-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LQ6axXeR2LWxdvwjxz4U+7TUqZwH6uHY9ADaj0PgWHQdebrypWH5jreqZIGeP+Xr f9ARbfrNvG/9Qh53AnXlrA== 0000950137-98-001616.txt : 19980416 0000950137-98-001616.hdr.sgml : 19980416 ACCESSION NUMBER: 0000950137-98-001616 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARISTON CORP CENTRAL INDEX KEY: 0000781885 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 330645339 STATE OF INCORPORATION: A0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-13966 FILM NUMBER: 98594728 BUSINESS ADDRESS: STREET 1: 1500 WEST GEORGIA STREET SUITE 1555 STREET 2: VANCOUVER BRITISH COLUMBIA CITY: CANADA V6G 2Z6 STATE: A0 BUSINESS PHONE: 6046858514 MAIL ADDRESS: STREET 1: 1500 WEST GEORGIA ST STE 1555 STREET 2: VANCOUVER, BRITISH COLUMBIA CITY: CANADA V6G 2Z6 STATE: A0 10-K405 1 FORM 10-K405 1 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. ------------------------- FORM 10-K ------------------------- (MARK ONE) [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 no.: 0-13966 HARISTON CORPORATION (Exact name of Registrant as specified in its charter) Canada 33-0645339 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1500 W. GEORGIA ST., SUITE 1555, VANCOUVER, BRITISH COLUMBIA CANADA V6G 2Z6 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code): (604) 685-8514 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: ----------------- COMMON STOCK (Title of Class) ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, 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-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant computed by reference to the price at which the stock was sold; or the average bid and asked prices of such stock, was: $3,165,778 at April 6, 1998. Number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 12,663,113 shares of Common Stock, as of April 6, 1998. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference, and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933: None ================================================================================ 2 PART I ITEM 1. DESCRIPTION OF BUSINESS. HISTORY Hariston Corporation ("Hariston" or the "Company") is a Canadian holding company which has historically made investments in a wide variety of start-up or early-stage businesses. In July 1995 Hariston sold the operating subsidiaries of its Metanetix Division ("Metanetix"), a development-stage technology concern engaged in the recovery of minerals from contaminated water at a Butte, Montana facility, to Consolidated Western and Pacific Resources Corp. (since renamed Synergy Renewable Resources Inc.), its partner in the development of the Butte project, for a purchase price of up to $7 million(1) with payments dependent upon the Butte project's future profitability. The Butte project has not yet achieved profitability and Hariston has received no sale proceeds to date. In August 1995 Hariston sold its ownership interests in Canadian oil and gas properties to a private third party for $2.4 million in cash and the assumption of $979,000 of debt. During this period, the Company also sold a portion of the shares it held in Madison Partners Limited (since renamed Northpoint Corporation), a Canadian public company in which as of December 31, 1997 Hariston held 233,591 shares representing a 2.5% interest. In June 1995 Hariston incorporated a wholly-owned California subsidiary, CD-Soft Corporation, to pursue acquisitions in the multimedia software industry. This subsidiary was subsequently merged into a Delaware subsidiary named Educorp Multimedia, Inc. ("Educorp"). In August 1995 Educorp, through a wholly-owned subsidiary, acquired certain assets and liabilities of a CD-ROM catalog retailer and its affiliates, Gazelle Technologies, Inc. and Affiliates, doing business under the name "Educorp." Located in San Diego, this subsidiary was renamed Educorp Direct, Inc. ("Direct"). In January 1996 Educorp, through a wholly-owned subsidiary, purchased certain assets and liabilities of a book and multimedia software publisher known as HighText Publications, Inc. Also located in San Diego, this subsidiary was renamed HighText Interactive, Inc. ("HighText") and focused on the development and publishing of interactive adult education multimedia software. In February 1997 HighText reached agreement to sell its book publishing operations back to the individuals who were previously the principals of HighText Publications, Inc., in return for Hariston being relieved of its obligation to pay consideration in the form of Hariston common stock to the individuals equivalent to the after-tax income of the book publishing operations over a five year period. Until the sale of their multimedia software assets in December 1997 and February 1998 respectively, Direct and HighText were operated as the sole operating subsidiaries of Educorp. On December 19, 1997 Direct sold substantially all of its assets and operations, and transferred substantially all of its liabilities, to a wholly-owned subsidiary of Arch Publishers Group, Inc. ("APG"), for consideration consisting solely of a 15% equity interest in APG. APG is a private Elmsford, New York based publisher, reseller and distributor of educational and entertainment software. On February 13, 1998 HighText sold substantially all of its assets, and transferred substantially all of its liabilities, to Byron Preiss Multimedia Company, Inc. ("Preiss") for consideration consisting solely of 150,000 shares of common stock of Preiss subject to adjustment intended to provide $1.33 in proceeds per share for shares sold during the six months period beginning on February 13, 1999. Preiss is a developer of educational software and a publisher of - -------- (1) Unless otherwise indicated, all dollar amounts herein are in U.S. Dollars. 2 3 books and software for educational and consumer markets. Preiss is a public company whose common shares trade on the Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol "CDRM". Hariston's other significant asset as of December 31, 1996 was its minority shareholding in Polish Life Improvement S.A. ("PLI"), a Kielce, Poland based retailer co-founded by the Company in 1993. As of December 31, 1996 Hariston retained 1,820,566 common shares in PLI or a 25.8% interest. PLI is publicly traded on the parallel market to the Warsaw Stock Exchange under the symbol "PLI", and operates a chain of home-improvement stores in Poland under the name "NOMI". During 1997 Hariston sold all of its PLI shares, realizing net proceeds of $6,756,786. These sales were undertaken in order to use the proceeds to repay current indebtedness and to provide partial funding of the acquisition of a controlling interest in an operating business outside of the multimedia software industry. In February 1997 Hariston entered into a letter of intent to acquire certain assets, and assume certain liabilities, of a Pennsylvania based aerospace products manufacturer but in April 1997 the seller withdrew the operation from sale. A number of other acquisition opportunities were subsequently examined during 1997, including a Massachusetts based food products manufacturer and a Connecticut based shopping incentives marketer, but Hariston was unable to reach acceptable terms for concluding an acquisition. In September 1997 Hariston commenced discussions with various European parties about investing in business operations in Poland and a related private placement of treasury shares. Certain Polish operations were identified for possible acquisition and were visited by Hariston's management in October and November, 1997. The private placement financing was scheduled to close by year-end but in January 1998 Hariston received notice that the funds would not be forthcoming. In reaction, Hariston both broadened the number of parties with which it was in discussions and streamlined its investment plans for Poland to reduce the amount of immediately required financing. Discussions with these parties are ongoing. Going forward, Hariston's strategy is to seek acquisition or businesses opportunities that offer the possibility for significant income or capital gains appreciation, to be earned in a manner that utilizes the Company's significant tax losses, while minimizing down-side risk. Management is mindful of the need to avoid both undue equity dilution and undue leverage and will seek to raise only such financing as is necessary to give effect to a particular transaction or series of transactions while maintaining a margin of liquidity. EDUCORP MULTIMEDIA, INC. ("EDUCORP") Educorp is an inactive company which as of December 31, 1997 held, and continues to hold, a 15% shareholding in Arch Publishers Group, Inc. ("APG"), a private Elmsford, New York based publisher, reseller and distributor of educational and entertainment software. During 1996 and most of 1997, Educorp was an early-stage developer, publisher and distributor of interactive multimedia software with a strategic focus on adult education titles. Educorp operated through its two subsidiaries, Direct (primarily engaged in direct response sales and marketing) and HighText (primarily engaged in software development and publishing). During 1997 in order to conserve cash, Hariston significantly reduced the level of funding it provided to Educorp and in response, both Direct and HighText took measures to reduce their costs. The impact on HighText was relatively severe as it was not generating significant revenues. By March 31, 1997 HighText had ceased all software development activities, laid off all but one employee and closed its offices. Responsibility for the sales and marketing of HighText's product line was transferred to Direct and HighText became essentially inactive though it continued to generate revenues from sales of its inventory. On December 19, 1997 Direct sold substantially all of its assets and operations, becoming an inactive holding company thereafter. On February 13, 1998 HighText sold substantially all of its assets. 3 4 BUSINESS STRATEGY. Hariston's strategy to grow Educorp had been to develop, publish, and distribute interactive "adult education" software titles that satisfied the demand for interactive multimedia software by the adult consumer, higher education, and corporate management and training market segments. This strategy was the reason for Educorp's January 1, 1996 purchase of the HighText operations, as HighText had developed several multimedia CD-ROM software titles aimed at this target market. However, HighText did not achieve significant sales of its multimedia CD-ROM titles in 1996 or 1997. Additionally, Direct experienced disappointing sales and low gross margins in 1996 and 1997 due primarily to a decline in average realized prices for multimedia CD-ROM software titles and an increased number of direct and indirect competitors. Assessing the 1996 results, Hariston's Board and management concluded in January, 1997 that the poor economics of the multimedia software publishing and distribution industry for a small company without a recognized brand name, large distribution network or deep-pockets partner were such that Hariston's shareholders would be better served by Hariston withdrawing from the multimedia software industry and investing its limited resources in an industry or business with higher expected returns. Accordingly, during 1997 management actively pursued the sale of the Educorp operations and in December 1997 and February 1998 the assets of Direct and HighText were sold. During 1997 Hariston's Board and management devoted much time and attention to analyzing and pursuing specific acquisition opportunities and business plans in a number of different industries. However, the Company was unable to conclude an acquisition or related financing on satisfactory terms. After Hariston and its subsidiaries became inactive (ceased generating revenues from active business operations) in December 1997, the Board and management redoubled their efforts to locate another business for the Company to engage in. The Board and management are confident that a positive new direction for the Company will be set in 1998. INDUSTRY BACKGROUND. On the December 19, 1997 sale of Direct's operations, Hariston and its subsidiaries became inactive. PRODUCTS; PRODUCT DEVELOPMENT; SALES AND MARKETING; DISTRIBUTION. Since the sale of Direct's operations in December 1997, Hariston and its subsidiaries have not produced or sold a product, engaged in product development activities, or engaged in sales and marketing or distribution activities. COMPETITION. On behalf of the Company, Hariston's Board and management are currently pursuing certain acquisition opportunities and related financing arrangements. Competition for attractive acquisition targets is keen. The amount of capital allocated to financial buyers including venture capital and leveraged buyout funds is at an all-time high. Strategic acquirers are also extremely active. However, the Board and management believe that Hariston will be able to conclude one or more transactions during 1998 on beneficial terms for the Company. INTELLECTUAL PROPERTY. All intellectual property was disposed of in December 1997 and February 1998 on the sale of the assets of Direct and HighText, respectively. SEASONALITY. The Company is currently inactive. It is probable that when the Company recommences operations, such operations will be subject to a seasonal effect. EMPLOYEES. As of December 31, 1996 the Company employed in its Educorp operations 44 people on a full-time basis. This figure declined to 24 by March 31, 1997, 14 by June 30, 1997 and 7 by September 30, 1997. After the sale of Direct's operations in December 1997, one person was left employed by Educorp until March 31, 1998. At the Hariston and EuroEastern legal entities level, five people were employed as of December 31, 1996 and three on December 31, 1997 of which two are full-time. The Board believes that this is the minimum number of employees required to conduct the Company's affairs. The Company and its employees are not parties to any employment or collective bargaining agreements. 4 5 POLISH LIFE IMPROVEMENT S.A. PLI was formed in February 1993 for the purpose of engaging in various retail businesses in Poland. PLI began operations with a supermarket, grocery store/delicatessen, and consumer electronics store in Kielce, Poland. Shortly after the company's formation, PLI converted the electronics store into a small do-it-yourself home-improvement store and focused future expansion efforts on retail supermarkets and home-improvement stores. Hariston provided the initial expansion capital to open new stores in exchange for an 80% ownership position in PLI. In December 1994 PLI completed its initial public offering and in February 1996 PLI's shares of common stock were approved by the Polish Securities Commission for trading on the parallel market to the Warsaw Stock Exchange. As of December 31, 1996 PLI operated six "NOMI" home-improvement stores. The NOMI stores carry building materials, plumbing and electrical supplies, hardware, paint, gardening supplies, and home decorating items. As of December 31, 1996 the supermarkets were no longer held by PLI. In December 1995 PLI sold a 51% interest in its supermarket subsidiary to a joint venture controlled by Royal Ahold NV, one of the world's largest food retailers, for $10.5 million. In July, 1996 PLI sold the remaining 49% interest to the Royal Ahold joint venture for $9.4 million. Following share issuances by PLI, sales by Hariston of its PLI stock and Hariston's receipt of PLI shares on the settlement of a note in default, as of December 31, 1996 Hariston owned 1,820,566 PLI common shares or 25.8% of the issued and outstanding stock of PLI. During the first and second quarters of 1997 Hariston, through private and open market sales, sold all of its remaining PLI shares realizing net proceeds of $6,756,786 including a $1.5 million note receivable of which $500,000 remained to be collected as of December 31, 1997. The $500,000 amount was subsequently received by the Company on April 3, 1998. ITEM 2. PROPERTIES. PRESENT OPERATIONS The Company's registered head office is located in Vancouver, British Columbia at the offices of the Company's Canadian legal counsel. The Company's principal executive offices are located in Vancouver, British Columbia in facilities occupied pursuant to a lease expiring on November 30, 1998. During 1997 the Company, through its subsidiaries, also leased a facility in San Diego, California of approximately 12,000 square feet, housing the Educorp operations. This facility was occupied pursuant to a short-term lease. Effective September 1, 1997 the Company reduced costs by reducing by approximately 1/2 the area of leased premises in the San Diego facility. Effective January 1, 1998 the San Diego facility lease was assumed by the purchaser of the Direct operations. The purchaser terminated the lease effective March 1, 1998 and moved the former Direct operations to Elmsford, New York. ITEM 3. LEGAL PROCEEDINGS. CAPOZZI, ET AL. V. HARISTON CORPORATION, ET AL. In this action, originally filed in the United States Federal District Court, District of Connecticut, the plaintiffs originally claimed that the Company deprived them of options to acquire stock to which they were allegedly entitled, that they did not receive their rightful share of proceeds of a settlement between the Company and Telecom USA, and that the Company and Mr. Irving Kott, another defendant in this matter, failed to provide them with correct information concerning the Company causing them to lose money in purchasing and selling the Company's stock on the open market. The damages claimed in this matter were an aggregate of approximately $800,000, together with treble damages as to certain of the alleged claims. The Company's motion to dismiss this action on the grounds of improper venue was granted on March 29, 1995, subject to the plaintiffs' rights to appeal this ruling or recommence this action in another forum. 5 6 The plaintiffs recommenced this action in respect of the allegation that Mr. Irving Kott failed to provide them with correct information concerning the Company causing them to lose money on the purchase and sale of the Company's stock on the open market, on September 22, 1995 in the Superior Court of the Province of Quebec, District of Montreal (Case No. CSM: 500-05-010184-958). The defendants include the Company and Mr. Irving Kott. In this case, the plaintiffs seek damages of approximately $83,000 (Cdn$111,857). As refiled, the plaintiffs allege that Mr. Kott controlled the Company and that he made misrepresentations concerning the Company on behalf of himself and the Company which caused the plaintiffs to suffer a loss in 1990 in connection with the plaintiffs' transactions in the stock of the Company. The Company believes the claim is without merit and intends to vigorously defend this matter. However, the outcome of the lawsuit is not currently determinable. The plaintiffs also filed an action in respect of the allegation that the Company deprived them of options to acquire stock to which they were legally entitled, on February 24, 1997 in the Supreme Court of the Province of British Columbia, Vancouver Registry (Case No. C971045). The defendants include the Company and Mr. Irving Kott. In this case, the plaintiffs seek damages of $560,000. The plaintiffs allege that Mr. Kott controlled the Company and that he made misrepresentations on behalf of the Company concerning the exercisability of stock options granted by the Company, which caused the plaintiffs to suffer a loss in 1993 when the Company did not allow the plaintiffs to exercise the stock options on the grounds that the plaintiffs had left the employ of the Company. The Company believes the claim is without merit and intends to vigorously defend this matter. However, the outcome of the lawsuit is not currently determinable. MEADLOCK, ET AL. V. HARISTON CORPORATION, ET AL. In this action, filed in January 1997 in the Circuit Court of Brevard County, Florida, State of Florida, the plaintiffs claim that in 1993 the Company committed fraud, negligent misrepresentations, civil theft and other wrongful acts pursuant to the law of the State of Florida in that the Company deprived them of their shares in Bullion International, Inc. by willful misrepresentations made by Mr. Irving Kott and other defendants on behalf of themselves and the Company. The defendants include the Company and Messrs. Irving Kott and Michael Kott. The damages claimed in this lawsuit are in an unspecified amount. However, legal counsel for the plaintiffs separately proposed by letter to Hariston settlement of the lawsuit if Hariston were to pay $3,000,000 to the plaintiffs, being threefold the damages purported in the letter to have been sustained by the plaintiffs. The Company believes that it has been indemnified by co-defendant Michael Kott or an entity controlled by him against any liability in this matter. The Company believes the claim is without merit and intends to vigorously defend this matter. However, the outcome of the lawsuit is not currently determinable. FORMER MONTANA OPERATIONS Until mid-1995 the Company's former subsidiary Metanetix Corporation ("Metanetix") was engaged in the business of developing technology for the removal of minerals and other inorganic compounds from water, soil and sludge. In connection with these development efforts, Metanetix and affiliated corporations operated a laboratory and plant in Butte, Montana, at the site of a former copper mine which held large volumes of contaminated water. The Metanetix operations involved, among other things, treating contaminated water extracted from the mine, and returning the treated water to the mine shaft. This mine and surrounding areas are part of a Superfund Area designated by the Environmental Protection Agency ("EPA") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). Under CERCLA, the EPA designates "potentially responsible parties," including current and former owners of property or property rights in the Superfund Area, and operators in connection therewith, as parties who may be jointly and severally liable for clean-up costs attributable to hazardous materials on and from their properties. In April 1994 and May 1995, the Company received letters from the EPA indicating that the EPA believes Metanetix to be a "potentially responsible party." As of June 1995, the EPA was undertaking "remedial investigations" and "feasibility studies" to define the nature of the contamination and to evaluate alternatives to the remedial actions to remove or contain hazardous substances in areas including the properties at which the former Metanetix operations were conducted. No further correspondence has been received from the EPA. 6 7 Because of the Company's status as former parent corporation to Metanetix, and as a result of Metanetix's amalgamation with the Company in January 1995, the Company may be a "potentially responsible party" with respect to clean-up costs and other statutory liabilities (including fines) relating to the Butte operations. In June 1995 the Company sold all of its stock in Metanetix's operating subsidiaries to Consolidated Western and Pacific Resources Corp. (since renamed Synergy Renewable Resources Inc.), its joint venture partner in the development of, and the legal owner of the property underlying, the Butte plant. The designation of a party as a "potentially responsible party" under CERCLA does not necessarily mean that the party is liable under CERCLA, or that the EPA has decided to assert a CERCLA claim against that party. Neither the EPA nor any other governmental agency has made any formal claim that the Company is liable under CERCLA or any other similar statute with respect to the Butte operations. No assurance can be given, however, that such a claim will not be made in the future. If such a claim is made and is successful, the costs, damages and fines that may be imposed on the Company as a result could be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The 1997 Annual Meeting of Shareholders was held on December 12, 1997. The matters voted on, and the votes cast, were as follows: 1. In respect of the election of Directors as follows: James P. Angus FOR: 4,806,356 WITHHELD: 15,144 Nuno Brandolini FOR: 4,806,272 WITHHELD: 15,228 Neil S. MacKenzie FOR: 4,806,292 WITHHELD: 15,208 Kevin R. McCarthy FOR: 4,806,456 WITHHELD: 15,044 L. James Porter FOR: 4,795,436 WITHHELD: 26,064
2. In respect of the appointment of Arthur Andersen, Chartered Accountants, as the Auditors of the Corporation and authorizing the Directors to fix the remuneration to be paid to the Auditors, as follows: FOR: 4,807,689 WITHHELD: 14,000 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Until and including March 7, 1997 the Company's Common Stock traded on the SmallCap Market tier of The Nasdaq Stock Market in the United States. Effective March 10, 1997 the Company's Common Stock began trading on the "Pink Sheets" inter-dealer market in the United States. Effective April 10, 1997 the Company's Common Stock began trading on the OTC Bulletin Board in the United States, an over-the-counter market regulated by the NASD. The Company's trading symbol remains "HRSNF". As of April 6, 1998 there were 3,937 shareholders of record, some of which are street name holders and depository trusts representing an unknown number of beneficial holders of Common Stock. The Company has not historically paid cash dividends on its Common Stock and intends to retain earnings for the foreseeable future for use in its business. 7 8 The following table sets forth the price range of the high and low sale price per share of Common Stock for each of the quarterly periods shown below:
High Low $ (U.S.) (U.S.) ------ ------ 1996: First Quarter 3 7/8 2 1/8 Second Quarter 2 1 Third Quarter 1 3/4 1 Fourth Quarter 1 7/16 1/4 1997: First Quarter 97/256 5/64 Second Quarter 1/4 9/128 Third Quarter 17/128 1/16 Fourth Quarter 5/16 1/128
There are no governmental laws, decrees or regulations in Canada relating to restrictions on the import of capital or affecting the remittance of interest, dividends or other payments to non-resident holders of the Company's shares, except for withholding tax provisions discussed below. There are no limitations on the right of non-resident or foreign owners to hold or vote the shares of the Company, except as provided in the Investment Canada Act (the "Act"). The Act provides for the review and approval by the Canadian government of direct or indirect acquisitions of control of Canadian businesses where the investment exceeds specified thresholds, and for the divestment of investments which have not been approved. The Company is not aware of any such control positions held by United States investors. Generally, dividends paid by Canadian corporations to non-resident shareholders are subject to a withholding tax of 25% of the gross amount of such dividends. However, Article X of the reciprocal tax treaty between Canada and the United States reduces to 15% the withholding tax on the gross amount of dividends paid to residents of the United States. A further reduction in the withholding tax rate may be applicable when a U.S. resident owns at least 10% of the voting stock of the Canadian corporation paying the dividends. The Company is not aware of any individual or corporation owning 10% or more of the Company's voting stock. A nonresident who holds shares of the Company as capital property will not be subject to tax in Canada on capital gains realized on the disposition of such shares unless such shares are "taxable Canadian property" within the meaning of the Income Tax Act (Canada) and no relief is afforded under any applicable tax treaty. The shares of the Company would be taxable Canadian property of a nonresident if at any time during the five year period immediately preceding a disposition by the nonresident of such shares not less than 25% of the issued shares of any class of the Company belonged to the nonresident and/or to a person with whom the nonresident did not deal at arm's length. Shares of stock in the Company held by a citizen or resident of the United States would normally be subject to tax on capital gains upon disposition under the laws of the United States. ITEM 6. SELECTED FINANCIAL DATA. Set forth below is selected financial data for the Company for the fiscal years ended December 31, 1993 to December 31, 1997. 8 9 SELECTED FINANCIAL DATA FOR HARISTON CORPORATION AND SUBSIDIARIES (in thousands except per share data)(1)
YEAR ENDED YEAR ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------- ------------------ ADJUSTED TO ADJUSTED TO CANADIAN CONFORM TO CANADIAN CONFORM TO GAAP U.S. GAAP GAAP U.S. GAAP ------- ------- ------- ------- Operating Revenue: Rent and Other ............................ $ -- $ -- $ -- $ -- ------- ------- ------- ------- Total Revenue (2) ......................... -- -- -- -- Income Before Discontinued Operations ..... 4,509 4,501 554 473 Discontinued Operations Income (Loss): Loss from Multimedia Operations ........... (1,284) (1,284) (3,719) (3,719) Loss on Disposal of Multimedia Operations.. (923) (923) (1,800) (1,800) ------- ------- ------- ------- Total ................................... (2,207) (2,207) (5,519) (5,519) Net Income (Loss) ......................... 2,302 2,294 (4,965) (5,046) Net Income (Loss) Per Share: Continuing Operations ..................... 0.35 0.35 0.05 0.05 Discontinued Operations ................... (0.17) (0.17) (0.47) (0.47) ------- ------- ------- ------- Total Income (Loss) Per Share ........... 0.18 0.18 (0.42) (0.42) Total Assets (3) .......................... 4,055 4,055 7,910 7,910 Long-Term Debt (3) ........................ -- -- 201 201 Cash Dividends Per Common Share ........... $ -- $ -- $ -- $ -- ======= ======= ======= =======
- ---------- (1) All amounts in U.S. dollars. (2) Excluded are revenues from discontinued multimedia software and book operations ($2,163 in 1997, $6,334 in 1996). (3) As of December 31 of the year indicated. 9 10 SELECTED FINANCIAL DATA FOR HARISTON CORPORATION AND SUBSIDIARIES (in thousands except per share data)(1)
YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1994 ------------------- ------------------ ADJUSTED TO ADJUSTED TO CANADIAN CONFORM TO CANADIAN CONFORM TO GAAP U.S. GAAP GAAP U.S. GAAP -------- -------- -------- -------- Operating Revenue: Rent and Other ....................... 21 21 22 22 -------- -------- -------- -------- Total Revenue (2) .................... 21 21 22 22 Loss Before Discontinued Operations .. (1,296) (1,372) (1,736) (1,511) Discontinued Operations Income (Loss): Multimedia Operations ................ (507) (507) -- -- Polish Retail ........................ -- -- (1,289) (1,289) Factoring Operation .................. (5) (5) 128 128 Minerals Recovery Project ........... (321) (321) (12,478) (9,185) Oil and Gas Interests ................ 1,306 1,306 678 678 -------- -------- -------- -------- Total .............................. 473 473 (12,961) (9,668) Net Loss ............................. (823) (899) (14,697) (11,179) Net Income (Loss) Per Share: Continuing Operations ................ (0.13) (0.14) (0.16) (0.14) Discontinued Operations .............. 0.05 0.05 (1.19) (0.89) -------- -------- -------- -------- Total Loss Per Share ............... (0.08) (0.09) (1.35) (1.03) Total Assets (3) ..................... 10,188 10,188 7,829 7,646 Long-Term Debt (3) ................... 3,500 3,500 1,238 1,238 Cash Dividends Per Common Share ...... $ -- $ -- $ -- $ -- ======== ======== ======== ========
(1) All amounts in U.S. dollars. (2) Excluded are revenues from discontinued multimedia software and book operations ($2,805 in 1995), revenues from discontinued Polish retail operations ($5,179 in 1994), revenues from discontinued factoring operations ($576 in 1994) and revenues from discontinued oil and gas operations ($562 in 1995, $1,586 in 1994). (3) As of December 31 of the year indicated. 10 11 SELECTED FINANCIAL DATA FOR HARISTON CORPORATION AND SUBSIDIARIES (in thousands except per share data)(1)
YEAR ENDED DECEMBER 31, 1993 ADJUSTED TO CANADIAN CONFORM TO GAAP U.S. GAAP -------- -------- Operating Revenue: Rent and Other ....................... $ 62 $ 62 -------- -------- Total Revenue (2) .................... 62 62 Loss Before Discontinued Operations .. (1,374) (1,995) Discontinued Operations Income (Loss): Polish Retail ........................ (399) (399) Factoring Operation .................. (115) (115) Minerals Recovery Project ............ -- (3,382) Oil and Gas Interests ................ 565 565 -------- -------- Total .............................. 51 (3,331) Net Loss ............................. (1,323) (5,326) Net Income (Loss) Per Share: Continuing Operations ................ (0.19) (0.27) Discontinued Operations .............. 0.01 0.45 -------- -------- Total Loss Per Share ............... (0.18) (0.72) Total Assets (3) ..................... 24,639 21,491 Long-Term Debt (3) ................... 1,238 1,238 Cash Dividends Per Common Share ...... $ -- $ -- ======== ========
(1) All amounts in U.S. dollars. (2) Excluded are revenues from discontinued Polish retail operations ($5,689), revenues from discontinued factoring operations ($637) and revenues from discontinued oil and gas operations ($1,575). (3) As of December 31 of the year indicated. 11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following information should be read in conjunction with the consolidated financial statements and the notes thereto included, or incorporated by reference, in Item 8. OVERVIEW During 1997 Hariston divested or discontinued its multimedia software and book publishing and distribution operations, setting the stage for the Company to pursue new business opportunities in 1998. Prior to entering into the multimedia software business in August 1995, the Company had participated in such diverse businesses and investments as environmental remediation technology, oil and gas working and royalty interests, receivables factoring, retailing of sports memorabilia and commemorative coins, and Polish supermarkets and home-improvement stores. The Company currently has no operations and the Board and management are actively pursuing new business opportunities and related financing. Effective July 19, 1996 Hariston appointed a new Chief Executive Officer and President. The new management team completed a review of the Company's operations and concluded that a change in strategic direction would be in the best interests of shareholders. Given the disappointing results of the Company's multimedia software and book operations, management considered various alternatives in order to maximize long-term shareholder value and after careful consideration, in January 1997 management and Hariston's Board determined that the multimedia operations should be sold. The Company's multimedia operations were conducted through HighText Interactive, Inc. ("HighText") and Educorp Direct, Inc. ("Direct"), both wholly-owned subsidiaries of Hariston's wholly-owned subsidiary Educorp Multimedia, Inc. ("Educorp"). On February 21, 1997 HighText reached agreement to sell its book publishing operations back to the individuals who were previously the principals of HighText Publications, Inc., the company from which the operations had been originally purchased, in return for Hariston being relieved of its obligation to pay consideration in the form of Hariston common stock to the individuals equivalent to the after-tax income of the book publishing operations over a five year period. On December 19, 1997 Direct sold substantially all of its assets and operations, and transferred substantially all of its liabilities, to a wholly-owned subsidiary of Arch Publishers Group, Inc. ("APG"), for consideration consisting solely of a 15% equity interest in APG. APG is a private Elmsford, New York based publisher, reseller and distributor of educational and entertainment software. On February 13, 1998 HighText sold substantially all of its assets, and transferred substantially all of its liabilities, to Byron Preiss Multimedia Company, Inc. ("Preiss") for consideration consisting solely of 150,000 shares of common stock of Preiss subject to adjustment intended to provide $1.33 in proceeds per share for shares sold during the six months period beginning on February 13, 1999. Preiss is a developer of educational software and a publisher of books and software for educational and consumer markets. Preiss is a public company whose common shares trade on the Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol "CDRM". During 1997 the Company sold all of its remaining shares in Polish Life Improvement S.A. ("PLI"). See "Investments: Polish Life Improvement S.A." CHANGES IN CORPORATE STRUCTURE In June 1995 Hariston incorporated a wholly-owned California subsidiary, CD-Soft Corporation, to pursue a strategy of focusing on the multimedia software publishing and distribution business. In July 1995 CD-Soft Corporation incorporated a wholly-owned California subsidiary, CD-Soft Source Corporation, for the purpose of acquiring 12 13 substantially all of the assets of a group of businesses operating under the name "Educorp". Effective March 8, 1996 this subsidiary was renamed Educorp Direct, Inc. In December 1995 CD-Soft Corporation formed a second wholly-owned California subsidiary, CD-Soft Press Corporation, for the purpose of acquiring substantially all of the assets and selected liabilities of HighText Publications, Inc. Effective January 22, 1996 this subsidiary was renamed HighText Interactive, Inc. In March 1996 CD-Soft Corporation was merged into Educorp Multimedia, Inc., a wholly-owned Delaware subsidiary of Hariston formed in January 1996. Upon this merger, Educorp Multimedia, Inc. became the holding company for all of Hariston's multimedia software and book development, publishing and distribution operations. In October 1995 Hariston formed a wholly-owned Delaware subsidiary, EuroEastern Investment Corporation ("EuroEastern"), for the purpose of pursuing investment opportunities in central and eastern Europe. This company has been largely inactive to date. CHANGES IN MANAGEMENT AND BOARD OF DIRECTORS Effective July 19, 1996 James V. McGoodwin resigned as Hariston's President and Chief Executive Officer. He also resigned from the Company's Board and from his positions with Hariston's affiliated and subsidiary companies. Mr. McGoodwin had served as a Director and Officer of the Company since December 1994 and left to pursue other interests. Concurrent with Mr. McGoodwin's departure, Nuno Brandolini, a Hariston Director and President of Hariston's wholly-owned subsidiary EuroEastern Investment Corporation, was appointed as Hariston's Chief Executive Officer and was elected Chairman of the Board, and Kevin R. McCarthy was appointed as Hariston's President and was elected to the Board. Effective December 11, 1997 Nuno Brandolini and Kevin R. McCarthy resigned from their positions with Hariston and from the Board. They also resigned from their positions with Hariston's affiliated and subsidiary companies. Messrs. Brandolini and McCarthy resigned in order to concentrate their energies on running Scorpion Holdings, Inc., a private financial advisory company of which they are Chief Executive Officer and President, respectively. Concurrent with Messrs. Brandolini and McCarthy's departure, James P. Angus, a Hariston Director since December 1994, was appointed as Hariston's President and Chief Executive Officer and was elected Chairman of the Board. RESULTS OF OPERATIONS COMPARISON OF TWELVE MONTH PERIOD ENDED DECEMBER 31, 1997 TO TWELVE MONTH PERIOD ENDED DECEMBER 31, 1996 The Company earned consolidated net income of $2,301,178 for the fiscal year ended December 31, 1997, consisting of $4,508,309 of net income from continuing operations offset by a $2,207,131 loss attributable to the discontinued multimedia operations. The $4,508,309 of net income from continuing operations consisted of $4,573,523 of net income earned by Hariston offset by a $57,660 loss attributable to EuroEastern and $7,554 of corporate expenses incurred by Educorp. The $4,573,523 of net income earned at the Hariston legal entity level consisted of $5,571,441 gain on sale of PLI shares and $99,998 of net interest income, offset by $37,083 of foreign exchange loss and $1,060,833 of corporate expenses. An analysis of the 1997 results and a comparison to 1996 results is presented below. Discussion of the Educorp multimedia operations is limited as these operations are discontinued. 13 14 EDUCORP DISCONTINUED OPERATIONS The Educorp operations generated consolidated revenues of $2,162,743 and incurred a net loss of $2,207,131 for the period January 1, 1997 to December 19, 1997. The Direct operations were sold as of December 19, 1997 and HighText ceased sales of its inventory and became inactive at that time. The $2,207,131 net loss figure consisted of $1,284,553 loss from operations, $744,294 of write-downs of intangible assets taken during the third quarter and $178,284 of loss booked in the fourth quarter on disposition of Direct's operations and cessation of HighText's sales. For full-year reporting purposes, the third quarter write-downs represent loss on disposition, such that the loss on disposal of the multimedia software operations totals $922,578. By comparison, the Educorp operations generated revenues of $6,333,989 and incurred a net loss of $5,518,570 for the year ended December 31, 1996, comprised of $3,718,570 loss from operations and $1,800,000 of write-downs of goodwill. The Educorp operations generated losses each quarter during 1996 and 1997 and sales revenues and gross margins declined over this time principally due to the high level of competition experienced in the multimedia CD-ROM retail and wholesale distribution businesses, as well as a decline in sales of Macintosh CD-ROM titles. After examining various alternatives, in January 1997 Hariston's Board adopted a plan to dispose of or discontinue the Educorp operations. Direct's operations were sold on December 19, 1997 and HighText's sales ceased at that time. HighText's assets were sold on February 13, 1998. HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES The majority of Hariston's $1,060,833 of non-consolidated operating and corporate expenses for 1997 consisted of $313,418 of salaries and consultants fees, $325,103 of legal fees, $76,252 of accounting, audit and tax return preparation fees, $86,554 of shareholder communication costs including transfer agent fees, $62,640 of insurance costs, $74,734 of travel costs, $23,819 of rent expense and $23,659 of directors fees. Hariston incurred exceptional legal fees and consultants fees during the fourth quarter due to the sale of its Educorp operations. By comparison, the majority of Hariston's $1,360,677 of non-consolidated operating and corporate expenses for 1996 consisted of $493,521 of salaries and consultants fees, $313,702 of legal fees, $130,475 of accounting, audit and tax return preparation fees, $126,680 of shareholder communication costs including transfer agent and investor relations firm fees, $76,523 of insurance costs, $48,571 of travel costs, $45,024 of rent expense, and $25,850 of directors fees. Hariston incurred exceptional salaries and consultants fees during the third and fourth quarters of 1996 due to the closure of its Costa Mesa, California offices. Hariston incurred significant non-recurring legal and accounting fees during the first and second quarters as a consequence of the filings and disclosures required in connection with the August 25, 1995 acquisition of the Direct operations and the January 1, 1996 acquisition of the HighText operations. EuroEastern's $57,660 of non-consolidated operating and corporate expenses for 1997 consisted of $37,873 of consultant's fees including travel costs reimbursement, $5,049 of secretarial fees, $10,250 of rent expense and $4,488 of telephone, courier and other charges. By comparison, in 1996 EuroEastern incurred $140,285 of operating and corporate expenses, consisting of $72,899 of consultant's fees including travel cost reimbursement, $19,355 of secretarial fees, $38,686 of rent expense and $9,345 of telephone, courier and other charges. COMPARISON OF TWELVE MONTH PERIOD ENDED DECEMBER 31, 1996 TO TWELVE MONTH PERIOD ENDED DECEMBER 31, 1995 The Company incurred a consolidated net loss of $4,965,994 for the fiscal year ended December 31, 1996, consisting of $552,576 of net income from continuing operations offset by a $5,518,570 loss attributable to the discontinued multimedia operations. The $552,576 of net income from continuing operations consisted of $692,861 of 14 15 net income earned by Hariston offset by a $140,285 loss incurred by EuroEastern. The $692,861 of net income earned by Hariston consisted of a $2,353,545 net gain on sale of PLI shares and a $2,873 foreign exchange gain, offset by $302,880 of net interest expense and $1,360,677 of corporate expenses. An analysis of the 1996 results and a comparison to 1995 results is presented below. Discussion of the Educorp multimedia operations is limited as these operations are discontinued. EDUCORP DISCONTINUED OPERATIONS The Educorp operations generated consolidated revenues of $6,333,989 and incurred a net loss of $5,518,570 for the year ended December 31, 1996. Excluding a $1,800,000 write-down of goodwill, the Educorp operations incurred a net loss of $3,718,570. Of the $6,339,989 total revenues figure, $5,807,172 was generated by the Direct operations and $526,817 by the HighText operations. Of the $3,718,570 loss figure before goodwill write-downs, $2,120,876 arose from the Direct operations, $977,986 from the HighText operations and $619,708 from the Educorp legal entity level. The Direct operations were purchased by the Company effective August 25, 1995. The HighText operations were purchased by the Company effective January 1, 1996. For the period August 25, 1995 to December 31, 1995 the Direct operations generated revenues of $2,797,292 and incurred a net loss of $459,216. For the twelve months ended December 31, 1995 these operations generated revenues of $7,926,706. The 26.7% decline in sales of the Direct operations from 1995 to 1996 reflected primarily the following factors: a 14% decline in the average realized retail CD-ROM price, a 15% decline in the average realized dealer CD-ROM price, the discontinuance in the second half of 1995 of sales of certain high-margin software titles, a delay in catalog mailings in 1996 due to delays in the implementation of a new Management Information System, the widely publicized problems at Apple Computer affecting sales of Macintosh CD-ROM titles, and a trend towards publishers selling their titles directly to dealers. HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES The majority of Hariston's $1,360,677 of non-consolidated operating and corporate expenses for 1996 consisted of $493,521 of salaries and consultants fees, $313,702 of legal fees, $130,475 of accounting, audit and tax return preparation fees, $126,680 of shareholder communication costs including transfer agent and investor relations firm fees, $76,523 of insurance costs, $48,571 of travel costs, $45,024 of rent expense, and $25,850 of directors fees. Hariston incurred exceptional salaries and consultants fees during the third and fourth quarters due to the closure of its Costa Mesa, California offices. Hariston incurred significant non-recurring legal and accounting fees during the first and second quarters as a consequence of the filings and disclosures required in connection with the August 25, 1995 acquisition of the Direct operations and the January 1, 1996 acquisition of the HighText operations. By comparison, the majority of Hariston's $1,272,422 of non-consolidated operating and corporate expenses for 1995 consisted of $364,967 of salaries and consultants fees, $228,110 of legal fees, $106,799 of accounting, audit and tax return preparation fees, $104,689 of shareholder communication costs including transfer agent and investor relations firm fees, $48,075 of insurance costs, $78,995 of travel costs, $76,663 of rent expense and $28,791 of directors fees. The majority of EuroEastern's $140,285 of non-consolidated operating and corporate expenses for 1996 consisted of $72,899 of consultant's fees including travel cost reimbursement, $19,355 of secretarial fees and $38,686 of rent expense. There were no comparable prior year figures for EuroEastern as it was incorporated in October, 1995. 15 16 INVESTMENTS: POLISH LIFE IMPROVEMENT S.A. PLI is a retail operator of a chain of home-improvement stores in Poland called NOMI. PLI is a public Polish company whose shares began trading on the parallel market to the Warsaw Stock Exchange on February 5, 1996. As of December 31, 1996 Hariston owned 1,820,566 shares of PLI, representing a 25.8% ownership interest in PLI. During 1997 Hariston sold 1,500,000 PLI shares in private transactions and a further 320,566 PLI shares on the open market, realizing net proceeds of $6,756,786 including a $1.5 million note receivable of which $500,000 remained to be collected as of year-end. This balance was subsequently received on April 3, 1998. As of December 31, 1997 the Company retained no shareholding in PLI. INVESTMENTS: NORTHPOINT CORPORATION. Northpoint Corporation ("Northpoint") was formerly a supplier of proprietary home medical products and is now engaged in marketing products to home-based businesses. A public company based in a suburb of Toronto, Canada, Northpoint's shares are traded on the Canadian Dealing Network, an over-the-counter market associated with the Toronto Stock Exchange, under the symbol "NOPT". As of December 31, 1997 Hariston owned 233,591 shares of Northpoint common stock, representing a 2.5% interest in that company. These shares are recorded on Hariston's balance sheet at a cost of $7,304, or approximately $0.03 per share. In March 1998 Hariston sold 80,000 Northpoint shares at Cdn$0.25 per share to one or more insiders of Northpoint, on a broker-to-broker basis through the mechanism of the Canadian Dealing Network. Substantially all of the shares sold had been purchased by Hariston for Cdn$0.15 per share in 1996. Management is hopeful that Hariston will be able to sell its remaining 153,591 Northpoint shares at a higher price per share in the future, although realization of a higher price is not assured. As of April 6, 1998 Northpoint's shares were trading on the Canadian Dealing Network at Cdn$0.40 per share. DISCONTINUED OPERATIONS EDUCORP MULTIMEDIA. On January 29, 1997 Hariston's Board resolved to seek a buyer for the Company's multimedia software operations. These operations were subsequently sold as follows: the Direct operations on December 19, 1997 and the assets of HighText on February 13, 1998. Consideration received on the December 1997 sale of the Direct operations consisted of a 15% shareholding in Arch Publishers Group, Inc. ("APG"), a private corporation based in Elmsford, New York. This shareholding was not ascribed any value for financial reporting purposes due to the difficulty of establishing a value given that APG's shares do not trade on a quoted public market. Management is hopeful that on eventual sale, Hariston will realize significant proceeds from its shareholding in APG. However, no sale is currently contemplated. Consideration received on the February 1998 sale of HighText's assets consisted of 150,000 common shares of the purchaser, Byron Preiss Multimedia Company, Inc., a public company traded on the Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol "CDRM". Under the terms of the sale agreement, these shares are subject to adjustment intended to cause the shares to be valued at $1.33 per share if sold within the six months period commencing February 13, 1999. OIL AND GAS INTERESTS. On August 14, 1995 Hariston disposed of its oil and gas royalty and working interests for cash proceeds of approximately $2.4 million and the assumption by the purchaser of approximately $979,000 of debt. METANETIX DIVISION. On July 28, 1995 Hariston reached an agreement to sell its Metanetix Division and related technology to Consolidated Western and Pacific Resources Corp. (subsequently renamed Synergy Renewable Resources Inc. and herein referred to as "Synergy") for a purchase price of up to $9 million, to be paid as a royalty from any profits that may be generated from Synergy's use of the Metanetix minerals recovery process and the Butte, Montana recovery 16 17 plant. Synergy subsequently informed Hariston that it did not wish to acquire the related technology license, thereby reducing the maximum purchase price to $7 million. The Butte plant has been unprofitable to date and no proceeds have been recognized on the sale of the Metanetix Division due to management's belief that the ultimate realization of any proceeds cannot be reasonably determined at this time. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997 the Company had cash balances in excess of $3.2 million, a working capital ratio of 11.70 and a debt/equity ratio of 0.09. This compares favorably to December 31, 1996 figures of $2.8 million, 0.87 and 4.62, respectively. Cash was generated during 1997 and 1996 primarily from the sale of PLI shares, though cash of $1.7 million was also raised in 1996 from the private placement of shares and the issue of shares on exercise of share purchase warrants. The Company realized net proceeds of $6,756,786 in 1997 and $3,101,905 in 1996 from the sale of PLI shares. The sale of the multimedia software and book operations during 1997 produced no cash proceeds for the Company and the Company does not expect to sell its shares in Arch Publishers Group, Inc. and Byron Preiss Multimedia Company, Inc. until fiscal 1999 at the earliest. A significant portion of the proceeds from PLI share sales was used in 1997 to repay $3.2 million of notes issued in 1995 to effect the acquisition of the Direct operations and a $250,000 obligation that arose in 1996 when this sum was borrowed to provide funds to the Direct and HighText operations. The Company's principal continuing capital requirements include working capital to finance ongoing general and administrative expenses and costs which may be incurred in connection with the acquisition of a business in the future. Historically, the Company has required capital to finance operating losses, having incurred losses from continuing operations in each year from 1991 to 1995. As of December 31, 1997, the Company had an accumulated deficit of $28,289,316. The ability of the Company to continue to effectively manage its working capital and ultimately, to attain profitability, is dependent upon a number of factors including but not limited to: competitive conditions in the venture capital market, general economic conditions, the efficiency with which the Company conducts its activities, continuing access to investment capital and the successful completion of one or more acquisition or financing transactions. Management is contemplating a number of business opportunities. In order to pursue and execute one or more of these opportunities, the Company may need to raise additional equity and/or debt capital during fiscal 1998. There is no assurance that additional debt or equity financing, if required, will be available or will be available on terms acceptable to the Company. FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K includes forward-looking statements, including information concerning the Company's business strategies and financing plans. These forward-looking statements are subject to risks and uncertainties, including risks and uncertainties regarding the competitive and economic environments, the Company's ability to recruit and retain qualified personnel, the Company's continued access to investment capital and the successful conclusion of one or more acquisition or financing transactions, which could cause actual results to differ from those anticipated. 17 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements of the Company follow hereafter. See Financial Statement Index at Item 14(a). 18 19 HARISTON CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS AT DECEMBER 31, 1997 AND 1996 TOGETHER WITH AUDITORS' REPORT 19 20 AUDITORS' REPORT To the Shareholders of HARISTON CORPORATION: We have audited the consolidated balance sheets of Hariston Corporation (a Canada corporation) as at December 31, 1997 and 1996 and the consolidated statements of operations and deficit and changes in financial position for the years ended December 31, 1997, 1996 and 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1997 and 1996 and the results of its operations and the changes in its financial position for the years ended December 31, 1997, 1996 and 1995 in accordance with generally accepted accounting principles. Vancouver, British Columbia February 23, 1998. ARTHUR ANDERSEN & CO. 20 21 HARISTON CORPORATION CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1997 AND 1996 (Amounts in thousands of U.S. dollars)
1997 1996 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents ........................ $ 3,266 $ 2,554 Short-term investments ........................... 8 1,216 Accounts and note receivables .................... 520 18 Prepaid expenses ................................. 11 11 Assets of discontinued operations (Note 3) ....... 230 4,084 -------- -------- .................................................. 4,035 7,883 EQUIPMENT (Note 4) ............................... 20 27 -------- -------- .................................................. $ 4,055 $ 7,910 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accruals .................... $ 315 $ 405 Term debt (Note 5) ............................... -- 3,230 Liabilities of discontinued operations (Note 3) .. 30 2,867 -------- -------- 345 6,502 CONTINGENCIES (Note 6) SHAREHOLDERS' EQUITY: Share capital (Note 7) ........................... 31,999 31,999 Deficit .......................................... (28,289) (30,591) -------- -------- 3,710 1,408 -------- -------- $ 4,055 $ 7,910 ======== ========
The accompanying notes are an integral part of these consolidated statements. 21 22 HARISTON CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Amounts in thousands of U.S. dollars)
1997 1996 1995 ------------ ------------ ------------ REVENUE ........................................................ $ -- $ -- $ 21 OPERATING AND CORPORATE EXPENSES (Note 8) ...................... 1,125 1,500 1,289 ------------ ------------ ------------ Loss before the following items ................................ (1,125) (1,500) (1,268) INTEREST INCOME (EXPENSE), net ................................. 100 (303) (125) GAIN (LOSS) ON DISPOSAL OF INVESTMENTS AND LOANS (Note 9) ....................................................... 5,571 2,354 161 FOREIGN EXCHANGE GAIN (LOSS) ................................... (37) 3 (64) ------------ ------------ ------------ Income (loss) before discontinued operations ................... 4,509 554 (1,296) ------------ ------------ ------------ INCOME (LOSS) FROM DISCONTINUED OPERATIONS (Note 3): Results of multimedia software operations ...................... (1,284) (3,719) (507) Loss on disposal of multimedia software operations ............. (923) (1,800) -- Loss on disposal of factoring operation ........................ -- -- (5) Loss on disposal of minerals recovery project .................. -- -- (321) Income from oil and gas royalty and working interests .......... -- -- 166 Gain on disposal of oil and gas royalty and working interests .. -- -- 1,140 ------------ ------------ ------------ Income (loss) from discontinued operations ..................... (2,207) (5,519) 473 ------------ ------------ ------------ Net income (loss) .............................................. 2,302 (4,965) (823) DEFICIT, beginning of year ..................................... (30,591) (25,626) (24,803) ------------ ------------ ------------ DEFICIT, end of year ........................................... $ (28,289) $ (30,591) $ (25,626) ============ ============ ============ NET INCOME (LOSS) PER SHARE: Income (loss) from continuing operations ....................... $ 0.35 $ 0.05 $ (0.13) Income (loss) from discontinued operations ..................... (0.17) (0.47) 0.05 ------------ ------------ ------------ Net income (loss) per share .................................... $ 0.18 $ (0.42) $ (0.08) ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING .................. 12,663,113 11,731,427 10,927,011 ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. 22 23 HARISTON CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Amounts in thousands of U.S. dollars)
