Brazilian tax law, MBL is liable for property taxes on the claims
under exploration. These taxes are due upon the public disclosure of the
claims by the Brazilian authorities.
NOTE I - COMMITMENT
Under an agreement with a Brazilian individual (Note D), the Company is
committed to acquire 9 additional priority claims upon clearance of title
by the DNPM. The consideration for each claim will be $36,000 in cash and
12,000 shares of common stock. In addition, a bonus payment of 50,000
shares is due to the seller if all 9 claims are delivered to the Company.
NOTE J - FOURTH QUARTER ADJUSTMENT
During the fourth quarter of 1997, the Company capitalized as mineral
rights $246,046 of costs which were recorded as expenses in the nine months
ended September 30, 1997.
NOTE K - RECLASSIFICATIONS
Certain reclassifications have been made to prior years' financial
statements to conform to the 1997 presentation.
11
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
The Board of Directors currently consists of four (4) persons, Robert P.
Jeffcock, L. Clark Arnold, Don Box and Robert A. Pearce. The following table
sets forth information about all Directors and executive officers of the Company
and all persons nominated or chosen to become such:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
NAME AND BUSINESS ADDRESS AGE OFFICE DIRECTOR
- ------------------------- --- ------ --------
<S> <C> <C> <C>
Robert P. Jeffcock 58 President, Chief Executive Officer, 1996
Apt. B42 ROC Fleuri Chairman of the Board of Directors, Vice
1 Rue du Tenao MONACO President and Secretary
L. Clark Arnold 57 Director and Executive Vice President- 1996
201 East Rudasill Road Exploration
Tucson, Arizona
Don Box 48 Director and Assistant Secretary 1996
8201 Preston Road, Suite 600
Dallas, Texas
Robert A. Pearce 53 Director and Chief Financial Officer 1998
Rycote Oasthouse, Wyck Lane
East Worldham
Hants, United Kingdom GU34-3AW
</TABLE>
Robert Jeffcock - Mr. Jeffcock has served as the Chairman of the Board of
Directors, Chief Financial Officer and Secretary of the Company since the date
of the Share Exchange (May 10, 1996), and also served as President and Chief
Executive Officer of the Company from the date of the Share Exchange until
December 31, 1996. Mr. Jeffcock resumed his positions as President and Chief
Executive Officer of the Company on May 31, 1997 after the resignation of Oliver
Lennox-King. Mr. Jeffcock is currently the President and Chief Executive Officer
in addition to his other positions. Since 1995, Mr. Jeffcock has been a Director
of Toucan Mining. From 1987 until 1990 Mr. Jeffcock was the Managing Director of
Blue Angel Mining Ltd., a gold exploration company in Ecuador and from 1990
until 1994 he was a director of Atlantis Diamonds Ltd., which was involved in
diamond exploration and production in Brazil. From 1990 until 1994, Mr. Jeffcock
was President of Rand Industries Inc., a mining company. In 1981, Mr. Jeffcock
was the co-founder and President of Isle Resources Inc., a public oil and gas
company. In 1984, Mr. Jeffcock co-founded Lysander Petroleum Ltd., which is now
Pentex Energy Plc. Mr. Jeffcock was educated at Bedales School and at Aiglon
School Villars, Switzerland.
L. Clark Arnold - Mr. Arnold has served as a Director and Executive Vice
President-Exploration of the Company since the date of the Share Exchange. Mr.
Arnold is a registered professional geologist in the State of Arizona. Since the
mid-1970s Mr. Arnold has engaged in a consulting practice located in Tucson,
Arizona, focused on mineral exploration in Southwest U.S., South America and the
Southwest Pacific. Mr. Arnold holds a MS Degree and a Pd.D. Degree in Geology,
both from the University of Arizona. Mr. Arnold provides consulting services to
the Company and receives remuneration at the rate of $450 per day. Expenses are
at Mr. Arnold's cost. In 1997, Mr. Arnold received remuneration from the Company
in the amount of $23,934, which includes Mr. Arnold's expenses. In addition, in
1997, Mr. Arnold was granted certain options to purchase Company Common Stock.
See "Certain Relationships and Related Transactions".
Don Box - Mr. Box has served as a Director and Assistant Secretary of the
Company since the date of the Share Exchange. Mr. Box has served since November
1, 1997, as the Executive Vice President of Remington Oil and Gas Corp., a
publicly held oil and gas exploration and production company. Mr. Box served as
Chairman of the Board of Directors of Box Energy Corporation, a public company
14
<PAGE>
owning oil and gas interests in the Gulf of Mexico and mainland U.S., from 1993
until Novmeber 1, 1997, and served as Chief Executive Officer of Box Energy
Corporation from January 1, 1997, until November 1, 1997. Since 1992 Mr. Box has
been President and a Director of Box Brothers Holding Company ("Box Brothers"),
which is engaged in the oil and gas business. Box Brothers underwent a plan of
reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code in Federal
Bankruptcy Court in Delaware in 1995. Since 1988, Mr. Box has been the President
of CKB Petroleum, which is engaged in the oil and gas business. Since 1984, Mr.
Box has been the President of CKB Petroleum, which is engaged in the oil and gas
business. From 1990 until 1996, Mr. Box was President of Race Circuit Management
of Texas, which is engaged in motor sports promotion. Mr. Box holds a Bachelor
of Arts degree from the University of Pennsylvania, a Bachelor of Science degree
in Economics from the Wharton School of Business and a Masters degree in
Business Administration from Southern Methodist University.
Robert A. Pearce - Mr. Pearce has served as a Director and Chief Financial
Officer of the Company since January 31, 1998. From 1992 through 1993, Mr.
Pearce served as a director, and subsequently as the chairman, of Aspermont Ltd.
("Aspermont"), a publicly traded holding company holding interests in the
television broadcasting and engineering industries. Also during 1993, Mr. Pearce
served as the Executive Chairman of A. I. Engineering Ltd., a publicly traded
engineering firm in the mining industry. From 1994 until his appointment as
Director and Chief Financial Officer of the Company, Mr. Pearce was an
independent consultant to various companies in the United States and the United
Kingdom. Mr. Pearce is a certified accountant having received his accounting
certificate from the Institute of Chartered Accountants of Australia. Aspermont
and its subsidiary, Darling Downs TV Ltd. ("Darling Downs"), were in severe
financial distress prior to Mr. Pearce's appointment to the Board of Directors
of Aspermont in 1992. On October 15, 1993, Darling Downs was placed in
receivership as a result of its inability to meet its obligations to its secured
creditor. Mr. Pearce negotiated with the secured creditors of Aspermont and
Darling Downs, the payment of all unsecured creditors, the sale of the assets
subject to the security interest of the secured creditors and the write-off of
the balance of the secured indebtedness. Such claims were settled, and the
receivership was terminated. Mr. Pearce provides services to the Company one day
per week and such additional time as is requested by the President of the
Company. Mr. Pearce receives remuneration at the rate of 500 pounds
(approximately $825) per day for such day and such additional time, plus
reimbursement of reasonable business expenses. In addition, Mr. Pearce received
certain options to purchase Company Common Stock in connection with his
appointment as Chief Financial Officer and Chief Accounting Officer. See
"Certain Relationships and Related Transactions."
The Company is not aware of any "family relationships" (as defined in Item
401(c) of Regulation S-B promulgated by the Commission) among directors,
executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.
Except as set forth above, the Company is not aware of any event (as listed
in Item 401(d) of Regulation S-B promulgated by the Commission) that occurred
during the past five years that are material to an evaluation of the ability or
integrity of any director, person nominated to become a director, executive
officer, promoter or control person of the Company.
Item 10. Executive Compensation
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer during the fiscal year ended December 31, 1997; no
executive officer, other than Robert P. Jeffcock, earned in excess of $100,000.
15
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation
Year
Name/Principal Ending Other Annual
Position December 31 Salary Bonus Compensation
<S> <C> <C> <C> <C>
Robert P. Jeffcock, CEO 1995 N/A N/A N/A
1996 $32,000 $ 0 $ 0
1997 $120,000 $ 0 $ 0
</TABLE>
Oliver Lennox-King served as the Chief Executive Officer and as a member of
the Board of Directors of the Company from January 1, 1997 until May 31, 1997.
In connection with his resignation from these positions, Mr. Lennox-King agreed
to the termination of all stock options with regard to the Company's Common
Stock that had been granted to him by the Company. Further, Mr. Lennox-King
relinquished any claim against the Company that he held at the time of such
resignation.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the close of business on March 31,
1998, information as to the beneficial ownership of shares of the Company Common
Stock for all directors, each of the named executive officers (as defined in
Item 402(a)(2) of Regulation S-B promulgated by the Commission), for all
directors and executive officers as a group, and any person or "group" (as that
term is defined in Item 403 of Regulation S-B promulgated by the Commission) who
or which is known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of Company Common Stock. In addition, except as set forth
below, the Company does not know of any person or group who or which owns
beneficially more than 5% of its outstanding shares of Company Common Stock as
of the close of business on March 31, 1998.
16
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Company Common Stock as of March 31, 1998 by (i) each person known
by the Company to own more than 5% of the outstanding Company Common Stock, (ii)
each of the Company's Directors and executive officers, and (iii) all Directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Name of Individual or Beneficial Percent
Number of Persons in Group Owner(1) of Class(2)
<S> <C> <C>
Robert P. Jeffcock(3)(4)(5).......................................... 200,000 2.53%
Don D. Box(3)........................................................ 0 *
Robert A. Pearce(3)(9)............................................... 50,000 *
L. Clark Arnold(3)(10)............................................... 470,000 6.05
Caithness Limited(5)................................................. 965,445 12.51
Zalcany Limited(6)................................................... 1,088,000 13.59
Roy G. Williams(6)(7)................................................ 1,556,000 19.18
Reads Trustees Limited(5)............................................ 1,554,453 20.15
J. P. Jeffcock No. 2 Settlement(5)................................... 484,008 6.27
Carlos Lins E. Silva(8).............................................. 210,000 2.68
Igor Mousasticoshvily(8)............................................. 476,666 6.07
All Directors and executive
officers as a group (4 persons)...................................... 670,000 8.98
<FN>
- --------------------
* Less than 1%
(1) The persons named in this table have record ownership of such shares
and except as indicated in the footnotes to this table, the persons
name in the table have sole voting power with respect to shares shown
as beneficially owned by them.
(2) Based on 7,714,600 shares of Company Common Stock outstanding.
(3) Director and officer of the Company.
(4) Mr. Robert Jeffcock is included in a class of potential beneficiaries
in a Trust which owns Caithness Limited. Includes an option to
purchase 200,000 shares of Company Common Stock that is presently
exercisable.
(5) Reads Trustees Limited, as trustee, has sole voting and investment
control with respect to the shares held by the following shareholders:
Caithness Limited (965,445) J.P. Jeffcock No. 2 Settlement (484,008);
The Magnum Trust (105,000).
(6) Zalcany Limited is a company ultimately controlled and owned by Mr.
Roy G. Williams, Mr. R. M. Harris and Mr. J.D. Harris. Together they
effectively share the voting and investment power of the shares in the
Company held by Zalcany Limited. Each of R. M. Harris and J. D. Harris
owns individually, beneficially and of record, 42,000 shares. Includes
a warrant to acquire 292,000 shares of Company Common Stock that are
presently exercisable.
(7) Mr. Roy G. Williams' family owns the equity share capital of
Mustardseed Estates Limited. Accordingly, Mr. Roy G. Williams controls
or shares voting investment power over the following shareholders: Roy
G. Williams (110,000); Zalcany Limited (796,000); and Mustardseed
Estates Limited (250,000). Includes warrants to acquire 68,000,
292,000 and 40,000 shares of Company Common Stock by Roy G. Williams,
Zalcany Limited and Mustardseed Estates Limited, respectively, that
are presently exercisable.
17
<PAGE>
(8) Consultant to MBL, the principal mining subsidiary of the Company.
Includes an option to acquire 133,333 shares of Company Common Stock
that is presently exercisable.
(9) Includes an option to acquire 50,000 shares of Company Common stock
that is presently exercisable.
(10) Includes an option to acquire 50,000 shares of Company Common stock
that is presently exercisable.
</FN>
</TABLE>
18
<PAGE>
Item 12. Certain Relationships and Related Transactions
Cardinal Holdings, a company affiliated with Roy G. Williams, made two
unsecured loans to the Company to permit the Company to fund the Initial Payment
with respect to the November 1996 agreement with the Brazilian individual to
acquire additional mining claims in the Cuiaba Basin prior to the consummation
of the Yorkton Offering. See "Items 1 and 2. Description of Business and
Property - Mining Claims." One loan was made on October 18, 1996 in the
principal amount of $100,000 at an interest rate of 10% per annum plus a
commitment fee of $10,000. The other loan was made on October 23, 1996 in the
principal amount of $400,000 at an interest rate of 10% per annum plus a
commitment fee of $20,000. Both loans were repaid by the Company on November 15,
1996.
In April, 1998, Zalcany, a company affiliated with Roy G. Williams, made an
unsecured loan to the Company to fund the Company's current operations. The loan
is a demand loan and bears an interest rate of 10% per annum. As of April 8,
1998, the principal amount of the loan was $54,000.
Certain officers of the Company or MBL received consulting fees for various
consulting services as follows:
Mr. Arnold, Vice President - Exploration of the Company, received in 1997
and 1996 fees totaling $23,934 and $22,368, respectively, in return for
geological consulting services. In addition, in 1996, Mr. Arnold received
payment for $4,571.64 in fees for geological consulting services in the form of
shares of Toucan Mining Limited capital stock, which shares were exchanged into
shares of Starlight Common Stock in the Share Exchange.
In addition, Igor Mousasticoshvily, Sr., a consultant to MBL, received in
1997 and 1996 fees totaling $167,000 and $158,503, respectively, for geological
and general consulting services. Carlos E. Lins e Silva, a director of MBL,
received in 1996 fees totaling $50,000 for certain success fees in connection
with certain transactions.
On December 23, 1997, the Company completed a private placement of an
aggregate of 400,000 shares (the "Investor Shares") of Company Common Stock to
three of its existing stockholders at a purchase price of $.75 per share of
Company Common Stock. Roy G. Williams, Zalcany, and Mustardseed Estates Limited
received 68,000, 292,000 and 40,000 shares of Company Common Stock,
respectively. Zalcany and Mustardseed Estates are affiliated with Roy G.
Williams. See "Security Ownership of Certain Beneficial Owners and Management."
Along with each share of Company Common Stock sold in the private placement, the
Company granted to the holder thereof a warrant (the "Investor Warrants") to
purchase one share of Company Common Stock at an exercise price of $1.50. The
Investor Warrants will be exercisable until January 1, 2000. The proceeds of the
private placement was used for the Company's working capital purposes.
On September 27, 1997, the Company granted options to purchase, in the
aggregate, 100,000 shares of Company Common Stock to two separate individuals in
their capacities as employees of the Company. The options allowed each
individual to purchase 50,000 shares of Company Common Stock at an exercise
price of $1.00.
(1) The first block of options, allowing the grantee to purchase
50,000 shares of Company Common Stock, was granted to David
Carmichael. Mr. Carmichael serves as the General Manager for MBL.
These options would vest in increments of 17,000, 17,000 and 16,000.
The initial grant of options to purchase 17,000 shares vested on the
date of grant. The remaining blocks of 17,000 and 16,000 options will
vest on April 1, 1998 and April 1, 1999, respectively, only in the
event that Mr. Carmichael is employed with the Company on those dates.
(2) The second block of options, allowing the grantee to purchase
50,000 shares of Company Common Stock, was granted to L. Clark Arnold,
a Director and Vice President - Exploration, whose responsibility is
overseeing the Company's exploration program, for his continuing
contributions to the Company in discharging such responsibilities. Mr.
Arnold options vested on the date of grant and are exercisable up
until September 27, 1999.
19
<PAGE>
On September 27, 1997, the Board of Directors approved and confirmed an
Employment Agreement, dated as of April 1, 1997, by and between the Company and
David Carmichael (the "Agreement"). The Agreement provides that Mr. Carmichael
is to receive (i) a signing bonus of $20,000; (ii) a base gross salary of
$90,000 per annum payable in equal monthly installments with the first payment
being made on April 30, 1997; and (iii) an annual bonus set at a minimum of
$20,000 and a maximum of $30,000 to be determined at the discretion of the Board
of Directors of the Company and payable three months following the end of each
year of employment commencing with Mr. Carmichael's second year of employment.
The Agreement further provides for a grant to Mr. Carmichael of options to
purchase 50,000 shares of Company Common Stock. The Agreement shall continue in
effect from the date of grant on a year to year basis until terminated according
to the provisions of the Agreement. In 1997, Mr. Carmichael was paid $87,500
pursuant to the Agreement.
On February 2, 1998, the Company granted options to purchase, in the
aggregate, 250,000 shares of Company Common Stock to two separate individuals in
their capacities as Directors of the Company. The options allowed Robert P.
Jeffcock and Robert A. Pearce to purchase 200,000 and 50,000 shares of Company
Common Stock, respectively, at an exercise price of $1.00. Mr. Jeffcock and Mr.
Pearce received their options as part of their remuneration for services
rendered to the Company. Each individual's options vested on the date of grant
and are exercisable up until December 31, 1999.
20
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Agreement and Plan of Merger, dated July 29, 1996, and among Toucan
Gold Corporation and Starlight Acquisitions, Inc. (incorporated by
reference from the Current Report on Form 8-K dated July 29, 1996,
Exhibit 2.1).
2.2 Share Exchange Agreement, dated May 10, 1996, by and among Starlight
Acquisitions, Inc. and Toucan Mining Limited (incorporated by reference
from the Current Report on Form 8-K dated May 13, 1996, Exhibit 2).
3.1 Certificate of Incorporation of Toucan Gold Corporation filed on July
22, 1996 with the Secretary of State of the State of Delaware
incorporated by reference from the Current Report on Form 8-K dated
July 29, 1996, Exhibit 4.1).
3.2(1) Bylaws of Toucan Gold Corporation (Exhibit 3.2).
10.1* Option Agreement, dated September 27, 1997, by and between the Company
and David Carmichael.
10.2* Option Agreement, dated September 27, 1997, by and between the Company
and L. Clark Arnold.
10.3* Option Agreement, dated February 2, 1998, by and between the Company
and Robert P. Jeffcock.
10.4* Option Agreement, dated February 2, 1998, by and between the Company
and Robert A. Pearce.
10.5(2) Warrant Agreements, dated as of December 31, 1997, by and between the
Company and Roy G. Williams, Zalcany Limited and Mustardseed Estates
Ltd. (Exhibit 10.1)
10.6(2) Warrant Agreement dated as of December 31, 1997, by and between the
Company and Igor Mousasticoshvily (Exhibit 10.2)
10.7(3) Employment Agreement, dated as of April 1, 1997, by and between the
Company and David Carmichael (Exhibit 10.1)
10.8(1) Warrant Agreement, dated July 29, 1996, by and between Toucan Gold
Corporation and R. Haydn Silleck (Exhibit 10.1).
10.9(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and John B. Marvin (Exhibit 10.2).
10.10(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and Peter S. Daley (Exhibit 10.3).
10.11(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and Jay Lutsky (Exhibit 10.4).
10.12 Indemnification Agreement, dated May 10, 1996, by and between R. Haydn
Silleck, John B. Marvin, Peter S. Daley, Jay Lutsky, Starlight
Acquisitions, Inc. and Toucan Mining Limited (incorporated by reference
from the Current Report on Form 8-K dated May 13, 1996, Exhibit 10.2).