1997 1996 1995 ------- ------- ------- CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES: Income (loss) from continuing operations ................................... $ 4,509 $ 554 $(1,296) Add (deduct) items not affecting cash-- Loss on disposal of property and equipment ............................ 41 -- -- Depreciation and amortization ......................................... 8 19 22 Gain on disposal of investments and loans ............................. (5,571) (2,354) (161) ------- ------- ------- (1,013) (1,781) (1,435) Changes in non-cash working capital accounts from continuing operations .... (592) 1,570 (143) ------- ------- ------- (1,605) (211) (1,578) ------- ------- ------- Income (loss) from discontinued operations ................................. (2,207) (5,519) 473 Add (deduct) items not affecting cash-- Depreciation and amortization ......................................... 63 1,108 404 (Gain) loss on disposal of discontinued operations .................... 923 1,800 (814) ------- ------- ------- (1,221) (2,611) 63 ------- ------- ------- (2,826) (2,822) (1,515) ------- ------- ------- CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES: Issuance of common shares for acquisition of multimedia software business .. -- 412 500 Amount payable upon exercise of put option ................................. -- -- 300 Issuance of short-term seller's note for acquisition of multimedia software business ..................................................... -- -- 374 Net cash proceeds from share issuance ...................................... -- 1,700 39 Proceeds from (repayment of) term debt, net ................................ (3,230) 127 1,119 ------- ------- ------- (3,230) 2,239 2,332 ------- ------- ------- CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES: Acquisition of multimedia software business ................................ -- (469) (6,067) Disposal (acquisition) of property, equipment and leaseholds, net .......... (11) (287) 37 Issuance of notes receivable ............................................... -- -- 1,170 Recovery of finders' fee ................................................... -- -- 230 Proceeds from disposal of investments and loans ............................ 6,779 3,101 157 Acquisition of Madison shares .............................................. -- (8) -- Proceeds from disposal of oil and gas royalty and working interests, net of costs of disposition ........................................... -- -- 3,318 Minerals recovery project .................................................. -- -- (61) ------- ------- ------- 6,768 2,337 (1,216) ------- ------- ------- Increase (decrease) in cash and cash equivalents ........................... 712 1,754 (399) CASH AND CASH EQUIVALENTS, beginning of year ............................... 2,554 800 1,199 ------- ------- ------- CASH AND CASH EQUIVALENTS, end of year ..................................... $ 3,266 $ 2,554 $ 800 ======= ======= =======
The accompanying notes are an integral part of these consolidated statements. 23 24 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) 1. ORGANIZATION AND OPERATIONS Hariston Corporation (the "Company") is incorporated under the Canada Business Corporations Act. Prior to 1996, the Company was engaged in various business activities, including the exploitation of technology for the extraction of metals from water and other media, and the holding and management of royalty and working interests in oil and gas production. During 1995, the Company changed its business strategy and disposed of its minerals recovery project and its royalty and working interests in oil and gas production and acquired operations engaged in the publishing, distribution and marketing of multimedia CD-ROM titles for use with both Macintosh and IBM-compatible computers. Sales were predominantly generated through catalog direct marketing to consumers. The majority of sales were cash sales to individual customers. During 1997, the Company substantially disposed of its multimedia software businesses and is currently seeking opportunities in other businesses. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Company's accounting and reporting policies conform to generally accepted accounting principles in Canada. PRINCIPLES OF CONSOLIDATION These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Educorp Multimedia, Inc., HighText Interactive, Inc., Educorp Direct, Inc. and EuroEastern Investment Corporation, all of which have ceased operations. Material intercompany transactions have been eliminated upon consolidation. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of liquid investments with a maturity of three months or less when purchased. EQUIPMENT AND DEPRECIATION Furniture and equipment are recorded at cost. Depreciation is provided on the straight-line basis over the estimated useful lives of the assets at the following rates: Furniture and equipment.............. 5 years Computer equipment................... 3 years
INVESTMENTS Investments are recorded at cost or at net realizable value if there has been a permanent impairment in value. Investments are classified as short-term if the intended holding period is less than one year. 24 25 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) FOREIGN CURRENCY TRANSLATION Transactions denominated in currencies other than U.S. dollars are translated under the temporal method. Monetary assets and liabilities are translated at the exchange rate in effect on the balance sheet date; non-monetary assets and liabilities are translated at the exchange rate in effect on the transaction date. Revenue and expense items are translated at the average monthly exchange rate. Gains and losses resulting from changes in exchange rates are reflected in the statement of operations and deficit for the year. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies 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. FAIR VALUE INFORMATION The carrying amounts of cash and cash equivalents, investments, accounts payable and term debt are a reasonable estimate of their fair value. The fair value information presented herein is based on pertinent information available to management as of December 31, 1997. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. INCOME (LOSS) PER SHARE Income (loss) per share is calculated on the basis of the weighted average number of shares outstanding during the year. The effect of potential conversions of common share equivalents on the income (loss) per share is either anti-dilutive or not material. As a result, no adjusted or fully diluted income (loss) per share is presented. RECLASSIFICATION Certain figures for 1996 and 1995 have been reclassified to conform to the current year's presentation. 3. DISCONTINUED OPERATIONS In January of 1997, the Company adopted a formal plan to dispose of its multimedia software operations. EDUCORP DIRECT, INC. On August 25, 1995, a wholly-owned subsidiary of the Company, Educorp Multimedia, Inc., through a wholly-owned subsidiary, Educorp Direct, Inc., acquired substantially all the assets and assumed certain liabilities of a company and its affiliates engaged in the multimedia software business with the trade name of Educorp. The acquisition was accounted for by the purchase method. 25 26 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) On December 19, 1997, the Company sold substantially all the operating assets and liabilities of Educorp Direct, Inc. to Arch Publishers Group, Inc. ("APG"), a private company, in exchange for a 15% equity interest in APG. The investment in APG was recorded at nominal value. HIGHTEXT INTERACTIVE, INC. Effective January 1, 1996, the Company, through a wholly-owned subsidiary, HighText Interactive, Inc. ("HighText"), acquired substantially all of the assets and assumed certain liabilities of HighText Publications, Inc., a company engaged in the development and distribution of books and multimedia software titles on CD-ROM. The acquisition was accounted for by the purchase method. During 1997, the Company entered into an agreement with the previous owners of HighText Publications, Inc. whereby the Company agreed to transfer to them substantially all of the assets and certain liabilities of the book publishing operations. The transfer represented payment in full of the contingent consideration related to the purchase and the loss on sale was recorded as at December 31, 1996. On February 13, 1998, the Company entered into an agreement with a publicly listed company whereby the remaining assets and liabilities of the multimedia software operations would be disposed of in exchange for 150,000 shares in the purchaser valued at $1.33 each (see Note 14). The remaining assets and liabilities of the multimedia software operations as at December 31, 1997 consisted of the following: Current assets ................................................ $ 9 Intangible assets, net of provision for loss on disposal of $69 221 ---- Assets of discontinued operations ........................ $230 ==== Accounts payable .............................................. 30 ---- Liabilities of discontinued operations ................... $ 30 ====
Revenue generated from the multimedia operations amounted to $2,163 in 1997 (1996-$6,334, 1995-$2,805). The results of operations from the multimedia software operations and the loss on disposal are included in income (loss) from discontinued operations on the consolidated statement of operations and deficit. 4. EQUIPMENT
1997 1996 ---------------------------------------- --------- ACCUMULATED NET BOOK NET BOOK COST DEPRECIATION VALUE VALUE ----- ------------ --------- --------- Furniture and equipment .... $46 $34 $12 $20 Computer equipment ......... 23 15 8 7 --- --- --- --- $69 $49 $20 $27 === === === ===
26 27 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) 5. TERM DEBT
1997 1996 ------ ------ Loan payable bearing interest at prime plus 1% per annum .... $ -- $ 30 Promissory notes bearing interest at 10% per annum .......... -- 3,200 ------ ------ $ -- $3,230 ====== ======
6. CONTINGENCIES ENVIRONMENTAL CONTINGENCIES The Company disposed of its minerals recovery project in 1995. In connection with this project, the Company was subject to various United States federal, state and local statutes, rules and regulations relating to environmental matters, including provisions related to mine reclamation and the discharge of materials into the environment. The Company may still be held liable for environmental clean-up costs notwithstanding indemnifications obtained from the property lessor and property owners. Currently, no environmental liabilities have been identified or accrued in these consolidated financial statements. LITIGATION The Company is being sued by certain former option holders for $560 for its refusal during 1993 to issue shares under the relevant options. The Company believes the options had expired and, accordingly, no shares should have been issued. The outcome of the lawsuit is currently not determinable. The Company is being sued by a former insider for approximately $83 on account of losses incurred by the individual's spouse on the purchase during 1989 and sale during 1990 of shares of the Company's common stock. The Company believes the claim is without merit; however, the outcome of the lawsuit is not currently determinable. The Company is being sued by the former owners of a business acquired and sold by Hariston in 1993. The former owners allege that Hariston committed civil theft due to willful misrepresentation and breach of contract, and are claiming loss and damages in the suit of an unspecified amount. Separately, legal counsel to the plaintiffs sent a letter to the Company proposing settlement of the case for $3,000, which sum was purported in the letter to represent three times the estimated damages suffered by the plaintiffs. The Company did not and does not intend to respond to this proposal and intends to rigorously defend itself in the lawsuit. The outcome of the lawsuit is not currently determinable. However, the Company believes that it has been indemnified by its co-defendant in the suit, or an entity controlled by him, against any liability in this matter. 27 28 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) 7. SHARE CAPITAL
1997 1996 -------- -------- Authorized Unlimited number of common shares Issued and outstanding Fully paid common shares .................................... $ 32,001 $ 32,001 Shares held in treasury (1,000 shares) ..................... (2) (2) -------- -------- $ 31,999 $ 31,999 ======== ========
Changes in the Company's issued share capital for the years ended December 31, 1995, 1996 and 1997 were:
COMMON STOCK ----------------------------- NUMBER OF SHARES AMOUNT ----------- ----------- Balance, December 31, 1994 .................................... 10,851,476 $ 29,350 Shares issued to one of the sellers of Educorp as part of the purchase price pursuant to the Purchase and Sale Agreement 200,000 500 Shares issued for cash on exercise of stock options ........... 15,500 39 Cancelled shares .............................................. (2) -- ----------- ----------- Balance, December 31, 1995 .................................... 11,066,974 29,889 Shares issued for acquisition of HighText Interactive, Inc. (Note 3) ................................................. 146,139 412 Shares issued for cash on exercise of warrants ................ 250,000 500 Shares issued for cash in a private placement ............ 1,200,000 1,200 ----------- ----------- Balance, December 31, 1997 and 1996 ........................... 12,663,113 $ 32,001 =========== ===========
As at December 31, 1997, the Company had outstanding vested stock options and warrants as follows:
NUMBER OF VESTED SHARES EXERCISE PRICE EXPIRATION DATE ------------- -------------- --------------- Options Employee......................... 10,000 Cdn. $4.25 February 17, 1998 Director......................... 20,000 Cdn. $4.75 March 31, 1998 Employee......................... 140,000 U.S. $1.25 July 17, 2003 Director......................... 120,000 U.S. $1.25 July 17, 2003 Employee......................... 593,333 U.S. $1.25 August 16, 2003 Director......................... 160,000 U.S. $1.25 August 16, 2003 --------- 1,043,333 ========= Warrants Share warrants................... 1,000,000 U.S. $2.50 August 24, 2000 --------- 1,000,000 ========= Weighted average exercise price.. U.S. $1.89 ==========
28 29 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) 8. OPERATING AND CORPORATE EXPENSES
1997 1996 1995 ------ ------ ------ Administration, office and travel ............. $ 289 $ 344 $ 284 Consulting fees, salaries and employee benefits 345 567 376 Directors fees ................................ 24 26 29 Professional fees ............................. 419 459 408 Rent and other ................................ 40 85 170 Depreciation and amortization ................. 8 19 22 ------ ------ ------ $1,125 $1,500 $1,289 ====== ====== ======
Consulting fees, salaries and employee benefits include $195 (1996-$108, 1995-$nil) paid to Scorpion Holdings, Inc. ("Scorpion"), a private financial advisory company. By agreement between Hariston and Scorpion, Scorpion was paid $20 per month for providing the services of Nuno Brandolini as Chairman and Chief Executive Officer and Kevin McCarthy as President of the Company. The management fee was reduced to $10 per month from September 1997 and was discontinued upon the resignation of Brandolini and McCarthy in December 1997. 9. GAIN ON INVESTMENTS AND LOANS
1997 1996 1995 ------ ------ ------ Provision for loss on Northpoint Corporation (formerly Madison Holdings, Ltd.) shares ................ $ -- $ -- $ (59) Gain on disposition of Northpoint shares ................. -- -- 123 Write-off of receivable from Northpoint .................. -- -- (133) Recovery of finders' fees on Polish Life Improvement S.A . -- -- 230 Gain on sale of investment in Polish Life Improvement S.A 5,571 2,354 -- ------ ------ ------ $5,571 $2,354 $ 161 ====== ====== ======
10. INCOME TAXES The Company has non-capital losses carried forward of approximately $5,128 (1996-$5,600) for Canadian income tax purposes, which expire at various dates from 1999 to 2004. They may be utilized to offset taxable income in Canada of future years. The Company also has net capital losses of approximately $5,778 (1996 -$8,200) for Canadian income tax purposes which may be carried forward indefinitely and may be applied against future capital gains taxable in Canada. For U.S. income tax purposes, no provision for federal and state income taxes has been recorded as the Company incurred net operating losses through December 31, 1997. At December 31, 1997, the Company had approximately $4,700 (1996-$3,500) of federal net operating loss carry forwards for tax reporting purposes available to offset future taxable income from 2010 to 2012. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating losses carried forward may be impaired or limited in certain circumstances. Events which may cause 29 30 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. At December 31, 1997, the effect of such limitation, if imposed, is not expected to be material. The tax benefits of these losses for Canadian and U.S. income tax purposes have not been recognized in these consolidated financial statements. 30 31 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) 11. SEGMENTED INFORMATION
1997 1996 1995 -------- -------- -------- By Industry Segment Revenue Financing and investments .......................... $ -- $ -- $ 21 ======== ======== ======== Operating income (loss) Financing and investments .......................... $ 5,571 $ 2,354 $ (7) Less -- Corporate expenses ......................... (1,062) (1,800) (1,289) -------- -------- -------- Income (loss) from continuing operations ......... 4,509 554 (1,296) Discontinued operations Computer software .................................. (2,207) (5,519) (507) Minerals recovery project .......................... -- -- (321) Factoring .......................................... -- -- (5) Oil and gas royalty and working interests .......... -- -- 1,306 -------- -------- -------- Net income (loss) ................................ $ (2,302) $ (4,965) $ (823) ======== ======== ======== Identifiable assets Computer software .................................. $ 230 $ 4,084 $ 7,314 Financing and investments .......................... 8 1,216 1,956 -------- -------- -------- 238 5,300 9,270 Corporate .......................................... 3,817 2,610 918 -------- -------- -------- Total assets ..................................... $ 4,055 $ 7,910 $ 10,188 ======== ======== ======== Depreciation and amortization of property, equipment, leaseholds, and royalty interests -- Computer software .................................. $ 63 $ 1,108 $ 297 Oil and gas royalty and working interests .......... -- -- 107 -------- -------- -------- 63 1,108 404 Corporate .......................................... 8 19 22 -------- -------- -------- Total depreciation and amortization .............. $ 71 $ 1,127 $ 426 ======== ======== ======== Additions to property, equipment, leaseholds, and royalty interests -- Computer software .................................. $ -- $ 279 $ 117 Corporate .......................................... 11 8 97 -------- -------- -------- Total additions .................................... $ 11 $ 287 $ 214 ======== ======== ========
31 32 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated)
1997 1996 1995 -------- -------- -------- By Geographic Area Revenue Canada .................................. $ -- $ -- $ 21 ======== ======== ======== Operating loss Canada Continuing operations ................. $ (1,062) $ (1,800) $ (1,296) Discontinued operations ............... -- -- 1,301 Poland .................................. 5,571 2,354 United States of America-- Continuing operations ................. -- -- -- Discontinued operations ............... (2,207) (5,519) (828) -------- -------- -------- Net income (loss) ................... $ 2,302 $ (4,965) $ (823) ======== ======== ======== Identifiable assets Canada .................................. $ 3,825 $ 2,589 $ 918 Poland .................................. -- 1,208 1,956 United States of America ................ 230 4,113 7,314 -------- -------- -------- Total assets ......................... $ 4,055 $ 7,910 $ 10,188 ======== ======== ========
12. DIFFERENCES IN ACCOUNTING POLICIES BETWEEN THE UNITED STATES AND CANADA In certain respects, Canadian generally accepted accounting principles ("Canadian GAAP") differ from United States of America generally accepted accounting principles ("U.S. GAAP"). The consolidated financial statements have been prepared in accordance with Canadian GAAP, which is in agreement with U.S. GAAP, except as set forth below. CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
1997 1996 1995 ------- ------- ------- Net income (loss) according to Canadian GAAP ........... $ 2,302 $(4,965) $ (823) Non-cash compensation expense (Note 12(a)) ............. (8) (81) (63) Difference due to exchange rate fluctuation (Note 12(b)) -- -- (13) ------- ------- ------- Net income (loss) according to U.S. GAAP .......... $ 2,294 $(5,046) $ (899) ======= ======= =======
There are no differences in the consolidated balance sheets as at December 31, 1997 and 1996. (a) Options to purchase shares of the Company were issued to employees at prices which were below the estimated fair market value of the options at the date of granting. Under Canadian GAAP, the issuance of these shares is recorded as an increase to the capital stock of the Company at the issue price of the shares. Under U.S. GAAP, the difference between the estimated fair market value of the shares subject to the option at the date of granting and the 32 33 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) exercise price of the options is required to be charged to expense, with the corresponding amount being credited to capital stock. (b) Under the relevant U.S. sec regulations, a change in the reporting currency requires that the financial statements for all the periods for which financial information continues to be presented be restated, but the cumulative effect of the change on periods prior to those restated need not be recognized. the restatement was performed by using an appropriately weighted average exchange rate for the statements of operations and deficit. ADDITIONAL DISCLOSURES UNDER U.S. GAAP INCOME TAXES In accordance with SFAS No. 109, "Accounting for Income Taxes", U.S. GAAP requires that the Company use the liability method of accounting for income taxes. Deferred income taxes are recognized on the difference between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The provision for income taxes represents the total of income taxes paid or payable for the current year, plus the change in deferred taxes during the year. Deferred tax assets totaling approximately $1.9 million at December 31, 1997 consist primarily of the tax effect of net operating loss carryforwards and reserves and accrued expenses which are not yet deductible for tax purposes. The Company has provided a full valuation allowance on the deferred tax asset because of uncertainty regarding realizability. 33 34 HARISTON CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DECEMBER 31, 1997, 1996 AND 1995 (Dollar amounts in thousands of U.S. dollars unless otherwise stated) UNAUDITED PRO FORMA INFORMATION The following table presents the unaudited pro forma results of operations of the Company for the year ended December 31, 1995, assuming the acquisition of the Direct and HighText operations (see Note 3) had occurred on January 1, 1995:
DIRECT FOR HIGHTEXT FOR COMPANY FOR PRO FORMA THE PERIOD FROM THE YEAR ENDED THE YEAR ENDED RESULTS OF JANUARY 1 TO DECEMBER 31, DECEMBER 31, PRO FORMA OPERATIONS AUGUST 25, 1995 1995 1995 ADJUSTMENTS FOR 1995 ---------------- ------------ -------------- ---------- --------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue ............. $ -- $ -- $ 21 $ -- $ 21 Income (loss) from continuing operations -- -- (1,296) -- (1,296) Net income (loss) ... (146) 12 (823) (734) (1,691) Loss per share from continuing operations $ (0.12) ======= Net loss per share .. $ (0.12) =======
- ---------- No pro forma results of operations for the years ended December 31, 1997 and 1996 are presented since the results of operations of the subsidiaries have been consolidated since January 1, 1996. The pro forma information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of January 1, 1995, nor are they necessarily indicative of future operating results. STOCK OPTION PLAN ACTIVITIES The following table summarizes stock option plan activities for the years ended December 31, 1997 and 1996:
1997 1996 ---------- ---------- Stock options, beginning of year ........... 1,430,000 1,759,500 Less-- Stock options cancelled ............... -- (2,059,500) Stock options expired ................. (10,000) (35,000) Stock options exercised ............... -- -- Add -- Stock options granted ................. -- 1,765,000 ---------- ---------- Stock options, end of year ................. 1,420,000 1,430,000 ========== ==========
A total of 375,000 options granted in 1996 were cancelled in the same year. In addition, a total of 376,668 options granted in 1996 were vested in each of August 1996 and 1997, while the remainder in the same amount will vest in August 1998. As permitted under U.S. GAAP, the Company has adopted the disclosure provisions of SFAS No. 123 effective January 1, 1996 while continuing to account for the options under SFAS No. 25. Accordingly, no compensation expense 34 35 has been recognized for the stock option plans except to the extent of the excess of the estimated fair market value of the shares subject to the option at the date of granting and the option exercise price. Had compensation expense for the Company's stock option plans been determined based on the fair value at the date of grant for 1996 and 1995 awards consistent with the provisions of SFAS No. 123, the Company's net income (loss) and earnings per share would have been reduced to the pro forma amounts indicated below:
1997 1996 ---- ---- Net income (loss), as reported according to U.S. GAAP..... $2,294 $(5,046) Net income (loss), pro forma according to U.S. GAAP....... 1,823 (6,115) Income (loss) per share, as reported according to U.S. GAAP 0.18 (0.43) Income (loss) per share, pro forma according to U.S. GAAP. 0.14 (0.52)
Because the SFAS No. 123 method of accounting has not been applied to options prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: risk free interest rate of 7%, expected option life of 7 years, expected volatility of 85% and a dividend ratio of zero. The weighted average fair value of options granted in 1996 and 1995 was $0.97 and $2.16, respectively. The weighted average exercise price of options granted in 1996 and 1995 was $1.25 and $3.90, respectively. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1997 1996 1995 ---- ---- ---- Interest paid ............................................. $ 46 $ 34 $ 100 Taxes paid ................................................ $ -- $ -- $ 19 Other non-cash activities Interest on term debt paid by transfer of Polish Life ... $ -- $ 155 $ -- Improvement S.A. shares Equipment acquired and financed by capital leases ....... -- 260 -- Term debt assumed by purchaser of oil and gas interests . -- -- 1,273
13. YEAR 2000 As of December 31, 1997, the Company has assessed the impact of the Year 2000 issue on its computer systems and is in the process of remediating the affected hardware and software. Expenditures for the Year 2000 project are not expected to have a material impact on the financial position of the Company. 35 36 14. SUBSEQUENT EVENT SALE OF MULTIMEDIA SOFTWARE BUSINESS On February 13, 1998 the Company entered into an asset purchase and sale agreement to sell substantially all of the remaining assets and liabilities of its multimedia software business for $200. Consideration received in settlement was 150,000 shares in the purchaser corporation, valued at $1.33 each. The fair value of the consideration will be used to record the transaction as the shares have an established market (the NASDAQ SmallCap Market tier of the NASDAQ Stock Market). The loss from disposition has been reflected in the current year through a provision for the loss in the value of the respective assets (see Note 3). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors and executive officers of the Company and their ages as of April 6, 1998 are as follows:
NAME Age Position ---- --- -------- James P. Angus(1)(2)......... 51 Chairman, Director, Chief Executive Officer L. James Porter (2).......... 33 Chief Financial Officer, Corporate Secretary Neil S. MacKenzie(1)(2)...... 53 Director
- ------------------ (1) Member of the Compensation Committee. (2) Member of the Audit Committee. All directors hold office until the next Annual Meeting of Shareholders or the election and qualification of their successors. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. JAMES P. ANGUS, Chairman of the Board, Chief Executive Officer and President, has held these offices since December 11, 1997. He was first appointed to the Company's Board of Directors in December 1994. Mr. Angus is also President of Angroup Holdings Limited, a private investment holding company he founded in 1988. L. JAMES PORTER was appointed the Company's Chief Financial Officer and Corporate Secretary, and to the Board of Directors, in February 1995. From September 1987 to February 1995, Mr. Porter was employed as a Senior Tax Manager and held various other positions with Arthur Andersen, Chartered Accountants. Mr. Porter is a Chartered Accountant and a Chartered Financial Analyst. NEIL S. MACKENZIE, was appointed to the Board of Directors in December 1994. Mr. MacKenzie is also President of NS MacKenzie & Company Limited, a management consulting firm, a position he has held since 1991, a partner with the Chancellor Partners, a company engaged in management consulting, Secretary/Treasurer of Canadian Fine Papers (B.C.) Corp., a private merchant of fine papers, President of 509306 B.C. Limited, a private children's software developer, President of Interlearn Holdings Ltd., a public holding company, a Director of Mineral Solutions, Inc., a private marketer of coal combustion products, a Director of RTDS Technologies, Inc., a private manufacturer of software and hardware for the electric utility industry, and a Director of Advanced Process Control Ltd., a private 36 37 manufacturer of software for computer controlled industrial processes. From 1976 to 1991, Mr. MacKenzie was a Partner and held various other positions with Ernst & Young, Management Consultants. Section 16(a) of the Securities Exchange Act of 1934, and the regulations thereunder, require the Company's directors, executive officers and persons who own more than 10% of a registered class of the Company's equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company, and to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the two fiscal year ended December 31, 1997, all Section 16(a) filing requirements applicable to the Company's officers, directors and greater than 10% beneficial owners were complied with. ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth certain summary information concerning compensation paid or accrued for services rendered to the Company in all capacities during the years ended December 31, 1995, 1996 and 1997 to Messrs. Brandolini and Angus (the "Named Executive Officers"), each of whom served as Chief Executive Officer of the Company during 1997. No other executive officer's total salary and bonus for 1997 exceeded $100,000.
LONG TERM COMPENSATION AWARDS ------------------- ANNUAL SECURITIES COMPENSATION UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION --------------------------- ---- ------ ----- ---------- ------------ ($) ($) Nuno Brandolini, Chairman and Chief Executive Officer(1)......... 1996 (3) (3) 440,000 (3) 1997 (3) (3) 0 0 James P. Angus, Chairman, Chief 1995 0 0 0 0 Executive officer (3)........ 1996 0 0 0 0 1997 0 0 0 0
- ------------------ (1) Mr. Brandolini resigned as Chief Executive Officer of the Company in December 1997. (2) Mr. Brandolini received no salary or bonus payments from the Company. Mr. Brandolini's services were rendered to the Company through an arrangement between the Company and Scorpion Holdings, Inc. During 1997, the Company paid $194,876 (1996-$107,741) to Scorpion Holdings, Inc. pursuant to this arrangement. Prior to his July 1996 appointment as Chief Executive Officer of the Company, Mr. Brandolini received directors fees from the Company of $4,777 in 1996. (3) Mr. Angus was appointed Chief Executive Officer of the Company in December 1997. Prior to such appointment, Mr. Angus received directors fees from the Company of Cdn$15,851 (1996-Cdn$14,808; 1995-Cdn$16,327). No options to purchase shares of the Company were issued during the fiscal year of the Company ended December 31, 1997. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES The following table sets forth information with respect to exercises of stock options by the Named Executive Officers during the fiscal year ended December 31, 1997 and the number and value of securities underlying unexercised options held by the Named Executive Officers as of December 31, 1997. 37 38
SHARES ACQUIRED NUMBER OF SECURITIES ON VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISE IN- EXERCISE REALIZED OPTIONS AT THE-MONEY OPTIONS AT -------- -------- DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($)(1) NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- --- --- ------------------------- ------------------------- Nuno Brandolini ... 0 0 306,667/133,333 $0/ $0 James P. Angus..... 0 0 120,000/40,000 $0/ $0
- ------------------ (1) Based on the closing price of the Common Stock of $0.24 on December 31, 1997. DIRECTOR COMPENSATION Directors, other than Messrs. Angus and Porter, receive a fee from the Company equal to Cdn$1,000 per month plus Cdn$500 per meeting attended. STOCK OPTIONS 1996 STOCK OPTION PLAN. In July 1996 the Company adopted the 1996 Stock Option Plan (the "1996 Plan") covering an aggregate of 260,000 shares of the Company's Common Stock. The purpose of the 1996 Plan is to attract and retain qualified personnel, to provide additional incentives to employees, officers, directors and consultants of the Company and to promote the success of the Company's business. Pursuant to the 1996 Plan, the Company may grant incentive and nonstatutory (nonqualified) stock options to key employees, officers, directors or consultants of the Company. The 1996 Plan is administered by the Board of Directors, which has sole discretion and authority, consistent with the provisions of the 1996 Plan, to determine which eligible participants will receive options, the time when options will be granted, the terms of options granted and the number of shares which will be subject to options granted under the 1996 Plan. The Board may also appoint a committee to administer the 1996 Plan and, subject to applicable law, to exercise all of the powers of the Board under the 1996 Plan. As of December 31, 1997, 260,000 options were outstanding under the 1996 Plan at a weighted average exercise price equal to $1.25 per share. The maximum term of a stock option under the 1996 Plan is seven years. If an optionee terminates his or her service to the Company, the optionee may exercise only those option shares vested as of the date of termination. The exercise price of incentive stock options granted under the 1996 Plan must be at least equal to the fair market value of the Common Stock subject to the option on the date of grant. The exercise price of incentive stock options granted to an optionee who owns stock possessing more than 10% of the voting power of the Company's outstanding capital stock must equal to at least 110% of the fair market value of the Common Stock subject to the option on the date of grant. The exercise price of nonstatutory stock options granted under the 1996 Plan shall be determined by the Board. Payment of the exercise price under an option may be made in cash, previously acquired shares of the Company's Common Stock or such other consideration as may be determined by the Board of Directors. The 1996 Plan may be amended at any time by the Board of Directors, although certain amendments would require stockholder approval. The 1996 Plan will terminate in July 2006 unless earlier terminated by the Board. 1996 STOCK OPTION PLAN NO. 2. In August 1996, the Company adopted the 1996 Stock Option Plan No. 2 (the "1996 Plan No. 2") covering an aggregate of 2,000,000 shares of the Company's Common Stock. The purpose of the 1996 Plan No. 2 is to attract and retain qualified personnel, to provide additional incentives to employees, officers, directors and consultants of the Company and to promote the success of the Company's business. Pursuant to the 1996 Plan No. 2, the Company may grant incentive and nonstatutory (nonqualified) stock options to key employees, officers, directors or consultants of the Company. 38 39 The 1996 Plan No. 2 is administered by the Board of Directors, which has sole discretion and authority, consistent with the provisions of the 1996 Plan No. 2, to determine which eligible participants will receive options, the time when options will be granted, the terms of options granted and the number of shares which will be subject to options granted under the 1996 Plan No. 2. The Board may also appoint a committee to administer the 1996 Plan No. 2 and, subject to applicable law, to exercise all of the powers of the Board under the 1996 Plan No. 2. As of December 31, 1997, 1,130,000 options were outstanding under the 1996 Plan No. 2 at a weighted average exercise price equal to $1.25 per share. The maximum term of a stock option under the 1996 Plan No. 2 is seven years. If an optionee terminates his or her service to the Company, the optionee may exercise only those option shares vested as of the date of termination and must effect such exercise within three months, although the Board may set longer periods for exercise of supplemental stock options. The exercise price of incentive stock options granted under the 1996 Plan No. 2 must be at least equal to the fair market value of the Common Stock subject to the option on the date of grant. The exercise price of incentive stock options granted to an optionee who owns stock possessing more than 10% of the voting power of the Company's outstanding capital stock must equal to at least 110% of the fair market value of the Common Stock subject to the option on the date of grant. The exercise price of nonstatutory stock options granted under the 1996 Plan No. 2 shall be determined by the Board. Payment of the exercise price under an option may be made in cash, previously acquired shares of the Company's Common Stock or such other consideration as may be determined by the Board of Directors. The 1996 Plan No. 2 may be amended at any time by the Board of Directors, although certain amendments would require stockholder approval. The 1996 Plan No. 2 will terminate in August 2006 unless earlier terminated by the Board. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Except as provided herein, based on review of the registered shareholders listing, SEC filings, and limited inquiry, the Company is not aware of any person (individual or corporate), or group of persons owning beneficially more than 5% of the outstanding shares of the Company's voting securities. The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of April 6, 1998 by the Company's directors, by the Named Executive Officers, by each person who is known to be the beneficial owner of 5% or more of the Company's Common Stock and by all directors and officers as a group. Unless otherwise indicated, the persons named in the table possess sole voting and investment power with respect to the shares listed (except to the extent such authority is shared with spouses under applicable law).
SHARES OWNED BENEFICIALLY AS OF APRIL 6, 1998 ------------------------------------ NO. OF SHARES PERCENT OF CLASS(1) ------------- ------------------ L. James Porter.............................. 526,666(2) 4.0% James P. Angus............................... 320,000(3) 2.5% Neil S. MacKenzie............................ 320,000(3) 2.5% Pierre Anthamatten........................... 900,000(4) 7.1% Pacific Mercantile Company Limited........... 696,000(5) 5.5% All Directors and Officers as a Group (3 Persons) .............................. 1,166,666(6) 8.5%
- ------------------ (1) Based on 12,663,113 shares of Common Stock, outstanding as of April 6, 1998. (2) Includes 376,666 shares issuable upon exercise of options which are exercisable within 60 days. (3) Consists solely of shares issuable upon exercise of options which are exercisable within 60 days. 39 40 (4) As reported on Schedule 13D dated January 15, 1993, which Schedule 13D has not been amended. According to such Schedule 13D, such shares are owned directly by Olinka, S.A., a Luxembourg corporation, all of the outstanding shares of which are owned by Mr. Anthamatten. According to such Schedule 13D, Olinka, S.A.'s business address is 3, Rue Adames, L-1114 Luxembourg. (5) As reported on Schedule 13D dated March 5, 1998, which Schedule 13D has not been amended. According to such Schedule 13D, such shares are owned directly by Cross Creek Finance Group Ltd., a British Columbia corporation, all of the outstanding shares of which are owned by Pacific Mercantile Company Limited, an Alberta corporation. According to such Schedule 13D, Cross Creek Finance Group Ltd.'s business address is Suite 220, 375 Water Street, Vancouver B.C. V6B 5C6. (6) Includes 1,016,666 shares issuable upon exercise of options which are exercisable within 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In June 1996 under the terms of two $125,000 short-term notes the Company borrowed $250,000 from McGoodwin James & Co., a company controlled by Hariston's then President and Chief Executive Officer, James V. McGoodwin. The proceeds were used to fund the working capital needs of the Company's multimedia software operations. The notes bore simple interest at a rate of 10%. In January 1997, payment on the two $125,000 notes was extended by way of conversion into a new $250,000 note, also bearing interest at 10%. Under the terms of the new note, payments were made by Hariston in monthly installments thereafter and the note was fully repaid by December 15, 1997. Upon the resignation in July 1996 of James V. McGoodwin, Nuno Brandolini replaced Mr. McGoodwin as Chairman and Chief Executive Officer and Kevin R. McCarthy replaced Mr. McGoodwin as President of the Company. Until their resignations in December 1997, the services of Messrs. Brandolini and McCarthy were rendered to the Company through an arrangement between Hariston and Scorpion Holdings, Inc. ("Scorpion"). Under the terms of this arrangement, Scorpion was paid a monthly fee of $20,000, which decreased to $10,000 effective September 1997. During 1997 the Company paid $194,876 (1996-$107,741) to Scorpion pursuant to this arrangement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K. (a)Financial Statements and Schedules. The following financial statements are included in, or incorporated by reference in, Part II, Item 8: (1)FINANCIAL STATEMENTS FOR HARISTON CORPORATION (i) Independent Auditors Report; (ii) Consolidated Balance Sheets at December 31, 1997 and 1996; (iii) Consolidated Statements of Operations and Deficit for the years ended December 31, 1997, 1996 and 1995; (iv) Consolidated Statements of Changes in financial position for the years ended December 31, 1997, 1996 and 1995; (v) Notes to Consolidated Financial Statements. (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report. 40 41 (c) EXHIBITS.
EXHIBIT NO. EXHIBIT DESCRIPTION --- ------------------------------------------------------------------ 2.1 Asset Purchase and Sale Agreement among CD-Soft Acquisition Corporation, Bodycello, Inc., Gazelle Technologies, Inc., Manta Distribution Co., Educorp, L.P., and Vahe Guzelimian dated August 1, 1995 (incorporated herein by this reference to Exhibit 2.1 to the Registrant's current report on Form 8-K filed September 11, 1995). 2.2 Agreement of Purchase and Sale dated August 1, 1995 between Hariston Corporation and 3147479 Canada, Inc. (with included indemnity agreement) (incorporated herein by this reference to Exhibit 2.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). 2.3 Agreement and Plan of Reorganization dated December 31, 1995 by and among CD-Soft Press Corporation, High Text Publications, Inc., Carol Lewis, Jack Lewis and Harry Helms (incorporated herein by this reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996). 3.1 Articles of Amalgamation of Hariston Corporation (incorporated herein by this reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). 3.2 Amended and Restated Bylaws of Hariston Corporation (incorporated herein by this reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996). 4.1 Series 1995 Promissory Note between the Company and Privatim Finanz A.G. (incorporated herein by this reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995). 4.2 Series 1995 Promissory Note between the Company and Zocal Foundation (incorporated herein by this reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995) 4.3 Series 1995 Promissory Note between the Company and Kinaro S.A. (incorporated herein by this reference to Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995) 4.4 Series 1995 Promissory Note between the Company and Neval Management, Ltd. (incorporated herein by this reference to Exhibit 4.4 to the Registrant's Quarterly Report on Form
41 42
EXHIBIT NO. EXHIBIT DESCRIPTION --- --------------------------------------------------------------- 10-Q for the quarter ended September 30, 1995) 4.5 Form of Pledge and Security Agreement between the Registrant and the holders of the Registrant's Series 1995 Promissory Notes (incorporated herein by this reference to Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995) 4.8 1996 Hariston Corporation Stock Option Plan (incorporated herein by this reference to Exhibit 4.8 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 4.9 1996 Hariston Corporation Stock Option Plan No. 2 (incorporated herein by this reference to Exhibit 4.9 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 10.1 Asset Purchase Agreement dated as of December 19, 1997 between Educorp Direct, Inc., Arch Publishers Group, Inc. and Educorp LLC (filed herewith) 10.2 Arch Publishers Group, Inc. Stockholders Agreement dated December 19, 1997 (filed herewith) 10.3 Agreement dated February 21, 1997 between HighText Interactive, Inc. and Harry Helms, Carol Lewis and Jack Lewis (filed herewith) 10.4 Asset Purchase Agreement dated February 13, 1998 by and among Byron Preiss Multimedia Holdings, Inc., Byron Preiss Multimedia Company, Inc. and HighText Interactive, Inc. (filed herewith) 10.5 Agreement dated as of December 10, 1997 by and among the Company, Nuno Brandolini and Kevin McCarthy (filed herewith) 21 Subsidiaries of the Registrant (filed herewith) 23 Consent of Arthur Andersen & Co. (filed herewith) 27 Financial Data Schedule
(d) SCHEDULES. None 42 43 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 15, 1998 HARISTON CORPORATION By: /s/ L. James Porter ------------------------------------- L. James Porter Chief Financial Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ James P. Angus Dated: April 15, 1998 - ----------------------- James P. Angus Director, Chief Executive Officer (Principal Executive Officer) /s/ L. James Porter Dated: April 15, 1998 - ----------------------- L. James Porter Director, Chief Financial Officer, Corporate Secretary (Principal Financial Officer, Principal Accounting Officer) /s/ Neil S. MacKenzie Dated: April 15, 1998 - ----------------------- Neil S. MacKenzie Director
43 44 EXHIBIT INDEX
Sequentially Exhibit Number No. Exhibit Description Pages --- ---------------------------------------------------------------------- ----- 2.1 Asset Purchase and Sale Agreement among CD-Soft Acquisition * Corporation, Bodycello, Inc., Gazelle Technologies, Inc., Manta Distribution Co., Educorp, L.P., and Vahe Guzelimian dated August 1, 1995 (incorporated herein by this reference to Exhibit 2.1 to the Registrant's current report on Form 8-K filed September 11, 1995..... 2.2 Agreement of Purchase and Sale dated August 1, 1995 between Hariston * Corporation and 3147479 Canada, Inc. (with included indemnity agreement) (incorporated herein by this reference to Exhibit 2.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)............................................ 2.3 Agreement and Plan of Reorganization dated December 31, 1995 * by and among CD-Soft Press Corporation, High Text Publications, Inc., Carol Lewis, Jack Lewis and Harry Helms (incorporated herein by this reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996)................................................ 3.1 Articles of Amalgamation of Hariston Corporation (incorporated * herein by this reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)........ 3.2 Amended and Restated Bylaws of Hariston Corporation (incorporated * herein by this reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996)........ 4.1 Series 1995 Promissory Note between the Company and Privatim * Finanz A.G. (incorporated herein by this reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)............................................ 4.2 Series 1995 Promissory Note between the Company and Zocal * Foundation (incorporated herein by this reference to Exhibit 4.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)............................................ 4.3 Series 1995 Promissory Note between the Company and * Kinaro S.A. (incorporated herein by this reference to Exhibit 4.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)............................................ 4.4 Series 1995 Promissory Note between the Company and Neval * Management, Ltd. (incorporated herein by this reference to Exhibit 4.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)............................