21
<PAGE>
10.13 Letter of Intent, dated August 23, 1996, by and among Toucan Gold
Corporation, Toucan Mining Limited, HRC Development Corporation and
Eldorado Gold Corporation (Schedule A to the Letter of Intent has been
omitted pursuant to Item 601(b)(2) of Regulation S-B) (incorporated by
reference from the Current Report on Form 8-K, dated August 23, 1996,
Exhibit 10).
10.14 Agreement with Yorkton Securities, Inc., dated October 17, 1996
(incorporated by reference from the Current Report on Form 8-K, dated
October 21, 1996, Exhibit 10).
10.15 Amendment to the Agreement with Yorkton Securities, Inc., dated October
23, 1996 (incorporated by reference from the Current Report on Form
8-K, dated October 29, 1996, Exhibit 10.2).
21* Subsidiaries of the Company.
22.1(1) Notice and Proxy Statement dated July 16, 1996 (Exhibit 22.1).
22.2 Form of Supplement, dated July 19, 1996, to Notice and Proxy Statement,
dated July 16, 1996.
27* Financial Data Schedules.
*Filed herewith
(1) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-KSB for the period ended December
31, 1996, filed by the Company with the Securities and Exchange Commission.
(2) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Current Report on Form 8-K, filed January 8, 1998 with the
Securities and Exchange Commission.
(3) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 1997, filed by the Company with the Securities and Exchange
Commission.
(b) Reports on Form 8-K
The Company filed the following Reports on Form 8-K during the last quarter
of the Company's fiscal year ended December 31, 1997:
(i) On January 29, 1997, the Company filed with the Securities and
Exchange Commission a Current Report on Form 8-K reporting the
acquisition of certain mining claims in the Cuiaba Basin.
(ii) On January 8, 1998, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K reporting the private
placement of 400,000 shares of Company Common Stock to three of its
existing stockholders. Along with the issuance of this stock, the
Company issued to such stockholders an equal amount of warrants to
purchase Company Common Stock.
The Company further reported that it had acquired from Igor
Mousasticoshvily additional mining claims in the Cuiaba Basin. The
Company paid cash and Company Common Stock to Mr. Mousasticoshvily as
consideration for the additional claims.
22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this annual report on Form 10-KSB to be
signed on its behalf by the undersigned thereto duly authorized.
Toucan Gold Corporation
(Registrant)
Date: April 14, 1998 By: /s/ Robert P. Jeffcock
---------------------------------------------
Robert P. Jeffcock, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-KSB has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE OFFICE DATE
------------- ------------ ----------
<S> <C> <C>
/s/ Robert P. Jeffcock President, Chief Executive Officer and April 14, 1998
- ------------------------------------ Chairman of the Board of Directors (Principal
Robert P. Jeffcock Executive Officer)
/s/ L. Clark Arnold Director and Executive Vice President- April 14, 1998
- ------------------------------------ Exploration
L. Clark Arnold
/s/ Don Box Director and Assistant Secretary April 14, 1998
- ------------------------------------
Don Box
/s/ Robert A. Pearce Director and Chief Financial Officer April 14, 1998
- ------------------------------------ (Principal Financial Officer and Chief
Robert A. Pearce Accounting Officer)
</TABLE>
23
<PAGE>
Index to Exhibits
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Agreement and Plan of Merger, dated July 29, 1996, and among Toucan
Gold Corporation and Starlight Acquisitions, Inc. (incorporated by
reference from the Current Report on Form 8-K dated July 29, 1996,
Exhibit 2.1).
2.2 Share Exchange Agreement, dated May 10, 1996, by and among Starlight
Acquisitions, Inc. and Toucan Mining Limited (incorporated by reference
from the Current Report on Form 8-K dated May 13, 1996, Exhibit 2).
3.1 Certificate of Incorporation of Toucan Gold Corporation filed on July
22, 1996 with the Secretary of State of the State of Delaware
incorporated by reference from the Current Report on Form 8-K dated
July 29, 1996, Exhibit 4.1).
3.2(1) Bylaws of Toucan Gold Corporation (Exhibit 3.2).
10.1* Option Agreement, dated September 27, 1997, by and between the Company
and David Carmichael.
10.2* Option Agreement, dated September 27, 1997, by and between the Company
and L. Clark Arnold.
10.3* Option Agreement, dated February 2, 1998, by and between the Company
and Robert P. Jeffcock.
10.4* Option Agreement, dated February 2, 1998, by and between the Company
and Robert A. Pearce.
10.5(2) Warrant Agreements, dated as of December 31, 1997, by and between the
Company and Roy G. Williams, Zalcany Limited and Mustardseed Estates
Ltd. (Exhibit 10.1)
10.6(2) Warrant Agreement dated as of December 31, 1997, by and between the
Company and Igor Mousasticoshvily (Exhibit 10.2)
10.7(3) Employment Agreement, dated as of April 1, 1997, by and between the
Company and David Carmichael (Exhibit 10.1)
10.8(1) Warrant Agreement, dated July 29, 1996, by and between Toucan Gold
Corporation and R. Haydn Silleck (Exhibit 10.1).
10.9(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and John B. Marvin (Exhibit 10.2).
10.10(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and Peter S. Daley (Exhibit 10.3).
10.11(1) Warrant Agreement dated July 29, 1996, by and between Toucan Gold
Corporation and Jay Lutsky (Exhibit 10.4).
10.12 Indemnification Agreement, dated May 10, 1996, by and between R. Haydn
Silleck, John B. Marvin, Peter S. Daley, Jay Lutsky, Starlight
Acquisitions, Inc. and Toucan Mining Limited (incorporated by reference
from the Current Report on Form 8-K dated May 13, 1996, Exhibit 10.2).
Index - 1
<PAGE>
10.13 Letter of Intent, dated August 23, 1996, by and among Toucan Gold
Corporation, Toucan Mining Limited, HRC Development Corporation and
Eldorado Gold Corporation (Schedule A to the Letter of Intent has been
omitted pursuant to Item 601(b)(2) of Regulation S-B) (incorporated by
reference from the Current Report on Form 8-K, dated August 23, 1996,
Exhibit 10).
10.14 Agreement with Yorkton Securities, Inc., dated October 17, 1996
(incorporated by reference from the Current Report on Form 8-K, dated
October 21, 1996, Exhibit 10).
10.15 Amendment to the Agreement with Yorkton Securities, Inc., dated October
23, 1996 (incorporated by reference from the Current Report on Form
8-K, dated October 29, 1996, Exhibit 10.2).
21* Subsidiaries of the Company.
22.1(1) Notice and Proxy Statement dated July 16, 1996 (Exhibit 22.1).
22.2 Form of Supplement, dated July 19, 1996, to Notice and Proxy Statement,
dated July 16, 1996.
27* Financial Data Schedules.
*Filed herewith
(1) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-KSB for the period ended December
31, 1996, filed by the Company with the Securities and Exchange Commission.
(2) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Current Report on Form 8-K, filed January 8, 1998 with the
Securities and Exchange Commission.
(3) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-QSB for the period ended
September 30, 1997, filed by the Company with the Securities and Exchange
Commission.
Index - 2
STOCK OPTION AGREEMENT
TOUCAN GOLD CORPORATION
A Nonqualified Stock Option (the "Option") for a total of 50,000 shares
(the "Shares") of common stock, par value $.01 per share (the "Common Stock"),
of Toucan Gold Corporation (the "Company"), is hereby granted to David
Carmichael (the "Optionee") pursuant to the terms of this Option Agreement (the
"Option Agreement").
Section 1. Exercise Price. The exercise price of the Option is $1.00 for
each Share.
Section 2. Exercise of the Option. Of the 50,000 Shares granted pursuant to
this Option Agreement, an Option to purchase 17,000 Shares shall vest on the
Date of Grant; an Option to purchase an additional 17,000 Shares shall vest on
April 1, 1998, provided that the Optionee remains employed by the Company on
such date; and an Option to purchase the remaining 16,000 Shares shall vest on
April 1, 1999, provided that the Optionee remains employed by the Company on
such date. The Options may be exercised at any time after the Shares covered by
such Options have vested, subject to the provisions contained in Sections 3 and
4 below. Notwithstanding the foregoing, this Option shall become fully
exercisable upon the occurrence of certain significant corporate events
described in Section 2(d) below.
(a) Method of Exercise. Options shall be deemed properly exercised
when:
(i) the Company has received written notice of such exercise,
stating the number of Shares which are being purchased, delivered to
the Company and signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof, satisfactory
to the Company, of the right of such person or persons to exercise the
Option;
(ii) full payment of the exercise price of the Shares as to which
the Option is exercised has been tendered to the Company; and
(iii) arrangements that are satisfactory to the Board of
Directors of the Company (the "Board") in its sole discretion have
been made for the Optionee's payment to the Company of the amount, if
any, that the Company determines to be necessary for the Company to
withhold in accordance with applicable federal or state income tax
withholding requirements.
(b) Payment. The exercise price of any Shares purchased shall be paid
in cash, by certified or cashier's check, by money order or by personal
check (if approved by the Board).
1
<PAGE>
(c) Restrictions on Exercise.
(i) This Option may not be exercised if the issuance of the
Shares upon such exercise would constitute a violation of any
applicable federal or state securities or other law or valid
regulation. As a condition to the exercise of this Option, the Company
may require the exercising person to make any agreements and
undertakings that may be required by any applicable law or regulation.
(ii) Shares issued upon the exercise of this Option without
registration of such Shares under the Securities Act of 1933, as
amended (the "Act"), shall be restricted securities subject to the
terms of Rule 144 under the Act. The certificates representing any
such Shares shall bear an appropriate legend restricting transfer and
the transfer agent of the Company shall be given stop transfer
instructions with respect to such Shares.