44 45
Sequentially Exhibit Number No. Exhibit Description Pages --- ---------------------------------------------------------------------- ------------- 4.5 Form of Pledge and Security Agreement between the Registrant * and the holders of the Registrant's Series 1995 Promissory Notes (incorporated herein by this reference to Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995).................................................................... 4.8 1996 Hariston Corporation Stock Option Plan (incorporated herein * by this reference to Exhibit 4.8 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.................................. 4.9 1996 Hariston Corporation Stock Option Plan No. 2 (incorporated * herein by this reference to Exhibit 4.9 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996........................... 10.1 Asset Purchase Agreement dated as of December 19, 1997 between Educorp Direct, Inc., Arch Publishers Group, Inc. and Educorp LLC (filed herewith)..... 48 - 64 10.2 Arch Publishers Group, Inc. Stockholders Agreement dated December 19, 1997 (filed herewith) ................................................... 65 - 73 10.3 Agreement dated February 21, 1997 between HighText Interactive, Inc. and Harry Helms, Carol Lewis and Jack Lewis (filed herewith) ......................... 74 - 82 10.4 Asset Purchase Agreement dated February 13, 1998 by and among Byron Preiss Multimedia Company, Inc. and HighText Interactive, Inc (filed herewith)... 83 - 101 10.5 Agreement dated as of December 10, 1997 by and among the Company, Nuno Brandolini and Kevin McCarthy(filed herewith) ................................... 102 - 105 21 Subsidiaries of the Registrant (filed herewith)........................................ PCN 46 23 Consent of Arthur Andersen & Co. (filed herewith)...................................... 47 27 Financial Data Schedule................................................................ 627
- ----------------- * INCORPORATED BY REFERENCE. 45 EX-10.1 2 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.1 ASSET PURCHASE AGREEMENT THIS AGREEMENT is made as of December 19, 1997 between Educorp Direct, Inc., a California corporation ("Seller"), Arch Publishers Group, Inc., a New York corporation ("Parent") and Educorp, LLC, a New York limited liability company ("Purchaser"). R E C I T A L S A. Seller engages in the business of distributing interactive multimedia software with an emphasis on adult-learning titles and operating a multimedia software catalog business (collectively, the "Business"). B. Seller desires to sell to Purchaser substantially all of Seller's assets, properties and rights, other than the Excluded Assets, as herein defined (the "Purchased Assets"), and Purchaser desires to purchase the Purchased Assets, all on the terms and subject to the conditions contained in this Agreement. A G R E E M E N T S Therefore, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I. Purchase and Sale of Assets 1.1 Agreement to Purchase and Sell. On the terms and subject to the conditions contained in this Agreement, Purchaser hereby purchases from Seller, and Seller hereby sells to Purchaser, Seller's right, title and interest in the Purchased Assets. 1.2 Enumeration of Purchased Assets. The Purchased Assets shall include the following assets owned by Seller: (a) all inventory, including raw materials, work in process, finished goods, and supplies, including substantially the inventory listed in Schedule 1.2(a) (subject to any changes since November 29, 1997) (collectively, the "Inventory"); (b) all trade accounts receivable (including substantially the trade accounts receivable listed in Schedule 1.2(b), subject to adjustments requested by vendors and any changes since November 29, 1997), notes receivable, negotiable instruments and chattel paper (collectively, the "Accounts Receivable"); provided however that, notwithstanding the foregoing, the Accounts Receivable being purchased hereunder shall not include any amounts owed to Seller by HighText Interactive, Inc., Educorp Multimedia, Inc., or Hariston Corporation; 48 2 (c) Web site name "www.educorp.com"; (d) all furniture, equipment, computer hardware, and all other tangible personal property (other than the Inventory), including the items presently located at 7438 Trade Street, San Diego, California 92121, but excluding in all events the assets of HighText Interactive, Inc. and Educorp Multimedia, Inc. which are located at such address; (e) current catalog in electronic format; (f) all contracts, including sales orders and sales contracts, purchase orders and purchase contracts, quotations and bids, license agreements, distribution agreements, co-op agreements, sales representative agreements, service agreements, supply agreements, franchise agreements, computer software agreements and technical service agreements; (g) all customer lists, customer records and information (including the mailing address database for Seller's distribution network); (h) all intellectual property (including the name "Educorp Direct" but excluding Seller's corporate name), and all goodwill associated with the intellectual property; (i) all computer software, including all documentation and source codes with respect to such software and licenses and leases of software to the extent they are legally transferable by Seller; (j) all cash, cash equivalents and investments, including the cash in the bank accounts listed in Schedule 1.2(j).; and (k) refunds due with respect to insurance premium payments. 1.3 Excluded Assets. The Excluded Assets shall consist of the following items: (a) Seller's bank accounts (other than the cash, cash equivalents and investments therein), checkbooks and canceled checks; (b) claims (and benefits to the extent they arise therefrom) that relate to liabilities other than the Assumed Liabilities (as herein defined) and assets other than the Purchased Assets; (c) insurance policies of Seller and rights in connection therewith; (d) rights arising from prepaid expenses, if any, with respect to assets not being sold hereunder; (e) tax refunds due from federal, state and local taxing authorities; (f) all rights of indemnification and claims which relate to the conduct of the Business prior to the Closing Date; 49 3 (g) Seller's rights under this Agreement; and (h) Seller's corporate name (provided that Seller will change its corporate name if it actively engages in business after the date hereof), Seller's corporate charter, minute and stock record books, corporate seal, general ledger and other books of original entry, employee records, payroll and employee benefit records, and tax returns. ARTICLE II. Assumption of Liabilities 2.1 Assumed Liabilities. Purchaser hereby assumes and agrees to discharge and perform when due the following (and only the following) liabilities and obligations of Seller (collectively, the "Assumed Liabilities"): (i) the liabilities listed in Schedule 2.1 hereto (subject to changes since November 29, 1997), (ii) any and all liabilities and obligations incurred on or after November 29, 1997, (iii) without limitation of clause (i), the executory portion of contracts (including royalty agreements, computer leases, any other equipment leases, and the real estate lease) solely with respect to the period after the date hereof, and (iv) up to an additional $50,000 of liabilities and obligations. 2.2 Excluded Liabilities. Seller shall remain solely responsible for all liabilities and obligations of Seller other than the Assumed Liabilities (the "Excluded Liabilities"). Without limitation of the foregoing, the following shall in all events be deemed to be Excluded Liabilities: (a) any liabilities for legal, accounting, audit and investment banking fees, brokerage commissions, and any other expenses incurred by Seller in connection with the negotiation and preparation of this Agreement and the sale of the Purchased Assets to Purchaser; (b) any liabilities of Seller for income taxes, or for any of the following taxes incurred prior to November 1, 1997: sales taxes, use taxes, gross receipts taxes, personal property taxes; and any other federal, state or local government taxes; (c) any liability of Seller to banks or financial institutions with respect to borrowed money; (d) all severance amounts and other accrued expenses (including without limitation, accrued compensation, vacation benefits, or sick pay) with respect to Seller's employees (except Pam Manno, Scot Caprio, Keri Moisa, Bill Springer, and Margaret Hendrix); and (e) all amounts owed by Seller to HighText Interactive, Inc., Educorp Multimedia, Inc., or Hariston Corporation. 2.3 No Expansion of Third Party Rights. The assumption by Purchaser of the Assumed Liabilities shall not expand the rights or remedies of any third party against the Purchaser or the Seller as compared to the rights and remedies which such third party would have had against the Seller had the Purchaser not assumed the Assumed Liabilities. 50 4 ARTICLE III. Purchase Price and Manner of Payment 3.1 Purchase Price. The "Purchase Price" of the Purchased Assets is (i) 3.5294 shares (the "Shares") of common stock, no par value, of Parent (which Shares upon issuance shall constitute 15% of the issued and outstanding shares of capital stock of Parent), plus (ii) the Assumed Liabilities. 3.2 Manner of Payment of the Purchase Price. Purchaser hereby assumes the Assumed Liabilities. Contemporaneously herewith, Purchaser shall deliver to Seller a stock certificate issued in the name of Seller evidencing the Shares. 3.3 Cash Infusion. Hariston Corporation, Inc., a Canadian corporation and the indirect parent of Seller ("Hariston"), shall make a cash capital contribution to Seller on the date hereof in the amount of US $74,625.00 (the "Cash Infusion"). 3.4 Allocation of Purchase Price. The parties agree that the portion of the Purchase Price allocable to Seller's fixed assets is $10,000. ARTICLE IV Representations and Warranties 4.1 Representations and Warranties of Parent and Purchaser. Parent and Purchaser jointly and severally represent and warrant to Seller that: (a) Parent is a corporation duly organized, existing and in good standing, under the laws of the State of New York. Purchaser is a limited liability company duly organized, existing and in good standing, under the laws of the State of New York. (b) Parent has full corporate power and authority to enter into and perform (x) this Agreement and (y) all documents and instruments to be executed by Parent pursuant to this Agreement (collectively, "Parent's Ancillary Documents"). This Agreement and Parent's Ancillary Documents have been duly executed and delivered by a duly authorized officer of Parent. Purchaser has full limited liability company power and authority to enter into and perform (x) this Agreement and (y) all documents and instruments to be executed by Purchaser pursuant to this Agreement (collectively, "Purchaser's Ancillary Documents"). This Agreement and Purchaser's Ancillary Documents have been duly executed and delivered by the manager of Purchaser. (c) No consent, authorization, order or approval of, or filing or registration with, any governmental authority or other person is required for the execution and delivery by Purchaser of this Agreement and Purchaser's Ancillary Agreements, and the consummation by Purchaser of the transactions contemplated by this Agreement and Purchaser's Ancillary Documents. 51 5 (d) Neither the execution and delivery of this Agreement and Purchaser's Ancillary Documents by Purchaser, nor the execution and delivery of this Agreement and Parent's Ancillary Documents by Parent, nor the consummation by Purchaser and Parent of the transactions contemplated hereby, will conflict with or result in a breach of any of the terms, conditions or provisions of Parent's Certificate of Incorporation or By-laws, or Purchaser's articles of organization or operating agreement, or of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or governmental authority or of any arbitration award. (e) Neither Purchaser nor Parent is a party to any unexpired, undischarged or unsatisfied written or oral contract, agreement, indenture, mortgage, debenture, note or other instrument under the terms of which performance by Purchaser or Parent according to the terms of this Agreement will be a default, or whereby timely performance by Purchaser or Parent according to the terms of this Agreement may be prohibited, prevented or delayed. (f) Neither Purchaser nor Parent , nor any of their respective Affiliates has dealt with any person or entity who is or may be entitled to a broker's commission, finder's fee, investment banker's fee or similar payment for arranging the transactions contemplated hereby or introducing the parties to each other. As used herein, an "Affiliate" is any person or entity which controls a party to this Agreement, which that party controls, or which is under common control with that party. "Control" means the power, direct or indirect, to direct or cause the direction of the management and policies of a person or entity through voting securities, contract or otherwise. (g) This Agreement and each of Purchaser's Ancillary Documents constitutes the legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with their respective terms. This Agreement and each of Parent's Ancillary Documents constitutes the legal, valid and binding obligation of Parent enforceable against Parent in accordance with their respective terms. (h) The authorized capital stock of Parent consists of a single class of 200 shares of common stock, no par value ("Common Stock"), of which 20 shares are issued and outstanding. There are no shares of capital stock of Parent of any other class authorized, issued or outstanding. All of the issued and outstanding shares of Common Stock have been validly issued and are fully paid and nonassessable. The Shares, when issued to Seller pursuant hereto, shall be validly issued, fully paid and nonassessable. As of the date hereof, after giving effect to the issuance of the Shares to the Seller, the only issued and outstanding capital stock of Seller consists of (i) 20 shares of Common Stock owned of record and beneficially by Arthur Frischman and (ii) 3.5294 shares of Common Stock owned of record and beneficially by Seller. There are no outstanding subscriptions, options, warrants, rights (including preemptive rights), calls, convertible securities or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of the Parent obligating the Parent to issue any securities of any kind. As of the date hereof (after giving effect to the issuance of the Shares to Seller), Seller owns fifteen percent (15%) of the issued and outstanding shares of Common Stock of the Parent. Purchaser is a wholly-owned subsidiary of Parent. There are no outstanding subscriptions, options, warrants, rights (including preemptive rights), calls, convertible securities or other agreements or commitments of any character relating to the issued or unissued limited liability company interests in Purchaser obligating the Purchaser to issue any securities of any kind. 52 6 4.2 Seller's Representations and Warranties. Seller represents and warrants to Purchaser that: (a) Seller is a corporation duly organized, existing and in good standing, under the laws of the State of California. Seller has all necessary corporate power and authority to conduct the Business as the Business is now being conducted. (b) Seller has qualified as a foreign corporation, and is in good standing, under the laws of all jurisdictions where the nature of the Business or the nature or location of its assets requires such qualification and where the failure to so qualify would have a "Material Adverse Effect" (as herein defined). For the purposes of this Agreement, "Material Adverse Effect" means a material adverse effect on the assets, liabilities, financial condition or results of operations of the Business, taken as a whole. (c) Seller has full corporate power and authority to enter into and perform (x) this Agreement and (y) all documents and instruments to be executed by Seller pursuant to this Agreement (collectively, "Seller's Ancillary Documents"). This Agreement and Seller's Ancillary Documents have been duly executed and delivered by duly authorized officers of Seller. (d) No consent, authorization, order or approval of, or filing or registration with, any governmental authority is required for the execution and delivery of this Agreement and Seller's Ancillary Documents and the consummation by Seller of the transactions contemplated by this Agreement and Seller's Ancillary Documents. (e) Neither the execution and delivery of this Agreement and Seller's Ancillary Documents by Seller, nor the consummation by Seller of the transactions contemplated hereby, will conflict with or result in a breach of any of the terms, conditions or provisions of Seller's Certificate of Incorporation or By-laws, or of any statute or administrative regulation, or of any order, writ, injunction, judgment or decree of any court or any governmental authority or of any arbitration award. (f) Copies of the unaudited financial statements of Seller, as of and for the year ended December 31, 1996 have previously been provided to Purchaser. Said financial statements present fairly, in all material respects, the financial position of Seller as of the dates thereof, and the statement of operations and deficit of Seller for the periods covered by said statements, in accordance with generally accepted accounting principles, consistently applied, except as disclosed therein. (g) With respect to employees of Seller, Seller does not maintain, administer or contribute to any employee pension benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from coverage under specific Titles or Subtitles of ERISA) for the benefit of employees of the Seller (a "Pension Plan"). (h) To Seller's Knowledge (as defined herein), except for threatened litigation by creditors, there is no litigation or proceeding, in law or in equity, and there are no proceedings or governmental investigations before any commission or other administrative authority, pending or overtly threatened, against Seller, or with respect to the consummation of the transactions 53 7 contemplated hereby, or the use of the Purchased Assets (whether used by Purchaser after the Closing or by Seller prior thereto) which if decided adversely to Seller would have a Material Adverse Effect. (i) Seller owns no real estate. (j) Neither Seller, nor any of its Affiliates, has dealt with any person or entity who is or may be entitled to a broker's commission, finder's fee, investment banker's fee or similar payment from Seller for arranging the transactions contemplated hereby or introducing the parties to each other. (k) Seller is acquiring the Shares for its own account for investment and with no present intention of distributing or reselling such shares or any part thereof in any transaction which would constitute a "distribution" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Purchaser understands that the Shares have not been registered under the Securities Act or any state securities laws. 4.3 Limitation on Warranties. (a) Except as expressly set forth in Section 4.2, Seller makes no express or implied warranty of any kind whatsoever, including any representation as to physical condition or value of any of the Purchased Assets or the future profitability or future earnings performance of the Business. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED. Except as expressly set forth in Section 4.2, the Purchased Assets are being sold "AS IS, WHERE IS." (b) Notwithstanding the foregoing, the Purchaser acknowledges that the shareholders of Hariston have not approved the transaction contemplated hereby, and agrees that each of Seller's representations and warranties in Section 4.2 is qualified by that fact. 4.4 Definition of Knowledge. For the purposes of this Agreement, the knowledge of Seller shall be deemed to be limited to the actual knowledge as of the date hereof of L. James Porter, without giving effect to imputed knowledge. ARTICLE V. Deliveries 5.1 Purchaser's Deliveries. Concurrently with the execution and delivery of this Agreement, Purchaser shall execute and/or deliver to Seller all of the following: (a) the stock certificate for the Shares, issued in the name of Seller; (b) a copy of Parent's Certificate of Incorporation and By-laws, certified by Purchaser's secretary; 54 8 (c) a copy of Purchaser's Articles of Organization, certified by Purchaser's manager; (d) certificates of good standing of Parent, issued not earlier than twenty days prior to the date hereof by the Secretary of State of New York; (e) a certified copy of resolutions of Purchaser's board of directors, authorizing the execution, delivery and performance of this Agreement and Purchaser's Ancillary Documents; (f) a resale certificate with respect to Purchaser's purchase of the Inventory; (g) without limitation by the specific enumeration of the foregoing, all other documents reasonably required from Purchaser to consummate the transactions contemplated hereby. 5.2 Seller's Deliveries. Concurrently with the execution and delivery of this Agreement, Seller shall deliver to Purchaser physical possession of all tangible Purchased Assets, and shall execute (where applicable in recordable form) and/or deliver to Purchaser all of the following: (a) certified copies of Seller's Certificate of Incorporation and By-laws; (b) certificates of good standing of Seller, issued not earlier than twenty days prior to the date hereof by the Secretary of State of California; (c) a certified copy of resolutions of Seller's board of directors and sole stockholder, authorizing the execution, delivery and performance of this Agreement and Seller's Ancillary Documents; (d) assignments of registered trademarks and copyrights, if any; (e) UCC, federal and state tax lien, bankruptcy and judgment searches with respect to Seller; and (f) without limitation by the specific enumeration of the foregoing, all other documents reasonably required from Seller to consummate the transactions contemplated hereby. 5.3 Joint Deliveries. Concurrently with the execution and delivery hereof, the parties shall execute and deliver, or cause to be executed and delivered, to each other: (a) all legally required transfer tax declarations, if any, concerning the Purchased Assets; and (b) a shareholder's agreement. 55 9 ARTICLE VII Post-Closing Agreements 7.1 Post-Closing Agreements. From and after the Closing, the parties shall have the respective rights and obligations which are set forth in the remainder of this Article VII. 7.2 Inspection of Records. Seller and Purchaser shall each retain and make their respective books and records (including work papers in the possession of their respective accountants) available for inspection by the other party, or by its duly accredited representatives, for reasonable business purposes at all reasonable times during normal business hours, for a five (5) year period after the date hereof, with respect to all transactions occurring prior to the date hereof or relating to the consummation of the transactions contemplated hereby, and the historical financial condition, assets, liabilities, operations and cash flows of Seller, or the Assumed Liabilities. As used in this Section 7.2, the right of inspection includes the right to make extracts or copies. The representatives of a party inspecting the records of the other party shall be reasonably satisfactory to the other party. 7.3 Use of Trademarks; References to Seller. Seller shall cease to use and shall not license or permit any third party to use the name "Educorp Direct", or any name, slogan, logo or trademark which is similar or deceptively similar to any of the Trademarks or the name "Educorp Direct". Purchaser may refer to its Business as formerly being Seller's. Seller shall have no obligation to change its corporate name; provided that it must do so before actively engaging in business after the date hereof. 7.4 Payments of Accounts Receivable. In the event Seller shall receive any instrument of payment of any of the Accounts Receivable, Seller shall forthwith deliver it to Purchaser, endorsed where necessary, without recourse, in favor of Purchaser. 7.5 Non-Assignment. Notwithstanding any provision to the contrary contained herein, Seller shall not be obligated to assign to Purchaser any contract, purchase order, sales order, lease or other instrument which provides that it may not be assigned without the consent of the other party thereto and for which such consent is not obtained, but in any such event, Seller shall cooperate with Purchaser in any reasonable arrangement designed to provide the benefits thereof to Purchaser. 7.6 Further Assurances. The parties shall execute such further documents, and perform such further acts, as may be necessary to transfer and convey the Purchased Assets to Purchaser, on the terms herein contained, and to otherwise comply with the terms of this Agreement and consummate the transactions contemplated hereby. 7.7 Frischman Loan. During the first twelve (12) months after the date hereof, Purchaser shall not issue any capital stock (or options, warrants or other rights to acquire capital stock) in order to raise funds unless Purchaser on or prior to the date of such issuance has borrowed at least US $150,000.00 from Arthur Frischman, which loan shall provide for straight line amortization of principal and interest over a three year period and shall bear interest at no more than the Prime Rate plus three percent (3%) per annum. As used herein, "Prime Rate" means the rate announced by Bank of America from time to time as its prime or reference rate. 56 10 7.8 Amendments to Certificate of Incorporation and By-Laws of Parent. No later than five (5) business days after the date hereof, Parent shall, if it has not already done so, amend its Certificate of Incorporation and Bylaws as provided in Exhibit A hereto. Parent shall promptly provide to Seller copies of such amendments (which, in the case of the amendment to the Certificate of Incorporation, shall be a copy or an original of the amendment as certified by the New York Secretary of State). ARTICLE VIII. Indemnification 8.1 General. From and after the Closing, the parties shall indemnify each other as provided in this Article VIII. As used in this Agreement, the term "Damages" shall mean all liabilities, demands, claims, actions or causes of action, regulatory, legislative or judicial proceedings or investigations, assessments, levies, losses, fines, penalties, damages, costs and expenses, including reasonable attorneys' fees and expenses. 8.2 Indemnification Obligations of Seller. Subject to the provisions of Section 8.3, Seller shall indemnify, save and keep harmless Purchaser and its successors and permitted assigns ("Purchaser Indemnitees") against and from all Damages sustained or incurred by any of them resulting from or arising out of or by virtue of: (a) any inaccuracy in or breach of any representation and warranty made by Seller in this Agreement or in any closing document delivered to Purchaser in connection with this Agreement; (b) any breach by Seller of, or failure by Seller to comply with, any of its covenants or obligations under this Agreement (including its obligations under this Article VIII); and (c) the failure to discharge any liability or obligation of Seller other than the Assumed Liabilities. 8.3 Limitation on Seller's Indemnification Obligations. Seller's obligations pursuant to the provisions of Section 8.2 are subject to the following limitations: (a) the Purchaser Indemnitees shall not be entitled to recover under Section 8.2(a): (i) until the total amount which Purchaser would recover under Section 8.2(a), but for this Section 8.3(a), exceeds $25,000, and then only for the excess over $25,000; (ii) unless a claim for Damages has been asserted by written notice, specifying the details of the alleged misrepresentation or breach of warranty, delivered to Seller on or prior to April 30, 1999; or (iii) if on or before the date hereof Purchaser had actual knowledge of the misrepresentation or breach of warranty; (b) the Purchaser Indemnitees shall not be entitled to recover under Section 8.2(b) or (c) hereof if indemnification is also available under Section 8.2(a) hereof; (c) the Purchaser Indemnitees shall not be entitled to recover under Section 8.2: (i) with respect to title to the Leased Premises; 57 11 (ii) WITH RESPECT TO CONSEQUENTIAL DAMAGES, INCLUDING CONSEQUENTIAL DAMAGES CONSISTING OF BUSINESS INTERRUPTION OR LOST PROFITS, OR WITH RESPECT TO PUNITIVE DAMAGES; (iii) to the extent aggregate Damages under Section 8.3(a) exceed the then value of the Shares; (iv) to the extent the Damages are covered by insurance (including title insurance) held by Purchaser; (v) with respect to the nonassignability or nontransferability of any of the Purchased Assets or Assumed Liabilities or the failure to obtain any consent, or conditions imposed incident to the giving of any consent, required in connection with, or as a consequence of, the transfer of any of the Purchased Assets to, or the assumption of the Assumed Liabilities by, Purchaser; (d) the amount of any recovery pursuant to Section 8.2 shall be net of any income tax benefits inuring to the Purchaser Indemnitees as a result of the state of facts which entitled the Purchaser Indemnitees to recover from Seller pursuant to Section 8.2. (e) this paragraph 8.3 shall not apply to and does not limit Seller's representations and warranties regarding corporate power and authority to enter into and fully perform this agreement. (f) this paragraph 8.3 shall not apply to Seller's obligations pursuant to Section 2.2 and 9.1 of this agreement and there shall be no limitation as to Seller's obligation to indemnify Purchaser with regard to all liabilities, if any, that may arise pursuant to 2.2 of this Agreement. 8.4 Limited Recourse. Notwithstanding any provision to the contrary contained in this Agreement, Purchaser's sole recourse with respect to Seller's obligations under this Article VIII (including any judgment with respect thereto) shall be against the Shares, and Purchaser shall no recourse with respect to such obligations against any other assets of Seller or any assets of any other person or entity. Seller shall continue to hold the Shares until the later of (i) April 30, 1999 or (ii) the date that all timely claims by Purchaser for indemnification hereunder have been finally determined and satisfied. 8.5 Purchaser's Indemnification Covenants. Purchaser shall indemnify, save and keep harmless Seller and its successors and permitted assigns against and from all Damages sustained or incurred by any of them resulting from or arising out of or by virtue of: (a) any inaccuracy in or breach of any representation and warranty made by Purchaser in this Agreement or in any closing document delivered to Seller in connection with this Agreement; (b) any breach by Purchaser of, or failure by Purchaser to comply with, any of its covenants or obligations under this Agreement (including its obligations under this Article VIII); or (c) Purchaser's failure to pay, discharge and perform any of the Assumed Liabilities. 58 12 8.6 Indemnification Exclusive Remedy. Indemnification pursuant to the provisions of this Article VIII shall be the exclusive remedy of the parties for any misrepresentation or breach of any warranty or covenant contained herein or in any closing document executed and delivered pursuant to the provisions hereof with respect to any matter which is the subject of this Article VIII. Without limiting the generality of the preceding sentence, no legal action sounding in tort or strict liability may be maintained by any party. ARTICLE IX. Miscellaneous 9.1 Sales and Transfer Taxes. Seller shall pay all sales, use, transfer and conveyance taxes arising in connection with the sale and transfer of the Purchased Assets to Purchaser pursuant to this Agreement.; provided, however, that Purchaser shall pay all such taxes to the extent (and only to the extent) that the resale certificate provided by it is inadequate. 9.2 Notices. All notices required or permitted to be given hereunder shall be in writing and may be delivered by hand, by facsimile, by nationally recognized private courier, or by United States mail. Notices delivered by mail shall be deemed given three (3) business days after being deposited in the United States mail, postage prepaid, registered or certified mail. Notices delivered by hand by facsimile, or by nationally recognized private carrier shall be deemed given on the first business day following receipt; provided, however, that a notice delivered by facsimile shall only be effective if such notice is also delivered by hand, or deposited in the United States mail, postage prepaid, registered or certified mail, on or before two (2) business days after its delivery by facsimile. All notices shall be addressed as follows: If to Seller Addressed to Hariston Corporation 1500 West Georgia Street, Suite 1555 Vancouver, B.C. V6G 2Z6 Attention: L. James Porter, Chief Financial Officer Telecopier: (604) 685-8534 with a copy to Altheimer & Gray 10 South Wacker Drive Suite 4000 Chicago, Illinois 60606 Attention: Nancy Kasko, Esq. and Stephen Otis, Esq. Telecopier: (312) 715-4800 59 13 If to Purchaser or Parent, Addressed to Arch Publishers Group, Inc. 134 Saw Mill River Road Elmsford, NY 10523 Attention: Arthur Frischman, President Telecopier: (914) 347-0217 with a copy to Stanley J. Somer & Associates, P.C. 2171 Jericho Turnpike Suite 350 Commack, New York 11725 Attention: Jeffrey T. Heller Telecopier: 516-462-2338 and/or to such other respective addresses and/or addressees as may be designated by notice given in accordance with the provisions of this Section 9.2. 9.3 Expenses. Subject to Article VIII, each party hereto shall bear all fees and expenses incurred by such party in connection with, relating to or arising out of the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including attorneys', accountants' and other professional fees and expenses. 9.4 Entire Agreement. This Agreement and the instruments to be delivered by the parties pursuant hereto constitute the entire agreement between the parties. Each exhibit, schedule and the Disclosure Schedule shall be considered incorporated into this Agreement. Any matter which is disclosed in any portion of the Disclosure Schedule is deemed to have been disclosed for the purposes of all relevant provisions of this Agreement. The inclusion of any item in the Disclosure Schedule is not evidence of the materiality of such item for the purposes of this Agreement and Seller's Ancillary Documents. The parties make no representations or warranties to each other, except as contained in this Agreement. Purchaser acknowledges that it has conducted an independent investigation of the financial condition, assets, liabilities, properties and projected operations of the Business in making its determination as to the propriety of the transactions contemplated by this Agreement, and in entering into this Agreement has relied solely on the results of said investigation and on the representations and warranties of Seller expressly contained in this Agreement. 9.5 Non-Waiver. The failure in any one or more instances of a party to insist upon performance of any of the terms, covenants or conditions of this Agreement, to exercise any right or privilege in this Agreement conferred, or the waiver by said party of any breach of any of the terms, covenants or conditions of this Agreement, shall not be construed as a subsequent waiver of any such terms, covenants, conditions, rights or privileges, but the same shall continue and remain in full force and effect as if no such forbearance or waiver had occurred. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. 60 14 9.6 Applicable Law. This Agreement shall be governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the internal laws of the State of New York applicable to contracts made in that State. 9.7 Binding Effect; Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and their successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any person or entity other than the parties hereto, and their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, including third party beneficiary rights. 9.8 Assignability. This Agreement shall not be assignable by either party without the prior written consent of the other party. 9.9 Amendments. This Agreement shall not be modified or amended except pursuant to an instrument in writing executed and delivered on behalf of each of the parties hereto. 9.10 Headings. The headings contained in this Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 9.11 Construction. As used herein, (i) "including" and "include" means including without limitation, and (ii) "hereof", "herein" and "hereunder" each refer to this Agreement, not just to the section or provision in which such term appears. [Remainder of page intentionally blank] 61 15 IN WITNESS WHEREOF, the parties have executed this Asset Purchase Agreement as of the date first above written. SELLER: EDUCORP DIRECT, INC. By: /s/ L. JAMES PORTER ------------------------------------- Its: Secretary, Chief Financial Officer ----------------------------------- PURCHASER: EDUCORP, L.L.C. By: /s/ ARTHUR FRISCHMAN ------------------------------------- Arthur Frischman Its: Manager PARENT: ARCH PUBLISHERS GROUP, INC. By: /s/ ARTHUR FRISCHMAN ------------------------------------- Arthur Frischman Its: President 62 16 EXHIBIT A 1. Certificate of Incorporation. The Certificate of Incorporation of Parent shall be amended by adding a new Article SEVENTH as follows:' "The Corporation shall not issue any shares of its capital stock (or any options, warrants or other rights directly or indirectly to acquire such shares) ("Offered Securities") unless it first offers in writing to each of the then stockholders of the Corporation the right to buy a pro-rata portion (based on such stockholder's percentage ownership of the common stock of the Corporation) of the Offered Securities at a specified cash price. Each stockholder may elect (by written notice to the Corporation and the other stockholder(s) within thirty days after receipt of such offer) to accept such offer as to some or all of the Offered Securities. To the extent that the stockholders do not so elect to accept such offer within such 30 day period, then the Corporation shall have the right (but not the obligation) to sell the Offered Securities during the six month period following the expiration of said 30 day period at a cash price that is no lower than that specified in the offer notice. After the expiration of said six month period, any subsequent offering by the Corporation must comply with the above pre-emptive rights provisions. Notwithstanding the foregoing, this Article SEVENTH does not apply to: (i) to the issuance of 3.5294 shares to Educorp Direct, Inc. on or about December 19, 1997; (ii) a public offering; or (iii) any offering after the Corporation becomes a public company. The Corporation shall not authorize or permit the issuance or transfer to any person or entity (except itself) of any shares of capital stock or other ownership interests (or options, warrants or other rights to acquire same) in any of its direct or indirect subsidiaries (including without limitation Educorp LLC), unless it has first offered such stock or ownership interests to the stockholders of the Corporation in a similar manner as set forth above and designated in this Article as preemptive rights. This Article SEVENTH shall not be amended without the consent of holders of ninety-five percent (95%) of the issued and outstanding share of each class of capital stock of the Corporation." 2. By-Laws: The By-Laws of Parent shall be amended (if they have not already been so amended) as follows: (a) amend Article III, Section 1 to permit directors to be designees of shareholders; (b) amend Article III, Section 2 in its entirety, so that it reads "The number of directors shall be four."; and (c) add a new Article XII, entitled as follows: "ARTICLE XII - INDEMNIFICATION "The corporation shall indemnify each of its directors to the maximum extent permitted under applicable law with respect to any and all claims, actions, lawsuits, damages, expenses (including reasonably attorney's fees) and liabilities in connection with his actions or omissions as a director (a "Claim"). In addition, the corporation shall advance to such director the expenses (including reasonable attorney's fees) of defending against any and all such Claims to the maximum extent and at the earliest time permitted under applicable law. 63 17 This provision shall be directly enforceable by the directors of the Corporation as a contract right." 64 EX-10.2 3 ARCH STOCKHOLDER AGREEMENT 1 EXHIBIT 10.2 ARCH PUBLISHER'S GROUP, INC. STOCKHOLDERS AGREEMENT ---------------------- AGREEMENT made this 19 day of December, 1997, by and among ARCH PUBLISHER'S GROUP, INC., a New York Corporation (the "Corporation"), ARTHUR M. FRISCHMAN, residing at 1374 Midland Avenue, Apartment 311, Bronxville, New York 10708 (hereinafter "Frischman") and EDUCORP DIRECT, INC., a California Corporation with an office located at c/o Hariston Corporation, 1500 West Georgia Street, Vancouver, B.C. V6G 2Z6 (hereinafter "Educorp Direct"), both Frischman and Educorp Direct being shareholders of the corporation. W I T N E S S E T H: - - - - - - - - - - WHEREAS, the aggregate number of shares which the Corporation has been authorized to issue is two hundred (200) common shares, no par value; and WHEREAS, it is desired by the parties by this Agreement to fix the relationship, rights and obligations of and among the shareholders hereto respecting their stock ownership and for other purposes; NOW, THEREFORE, in consideration of the promises and of the mutual covenants of the parties hereto, as herein contained, it is mutually agreed among them: 1. (a) That Frischman is the holder of twenty (20) shares of stock under Certificate #1 of the Corporation. (b) That Educorp Direct is the holder of three and five thousand two hundred ninety four ten thousandths (3.5294) shares of stock under Certificate #2 of the Corporation. 2. The parties hereto agree: (a) The following directors have been elected and the parties will continue to cause them to be re-elected for the Corporation: 1. Arthur M. Frischman 65 2 (b) That after the date of this agreement, there shall be four directors and the parties shall elect and continue to cause them to be reelected for the Corporation: 1. Arthur M. Frischman 2. Ted Rubel 3. Andrew Schulkind 4. A designee of Educorp Direct who shall be L. James Porter (c) That Arthur Frischman shall have the absolute and exclusive right to elect three (3) directors of his choice to the board of directors and Educorp Direct, Inc. shall have the exclusive and absolute right to elect one (1) director of its choice to the board of directors. (d) The following officers have been elected for the Corporation: President: Arthur M. Frischman Secretary/Treasurer: Arthur M. Frischman 3. (a) That until the date (the "Expiration Date") that is the earlier of (i) the third anniversary of the date hereof or (ii) such time as the corporation becomes a public company, whichever event first occurs, no Stockholder, his heirs, executors or administrators shall sell, assign, transfer, pledge, encumber or in any way dispose of any or all of the shares of stock of the Corporation that may now or hereinafter be held by such Stockholder, unless such shares have first been offered for sale to the Corporation and then other stockholders. (b) That such offer shall be in writing for a specific cash price per share and shall state that the offer or offers to sell to the Corporation or to the other stockholders any or all of the shares of stock held or owned by the offering Stockholders and such offer, signed by the offeror shall be sent by registered mail to the Corporation and a duplicate copy of such offer as signed and mailed shall similarly be sent by registered mail to the other stockholders or parties to this Agreement. (c) That in the event the Corporation has sufficient surplus from which to purchase the said shares so offered for sale, then the Corporation shall have a period of fifteen (15) days from the receipt of said offer within which to 66 3 determine whether or not it shall accept said offer, and if the said Corporation, having a sufficient surplus therefor, elects to accept such offer, the said Corporation shall, within such period of fifteen (15) days from the receipt of said offer so signify in writing, duly signed on its behalf by the other Stockholders to the offering Stockholders and such acceptance shall be sent by certified mail to the offering Stockholders. (d) That in the event the Corporation, because of a lack of sufficient surplus, shall be unable to purchase any or all of such shares of stock, or shall fail to accept the offer so made to it, then the other stockholders shall have the right to purchase, pro rata to the relation of shares such Stockholder holds to the number of issued and outstanding shares, from the offeror the shares of stock remaining unaccepted at the expiration of such fifteen (15) days as though at the expiration of such fifteen (15) days, an offer to sell the same were then made by the offering Stockholders under the preceding paragraphs of this Article, and such other Stockholders shall act upon the right hereby so granted (hereinafter called the "re-offer") before the expiration of a period of fifteen (15) days following the fifteen (15) days hereinbefore described, in the same manner as if an offer had been made to them under the preceding paragraphs of this Article. (e) That if any offer made as aforesaid, or any re-offer made as provided in paragraph "(d)" of this Article, shall have been accepted as hereinabove provided, the shares of stock so accepted for purchase shall be delivered and paid for by the accepting Stockholders or the Corporation in the manner and at the price provided in this offer, and no shares of stock of the Corporation held or owned by the Stockholders shall be transferable in any other manner or to any other person, firm, association or corporation, until said Corporation and/or the other Stockholders to whom such offer or re-offer required to be made as aforesaid shall have refused in writing or shall have failed to accept the offer or re-offer therefor, or made payment therefor within the periods hereinabove or hereinafter provided. (f) That if any of the shares of stock so offered or re-offered for purchase shall not be accepted for purchase as and within the period or periods of time above prescribed, then the offering Stockholder shall have the right (but not the obligation), during the six (6) months after the expiration of the periods of time as hereinabove set forth to offer or re-offer the said stock for sale at a price no lower than the price offered to the 67 4 Corporation or other shareholders. After such six (6) month period is over, Seller must comply again with this Section 3 with regard to any sale prior to the Expiration Date. 4. The death of any Stockholder, the dissolution of or transfer of any stockholder shall be deemed an offer to sell the shares of the deceased, dissolved or transferred Stockholder under and pursuant to the provisions of Paragraph "3" of this Agreement, at the then fair market value. 5. That in order to more fully effectuate the intent of the respective parties hereto, the certificate or certificates representing the shares of common capital stock of the Corporation shall have endorsed on them the following: "Transfer, bequest, devise, hypothecation, negotiation, assignment, pledge, sale or other disposition of this share certificate and the shareholdings represented hereby are restricted by and are subject to all of the terms, conditions and provisions of a certain Shareholder's Agreement entered into among the shareholders of the Corporation as of the 19th day of December, 1997 and all amendments thereto, a copy of which is on file at the principal office of the Corporation." 6. Any sale, assignment, transfer, pledge or other distribution of any of the shares of stock of the Corporation owned by the said Stockholders in contravention to the provisions herein contained shall be of no force and the said Corporation is by these presents authorized and directed not to make any assignment of such shares in contravention to the terms of this Agreement. 7. The Corporation shall not issue any shares of its capital stock (or any options, warrants or other rights directly or indirectly to acquire such shares) ("Offered Securities") unless it first offers in writing to each of the then stockholders of the Corporation the right to buy a pro-rata portion (based on such stockholder's percentage ownership of the Corporation) of the Offered Securities at a specified cash price. Each stockholder may elect (by written notice to the Corporation and the other stockholder(s) within thirty days after receipt of such offer) to accept such offer as to some or all of the Offered Securities. To the extent that the stockholders do not so elect to accept such 68 5 offer within such 30 day period, then the Corporation shall have the right (but not the obligation) to sell the Offered Securities during the six month period following the expiration of said 30 day period at a cash price that is no lower than that specified in the offer notice. After the expiration of said six month period, any subsequent offering by the Corporation must comply with the above pre-emptive rights provisions. Such provisions do not apply to the issuance of 3.5294 shares to Educorp Direct, Inc. on or about December 19, 1997 or to a public offering. The Corporation shall not authorize or permit the issuance or transfer to any person or entity (except itself) of any shares of capital stock or other ownership interests (or options, warrants or other rights to acquire same) in any of its direct or indirect subsidiaries (including without limitation Educorp LLC), unless it has first offered such stock or other ownership interests to the stockholders of Arch in a similar manner as set forth and designated in this paragraph as preemptive rights. 8. The parties hereto agree to execute any papers, resolutions or agreements and will do any and all other acts that may be necessary to effectuate the terms of this Agreement. 9. No agreement of the parties hereto shall have the effect of discharging this Agreement or of changing or modifying it or any part thereof unless such agreement shall be in writing and signed by the parties hereto, nor shall any waiver of any of the conditions or provisions of this Agreement be effective and binding unless such waiver shall be in writing and signed by the party claimed to have given consent to or suffered the waiver. 10. That this Agreement shall in all respects be binding upon each of the parties hereto, their respective heirs, administrators and assigns. That this Agreement shall be deemed to have been made under and shall be governed by the laws of the State of New York applicable thereto, including matters of construction, validity and performance. In the event that any provision thereto shall at any time be deemed to be contrary to the law and invalid, the other terms and provisions shall remain in full force and effect. 11. That this Agreement may be executed in any number of counterparts, all of which shall continue as one and the same Agreement. 12. If any disagreement shall arise among the parties hereto with respect to any of the provisions of this Agreement, the same shall be determined by "JUDICATE", and a decision of the arbitrator or arbitrators so designated by the said Association, when made in writing, shall be conclusive and binding upon all of the parties 69 6 hereto, and judgment thereon may be entered in the Supreme Court of the State of New York or such other court as shall have jurisdiction. 13. This Agreement shall terminate upon the happening of (i) the tenth anniversary of the date hereof or (ii) a public offering by the company. IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and year first above written. /s/ Arthur M. Frischman ------------------------------- ARTHUR M. FRISCHMAN ARCH PUBLISHER'S GROUP, INC. BY: /s/ Arthur Frischman, President ------------------------------- ARTHUR M. FRISCHMAN, PRESIDENT EDUCORP DIRECT, INC. BY: ------------------------------- STATE OF NEW YORK) ss: COUNTY OF SUFFOLK) On this 19th day of December, 1997 before me personally came ARTHUR M. FRISCHMAN to me known and known to me to be the individual who executed the foregoing instrument, and who acknowledged to me that he executed same. /s/ Jeffrey T. Heller ------------------------------- NOTARY PUBLIC JEFFREY T. HELLER Notary Public, State of New York STATE OF NEW YORK) No.52-6030500 ss: Qualified in Suffolk County COUNTY OF ) Commission Expires July 19, 1998 On this 19th day of December, 1997 before me personally came ARTHUR M. FRISCHMAN to me known, who, being duly sworn, did depose and say that he resides at Bronxville, New York; that he is the President of ARCH PUBLISHER'S GROUP, INC., the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the 70 7 seal affixed to said instrument is such corporate seal; that it was so affixed by order of the board of directors of said corporation, and that he signed his name thereto by like order. /s/ Jeffrey T. Heller ------------------------------- NOTARY PUBLIC JEFFREY T. HELLER Notary Public, State of New York STATE OF ) No.52-6030500 ss: Qualified in Suffolk County COUNTY OF ) Commission Expires July 19, 1998 On this ____ day of December, 1997 before me personally came ______________ to me known, who, being duly sworn, did depose and say that he/she resides at ____________________________; that he/she is the _________________ of EDUCORP DIRECT, INC., the corporation described in and which executed the foregoing instrument; that he/she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the board of directors of said corporation, and that he/she signed his/her name thereto by like order. ------------------------------- NOTARY PUBLIC 71 8 hereto, and judgment thereon may be entered in the Supreme Court of the State of New York or such other court as shall have jurisdiction. 13. This Agreement shall terminate upon the happening of (i) the tenth anniversary of the date hereof or (ii) a public offering by the company. IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and year first above written. /s/ ARTHUR M. FRISCHMAN ---------------------------------- Arthur M. Frischman ARCH PUBLISHER'S GROUP, INC. By: /s/ ARTHUR M. FRISCHMAN ------------------------------- Arthur M. Frischman, President EDUCORP DIRECT, INC. By: /s/ L. JAMES PORTER ------------------------------- L. James Porter Secretary, CFO STATE OF NEW YORK) ) ss: COUNTY OF SUFFOLK) On this ________ day of December, 1997 before me personally came ARTHUR M. FRISCHMAN to me known and known to me to be the individual who executed the foregoing instrument, and who acknowledged to me that he executed same. ------------------------------ NOTARY PUBLIC STATE OF NEW YORK) ss: COUNTY OF ) On this ____ day of December, 1997 before me personally came Arthur M. Frischman to me known, who, being duly sworn, did depose and say that he resides at _____________________________________; that he is the President of ARCH PUBLISHER'S GROUP INC., the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the 72 9 seal affixed to said instrument is such corporate seal; that it was so affixed by order of the board of directors of said corporation, and that he signed his name thereto by like order. ------------------------ NOTARY PUBLIC STATE OF ILLINOIS ) ss: COUNTY OF COOK ) On this 19th day of December, 1997 before me personally came L. James Porter to me known, who, being duly sworn, did depose and say that he/she resides at Vancouver, British Columbia; that he/she is the Secretary/CFO of EDUCORP DIRECT, INC., the corporation described in and which executed the foregoing instrument; that he/she knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the board of directors of said corporation, and that he/she signed his/her name thereto by like order. /s/ STEPHEN R. OTIS ------------------------ NOTARY PUBLIC [OFFICIAL SEAL] 73 EX-10.3 4 AGREEMENT DATED 2/21/97 1 EXHIBIT 10.3 AGREEMENT AGREEMENT ("Agreement") dated as of February 21, 1997 among High Text Interactive, Inc., a California corporation ("Seller"); and Harry Helms, Carol Lewis and Jack Lewis ("Purchasers"). Recitals: A. Seller is engaged in the business of developing, marketing and distributing educational multimedia software and CD-ROM programs (the "Multimedia Operations") and in the business of book publishing (the "Book Publishing Operations"). Certain of the assets owned by Seller and used in connection with the Multimedia Operations and the Book Publishing Operations were acquired by Seller pursuant to an Agreement and Plan of Reorganization dated December 31, 1995 (the "Prior Agreement") among Seller (under its former name CD-Soft Press Corporation), Purchasers and High Text Publications, Inc., a California corporation then owned by Purchasers("HPI"). B. Pursuant to Section 2.1.4 of the Prior Agreement, Seller agreed to make certain payments to HPI as the purchase price for the Book Publishing Operations (the "Section 2.1.4 Payments"), the first such payment to be made on or before March 31, 1997. By virtue of the liquidation and dissolution of HPI, Purchasers are now entitled to receive the Section 2.1.4 Payments. C. Purchasers have offered to purchase from Seller, and Seller has agreed to sell to Purchasers, the Book Publishing Operations on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the agreements herein set forth, the parties agree as follows: 1. Purchase and Sale. Subject to the terms and conditions of this Agreement, on the Closing Date (as hereafter defined) but effective as of the Effective Date (as hereafter defined), Seller agrees to sell to Purchasers, and Purchasers agree to purchase from Seller, all of the following assets, rights and properties of Seller relating to the Book Publishing Operations (collectively, the "Transferred Assets"): (a) all inventory of Seller relating to the Book Publishing Operations existing as of the Effective Date, wherever located (the "Inventory"); (b) the furniture, equipment, computers and associated peripheral equipment owned by Seller and used exclusively in connection with the Book Publishing Operations which is identified on Schedule 1(b) attached hereto (the "Equipment"); 74 2 (c) the accounts receivable listed on Schedule 1(c) which are marked "BK" (the "Accounts Receivable"); (d) all right and interest of Seller under the contracts and permits relating to the Book Publishing Operations described on Schedule 1(d) attached hereto (the "Contract Rights"); (e) the advances and prepaids to book authors described on Schedule 1(e) attached hereto; (f) all of Seller's right, title and interest in and to all books and other publications described on Schedule 1(f) attached hereto, together with all work-in-process for uncompleted publications and all copyrights and other proprietary rights relating thereto; (g) all customer, prospect and vendor lists and databases relating exclusively to the Book Publishing Operations; (h) all price lists, product brochures and related sales or marketing materials used exclusively in the Book Publishing Operations; (i) all records relating exclusively to the Book Publishing Operations; (j) the exclusive right and license to use the name "HighText Publications" for a period of 3 years after the Effective Date; and (k) that portion of Seller's present web site (the "Web Site") relating to the Book Publishing Operations, together with the exclusive right and license to use of the Internet Domain Name "www.hightext-publications.com" for a period of 3 years after the Effective Date. 2. Excluded Assets. Expressly excluded from the Purchased Assets are: (a) all insurance policies, and rights to premium refunds thereunder, maintained by Seller in connection with the Book Publishing Operations; (b) Seller's corporate minute and stock books; (c) the name "High Text Interactive"; (d) that portion of the Web Site relating to the Multimedia Operations, including the Internet Domain Name "www.hightext-interactive.com"; and (f) all other assets not specifically included and enumerated among the Transferred Assets. 3. Assumption of Liabilities. As of the Effective Date, Purchasers shall assume and agree to discharge and perform when due all liabilities, commitments and obligations of the Book Publishing Operations (whether accrued or unaccrued, due or to become due, contractual or noncontractual) (collectively, the "Assumed Liabilities"), including, without limitation, the following obligations and liabilities: (a) all accounts 75 3 payable of Seller relating exclusively to the Book Publishing Operations and existing as of the Effective Date, including, without limitation, the accounts payable listed on Schedule 3 attached hereto which are marked "BK" (the "Accounts Payable"); (b) all sales, use and other taxes payable relating exclusively to the Book Publishing Operations (other than as set forth in Section 4 below); and (c) all obligations and liabilities of Seller under the Contract Rights. 4. Excluded Liabilities. Notwithstanding the provisions of Section 3, Purchasers shall not and do not assume any of the following liabilities or obligations of Seller (the "Excluded Liabilities"): (a) liabilities and obligations of Seller for any federal, state or local tax imposed on, or measured by, net income, regardless of the period of time to which attributable; (b) liabilities and obligations of Seller for sales tax payable in respect of the sale of the Transferred Assets to Purchasers hereunder; (c) royalties due to authors for the month of January, 1997 up to an aggregate amount of $5,000; and (d) the liabilities and obligations, if any, described on Schedule 4 attached hereto. 5. Time and Place of Closing. The closing ("Closing") of the purchase and sale hereunder shall take place at the offices of Seller on the date hereof. The Closing shall be effective as of the close of business on January 31, 1997 (the "Effective Date"). 6. Purchase Price. The purchase price ("Purchase Price") of the Transferred Assets shall be an amount equal to the Section 2.1.4 Payments plus the assumption by Purchasers of the Assumed Liabilities. 7. Manner of Payment of Purchase Price. The Purchase Price shall be paid and deemed satisfied by the cancellation of Seller's obligations to make the Section 2.1.4 Payments under the Prior Agreement and by Purchasers' assumption of the Assumed Liabilities. Upon the consummation of the transaction contemplated by this Agreement, all obligations of Seller to make the Section 2.1.4 Payments shall be deemed satisfied and discharged. 8. Representations and Warranties. The Transferred Assets are being sold to Purchasers by Seller on an "as-is", "where is" basis and Seller makes no representations and warranties to Purchasers with respect to the Transferred Assets except as follows: (a) Seller is a corporation validly existing and in good standing under the laws of the State of California. (b) The execution, delivery and performance of this Agreement by Seller have been duly authorized by all necessary corporate action, do not require the 76 4 approval or consent of any governmental authority or any other person, do not and will not conflict with or result in a default under any provision of law or of the articles of incorporation or by-laws of Seller or of any agreement or court order binding on or applicable to Seller of any of the Transferred Assets and do not and will not result in the creation of any lien on any of the Transferred Assets. This Agreement constitutes the valid and binding agreement of Seller enforceable in accordance with its terms. (c) Seller has, and on the Closing Date will convey to Purchasers, good title to the Transferred Assets free and clear of all liens, claims or encumbrances. 9. Purchasers' Representations and Warranties. Purchasers represents and warrants to Seller as follows: (a) The execution, delivery and performance of this Agreement by Purchasers do not require the approval or consent of any governmental authority or any other person and do not and will not conflict with or result in a default under any provision of law or of any agreement or court order binding on or applicable to Purchasers. (b) This Agreement constitutes the valid and binding agreement of Purchasers enforceable in accordance with its terms. 