(d) Certain Corporate Events. On the date thirty (30) days prior to
any occurrence described in this Section (2)(d)(i) or (ii), but only where
such anticipated occurrence actually takes place, notwithstanding the
exercise schedule in this Option Agreement, this Option shall immediately
become exercisable in full where there (i) is any transaction (which shall
include a series of transactions occurring within 60 days or occurring
pursuant to a plan) that has the result that stockholders of the Company
immediately before such transaction cease to own at least 51% of (x) the
voting stock of the Company or (y) any entity that results from the
participation of the Company in a reorganization, consolidation, merger,
liquidation or any other form of corporate transaction; or (ii) is a sale,
lease, exchange or other disposition of all or substantially all the
property and assets of the Company to an unaffiliated third party.
Section 3. Term of Option. This Option may not be exercised after April 1,
2002 and is subject to earlier termination as provided in Section 4. In
addition, this Option is subject to cancellation by the Company upon a
significant corporate event as provided in Section 4 below. This Option may be
exercised during such times only in accordance with the terms of this Option
Agreement.
Section 4. Termination of Option Period.
(a) The unexercised portion of this Option shall automatically and
without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) thirty (30) days after the date that the Optionee ceases to
be employed by the Company or a subsidiary of the Company or ceases to
be a director, consultant or advisor to the Company or a subsidiary of
the Company, as the case may be, regardless of the reason therefor
other than as a result of such termination by reason of (x) death, (y)
mental or physical disability of the Optionee as determined by a
medical doctor satisfactory to the Company or (z) termination of the
Optionee's employment, status as director, or consulting contract or
advisory services, as the case may be, with the Company or a
subsidiary for Cause,
2
<PAGE>
The term "Cause," for the purposes of this Agreement, shall mean any
one or more of the following:
w. Optionee's failure to observe or perform any of the
provisions of his Employment Agreement with the Company,
dated April 1, 1997 (the "Employment Agreement"), or
Optionee's failure to carry out lawful directives of the
Chief Executive Officer of the Company.
x. Optionee's performance of any criminal acts; (excluding
traffic violations and other minor offenses);
y. Optionee's theft or embezzlement of property, including
trade secrets, of the Company; or
z. Optionee's negligence in the performance of his duties under
the Employment Agreement.
(ii) one (1) year after the date on which the Optionee suffers a
mental or physical disability as determined by a medical doctor
satisfactory to the Company;
(iii) either (y) one (1) year after the date that the Optionee
ceases to be a director, consultant to or ceases to be employed by, as
the case may be, the Company or a subsidiary of the Company, by reason
of death of the Optionee, or (z) six (6) months after the date on
which the Optionee shall die, if the Optionee's death shall occur
during the thirty (30) day period described in Section 4(a)(i) or the
one-year period described in Section 4(a)(ii);
(iv) the date that the Optionee ceases to be a director,
consultant to or ceases to be employed by, as the case may be, the
Company or a subsidiary as a result of a termination for Cause; and
(v) April 1, 2002.
(b) The Company in its sole discretion may, by giving written notice
(a "Cancellation Notice") cancel, effective upon the date of the
consummation of any of the transactions described in Section 2(d), all or
any portion of this Option that remains unexercised on such date. Such
Cancellation Notice shall be given a reasonable period of time (but not
less than 15 days) prior to the proposed date of such cancellation, and may
be given either before or after stockholder approval of such transaction.
3
<PAGE>
Section 5. Adjustment of Shares.
(a) If at any time while unexercised Options are outstanding
hereunder, there shall be any increase or decrease in the number of issued
and outstanding shares of Common Stock through the declaration of a stock
dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of shares, then and in such event appropriate
adjustment shall be made in the number of Shares and the exercise price per
Share thereof then subject to this Option, so that the same proportion of
the Company's issued and outstanding shares shall remain subject to
purchase at the same aggregate exercise price.
(b) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection
with direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to this Option.
(c) Without limiting the generality of the foregoing, the existence of
this Option shall not affect in any manner the right or power of the
Company to make, authorize or consummate (i) any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business; (ii) any merger or consolidation of the
Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the Shares subject to this Option;
(iv) the dissolution or liquidation of the Company; (v) any sale, transfer
or assignment of all or any part of the assets or business of the Company;
or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
Section 6. Non-Assignability of Option. This Option may not be transferred
or assigned by the Optionee other than by will or by the laws of descent and
distribution.
Section 7. Issuance of Shares. No person shall be, or have any rights or
privileges of, a stockholder of the Company with respect to any of the Shares
subject to this Option unless and until certificates representing such Shares
have been issued and delivered to such person. As a condition of an issuance of
a stock certificate for Shares, the Company may obtain such agreements or
undertakings, if any, as it may deem necessary or advisable to assure compliance
with any provision of this Option Agreement or any law or regulation, including,
but not limited to, the following:
(a) The Optionee's representation and warranty to the Company, at the
time the Option is exercised, that the Shares to be issued are being
acquired for investment and not with a view to, or for sale in connection
with, the distribution of any such Shares; and
(b) the Optionee's representation, warranty or agreement to be bound
by any legends that are, in the opinion of the Company, necessary or
appropriate to comply with the provisions of any securities law deemed by
the Company to be applicable to the issuance of the Shares and to be
endorsed upon the certificates representing the Shares.
4
<PAGE>
Section 8. Administration of this Option.
(a) The determinations and the interpretation and construction of any
provision of this Option by the Company shall be final and conclusive.
(b) Subject to the express provisions of this Option, the Company
shall have the authority, in its sole and absolute discretion (i) to adopt,
amend, and rescind administrative and interpretive rules and regulations
relating to this Option; (ii) to construe the terms of this Option; (iii)
as provided in Section 5, upon certain events to make appropriate
adjustments to the exercise price and number of Shares subject to this
Option; and (iv) to make all other determinations and perform all other
acts necessary or advisable for administering this Option, including the
delegation of such ministerial acts and responsibilities as the Company
deems appropriate. The Company may correct any defect or supply any
omission or reconcile any inconsistency in this Option in the manner and to
the extent it shall deem expedient to carry it into effect, and it shall be
the sole and final judge of such expediency. The Company shall have full
discretion to make all determinations on the matters referred to in this
Section 8(b), and such determinations shall be final, binding and
conclusive.
Section 9. Government Regulations. The granting and exercise of this Option
and the obligation of the Company to sell and deliver Shares under this Option,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
Section 10. Law Governing. THIS OPTION IS INTENDED TO BE PERFORMED IN THE
STATE OF DELAWARE AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH STATE EXCEPT TO THE EXTENT DELAWARE LAW IS
PREEMPTED BY FEDERAL LAW.
Section 11. Notices. Whenever any notice is required or permitted under
this Option Agreement, such notice must be in writing and personally delivered
or sent by mail or delivery by a nationally recognized courier service. Any
notice required or permitted to be delivered under this Option Agreement shall
be deemed to be delivered on the date on which it is personally delivered, or,
if mailed, whether actually received or not, on the third Business Day after it
is deposited in the United States mail, certified or registered, postage
prepaid, addressed to the person who is to receive it at the address that such
person has previously specified by written notice delivered in accordance with
this subsection. The Company or the Optionee may change, at any time and from
time to time, by written notice to the other, the address that was previously
specified for receiving notices. Until changed in accordance with this Option
Agreement, the Company and the Optionee shall specify as its or his address for
receiving notices the address set forth in this Option Agreement pertaining to
the Shares to which such notice relates.
5
<PAGE>
Section 12. Miscellaneous.
(a) This Option is granted to the Optionee in accordance with that
certain Employment Agreement, dated April 1, 1997 (except for the reduction
in the exercise price as approved by the Board on the Date of Grant),
describing such Option and is in addition to any other stock option plans
of the Company or other benefits with respect to the Optionee's position
with or relationship to the Company or its subsidiaries. This Option shall
not confer upon the Optionee the right to continue as an employee,
consultant or advisor, or interfere in any way with the rights of the
Company to terminate the Optionee's status as an employee, consultant or
advisor.
(b) The members of the Board shall not be liable for any act, omission
or determination taken or made in good faith with respect to this Option,
and members of the Board shall, in addition to all other rights of
indemnification and reimbursement, be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage,
liability or expense (including attorneys' fees, the costs of settling any
suit, provided such settlement is approved by independent legal counsel
selected by the Company, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising from such claim,
loss, damage, liability or expense to the full extent permitted by law and
under any directors' and officers' liability or similar insurance coverage
that may from time to time be in effect.
(c) Any issuance or transfer of Shares to the Optionee, or to the
Optionee's legal representative, heir, legatee, or distributee, in
accordance with the provisions of this Option, shall, to the extent
thereof, be in full satisfaction of all claims of such persons under this
Option. The Company may require the Optionee, or any legal representative,
heir, legatee or distributee as a condition precedent to such payment or
issuance or transfer of Shares, to execute a release and receipt for such
payment or issuance or transfer of Shares in such form as it shall
determine.
(d) Neither the Board nor the Company guarantees Shares from loss or
depreciation.
(e) All expenses incident to the administration, termination, or
protection of this Option, including, but not limited to, legal and
accounting fees, shall be paid by the Company; provided, however, the
Company may recover any and all damages, fees, expenses and costs arising
out of any actions taken by the Company to enforce its rights under this
Option.
(f) Records of the Company shall be conclusive for all purposes under
this Option, unless determined by the Board to be incorrect.
(g) Any action required of the Company relating to this Option shall
be by resolution of the Board or by a person authorized to act by
resolution of the Board.
(h) If any provision of this Option is held to be illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining
provisions of this Option, but such provision shall be fully severable,
6
<PAGE>
and this Option shall be construed and enforced as if the illegal or
invalid provision had never been included in this Option.
(i) Any person entitled to notice under this Option may waive such
notice.
(j) This Option shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees upon the Company, its
successors, and assigns, and upon the Board and its successors.
(k) The titles and headings of Sections are included for convenience
of reference only and are not to be considered in construction of this
Option's provisions.
(l) Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Option dictates, the plural
shall be read as the singular and the singular as the plural.