10. Closing. (a) Deliveries by Seller. At the Closing, Seller shall deliver to Purchasers physical possession of all tangible Transferred Assets and shall deliver or cause to be delivered to Purchasers the following: (i) a bill of sale, executed by Seller, conveying all of the Inventory and Equipment; (ii) an assignment (the "Assignment"), executed by Seller, assigning to Purchasers all of the Transferred Assets other than the Inventory and Equipment, together with the original instruments, if any, representing, evidencing or constituting such Transferred Assets; (iii) a certified copy of resolutions of the Board of Directors and stockholders of Seller authorizing the execution, delivery and performance of this Agreement. (b) Deliveries by Purchasers. At the Closing, Purchasers shall deliver or cause to be delivered to Seller the following: 77 5 (i) an acceptance of the Assignment and an assumption of the Assumed Liabilities; (ii) a resignation, executed by Jack Lewis and Carol Lewis, resigning from their position as officers of Seller; and (iii) a resale certificate with respect to the Inventory. 11. Additional Agreements. (a) Accounts Receivable. Seller agrees to remit to Purchasers, promptly upon receipt but in any event within five business days after receipt, any checks or other proceeds received by Seller in payment of any Account Receivable. (b) Access to Records. Purchasers shall permit Seller to have access to such books and records constituting part of the Transferred Assets as may be necessary for Seller in the operation of its Multimedia Operations subsequent to the Closing Date. (c) Employee. Seller shall terminate the employment of Jeanette Moyer as an employee of Seller effective as of the Closing Date. (d) Use of Name HighText. The Transferred Assets include the exclusive right and license to use the name "HighText Publications" for a period of 3 years after the Effective Date but solely in connection with the Book Publishing Operations being purchased hereunder and Purchasers agree not to expand the use of the name "HighText Publications" to areas not related to or incidental to the Book Publishing Operations. (e) Web Site. The Transferred Assets include the exclusive right and license to use of the Internet Domain Name "hightext-publications.com" and that portion of the Web Site relating solely to the Book Publishing Operations. Seller agrees to deliver to Purchasers on the Closing Date a copy of all source codes and documentation relating to the Web Site. As soon as practicable after the Closing Date, Purchasers shall remove the information concerning the Multimedia Operations from its copy of the Web Site and Seller shall remove the information concerning the Book Publishing Operations from the Web Site. Each party shall provide a hypertext link to each other's site for not less than 6 months after the Effective Date. (f) Databases. It is understood by the parties that the databases referred to in Section 1(g) of this Agreement contain the databases of the Book Publishing Operations. All such data shall be removed from Seller's databases and Seller shall cease use of such data from and after the Closing Date. 78 6 (g) Agreement to Provide Consulting Services. Purchasers, and each of them, agree to provide Seller with consulting services at such times and at such places as may be mutually agreed between such Purchaser and Seller. Seller shall pay for such consulting services rendered at the rate of $100.00 per hour. 12. Indemnification. (a) Seller agrees to indemnify, defend and hold Purchasers harmless from and against any liability, loss, cost, damage or expense, including reasonable attorneys' fees (collectively, "Claims"), incurred or sustained by Purchasers as a result of or arising out of: (i) any false representation or warranty made herein by Seller; (ii) the failure of Seller to comply with any of the covenants of this Agreement to be performed by Seller; (iii) the failure of Seller to discharge when due the Excluded Liabilities. (b) Purchasers agree to indemnify, defend and hold Seller harmless from and against any and all Claims incurred or sustained by Seller as a result of or arising out of any false representation or warranty made herein by Purchasers or arising out of the failure of Purchasers to comply with any of the covenants of this Agreement to be performed by Purchasers or arising out of the failure of Purchasers to cause to be performed when due any of the Assumed Liabilities or arising out of the conduct of the Book Publishing Operations by Purchasers subsequent to the Closing Date. (c) If any party ("Indemnitee") has reasonable cause to believe it has grounds for indemnification pursuant to this Section 12, it shall promptly deliver a notice of Claim to the other party ("Indemnitor"), setting forth with reasonable particularity the grounds of such Claim. If there is asserted any Claim by a person not a party to this Agreement that in the judgment of Indemnitee should be taken into account in determining the liability, if any, of Indemnitor under this Section 18, then, as a condition precedent to the assertion by Indemnitee against Indemnitor of any such Claim, Indemnitee shall give notice of such Claim to Indemnitor within 30 business days of Indemnitee's receipt of notice thereof and Indemnitor shall have the right, at Indemnitor's expense, to participate in the defense of such Claim or, at Indemnitor's option, to assume the entire defense of or settle such Claim. Indemnitee shall cooperate with Indemnitor in the defense of any Claim assumed by Indemnitor. 13. Release. In consideration of the purchase and sale of the Transferred Assets, Purchasers, on the one hand, and Seller, on the other hand, on behalf of itself, himself or herself, any parent, affiliate, subsidiary or affiliate corporation or partnership, and their respective officers, directors, partners, trustees, personal representatives, successors and assigns, do hereby forever release, discharge and acquit the other, and any parent, subsidiaries and affiliate corporation and partnerships, and their respective 79 7 officers, directors, partners, trustees, shareholders, agents, attorneys and employees, and their respective heirs, legal representatives, succesors and assigns, of and from any and all claims, demands, liabilities, responsibilities, disputes, causes of action, whether at law or equity, indebtedness and obligations of whatever kind or nature, whether known or unknown, direct or indirect, new or existing, by reason of any matter, cause or thing whatsoever arising arising out of or relating to the Prior Agreement or to the employment by Seller of any Purchaser. 14. General and Miscellaneous. (a) Further Assurances. Each of the parties shall execute such other documents and take such other action as may be necessary or desirable to vest ownership and possession of the Transferred Assets in Purchasers and to otherwise carry out the terms of this Agreement. (b) Notices. All notices provided for herein shall be in writing and shall be deemed to have been given or made when served personally or five days after being deposited in the United States mail, certified mail, return receipt requested, postage prepaid, addressed to Purchasers or Seller at their respective addresses set forth on the signature page hereto, or to such other address as either party may designate by notice given in accordance with this Section 14(b). (c) No Brokers. Each of the parties represents that it has not dealt with any broker or finder in connection with the transactions contemplated by this Agreement and that no broker or other person is entitled to a commission or finder's fee in connection with this transaction. (d) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. (e) Benefits. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. (f) Governing Law. This Agreement shall be governed by the laws of the State of California. (g) Entire Agreement; Amendment; Assignment. This Agreement represents the entire agreement and understanding of the parties hereto and all prior or concurrent agreements, understandings, representations and warranties, whether written or oral, in regard to the subject matter hereof are merged herein. This Agreement may be amended only by a writing signed by both of the parties hereto. 80 8 No party may assign this Agreement or any interest herein without the prior written consent of the other party, which consent may be granted or withheld at the absolute discretion of such other party. Notwithstanding the foregoing, Purchasers may assign its rights under this Agreement to a corporation, partnership or limited liability company wholly-owned by Purchasers; provided, however, that Purchasers shall remain liable for all obligations of Purchasers hereunder. Nothing in this Section 14(g) shall preclude in any way Purchasers, or any assignee of Purchasers pursuant to the foregoing sentence, from selling, transferring or otherwise disposing of the Transferred Assets after the Closing Date. (h) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision hereof. (i) Expenses. Each of the parties shall pay all costs and expenses incurred or to be incurred by it in negotiation and preparation of this Agreement and in closing and carrying out the transactions contemplated by this Agreement. (j) No Waiver. The failure of any party to insist upon strict compliance by the other party with any of the terms herein by any of the parties hereto shall not be deemed to be a waiver of any future breach. No remedy made available by any of the provisions of this Agreement is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity. (k) Survival. All representations, warranties, covenants and agreements herein shall survive the Closing of the transactions contemplated by this Agreement. (l) Bulk Sales Compliance. Each of the parties hereto waives compliance with the laws of any jurisdiction relating to bulk transfers in connection with the transactions contemplated by this Agreement. 81 9 IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date first written above. PURCHASERS: SELLER: /s/ HARRY L. HELMS HIGHTEXT INTERACTIVE, INC. - ------------------------------------ Harry Helms Address: 309 Solana Hills Drive $76 Solana Beach, CA 92075 By: /s/ KENNETH PERILLI ---------------------------------- Address: 611 Anton Blvd., Suite 1270 Costa Mesa, CA 92626 /s/ JACK W. LEWIS - ------------------------------------ Jack Lewis Address: 125 N. Acacia Ave. #202 Solana Beach, CA 92075 /s/ CAROL S. LEWIS - ------------------------------------ Carol Lewis Address: 125 N. Acacia Ave. #202 Solana Beach, CA 92075 82 EX-10.4 5 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.4 ================================================================================ ASSET PURCHASE AGREEMENT BY AND AMONG BYRON PREISS MULTIMEDIA HOLDINGS, INC. BYRON PREISS MULTIMEDIA COMPANY, INC. AND HIGHTEXT INTERACTIVE, INC. February 13, 1998 ================================================================================ 83 2 ASSET PURCHASE AGREEMENT AGREEMENT, dated as of February 13, 1998, by and among BYRON PREISS MULTIMEDIA HOLDINGS, INC., a Delaware corporation (hereafter referred to as "Purchaser"), BYRON PREISS MULTIMEDIA COMPANY, INC., a New York corporation (hereafter referred to as "BPMC") and HIGHTEXT INTERACTIVE, INC., a California corporation (hereinafter referred to as "Seller"). Purchaser and BPMC are sometimes referred to herein collectively as the "Purchaser Parties." W I T N E S S E T H : WHEREAS, Seller desires to sell, and Purchaser desires to purchase, certain assets of Seller on the terms set forth in this Agreement; NOW, THEREFORE, in consideration of the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Capitalized terms used in this Agreement shall, unless the context otherwise requires, have the meanings specified in this Article I. Certain additional defined terms are set forth elsewhere in this Agreement. 1.1 ACQUIRED ASSETS. "Acquired Assets" shall mean all of Seller's right, title and interest in and to the following assets of Seller which the Purchaser is acquiring, effective as of the date hereof, pursuant to the terms of this Agreement: (i) all of the computer software described on Schedule A hereto and any and all source codes, documentation, manuals, modules, gold masters, artwork, color separations for packaging or syquest disks of packaging documentation, inventory (which inventory is substantially as listed on Schedule D (the "Inventory")) and any and all other tangible embodiments thereof (in whatever form or medium) relating thereto (collectively, the "Software"); (ii) any and all United States and foreign copyrights, copyright registration applications, trademarks, trademark registrations, trademark applications, trade names, trade name registrations, trade name registration applications and any and all other related items of intellectual property or other intangible assets, including the "URL," if any, for "Crash Course," related to the intangible property listed on Schedule B hereto (the "Intellectual Property"); (iii) all of Seller's right, title and interest in Seller's web site, if any, relating to Seller's "Crash Course" business, including any internet domain names (the "Web Site"); and 84 3 (iv) any and all warranties, claims and causes of action against third parties relating to any of the assets transferred pursuant to this Agreement; 1.2 ASSUMED LIABILITIES. "Assumed Liabilities" means (i) only those liabilities set forth on Schedule C, but only to the extent of $30,000.00, and (ii) the executory portion of all of Seller's license, royalty, development and other agreements set forth on Schedule A, but only with respect to the period after the date hereof. Purchaser hereby assumes and agrees to discharge when due, the Assumed Liabilities. The assumption of the Assumed Liabilities hereunder shall not expand the rights or remedies of any third party against the Purchaser or Seller as compared to the rights and remedies which such third party would have had against the Seller had the Purchaser not assumed the Assumed Liabilities. 1.3 COMMON STOCK. "Common Stock" means the shares of common stock par value $.001 per share of BPMC. 1.4 FINANCIAL STATEMENTS. "Financial Statements" shall mean the balance sheet of the Seller as of December 31, 1996, and the related statements of operations, deficit and change in financial position for the year ended December 31, 1996, including any related notes. 1.5 PERSON. "Person" means and includes an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or other department or agency thereof. 1.6 SECURITIES ACT. "Securities Act" means the Securities Act of 1933, as amended. ARTICLE II SALE AND PURCHASE OF ASSETS 2.1 SALE AND PURCHASE OF ASSETS. (a) Subject to the terms and conditions set forth in this Agreement, Seller hereby sells, transfers and assigns to the Purchaser, and the Purchaser hereby purchases from Seller all of Seller's right, title and interest in and to the Acquired Assets. (b) Except for the Assumed Liabilities, Purchaser does not assume any of Seller's accounts payable, obligations (contingent or otherwise), liabilities or other debts of any kind, all of which will remain Seller's obligations. Without limiting the generality of the foregoing, Seller hereby covenants and agrees to pay and discharge when due any and all of its liabilities, other than the Assumed Liabilities, including, but not limited to, any tax liabilities, any liability to JVC, Larry N. Sanford, GloLar Multimedia Productions, Carol Lewis, Jack Lewis, Jim Johnson or Harry Helms, any pending or threatened litigation, any unknown or undisclosed claims, liabilities or obligations; provided, however, that nothing herein shall prohibit Seller from contesting in good faith any alleged liability to a third party. 85 4 2.2 CONSIDERATION. The aggregate consideration to be delivered by the Purchaser for the Acquired Assets is One Hundred Fifty Thousand (150,000) shares of Common Stock of BPMC (the "Payment Shares"). The Purchaser Parties hereby guarantee an aggregate selling price of the Common Stock at $1.33 per share, before commissions or other transaction fees, for each such share actually sold on a bonafide trade on The NASDAQ Market System or such other exchange or over the counter market that BPMC's Common Stock is then listed or traded during the period beginning one (1) year and ending eighteen (18) months from the date hereof (the "Determination Period"). To the extent that Seller sells any or all of the Payment Shares during the Determination Period, the Purchaser Parties will pay to Seller the amount of the Shortfall in cash or stock, at their sole discretion. For purposes of this Agreement, a "Shortfall" shall mean the difference between (A) the aggregate sales price, before commissions or other transaction fees, obtained by Seller in respect of all of the Payment Shares sold during the Determination Period less (B) the number of such Payment Shares sold by Seller during the Determination Period multiplied by $1.33. In the event of a Shortfall, the Purchaser Parties shall deliver either cash or Shortfall Shares to the Seller, within thirty (30) business days of its receipt of written notice, which notice shall be given no earlier than at the end of the Determination Period, by the Seller of such Shortfall accompanied with documentation that is reasonably acceptable to the Purchaser that supports such Shortfall calculation. In the event that the Purchaser Parties elect to make up such Shortfall with Shortfall Shares, the value of a Shortfall Share shall be the average of the closing sale price of the Common Stock for the twenty (20) business days immediately following the end of the Determination Period. The definition of "Shortfall" shall be appropriately adjusted in the event of any stock split, stock dividend, reverse stock split or other recapitalization of BPMC. For example, if BPMC were to engage in a ten for one reverse stock split, then $13.30 would be substituted for $1.33 in the definition of Shortfall. ARTICLE III REPRESENTATIONS OF THE PURCHASER Each of BPMC and the Purchaser represents, warrants and covenants to Seller as follows: 3.1 ORGANIZATION. (a) The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Purchaser is duly qualified to transact business as a foreign corporation in all jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification and the failure to so qualify would have a material adverse effect on the business, financial condition, results of operations or properties of the Purchaser. The Purchaser has all requisite right, corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The Purchaser has the requisite corporate power and authority to own or lease and operate its properties and conduct its business as presently conducted. (b) BPMC is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. BPMC is duly qualified to transact business as a foreign corporation in all jurisdictions where the ownership or leasing of its 86 5 properties or the conduct of its business requires such qualification and the failure to so qualify would have a material adverse effect on the business, financial condition, results of operations or properties of BPMC. BPMC has all requisite corporate right, power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. BPMC has the requisite corporate power and authority to own or lease and operate its properties and conduct its business as presently conducted. 3.2 AUTHORIZATION; ENFORCEABILITY. Each of BPMC and the Purchaser has the capacity to execute, deliver and perform this Agreement. All documents executed and delivered by either BPMC or the Purchaser, as the case may be, pursuant to and in connection with the transactions contemplated by this Agreement have been duly authorized by all requisite corporate action on the part of such party, and this Agreement and all documents to be executed and delivered by each of BPMC or the Purchaser, as the case may be, pursuant to this Agreement have been and will be duly executed and delivered by each of BPMC or the Purchaser, as the case may be, and constitute the legal, valid and binding obligations of such party, enforceable in accordance with their respective terms, except to the extent that their enforcement is limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally and by general principles of equity. 3.3 NO VIOLATION OR CONFLICT. The execution, delivery and performance of this Agreement by each of BPMC and the Purchaser and the consummation by each of BPMC and the Purchaser of the transactions contemplated hereby do not violate or conflict with any law or regulation (whether federal, state of local), writ, order or decree of any court or governmental or regulatory authority applicable to such party, or any provision of either BPMC's or the Purchaser's Certificate of Incorporation or Bylaws. 3.4 BROKERS. Except as set forth on Schedule 3.4 neither BPMC nor the Purchaser has employed any financial advisor, broker or finder, and neither has incurred or will incur any broker's, finder's, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement. 3.5 CAPITALIZATION. The authorized capital stock of BPMC consists of: (a) 30,000,000 shares of common stock, $.001 par value, of which 7,399,438 shares are issued and outstanding as of the date hereof; and (b) 5,000,000 shares of preferred stock, of which there are no shares issued and outstanding. All shares of BPMC's issued and outstanding capital stock have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. No securities issued by BPMC from the date of its incorporation to the date hereof were issued in violation of any statutory or common law preemptive rights. There are no dividends which have accrued or been declared but are unpaid on the capital stock of BPMC. The Payment Shares, when issued pursuant hereto, shall be validly issued and outstanding and fully paid and nonassessable. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER 87 6 In order to induce BPMC and the Purchaser to enter into this Agreement and to consummate the transactions contemplated hereby, the Seller makes the following representations and warranties to BPMC and the Purchaser: 4.1 ORGANIZATION. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Seller is duly qualified to transact business as a foreign corporation in all jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification and the failure to so qualify would have a material adverse effect on the business, financial condition, results of operations or properties of the Seller. The Seller has all requisite corporate right, power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The Seller has the requisite corporate power and authority to own or lease and operate its properties and conduct its business as most recently conducted. 4.2 AUTHORIZATION; ENFORCEABILITY. The Seller has the capacity to execute, deliver and perform this Agreement. All documents executed and delivered by the Seller pursuant to and in connection with the transactions contemplated by this Agreement have been duly authorized by all requisite corporate action on the part of the Seller, and this Agreement and all documents to be expected and delivered by the Seller pursuant to this Agreement have been and will be duly executed and delivered by the Seller and constitute the legal, valid and binding obligations of the Seller, enforceable in accordance with their respective terms, except to the extent that their enforcement is limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally and by general principles of equity. 4.3 NO VIOLATION OR CONFLICT. The execution, delivery and performance of this Agreement by the Seller and the consummation by the Seller of the transactions contemplated hereby do not violate or conflict with any law or regulation (whether federal, state or local), writ, order or decree of any court or governmental or regulatory authority applicable to the Seller, or any provision of the Seller's Certificate of Incorporation of Bylaws. 4.4 CONSENTS OF GOVERNMENTAL AUTHORITIES AND OTHERS. No consent, approval or authorization of, or registration, qualification of filing with, any federal, state or local governmental or regulatory authority is required to be made by the Seller in connection with the execution, delivery or performance of this Agreement by the Seller or the consummation by the Seller of the transactions contemplated hereby. 4.5 CONDUCT OF BUSINESS. The Sellers no employees and has gone out of business, except for a minimal amount of inventory sales to Educorp Direct, Inc. or its successor in interest Educorp LLC. The amount and identity of the Inventory being transferred to Purchaser hereunder is substantially as set forth on Schedule D. 4.6 LITIGATION. There is no litigation pending or to the best of the Seller's knowledge threatened before any court or by or before any governmental or regulatory authority or arbitrator: (a) affecting Seller (as plaintiff or defendant) which could, 88 7 individually or in the aggregate, have a material adverse effect on the Acquired Assets; or (b) against the Seller relating to the transactions contemplated by this Agreement. 4.7 BROKERS. The Seller has not employed any financial advisor, broker or finder, and has not incurred or will not incur any broker's, finder's, investment banking or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement. 4.8 COMPLIANCE. To the knowledge of the Seller, the Seller is in compliance with all federal, state, local and foreign laws, ordinances, regulations, judgments, rulings and orders applicable relating to the Acquired Assets. To the knowledge of the Seller, the Seller is not subject to any judicial, governmental or administrative order, judgment or decree. 4.9 FINANCIAL STATEMENTS. The Seller has previously delivered to the Purchaser true and complete copies of the Financial Statements. To the knowledge of the Seller, the Financial Statements: (a) have been prepared in accordance with the books of account and records of the Seller; (b) fairly present in all material respects the Seller's financial condition and results of operations at the dates and for the periods specified in the those statements; and (c) have been prepared in accordance with United States generally accepted accounting principles consistently applied with prior periods. 4.10 CERTAIN EMPLOYEES. To the knowledge of the Seller, the Seller treated Carol Lewis, Jack Lewis, Jim Johnson and Harry Helms as employees of the Seller for tax purposes (including withholding). 4.11 LICENSES. To the knowledge of the Seller, the Seller holds all governmental, franchises, authorizations, permits, certificates, variances, exemptions, orders and approvals, domestic or foreign (collectively, the "Licenses") which are required or utilized in the operation or usage of the Acquired Assets. To the knowledge of the Seller, the Seller has not engaged in any activity that would cause revocation or suspension of any such Licenses. To the knowledge of the Seller, no action or proceeding looking to or contemplating the revocation or suspension of any such Licenses is pending or threatened. 4.12 PROPRIETARY RIGHTS. Except as set forth on Schedule 4.12, (i) to the knowledge of the Seller, the Intellectual Property is owned by, licensed to and/or licensed by the Seller, (ii) to the knowledge of the Seller, the Seller is not in conflict with or infringing upon the asserted rights of others in connection with the Intellectual Property, (iii) HighText Publications, Inc. has transferred to the Seller all of its rights, title and interest in and to any and all proprietary, technology, legal and other rights in all multimedia software and CD-Rom software and programs, and all books and other publications, in each case relating to the "Crash Course" line of products together with any and all copyrights, patents, trademarks, trade secrets and other proprietary rights relating thereto, and (iv) the Seller has not assigned any rights relating to the "Crash Course" products or Web Site, if any. 4.13 INVESTMENT REPRESENTATIONS. (a) The Seller understands and acknowledges that the Payment Shares have not been registered under the Securities Act. The Seller hereby represents and warrants that: 89 8 (i) the Payment Shares are being acquired only for investment for the Seller's own account, and not as a nominee or agent and not with a view to the resale or distribution thereof, and the Seller has no present intention of selling, granting any participation in or otherwise distributing any interest therein within the meaning of the Securities Act, (ii) the Seller does not have any contracts, understandings, agreements or arrangements with any Person to sell, transfer or grant participation to such Person or any third Person, with respect to any of the Payment Shares, (iii) the Seller has had an opportunity to seek outside advice with respect to the terms and conditions of this Agreement and its investment in the Payment Shares, and (iv) the Seller has had ample opportunity to ask questions of BPMC's representatives concerning its investment. (b) The Seller acknowledges that it can bear the economic risk of its investment in the Payment Shares for an indefinite period of time and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment therein. The Seller understands that the Payment Shares are characterized as "restricted securities" under federal securities laws since they are being acquired in a transaction not involving a public offering and that under such laws and applicable regulations the Payment Shares may not be resold without registration or an exemption from registration under the Securities Act. The Seller represents that it is generally familiar with and generally understands the existing resale limitations imposed by the Securities Act and the rules and regulations promulgated thereunder. (c) The Seller understands and agrees that the certificates evidencing the Payment Shares will bear an appropriate legend evidencing the restricted nature of the Payment Shares and indicating that no transfer of any of the Payment Shares may be made unless such Payment Shares are registered under the Securities Act or an exemption from such registration is available, and that BPMC will instruct its transfer agents not to transfer any such Payment Shares unless such transfer shall be made in compliance with such legend. The legend shall be substantially in the form set forth below. "THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR HYPOTHECATION OF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THESE SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS DULY REGISTERED UNDER THE ACT OR UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION PROVISIONS OF THE ACT." 4.14 INVENTORY. To the knowledge of the Seller, there are no security interests under any security agreements affecting the Inventory. 90 9 4.15 LIMITATION ON SELLER'S WARRANTIES. Except as expressly set forth in Article IV, Seller makes no express or implied warranty of any kind whatsoever, including, without limitation, any representation as to physical condition or value of the Acquired Assets or the future profitability or future earnings performance of any business. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED. Except as expressly set forth in this Agreement, the Acquired Assets are being sold "AS IS, WHERE IS." 4.16 DEFINITION OF KNOWLEDGE. For purposes of this Agreement, the knowledge of the Seller shall be deemed to be limited to the actual knowledge as of the date hereof of L. James Porter, without giving effect to imputed knowledge and without any duty of investigation. ARTICLE V ADDITIONAL AGREEMENTS 5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; EFFECT OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Purchaser and of the Seller set forth in this Agreement shall survive the date hereof to the extent provided in Section 5.3(d) hereof. 5.2 INVESTIGATION. The representations, warranties, covenants and agreements set forth in this Agreement shall not be affected or diminished in any way by any investigation (or failure to investigate) at any time by or on behalf of the party for whose benefit such representations, warranties, covenants and agreements were made. 5.3 INDEMNIFICATION. (a) By the Seller. Subject to Section 5.3(d) hereof, the Seller agrees to indemnify and hold harmless the Purchaser and its directors, officers, employees and agents from, against and in respect of, the full amount of any and all liabilities, damages, claims, deficiencies, fines, assessments, losses, taxes, penalties, interest, costs and expenses, including, without limitation, reasonable fees and disbursements of counsel, arising from, in connection with, or incident to (i) any breach or violation of any of the representations, warranties, covenants or agreements of the Seller contained in this Agreement or any agreements referred to herein and delivered to Purchaser; and (ii)) any and all third party actions, suits, proceedings, demands, assessments or judgments, costs and expenses incidental to any of the foregoing. (b) By the Purchaser and BPMC. Subject to Section 5.3(d) hereof, BPMC and the Purchaser each agree to indemnify and hold harmless the Seller from, against and in respect of, any and all liabilities, damages, claims, deficiencies, fines, assessments, losses, taxes, penalties, interest, costs and expenses, including, without limitation, reasonable fees and disbursements of counsel, arising from, in connection with, or incident to (i) any breach or violation of any of the representations, warranties, covenants or agreements of BPMC or the Purchaser contained in this Agreement or any agreement referred to herein and delivered to Seller; and (ii) any and all third party actions, suits, proceedings, demands, assessments or judgments, costs and expenses incidental to any of the foregoing. 91 10 (c) Indemnity Procedure. A party or parties hereto agreeing to be responsible for or to indemnify against any matter pursuant to this Agreement is referred to herein as the "Indemnifying Party" and the other party or parties claiming to indemnity is referred to as the "Indemnified Party". An Indemnified Party under this Agreement shall, with respect to claims asserted against such party by any third party, give written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity under this Agreement promptly after the receipt of any written claim from any such third party, and not later than twenty (20) days prior to the date any answer or responsive pleading is due, and with respect to other matters for which the Indemnified Party may seek indemnification, give prompt written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity; provided, however, that any failure to give such notice will waive any rights of the Indemnified Party only to the extent the rights of the Indemnifying Party are materially prejudiced. The Indemnifying Party shall have the right, at its election, to take over the defense or settlement of such claim by giving written notice to the Indemnified Party at least ten (10) days prior to the time when an answer or other responsive pleading or notice with respect thereto is required. If the Indemnifying Party makes such election, it may conduct the defense of such claim through counsel of its choosing (subject to the Indemnified Party's approval of such counsel, which approval shall not be unreasonably withheld), shall be solely responsible for the expenses of such defense and shall be bound by the results of its defense or settlement of the claim. The Indemnifying Party shall not settle any such claim without prior notice to and consultation with the Indemnified Party, and no such settlement involving any equitable relief and no settlement which might otherwise have a material adverse effect on the Indemnified Party may be agreed to without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld). So long as the Indemnifying Party is diligently contesting any such claim in good faith, the Indemnified Party may pay or settle such claim only at its own expense and the Indemnifying Party will not be responsible for the fees of separate legal counsel to the Indemnified Party. If the Indemnifying Party does not make such election, or having made such election does not in the reasonable opinion of the Indemnified Party proceed diligently to defend such claim, then the Indemnified Party may (after written notice to the Indemnifying Party), at the expense of the Indemnifying Party, elect to take over the defense of and proceed to handle such claim in its discretion and the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make in good faith with respect to such claim. In connection therewith, the Indemnifying Party will fully cooperate with the Indemnified Party should the Indemnified Party elect to take over the defense of any such claim. The parties agree to cooperate in defending such third party claims and the Indemnified Party shall provide such cooperation and such access to its books, records and properties as the Indemnifying Party shall reasonably request with respect to any matter for which indemnification is sought hereunder; and the parties agree to cooperate with each other in order to ensure the proper and adequate defense thereof. With regard to claims of third parties for which indemnification is payable hereunder, such indemnification shall be paid by the Indemnifying Party upon the earlier to 92 11 occur of: (i) the entry of a judgment against the Indemnified Party and the expiration of any applicable appeal period; (ii) the entry of an unappealable judgment or final appellate decision against the Indemnified Party; or (iii) a settlement of the claim. Notwithstanding the foregoing, provided that there is no dispute as to the applicability of indemnification, the reasonable expenses of counsel to the Indemnified Party shall be reimbursed on a current basis by the Indemnifying Party if such expenses are a liability of the Indemnifying Party. With regard to other claims for which indemnification is payable hereunder, such indemnification shall be paid promptly by the Indemnifying Party upon demand by the Indemnified Party. (d) Indemnity Limitations. Notwithstanding anything to the contrary herein, (i) no claim for indemnification for violation of any covenant, agreement, representation or warranty may be asserted after eighteen months of the date hereof; and (ii) the maximum liability of each Indemnifying Party for any breach of a covenant, agreement, representation or warranty shall be the lesser of (i) $199,500.00 or (ii) the value of the Payment Shares (determined in the manner and as of the time set forth in the last sentence of Section 5.3(e); provided, however that the limitations set forth above shall not apply to breaches of covenants under Section 2.2. Indemnification pursuant to this Section 5.3 shall be the exclusive remedy of the parties for any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement or in any closing document executed and delivered pursuant to the provisions of this Agreement. Without limiting the generality of the foregoing sentence, no legal action sounding in tort or strict liability may be maintained by any party. (e) Payment for Liabilities. The amount of the Liabilities for which indemnification is determined to be due pursuant to this Section 5.3 from the Seller to the Purchaser, shall be tendered by the Seller to the Purchaser: (i) by returning the Payment shares; (ii) in cash; and (iii) through any other mechanism acceptable to the Purchaser. For purposes of determining the value of the Payment Shares returned to the Purchaser pursuant to this Section 5.3, the Payment Shares shall be deemed to have a value equal to the average of the closing NASDAQ (or other exchange or over the counter market, if applicable) sale prices for Common Stock of Purchaser during the 30 day period immediately preceding (but not including) the earlier of the date of (a) the determination by a court of competent jurisdiction and/or arbitration tribunal that such Liabilities are due or (b) the settlement of the claim. ARTICLE VI CLOSING; DELIVERIES 6.3 CLOSING. (a) Upon execution of this Agreement, the Seller shall deliver the following to the Purchaser: (i) documents transferring and assigning to Purchaser the ownership of the items of Intellectual Property constituting part of the Acquired Assets; (ii) a certificate of the Secretary of State of the State of California, as of a recent date, as to the good standing of Seller; 93 12 (iii) a certificate, dated the closing date, of the Secretary of the Seller, setting forth the authorizing resolutions adopted by the Seller's Board of Directors and Shareholders with respect to the transactions contemplated hereby and certifying its Certificate of Incorporation; (iv) except for the estimated closing date used in the bulk sale notice falling on a date prior to the date hereof, the Seller shall have complied with any bulk sales law requirements and Seller shall deliver to Purchaser a certificate, dated the closing date, from the President of the Seller to such effect; (v) the Schedules to this Agreement; (vi) all of the Inventory shall have been placed with a third party common carrier on route to Purchaser (it being agreed that (X) title to the Acquired Assets passes to Purchaser as of the date of this Agreement, (Y) Purchaser and Seller shall each pay one-half of the freight costs for delivering the Inventory to Purchaser, and (Z) Purchaser bears all risk associated with the shipment of the Inventory to Purchaser once the Inventory is delivered to a third party common carrier); and (vii) such other documents and instruments as the Purchaser may reasonably request. (b) Upon execution of this Agreement, the Purchaser shall deliver the following documents and instruments, duly executed, to the Seller: (i) the certificates representing the Payment Shares, issued in the name of Seller; (ii) certificates of the Secretaries of State of the States of New York and Delaware, as of a recent date, as to the good standing of each of BPMC and the Purchaser and certifying its Certificate of Incorporation; (iii) certificates, dated the closing date, of the Secretary of each of BPMC and the Purchaser, setting forth the authorizing resolutions adopted by each of BPMC's and the Purchaser's Board of Directors with respect to the transactions contemplated hereby; (iv) a resale certificate of BPMC; and (v) such other documents and instruments as the Seller may reasonably request. ARTICLE VII COVENANTS --------- 7.1 RESTRICTION ON TRANSFER. 94 13 (a) During the one year period following the date of this Agreement, the Seller covenants and agrees not to sell, assign, pledge or otherwise transfer, encumber or dispose of all or any part of the Payment Shares without the prior written consent of the Purchaser, which consent may be withheld arbitrarily. Notwithstanding the foregoing, upon prior written notice to BPMC, (i) Seller may transfer the Payment Shares to its parent, Educorp Multimedia, Inc. and (ii) Educorp Multimedia, Inc. may transfer the Payment Shares to its parent, Hariston Corporation, in each case only if such transferee agrees to be bound by the terms and conditions of this Agreement and the form of such agreement by such transferee is reasonably acceptable to BPMC. BPMC will instruct its transfer agents not to transfer any Payment Shares unless such transfer shall be made in compliance with this Agreement. Any transfer or purported transfer by Seller in violation of the provisions of this Section 7.1 shall be null and void. (b) In addition to the legend set forth in Section 4.13 the certificates representing the Payment Shares shall be endorsed as follows: "Any transfer or other disposition of the shares represented by this certificate is subject to the restrictions on transfer set forth in an Asset Purchase Agreement among Byron Preiss Multimedia Company, Inc., Byron Preiss Holdings, Inc. and HighText Interactive, Inc. dated ____________, 1998; provided, however, that all such restrictions on transfer under the Asset Purchase Agreement expire on the first anniversary of the date of the Asset Purchase Agreement." 7.2 NON-COMPETITION. (a) The Seller agrees that, for a period of two (2) years after the date hereof, the Seller shall not, in the United States or any other geographic area where the Purchaser does business, alone or in association with others; (i) engage, directly or indirectly, in the type of business conducted by Seller within the two (2) years prior to the date hereof (the "Competitive Activities"); and (ii) have any interest in or be employed by (or act as a consultant to) any company which is engaged in Competitive Activities. (b) During the same period, the Seller shall not, and shall use its respective best efforts not to allow any person under its actual control (including employees and agents of the Seller or any affiliated company under its actual control) to, directly or indirectly, on behalf of itself or any other person: (i) call upon or accept business involving the Competitive Activities from or solicit business involving the Competitive Activities of any person who is, or who had been at any time during the preceding two (2) years, a customer of Purchaser or Seller, or otherwise divert or attempt to divert any business involving the Competitive Activity from Purchaser or Seller; (ii) recruit or otherwise solicit or induce any person who is an employee of, or otherwise engaged by, Purchaser to terminate his or her employment or other relationship with Purchaser or hire any person who has left the employ of Purchaser during the preceding two (2) years; or (iii) use or purport to authorize any person to use any name, mark, logo, trade dress or other identifying words or images which 95 14 are the same as or confusingly similar to those used at any time by Purchaser or Seller in connection with the Acquired Assets. (c) Except as otherwise provided herein, each party hereto will keep confidential any information obtained from the other party in connection with the transactions contemplated by this Agreement, except as and to the extent required by applicable law. (d) The restrictions set forth in this Section 7.3 are considered by the parties to be fair and reasonable. The Seller further acknowledges that the Purchaser would be irreparably harmed and that monetary damages would not provide an adequate remedy in the event of a breach of the provisions of this Section 7.2. Accordingly, the Seller agrees that, in addition to any other remedies available to the Purchaser, the Purchaser shall be entitled to specific performance, injunction and other equitable relief to secure the enforcement of these provisions, and the party seeking such relief shall not be required to post bond as a condition thereto. If any provisions of this Section 7.1 relating to the time period, scope of activities or geographic area of restrictions is declared by a court of competent jurisdiction to exceed the maximum permissible time period, scope of activities or geographic area, the maximum time period, scope of activities or geographic area, as the case may be, shall be reduced to the maximum which such court deems enforceable. If any provisions of this Section 7.2 other than those described in the preceding sentence are adjudicated to be invalid or unenforceable, the invalid or unenforceable provisions shall be deemed amended (with respect only to the jurisdiction in which such adjudication is made) in such manner as to render them enforceable and to effectuate as nearly as possible the original intentions and agreement of the parties. 7.2 CHANGE OF CORPORATE NAME. Seller may retain its corporate name so long as it is not actively engaged in business. Prior to actively engaging in any business, Seller shall take all necessary corporate action to effect the change of its corporate name to a name dissimilar to its present name, including the filing of the required amendment to its certificate of incorporation in the offices of the Secretary of State of the State of California. 7.3 SALES TAX. All sales, transfer and similar taxes in connection with the sale of the Acquired Assets hereunder to the Purchaser shall be borne equally by the Seller and the Purchaser. 7.4 BULK SALES LAWS. Seller shall comply with and fulfill all requirements regarding any applicable bulk sales law. In addition to any other rights to indemnification contained herein, the Seller, subject to the limitations set forth in Section 5.3(d), shall indemnify and hold the purchaser harmless against any and all claims, losses, liabilities and damages and any and all costs and expenses, which Purchaser may incur as a result of or arising out of any failure by the parties to comply with any bulk sales law. ARTICLE VIII MISCELLANEOUS 9.1 NOTICES. Any Notice, demand, claim or other communication under this Agreement shall be in writing and shall be deemed to have been given upon the delivery, mailing or transmission thereof, as the case may be, if delivered personally or sent by 96 15 certified mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below their names on the signature pages of this Agreement (or at such other addresses as shall be specified by the parties by like notice). A copy of any notices delivered to the Purchaser shall also be sent to (i) Kane Kessler, P.C. - - 26th Floor, 1350 Avenue of the Americas, New York, New York 10019, Attention: Robert L. Lawrence, Esq., Facsimile No.(212) 245-3009. A copy of any notices delivered to the Seller shall also be sent to Altheimer & Gray, 10 South Wacker Drive, Suite 4000, Chicago, IL 60606, Attention: Stephen Otis, Esq., Facsimile No.(312) 715-4800. 8.2 ENTIRE AGREEMENT. This Agreement (including the exhibits and schedules hereto) contains every obligation and understanding between the parties relating to the subject matter hereof and merges all prior discussions, negotiations and agreements (including, but not limited to, the Letter of Intent dated August 27, 1997), if any, between them, and none of the parties shall be bound by any conditions, definitions, understandings, warranties or representations other than as expressly provided herein. All exhibits and schedules referenced in this Agreement are expressly made a part of, and incorporated by reference into, this Agreement. 8.3 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, personal representatives, legal representatives, and permitted assigns. 8.4 RESERVED. 8.5 ASSIGNMENT. This Agreement may not be assigned by any party without the written consent of the other party. 8.6 WAIVER AND AMENDMENT. Any representation, warranty, covenant, term or condition of this Agreement which may legally be waived, may be waived, or the time of performance thereof extended, at any time by the party entitled to the benefit thereof, and any term, condition or covenant hereof (including, without limitation, the period during which any condition is to be satisfied or any obligation performed) may be amended by the parties at any time. Any such waiver, extension or amendment shall be evidenced by an instrument in writing executed on behalf of the appropriate party (in the case of the Purchaser by its President, any Vice President or any other person who has been authorized by its Board of Directors to execute waivers, extensions or amendments on its behalf). No waiver by any party hereto, whether express or implied, of such party's rights under any provision of this Agreement shall constitute a waiver of such party's rights under such provisions at any other time or a waiver of such party's rights under any other provision of this Agreement. No failure by any party to take any action against any breach of this Agreement or default by another party shall constitute a waiver of the former party's right to enforce any provision of this Agreement or to take action against such breach or default or any subsequent breach or default by such other party. 8.7 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this Agreement in intended, or shall be construed, to confer upon or give any Person, other than the parties hereto and their respective heirs, personal representatives, legal representatives, 97 16 successors are permitted assigns, any rights or remedies under or by reason of this Agreement. 8.8. SEVERABILITY. In the event that any one or more of the provisions contained in this Agreement shall be declared invalid, void or unenforceable, the remainder of the provisions of this Agreement shall remain in full force and effect, and such invalid, void or unenforceable provision shall be interpreted as closely as possible to the manner in which it was written. 8.9 EXPENSES. Each party agrees to pay, without right of reimbursement from the other party, the costs incurred by it incident to the performance of its obligations under this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, costs incident to the preparation of this Agreement, and the fees and disbursements of counsel, accountants and consultants employed by such party in connection herewith. 8.10 HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of any provisions of this Agreement. 8.11 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 8.12 INJUNCTIVE RELIEF. It is possible that remedies at law may be inadequate and, therefore, the parties hereto shall be entitled to equitable relief including, without limitation, injunctive relief, specific performance or other equitable remedies in addition to all other remedies provided hereunder or available to the parties hereto at law or in equity. 8.13 REMEDIES CUMULATIVE. No remedy made available by any of the provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now hereafter existing at law or in equity. 8.14 GOVERNING LAW. This Agreement has been entered into and shall be construed and enforced in accordance with the laws of the State of New York without reference to the choice of law principles thereof. 8.15 JURISDICTION AND VENUE. This Agreement shall be subject to the exclusive jurisdiction of the courts of New York County, State of New York. The parties to this Agreement agree that any breach of any term or condition of this Agreement shall be deemed to be a breach occurring in the State of New York by virtue of a failure to perform an act required to be performed in the State of New York and irrevocably and expressly agree to submit to the jurisdiction of the courts of the State of New York for the purpose of resolving any disputes among the parties relating to this Agreement or the transactions contemplated hereby. The parties irrevocably waive, to the fullest permitted by law, any objection which they may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement, or any judgment entered by any 98 17 court in respect hereof brought in New York County, State of New York, and further irrevocably waive any claim that any suit, action or proceeding brought in New York County, State of New York has been brought in an inconvenient forum. 8.16 PARTICIPATION OF PARTIES. The parties hereto acknowledge that this Agreement and all matters contemplated herein have been negotiated by both parties hereto and their respective legal counsel and that both parties have participated in the drafting and preparation of this Agreement from the commencement of negotiations at all times through the execution thereof. 8.17 FURTHER ASSURANCES. The parties hereto shall deliver any and all other instruments or documents required to be delivered pursuant to, or necessary or proper in order to give effect to, all of the terms and provisions of this Agreement. 8.18 TERMS IN CONTEXT. Whenever from the context it appear appropriate, each term stated in either the singular or the plural shall include the singular and the plural and pronouns in either the masculine, the feminine or the neuter gender shall include the masculine, feminine and neuter. 99 18 IN WITNESS WHEREOF, the parties hereto have each executed and delivered this Agreement as of the day and year first above written. BYRON PREISS MULTIMEDIA HOLDINGS, INC. By: /s/ BYRON PREISS ------------------------------------- Name: Byron Preiss Title: Chief Executive Officer and President Facsimile No. (212) 627-2788 Address: 24 W. 25th Street, 5th Floor New York, NY BYRON PREISS MULTIMEDIA COMPANY, INC. By: /s/ BYRON PREISS ------------------------------------- Name: Byron Preiss Title: Chief Executive Officer and President Facsimile No. (212) 627-2788 Address: 24 W. 25th Street, 5th Floor New York, NY HIGHTEXT INTERACTIVE, INC. By: ------------------------------------- Name: L. James Porter Title: Facsimile No. (604) 685-8534 Address: c/o Hariston Corporation 1500 West Georgia Street Vancouver, B.C. V8G 226 100 19 IN WITNESS WHEREOF, the parties hereto have each executed and delivered this Agreement as of the day and year first above written. BYRON PREISS MULTIMEDIA HOLDINGS, INC. By: ------------------------------------- Name: Byron Preiss Title: Chief Executive Officer and President Facsimile No. (212) 627-2788 Address: 24 W. 25th Street, 5th Floor New York, NY BYRON PREISS MULTIMEDIA COMPANY, INC. By: ------------------------------------- Name: Byron Preiss Title: Chief Executive Officer and President Facsimile No. (212) 627-2788 Address: 24 W. 25th Street, 5th Floor New York, NY HIGHTEXT INTERACTIVE, INC. By: /s/ L. JAMES PORTER ---------------------------------- Name: L. James Porter Title: Chief Financial Officer and Secretary Facsimile No. (604) 685-8534 Address: c/o Hariston Corporation 1500 West Georgia Street Vancouver, B.C. V8G 2Z6 101 EX-10.5 6 AGREEMENT DATED 12/10/97 1 EXHIBIT 10.5 AGREEMENT This AGREEMENT (the "Agreement") is entered into as of December 10, 1997 by and among Hariston Corporation, a Canadian Corporation ("Hariston"), on the one hand, and Nuno Brandolini ("Brandolini") and Kevin McCarthy ("McCarthy") on the other hand. RECITALS A. Each of Brandolini and McCarthy are officers and directors of Hariston; B. Brandolini and McCarthy have agreed to resign as officers and directors of Hariston effective December 11, 1997 on the terms and conditions set forth in this Agreement; and C. In connection with Brandolini's and McCarthy's resignations, Hariston desires to provide Brandolini and McCarthy with the benefits and privileges set forth in this Agreement. AGREEMENT NOW, THEREFORE, in consideration of the promises and mutual obligations of the parties set forth below, the parties hereby covenant and agree as follows: 1. Resignation. Brandolini and McCarthy hereby resign as officers and directors of Hariston effective December 11, 1997 (the "Effective Date"). Brandolini and McCarthy agree to execute any and all additional documents which Hariston may reasonably request to evidence such resignation or to effect the transition of any powers or rights to any successor to any position previously held by Brandolini and McCarthy. 2. Corporate Expense Reimbursement. On or prior to December 31, 1997, Brandolini and McCarthy shall submit to Hariston reimbursement requests for all business expenses incurred prior to the Effective Date for which Brandolini or McCarthy is entitled to reimbursement and such expenses shall be reimbursed by Hariston within thirty days. 3. Acknowledgements. Brandolini and McCarthy acknowledge and agree that, except for the payments to be made in the future as expressly provided for in this Agreement, they have received payment of all amounts due to them in connection with their employment by Hariston, including without limitation, all salary, severance pay, bonuses, sick leave, holiday pay, vacation pay, expense reimbursement, life insurance, health or medical insurance, workers' compensation, disability and other benefits or compensation. 4. Indemnities to Directors and Others. (a) Except in respect of an action by or on behalf of Hariston or body corporate to procure a judgment in its favour, Hariston shall indemnify each of Brandolini and McCarthy, and his heirs and legal representatives (collectively, the "Brandolini Indemnified Parties"), against all costs, charges and expenses (including attorney's fees and expenses, witness fees and travel 2 expenses), including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him ( the "Expenses") in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the corporation or such body corporate, if: (i) he acted honestly and in good faith with a view to the best interests of Hariston; and (ii) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. (b) In connection with any matter for which indemnification may be available hereunder, the Brandolini Indemnified Parties shall be entitled to retain counsel satisfactory to them to represent them in such matter, such counsel to be reasonably satisfactory to Hariston; provided, however, that the Brandolini Indemnified Parties as a group may retain only one law firm with respect to each related matter except to the extent that, in the opinion of counsel to a Brandolini Indemnified Party, under applicable standards of professional conduct, a conflict on any significant issue exists between positions of any two or more Brandolini Indemnified Parties. (c) Hariston may advance to the Brandolini Indemnified Parties, prior to any final disposition of any threatened or pending action, suit, investigation or proceeding, whether civil, criminal, administrative or investigative, any and all Expenses (including legal fees and expenses) incurred in participating in, investigating or defending any such action, suit, investigation or proceeding, or testifying in connection therewith, within ten (10) days after receiving copies of invoices for such Expenses. (d) The rights conferred on the Brandolini Indemnified Parties by this Agreement shall not be exclusive of any other right which they may have or hereafter acquire under any statute, provision of the charter or Bylaws of Hariston. 5. Miscellaneous (a) Entire Agreement. This agreement and the agreements referred to herein contain the entire agreement and understanding among the parties hereto concerning the subject matter hereof and supersede and replace all prior negotiations, proposed agreements and agreements, written or oral. Each of the parties acknowledges and confirms that such party has made no promises, representations or warranties whatsoever, express or implied, not contained herein or in an agreement referred to herein concerning the subject matter hereof, and that such party has not executed this Agreement in reliance on any such promise, representation or warranty not contained herein or in such other agreement. 2 3 (b) Further Acts. Each party shall do all acts and things and make, execute and deliver such written instruments as shall be reasonably required to carry out the terms and intent of this Agreement. (c) Counterparts. This agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same agreement. (d) Modifications. This Agreement may not be modified by any party except in a writing signed by all of the parties hereto. (e) Governing Law. This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the Province of British Columbia in effect at the date of this Agreement, including all matters of construction, validity, performance and enforcement and without giving effect to principles of conflicts of laws. (f) Severability. If any provision or term of this Agreement is held to be illegal, invalid or unenforceable under present or future laws, such provision or term shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and shall be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid or unenforceable provision or term, there shall be added automatically as a part of this Agreement another provision or term as similar to the illegal, invalid or unenforceable provision, as may be possible and be legal, valid and enforceable. (g) Captions. The captions used in the Section headings to this Agreement are for convenience of reference only and shall not control or effect the meaning or construction of any provision of this Agreement. (h) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Hariston shall require and cause any successor (whether direct or indirect, by purchaser, merger, consolidation, sale of assets or otherwise) to execute a written agreement expressly assuming the obligations of Hariston hereunder 3 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. HARISTON CORPORATION By: /s/ L. James Porter /s/ Nuno Brandolini ------------------------------------ --------------------------- NUNO BRANDOLINI Title: Secretary and Chief Financial Officer /s/ Kevin McCarthy ------------------------------------- --------------------------- KEVIN McCARTHY 4 EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
State or Jurisdiction Name of Incorporation ---- ---------------- Educorp Multimedia, Inc. (inactive) ............ Delaware Educorp Direct, Inc.(1) (inactive) ............. California (formerly named "CD-Soft Acquisition Corporation" and "CD-Soft Source Corporation") HighText Interactive, Inc.(1) (inactive) ....... California (formerly named "CD-Soft Press Corporation") EuroEastern Investment Corporation (inactive) .. Delaware
- --------------- (1) Wholly-owned by Educorp Multimedia, Inc. 46 EX-23 8 CONSENT OF INDEPENDENT ACCOUNTANT 1 [ARTHUR ANDERSEN LETTERHEAD] EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANT We consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements on Form S-8 (File No. 333-20109 and File No. 333-20091) and the Company's previously filed Registration Statement on Form S-3 (File No. 333-07843). /s/ Arthur Andersen & Co. Vancouver, British Columbia April 10, 1998 47 EX-27 9 FDS
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 3,266 8 525 5 0 4,035 69 49 4,055 345 0 0 0 31,999 (28,289) 4,054 0 0 0 0 0 0 (100) 4,509 0 4,509 (2,207) 0 0 2,302 0.18 0.18
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