DATE OF GRANT: TOUCAN GOLD CORPORATION
September 27, 1997
By: /s/ Robert P. Jeffcock
-----------------------------
Robert P. Jeffcock, President
ADDRESS:
8201 Preston Road
Suite 600
Dallas, Texas 75225
7
<PAGE>
Optionee hereby accepts this Option subject to all the terms and provisions
of this Option Agreement.
By: /s/ David Carmichael
-----------------------------------
David Carmichael
Optionee
----------------------------------------
(Social Security No.)
ADDRESS:
- -----------------------------------
- -----------------------------------
- -----------------------------------
8
STOCK OPTION AGREEMENT
TOUCAN GOLD CORPORATION
A Nonqualified Stock Option (the "Option") for a total of 50,000 shares
(the "Shares") of common stock, par value $.01 per share (the "Common Stock"),
of Toucan Gold Corporation (the "Company"), is hereby granted to L. Clark
Arnold (the "Optionee") pursuant to the terms of this Option Agreement (the
"Option Agreement").
Section 1. Exercise Price. The exercise price of the Option is $1.00 for
each Share.
Section 2. Exercise of the Option. This Option may be exercised at any time
after the Date of Grant, subject its expiration date and subject to the
provisions contained in Sections 3 and 4 below. This Option will expire by its
terms on September 27, 1999.
(a) Method of Exercise. Options shall be deemed properly exercised
when:
(i) the Company has received written notice of such exercise,
stating the number of Shares which are being purchased, delivered to
the Company and signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof, satisfactory
to the Company, of the right of such person or persons to exercise the
Option;
(ii) full payment of the exercise price of the Shares as to which
the Option is exercised has been tendered to the Company; and
(iii) arrangements that are satisfactory to the Board of
Directors of the Company (the "Board") in its sole discretion have
been made for the Optionee's payment to the Company of the amount, if
any, that the Company determines to be necessary for the Company to
withhold in accordance with applicable federal or state income tax
withholding requirements.
(b) Payment. The exercise price of any Shares purchased shall be paid
in cash, by certified or cashier's check, by money order or by personal
check (if approved by the Board).
1
<PAGE>
(c) Restrictions on Exercise.
(i) This Option may not be exercised if the issuance of the
Shares upon such exercise would constitute a violation of any
applicable federal or state securities or other law or valid
regulation. As a condition to the exercise of this Option, the Company
may require the exercising person to make any agreements and
undertakings that may be required by any applicable law or regulation.
(ii) Shares issued upon the exercise of this Option without
registration of such Shares under the Securities Act of 1933, as
amended (the "Act"), shall be restricted securities subject to the
terms of Rule 144 under the Act. The certificates representing any
such Shares shall bear an appropriate legend restricting transfer and
the transfer agent of the Company shall be given stop transfer
instructions with respect to such Shares.
Section 3. Term of Option. This Option may not be exercised after April 1,
2002 and is subject to earlier termination as provided in Section 4. In
addition, this Option is subject to cancellation by the Company upon a
significant corporate event as provided in Section 4 below. This Option may be
exercised during such times only in accordance with the terms of this Option
Agreement.
Section 4. Termination of Option Period.
(a) The unexercised portion of this Option shall automatically and
without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) thirty (30) days after the date that the Optionee ceases to
be employed by the Company or a subsidiary of the Company or ceases to
be a director, consultant or advisor to the Company or a subsidiary of
the Company, as the case may be, regardless of the reason therefor
other than as a result of such termination by reason of (x) death, (y)
mental or physical disability of the Optionee as determined by a
medical doctor satisfactory to the Company or (z) termination of the
Optionee's employment, status as director, or consulting contract or
advisory services, as the case may be, with the Company or a
subsidiary for Cause;
2
<PAGE>
The term "Cause," for the purposes of this Agreement, shall mean any
one or more of the following:
(w) Optionee's failure to observe or perform any of the
provisions of his Employment Agreement with the Company,
dated April 1, 1997 (the "Employment Agreement"), or
Optionee's failure to carry out lawful directives of the
Chief Executive Officer of the Company.
(x) Optionee's performance of any criminal acts; (excluding
traffic violations and other minor offenses);
(y) Optionee's theft or embezzlement of property, including
trade secrets, of the Company; or
(z) Optionee's negligence in the performance of his duties.
(ii) one (1) year after the date on which the Optionee suffers a
mental or physical disability as determined by a medical doctor
satisfactory to the Company;
(iii) either (y) one (1) year after the date that the Optionee
ceases to be a director, consultant to or ceases to be employed by, as
the case may be, the Company or a subsidiary of the Company, by reason
of death of the Optionee, or (z) six (6) months after the date on
which the Optionee shall die, if the Optionee's death shall occur
during the thirty (30) day period described in Section 4(a)(i) or the
one-year period described in Section 4(a)(ii);
(iv) the date that the Optionee ceases to be a director,
consultant to or ceases to be employed by, as the case may be, the
Company or a subsidiary as a result of a termination for Cause; and
(v) September 27, 1999.
(b) The Company in its sole discretion may, by giving written notice
(a "Cancellation Notice") cancel, effective upon the date of the
consummation of any of the transactions described in Section 2(d), all or
any portion of this Option that remains unexercised on such date. Such
Cancellation Notice shall be given a reasonable period of time (but not
less than 15 days) prior to the proposed date of such cancellation, and may
be given either before or after stockholder approval of such transaction.
3
<PAGE>
(i) Any transaction (which shall include a series of transactions
occurring within 60 days or occurring pursuant to a plan) that has the
result that stockholders of the Company immediately before such
transaction cease to own at least 51% of (x) the voting stock of the
Company or (y) any entity that results from the participation of the
Company in a reorganization, consolidtion, merger, liquidation or any
other form of corporate transaction.
(ii) A sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company to an
unaffiliated third party.
Section 5. Adjustment of Shares.
(a) If at any time while unexercised Options are outstanding
hereunder, there shall be any increase or decrease in the number of issued
and outstanding shares of Common Stock through the declaration of a stock
dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of shares, then and in such event appropriate
adjustment shall be made in the number of Shares and the exercise price per
Share thereof then subject to this Option, so that the same proportion of
the Company's issued and outstanding shares shall remain subject to
purchase at the same aggregate exercise price.
(b) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection
with direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to this Option.
(c) Without limiting the generality of the foregoing, the existence of
this Option shall not affect in any manner the right or power of the
Company to make, authorize or consummate (i) any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business; (ii) any merger or consolidation of the
Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the Shares subject to this Option;
(iv) the dissolution or liquidation of the Company; (v) any sale, transfer
or assignment of all or any part of the assets or business of the Company;
or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
Section 6. Non-Assignability of Option. This Option may not be transferred
or assigned by the Optionee other than by will or by the laws of descent and
distribution.
Section 7. Issuance of Shares. No person shall be, or have any rights or
privileges of, a stockholder of the Company with respect to any of the Shares
subject to this Option unless and until certificates representing such Shares
have been issued and delivered to such person. As a condition of an issuance of
a stock certificate for Shares, the Company may obtain such agreements or
undertakings, if any, as it may deem necessary or advisable to assure compliance
with any provision of this Option Agreement or any law or regulation, including,
but not limited to, the following:
(a) The Optionee's representation and warranty to the Company, at the
time the Option is exercised, that the Shares to be issued are being
acquired for investment and not with a view to, or for sale in connection
with, the distribution of any such Shares; and
(b) the Optionee's representation, warranty or agreement to be bound
by any legends that are, in the opinion of the Company, necessary or
appropriate to comply with the provisions of any securities law deemed by
the Company to be applicable to the issuance of the Shares and to be
endorsed upon the certificates representing the Shares.
4
<PAGE>
Section 8. Administration of this Option.
(a) The determinations and the interpretation and construction of any
provision of this Option by the Company shall be final and conclusive.
(b) Subject to the express provisions of this Option, the Company
shall have the authority, in its sole and absolute discretion (i) to adopt,
amend, and rescind administrative and interpretive rules and regulations
relating to this Option; (ii) to construe the terms of this Option; (iii)
as provided in Section 5, upon certain events to make appropriate
adjustments to the exercise price and number of Shares subject to this
Option; and (iv) to make all other determinations and perform all other
acts necessary or advisable for administering this Option, including the
delegation of such ministerial acts and responsibilities as the Company
deems appropriate. The Company may correct any defect or supply any
omission or reconcile any inconsistency in this Option in the manner and to
the extent it shall deem expedient to carry it into effect, and it shall be
the sole and final judge of such expediency. The Company shall have full
discretion to make all determinations on the matters referred to in this
Section 8(b), and such determinations shall be final, binding and
conclusive.
Section 9. Government Regulations. The granting and exercise of this Option
and the obligation of the Company to sell and deliver Shares under this Option,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
Section 10. Law Governing. THIS OPTION IS INTENDED TO BE PERFORMED IN THE
STATE OF DELAWARE AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH STATE EXCEPT TO THE EXTENT DELAWARE LAW IS
PREEMPTED BY FEDERAL LAW.
Section 11. Notices. Whenever any notice is required or permitted under
this Option Agreement, such notice must be in writing and personally delivered
or sent by mail or delivery by a nationally recognized courier service. Any
notice required or permitted to be delivered under this Option Agreement shall
be deemed to be delivered on the date on which it is personally delivered, or,
if mailed, whether actually received or not, on the third Business Day after it
is deposited in the United States mail, certified or registered, postage
prepaid, addressed to the person who is to receive it at the address that such
person has previously specified by written notice delivered in accordance with
this subsection. The Company or the Optionee may change, at any time and from
time to time, by written notice to the other, the address that was previously
specified for receiving notices. Until changed in accordance with this Option
Agreement, the Company and the Optionee shall specify as its or his address for
receiving notices the address set forth in this Option Agreement pertaining to
the Shares to which such notice relates.
5
<PAGE>
Section 12. Miscellaneous.
(a) This Option is granted to the Optionee in accordance with that
certain Employment Agreement, dated April 1, 1997 (except for the reduction
in the exercise price as approved by the Board on the Date of Grant),
describing such Option and is in addition to any other stock option plans
of the Company or other benefits with respect to the Optionee's position
with or relationship to the Company or its subsidiaries. This Option shall
not confer upon the Optionee the right to continue as an employee,
consultant or advisor, or interfere in any way with the rights of the
Company to terminate the Optionee's status as an employee, consultant or
advisor.
(b) The members of the Board shall not be liable for any act, omission
or determination taken or made in good faith with respect to this Option,
and members of the Board shall, in addition to all other rights of
indemnification and reimbursement, be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage,
liability or expense (including attorneys' fees, the costs of settling any
suit, provided such settlement is approved by independent legal counsel
selected by the Company, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising from such claim,
loss, damage, liability or expense to the full extent permitted by law and
under any directors' and officers' liability or similar insurance coverage
that may from time to time be in effect.
(c) Any issuance or transfer of Shares to the Optionee, or to the
Optionee's legal representative, heir, legatee, or distributee, in
accordance with the provisions of this Option, shall, to the extent
thereof, be in full satisfaction of all claims of such persons under this
Option. The Company may require the Optionee, or any legal representative,
heir, legatee or distributee as a condition precedent to such payment or
issuance or transfer of Shares, to execute a release and receipt for such
payment or issuance or transfer of Shares in such form as it shall
determine.
(d) Neither the Board nor the Company guarantees Shares from loss or
depreciation.
(e) All expenses incident to the administration, termination, or
protection of this Option, including, but not limited to, legal and
accounting fees, shall be paid by the Company; provided, however, the
Company may recover any and all damages, fees, expenses and costs arising
out of any actions taken by the Company to enforce its rights under this
Option.
(f) Records of the Company shall be conclusive for all purposes under
this Option, unless determined by the Board to be incorrect.
(g) Any action required of the Company relating to this Option shall
be by resolution of the Board or by a person authorized to act by
resolution of the Board.
(h) If any provision of this Option is held to be illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining
provisions of this Option, but such provision shall be fully severable,
6
<PAGE>
and this Option shall be construed and enforced as if the illegal or
invalid provision had never been included in this Option.
(i) Any person entitled to notice under this Option may waive such
notice.
(j) This Option shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees upon the Company, its
successors, and assigns, and upon the Board and its successors.
(k) The titles and headings of Sections are included for convenience
of reference only and are not to be considered in construction of this
Option's provisions.
(l) Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Option dictates, the plural
shall be read as the singular and the singular as the plural.
DATE OF GRANT: TOUCAN GOLD CORPORATION
September 27, 1997
By: /s/ Robert P. Jeffcock
-----------------------------
Robert P. Jeffcock, President
ADDRESS:
8201 Preston Road
Suite 600
Dallas, Texas 75225
7
<PAGE>
Optionee hereby accepts this Option subject to all the terms and provisions
of this Option Agreement.
By: /s/ L. Clark Arnold
-----------------------------------
L. Clark Arnold
Optionee
----------------------------------------
(Social Security No.)
ADDRESS:
- -----------------------------------
- -----------------------------------
- -----------------------------------
8
STOCK OPTION AGREEMENT
TOUCAN GOLD CORPORATION
A Nonqualified Stock Option (the "Option") for a total of 50,000 shares
(the "Shares") of common stock, par value $.01 per share (the "Common Stock"),
of Toucan Gold Corporation (the "Company"), is hereby granted to Robert P.
Jeffcock (the "Optionee") pursuant to the terms of this Option Agreement (the
"Option Agreement").
Section 1. Exercise Price. The exercise price of the Option is $1.00 for
each Share.
Section 2. Exercise of the Option. This Option may be exercised at any time
after the Date of Grant, subject its expiration date and subject to the
provisions contained in Sections 3 and 4 below. This Option will expire by its
terms on December 31, 1999.
(a) Method of Exercise. Options shall be deemed properly exercised
when:
(i) the Company has received written notice of such exercise,
stating the number of Shares which are being purchased, delivered to
the Company and signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof, satisfactory
to the Company, of the right of such person or persons to exercise the
Option;
(ii) full payment of the exercise price of the Shares as to which
the Option is exercised has been tendered to the Company; and
(iii) arrangements that are satisfactory to the Board of
Directors of the Company (the "Board") in its sole discretion have
been made for the Optionee's payment to the Company of the amount, if
any, that the Company determines to be necessary for the Company to
withhold in accordance with applicable federal or state income tax
withholding requirements.
(b) Payment. The exercise price of any Shares purchased shall be paid
in cash, by certified or cashier's check, by money order or by personal
check (if approved by the Board).
1
<PAGE>
(c) Restrictions on Exercise.
(i) This Option may not be exercised if the issuance of the
Shares upon such exercise would constitute a violation of any
applicable federal or state securities or other law or valid
regulation. As a condition to the exercise of this Option, the Company
may require the exercising person to make any agreements and
undertakings that may be required by any applicable law or regulation.
(ii) Shares issued upon the exercise of this Option without
registration of such Shares under the Securities Act of 1933, as
amended (the "Act"), shall be restricted securities subject to the
terms of Rule 144 under the Act. The certificates representing any
such Shares shall bear an appropriate legend restricting transfer and
the transfer agent of the Company shall be given stop transfer
instructions with respect to such Shares.
Section 3. Term of Option. This Option may not be exercised after April 1,
2002 and is subject to earlier termination as provided in Section 4. In
addition, this Option is subject to cancellation by the Company upon a
significant corporate event as provided in Section 4 below. This Option may be
exercised during such times only in accordance with the terms of this Option
Agreement.
Section 4. Termination of Option Period.
(a) The unexercised portion of this Option shall automatically and
without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) thirty (30) days after the date that the Optionee ceases to
be employed by the Company or a subsidiary of the Company or ceases to
be a director, consultant or advisor to the Company or a subsidiary of
the Company, as the case may be, regardless of the reason therefor
other than as a result of such termination by reason of (x) death, (y)
mental or physical disability of the Optionee as determined by a
medical doctor satisfactory to the Company or (z) termination of the
Optionee's employment, status as director, or consulting contract or
advisory services, as the case may be, with the Company or a
subsidiary for Cause;
2
<PAGE>
The term "Cause," for the purposes of this Agreement, shall mean any
one or more of the following:
(w) Optionee's failure to carry out lawful directives of the
Chief Executive Officer of the Company.
(x) Optionee's performance of any criminal acts; (excluding
traffic violations and other minor offenses);
(y) Optionee's theft or embezzlement of property, including
trade secrets, of the Company; or
(z) Optionee's negligence in the performance of his duties.
(ii) one (1) year after the date on which the Optionee suffers a
mental or physical disability as determined by a medical doctor
satisfactory to the Company;
(iii) either (y) one (1) year after the date that the Optionee
ceases to be a director, consultant to or ceases to be employed by, as
the case may be, the Company or a subsidiary of the Company, by reason
of death of the Optionee, or (z) six (6) months after the date on
which the Optionee shall die, if the Optionee's death shall occur
during the thirty (30) day period described in Section 4(a)(i) or the
one-year period described in Section 4(a)(ii);
(iv) the date that the Optionee ceases to be a director,
consultant to or ceases to be employed by, as the case may be, the
Company or a subsidiary as a result of a termination for Cause; and
(v) December 31, 1999.
(b) The Company in its sole discretion may, by giving written notice
(a "Cancellation Notice") cancel, effective upon the date of the
consummation of any of the transactions described in Section 2(d), all or
any portion of this Option that remains unexercised on such date. Such
Cancellation Notice shall be given a reasonable period of time (but not
less than 15 days) prior to the proposed date of such cancellation, and may
be given either before or after stockholder approval of such transaction.
3
<PAGE>
(i) Any transaction (which shall include a series of transactions
occurring within 60 days or occurring pursuant to a plan) that has the
result that stockholders of the Company immediately before such
transaction cease to own at least 51% of (x) the voting stock of the
Company or (y) any entity that results from the participation of the
Company in a reorganization, consolidtion, merger, liquidation or any
other form of corporate transaction.
(ii) A sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company to an
unaffiliated third party.
Section 5. Adjustment of Shares.
(a) If at any time while unexercised Options are outstanding
hereunder, there shall be any increase or decrease in the number of issued
and outstanding shares of Common Stock through the declaration of a stock
dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of shares, then and in such event appropriate
adjustment shall be made in the number of Shares and the exercise price per
Share thereof then subject to this Option, so that the same proportion of
the Company's issued and outstanding shares shall remain subject to
purchase at the same aggregate exercise price.
(b) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection
with direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to this Option.
(c) Without limiting the generality of the foregoing, the existence of
this Option shall not affect in any manner the right or power of the
Company to make, authorize or consummate (i) any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business; (ii) any merger or consolidation of the
Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the Shares subject to this Option;
(iv) the dissolution or liquidation of the Company; (v) any sale, transfer
or assignment of all or any part of the assets or business of the Company;
or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
Section 6. Non-Assignability of Option. This Option may be transferred or
assigned by the Optionee only to family member, trusts for the benefit of the
Optionee or for the benefit of the Optionees family members, other entities for
the benefit of the Optionee, by will or by the laws of descent and distribution.
Other than these enumerated entities, the Option may not be transferred by the
Optionee.
Section 7. Issuance of Shares. No person shall be, or have any rights or
privileges of, a stockholder of the Company with respect to any of the Shares
subject to this Option unless and until certificates representing such Shares
have been issued and delivered to such person. As a condition of an issuance of
a stock certificate for Shares, the Company may obtain such agreements or
undertakings, if any, as it may deem necessary or advisable to assure compliance
with any provision of this Option Agreement or any law or regulation, including,
but not limited to, the following:
(a) The Optionee's representation and warranty to the Company, at the
time the Option is exercised, that the Shares to be issued are being
acquired for investment and not with a view to, or for sale in connection
with, the distribution of any such Shares; and
(b) the Optionee's representation, warranty or agreement to be bound
by any legends that are, in the opinion of the Company, necessary or
appropriate to comply with the provisions of any securities law deemed by
the Company to be applicable to the issuance of the Shares and to be
endorsed upon the certificates representing the Shares.
4
<PAGE>
Section 8. Administration of this Option.
(a) The determinations and the interpretation and construction of any
provision of this Option by the Company shall be final and conclusive.
(b) Subject to the express provisions of this Option, the Company
shall have the authority, in its sole and absolute discretion (i) to adopt,
amend, and rescind administrative and interpretive rules and regulations
relating to this Option; (ii) to construe the terms of this Option; (iii)
as provided in Section 5, upon certain events to make appropriate
adjustments to the exercise price and number of Shares subject to this
Option; and (iv) to make all other determinations and perform all other
acts necessary or advisable for administering this Option, including the
delegation of such ministerial acts and responsibilities as the Company
deems appropriate. The Company may correct any defect or supply any
omission or reconcile any inconsistency in this Option in the manner and to
the extent it shall deem expedient to carry it into effect, and it shall be
the sole and final judge of such expediency. The Company shall have full
discretion to make all determinations on the matters referred to in this
Section 8(b), and such determinations shall be final, binding and
conclusive.
Section 9. Government Regulations. The granting and exercise of this Option
and the obligation of the Company to sell and deliver Shares under this Option,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
Section 10. Law Governing. THIS OPTION IS INTENDED TO BE PERFORMED IN THE
STATE OF DELAWARE AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH STATE EXCEPT TO THE EXTENT DELAWARE LAW IS
PREEMPTED BY FEDERAL LAW.
Section 11. Notices. Whenever any notice is required or permitted under
this Option Agreement, such notice must be in writing and personally delivered
or sent by mail or delivery by a nationally recognized courier service. Any
notice required or permitted to be delivered under this Option Agreement shall
be deemed to be delivered on the date on which it is personally delivered, or,
if mailed, whether actually received or not, on the third Business Day after it
is deposited in the United States mail, certified or registered, postage
prepaid, addressed to the person who is to receive it at the address that such
person has previously specified by written notice delivered in accordance with
this subsection. The Company or the Optionee may change, at any time and from
time to time, by written notice to the other, the address that was previously
specified for receiving notices. Until changed in accordance with this Option
Agreement, the Company and the Optionee shall specify as its or his address for
receiving notices the address set forth in this Option Agreement pertaining to
the Shares to which such notice relates.
5
<PAGE>
Section 12. Miscellaneous.
(a) This Option is granted to the Optionee in accordance with that
certain Employment Agreement, dated April 1, 1997 (except for the reduction
in the exercise price as approved by the Board on the Date of Grant),
describing such Option and is in addition to any other stock option plans
of the Company or other benefits with respect to the Optionee's position
with or relationship to the Company or its subsidiaries. This Option shall
not confer upon the Optionee the right to continue as an employee,
consultant or advisor, or interfere in any way with the rights of the
Company to terminate the Optionee's status as an employee, consultant or
advisor.
(b) The members of the Board shall not be liable for any act, omission
or determination taken or made in good faith with respect to this Option,
and members of the Board shall, in addition to all other rights of
indemnification and reimbursement, be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage,
liability or expense (including attorneys' fees, the costs of settling any
suit, provided such settlement is approved by independent legal counsel
selected by the Company, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising from such claim,
loss, damage, liability or expense to the full extent permitted by law and
under any directors' and officers' liability or similar insurance coverage
that may from time to time be in effect.
(c) Any issuance or transfer of Shares to the Optionee, or to the
Optionee's legal representative, heir, legatee, or distributee, in
accordance with the provisions of this Option, shall, to the extent
thereof, be in full satisfaction of all claims of such persons under this
Option. The Company may require the Optionee, or any legal representative,
heir, legatee or distributee as a condition precedent to such payment or
issuance or transfer of Shares, to execute a release and receipt for such
payment or issuance or transfer of Shares in such form as it shall
determine.
(d) Neither the Board nor the Company guarantees Shares from loss or
depreciation.
(e) All expenses incident to the administration, termination, or
protection of this Option, including, but not limited to, legal and
accounting fees, shall be paid by the Company; provided, however, the
Company may recover any and all damages, fees, expenses and costs arising
out of any actions taken by the Company to enforce its rights under this
Option.
(f) Records of the Company shall be conclusive for all purposes under
this Option, unless determined by the Board to be incorrect.
(g) Any action required of the Company relating to this Option shall
be by resolution of the Board or by a person authorized to act by
resolution of the Board.
(h) If any provision of this Option is held to be illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining
provisions of this Option, but such provision shall be fully severable,
6
<PAGE>
and this Option shall be construed and enforced as if the illegal or
invalid provision had never been included in this Option.
(i) Any person entitled to notice under this Option may waive such
notice.
(j) This Option shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees upon the Company, its
successors, and assigns, and upon the Board and its successors.
(k) The titles and headings of Sections are included for convenience
of reference only and are not to be considered in construction of this
Option's provisions.
(l) Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Option dictates, the plural
shall be read as the singular and the singular as the plural.
DATE OF GRANT: TOUCAN GOLD CORPORATION
February 2, 1998
By: /s/ L. Clark Arnold
-----------------------------
L. Clark Arnold
Vice President - Exploration
ADDRESS:
8201 Preston Road
Suite 600
Dallas, Texas 75225
7
<PAGE>
Optionee hereby accepts this Option subject to all the terms and provisions
of this Option Agreement.
By: /s/ Robert P. Jeffcock
-----------------------------------
Robert P. Jeffcock
Optionee
----------------------------------------
(Social Security No.)
ADDRESS:
- -----------------------------------
- -----------------------------------
- -----------------------------------
8
STOCK OPTION AGREEMENT
TOUCAN GOLD CORPORATION
A Nonqualified Stock Option (the "Option") for a total of 50,000 shares
(the "Shares") of common stock, par value $.01 per share (the "Common Stock"),
of Toucan Gold Corporation (the "Company"), is hereby granted to Robert A.
Pearce (the "Optionee") pursuant to the terms of this Option Agreement (the
"Option Agreement").
Section 1. Exercise Price. The exercise price of the Option is $1.00 for
each Share.
Section 2. Exercise of the Option. This Option may be exercised at any time
after the Date of Grant, subject its expiration date and subject to the
provisions contained in Sections 3 and 4 below. This Option will expire by its
terms on December 31, 1999.
(a) Method of Exercise. Options shall be deemed properly exercised
when:
(i) the Company has received written notice of such exercise,
stating the number of Shares which are being purchased, delivered to
the Company and signed by the person or persons entitled to exercise
the Option and, if the Option is being exercised by any person or
persons other than the Optionee, be accompanied by proof, satisfactory
to the Company, of the right of such person or persons to exercise the
Option;
(ii) full payment of the exercise price of the Shares as to which
the Option is exercised has been tendered to the Company; and
(iii) arrangements that are satisfactory to the Board of
Directors of the Company (the "Board") in its sole discretion have
been made for the Optionee's payment to the Company of the amount, if
any, that the Company determines to be necessary for the Company to
withhold in accordance with applicable federal or state income tax
withholding requirements.
(b) Payment. The exercise price of any Shares purchased shall be paid
in cash, by certified or cashier's check, by money order or by personal
check (if approved by the Board).
1
<PAGE>
(c) Restrictions on Exercise.
(i) This Option may not be exercised if the issuance of the
Shares upon such exercise would constitute a violation of any
applicable federal or state securities or other law or valid
regulation. As a condition to the exercise of this Option, the Company
may require the exercising person to make any agreements and
undertakings that may be required by any applicable law or regulation.
(ii) Shares issued upon the exercise of this Option without
registration of such Shares under the Securities Act of 1933, as
amended (the "Act"), shall be restricted securities subject to the
terms of Rule 144 under the Act. The certificates representing any
such Shares shall bear an appropriate legend restricting transfer and
the transfer agent of the Company shall be given stop transfer
instructions with respect to such Shares.
Section 3. Term of Option. This Option may not be exercised after April 1,
2002 and is subject to earlier termination as provided in Section 4. In
addition, this Option is subject to cancellation by the Company upon a
significant corporate event as provided in Section 4 below. This Option may be
exercised during such times only in accordance with the terms of this Option
Agreement.
Section 4. Termination of Option Period.
(a) The unexercised portion of this Option shall automatically and
without notice terminate and become null and void at the time of the
earliest to occur of the following:
(i) thirty (30) days after the date that the Optionee ceases to
be employed by the Company or a subsidiary of the Company or ceases to
be a director, consultant or advisor to the Company or a subsidiary of
the Company, as the case may be, regardless of the reason therefor
other than as a result of such termination by reason of (x) death, (y)
mental or physical disability of the Optionee as determined by a
medical doctor satisfactory to the Company or (z) termination of the
Optionee's employment, status as director, or consulting contract or
advisory services, as the case may be, with the Company or a
subsidiary for Cause;
2
<PAGE>
The term "Cause," for the purposes of this Agreement, shall mean any
one or more of the following:
(w) Optionee's failure to carry out lawful directives of the
Chief Executive Officer of the Company.
(x) Optionee's performance of any criminal acts; (excluding
traffic violations and other minor offenses);
(y) Optionee's theft or embezzlement of property, including
trade secrets, of the Company; or
(z) Optionee's negligence in the performance of his duties.
(ii) one (1) year after the date on which the Optionee suffers a
mental or physical disability as determined by a medical doctor
satisfactory to the Company;
(iii) either (y) one (1) year after the date that the Optionee
ceases to be a director, consultant to or ceases to be employed by, as
the case may be, the Company or a subsidiary of the Company, by reason
of death of the Optionee, or (z) six (6) months after the date on
which the Optionee shall die, if the Optionee's death shall occur
during the thirty (30) day period described in Section 4(a)(i) or the
one-year period described in Section 4(a)(ii);
(iv) the date that the Optionee ceases to be a director,
consultant to or ceases to be employed by, as the case may be, the
Company or a subsidiary as a result of a termination for Cause; and
(v) December 31, 1999.
(b) The Company in its sole discretion may, by giving written notice
(a "Cancellation Notice") cancel, effective upon the date of the
consummation of any of the transactions described in Section 2(d), all or
any portion of this Option that remains unexercised on such date. Such
Cancellation Notice shall be given a reasonable period of time (but not
less than 15 days) prior to the proposed date of such cancellation, and may
be given either before or after stockholder approval of such transaction.
3
<PAGE>
(i) Any transaction (which shall include a series of transactions
occurring within 60 days or occurring pursuant to a plan) that has the
result that stockholders of the Company immediately before such
transaction cease to own at least 51% of (x) the voting stock of the
Company or (y) any entity that results from the participation of the
Company in a reorganization, consolidtion, merger, liquidation or any
other form of corporate transaction.
(ii) A sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company to an
unaffiliated third party.
Section 5. Adjustment of Shares.
(a) If at any time while unexercised Options are outstanding
hereunder, there shall be any increase or decrease in the number of issued
and outstanding shares of Common Stock through the declaration of a stock
dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of shares, then and in such event appropriate
adjustment shall be made in the number of Shares and the exercise price per
Share thereof then subject to this Option, so that the same proportion of
the Company's issued and outstanding shares shall remain subject to
purchase at the same aggregate exercise price.
(b) Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection
with direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to this Option.
(c) Without limiting the generality of the foregoing, the existence of
this Option shall not affect in any manner the right or power of the
Company to make, authorize or consummate (i) any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business; (ii) any merger or consolidation of the
Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the Shares subject to this Option;
(iv) the dissolution or liquidation of the Company; (v) any sale, transfer
or assignment of all or any part of the assets or business of the Company;
or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
Section 6. Non-Assignability of Option. This Option may be transferred or
assigned by the Optionee only to family member, trusts for the benefit of the
Optionee or for the benefit of the Optionees family members, other entities for
the benefit of the Optionee, by will or by the laws of descent and distribution.
Other than these enumerated entities, the Option may not be transferred by the
Optionee.
Section 7. Issuance of Shares. No person shall be, or have any rights or
privileges of, a stockholder of the Company with respect to any of the Shares
subject to this Option unless and until certificates representing such Shares
have been issued and delivered to such person. As a condition of an issuance of
a stock certificate for Shares, the Company may obtain such agreements or
undertakings, if any, as it may deem necessary or advisable to assure compliance
with any provision of this Option Agreement or any law or regulation, including,
but not limited to, the following:
(a) The Optionee's representation and warranty to the Company, at the
time the Option is exercised, that the Shares to be issued are being
acquired for investment and not with a view to, or for sale in connection
with, the distribution of any such Shares; and
(b) the Optionee's representation, warranty or agreement to be bound
by any legends that are, in the opinion of the Company, necessary or
appropriate to comply with the provisions of any securities law deemed by
the Company to be applicable to the issuance of the Shares and to be
endorsed upon the certificates representing the Shares.
4
<PAGE>
Section 8. Administration of this Option.
(a) The determinations and the interpretation and construction of any
provision of this Option by the Company shall be final and conclusive.
(b) Subject to the express provisions of this Option, the Company
shall have the authority, in its sole and absolute discretion (i) to adopt,
amend, and rescind administrative and interpretive rules and regulations
relating to this Option; (ii) to construe the terms of this Option; (iii)
as provided in Section 5, upon certain events to make appropriate
adjustments to the exercise price and number of Shares subject to this
Option; and (iv) to make all other determinations and perform all other
acts necessary or advisable for administering this Option, including the
delegation of such ministerial acts and responsibilities as the Company
deems appropriate. The Company may correct any defect or supply any
omission or reconcile any inconsistency in this Option in the manner and to
the extent it shall deem expedient to carry it into effect, and it shall be
the sole and final judge of such expediency. The Company shall have full
discretion to make all determinations on the matters referred to in this
Section 8(b), and such determinations shall be final, binding and
conclusive.
Section 9. Government Regulations. The granting and exercise of this Option
and the obligation of the Company to sell and deliver Shares under this Option,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
Section 10. Law Governing. THIS OPTION IS INTENDED TO BE PERFORMED IN THE
STATE OF DELAWARE AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH STATE EXCEPT TO THE EXTENT DELAWARE LAW IS
PREEMPTED BY FEDERAL LAW.
Section 11. Notices. Whenever any notice is required or permitted under
this Option Agreement, such notice must be in writing and personally delivered
or sent by mail or delivery by a nationally recognized courier service. Any
notice required or permitted to be delivered under this Option Agreement shall
be deemed to be delivered on the date on which it is personally delivered, or,
if mailed, whether actually received or not, on the third Business Day after it
is deposited in the United States mail, certified or registered, postage
prepaid, addressed to the person who is to receive it at the address that such
person has previously specified by written notice delivered in accordance with
this subsection. The Company or the Optionee may change, at any time and from
time to time, by written notice to the other, the address that was previously
specified for receiving notices. Until changed in accordance with this Option
Agreement, the Company and the Optionee shall specify as its or his address for
receiving notices the address set forth in this Option Agreement pertaining to
the Shares to which such notice relates.
5
<PAGE>
Section 12. Miscellaneous.
(a) This Option is granted to the Optionee in accordance with that
certain Employment Agreement, dated April 1, 1997 (except for the reduction
in the exercise price as approved by the Board on the Date of Grant),
describing such Option and is in addition to any other stock option plans
of the Company or other benefits with respect to the Optionee's position
with or relationship to the Company or its subsidiaries. This Option shall
not confer upon the Optionee the right to continue as an employee,
consultant or advisor, or interfere in any way with the rights of the
Company to terminate the Optionee's status as an employee, consultant or
advisor.
(b) The members of the Board shall not be liable for any act, omission
or determination taken or made in good faith with respect to this Option,
and members of the Board shall, in addition to all other rights of
indemnification and reimbursement, be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage,
liability or expense (including attorneys' fees, the costs of settling any
suit, provided such settlement is approved by independent legal counsel
selected by the Company, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising from such claim,
loss, damage, liability or expense to the full extent permitted by law and
under any directors' and officers' liability or similar insurance coverage
that may from time to time be in effect.
(c) Any issuance or transfer of Shares to the Optionee, or to the
Optionee's legal representative, heir, legatee, or distributee, in
accordance with the provisions of this Option, shall, to the extent
thereof, be in full satisfaction of all claims of such persons under this
Option. The Company may require the Optionee, or any legal representative,
heir, legatee or distributee as a condition precedent to such payment or
issuance or transfer of Shares, to execute a release and receipt for such
payment or issuance or transfer of Shares in such form as it shall
determine.
(d) Neither the Board nor the Company guarantees Shares from loss or
depreciation.
(e) All expenses incident to the administration, termination, or
protection of this Option, including, but not limited to, legal and
accounting fees, shall be paid by the Company; provided, however, the
Company may recover any and all damages, fees, expenses and costs arising
out of any actions taken by the Company to enforce its rights under this
Option.
(f) Records of the Company shall be conclusive for all purposes under
this Option, unless determined by the Board to be incorrect.
(g) Any action required of the Company relating to this Option shall
be by resolution of the Board or by a person authorized to act by
resolution of the Board.
(h) If any provision of this Option is held to be illegal or invalid
for any reason, the illegality or invalidity shall not affect the remaining
provisions of this Option, but such provision shall be fully severable,
6
<PAGE>
and this Option shall be construed and enforced as if the illegal or
invalid provision had never been included in this Option.
(i) Any person entitled to notice under this Option may waive such
notice.
(j) This Option shall be binding upon the Optionee, his legal
representatives, heirs, legatees and distributees upon the Company, its
successors, and assigns, and upon the Board and its successors.
(k) The titles and headings of Sections are included for convenience
of reference only and are not to be considered in construction of this
Option's provisions.
(l) Words used in the masculine shall apply to the feminine where
applicable, and wherever the context of this Option dictates, the plural
shall be read as the singular and the singular as the plural.
DATE OF GRANT: TOUCAN GOLD CORPORATION
February 2, 1998
By: /s/ Robert P. Jeffcock
-----------------------------
Robert P. Jeffcock, President
ADDRESS:
8201 Preston Road
Suite 600
Dallas, Texas 75225
7
<PAGE>
Optionee hereby accepts this Option subject to all the terms and provisions
of this Option Agreement.
By: /s/ Robert A. Pearce
-----------------------------------
Robert A. Pearce
Optionee
----------------------------------------
(Social Security No.)
ADDRESS:
- -----------------------------------
- -----------------------------------
- -----------------------------------
8
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following is a list of all subsidiaries, the state or other
jurisdiction of incorporation or organization of each, and the names under which
such subsidiaries do business:
1. Toucan Mining Limited ("Toucan Mining"), an exploration stage company
incorporated under the laws of the Isle of Man (British Isles), is a wholly
owned subsidiary of the Company.
2. Mineradora de Bauxita Ltda. ("MBL"), an authorized mining company organized
under the laws of Brazil, is a wholly owned subsidiary of Toucan Mining.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Article 5 for 10-KSB
</LEGEND>
<CIK> 0000850083
<NAME> Toucan Gold Corporation
<MULTIPLIER> 1
<CURRENCY> 1.00
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 504,795
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 521,170
<PP&E> 3,087,895
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,609,065
<CURRENT-LIABILITIES> 199,113
<BONDS> 0
0
0
<COMMON> 80,399
<OTHER-SE> 3,329,553
<TOTAL-LIABILITY-AND-EQUITY> 3,609,065
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 783,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (724,547)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (724,547)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
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