<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-13966
HARISTON CORPORATION
(Exact name of registrant as specified in its charter)
CANADA 33-0645339
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1500 WEST GEORGIA STREET, SUITE 1555, VANCOUVER, V6G 2Z6
BRITISH COLUMBIA (Zip Code)
(Address of principal executive offices)
(604) 685-8514
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [ X ] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
AS OF NOVEMBER 19, 1996, 12,663,113 SHARES OF THE REGISTRANT'S COMMON
STOCK WERE OUTSTANDING.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited Consolidated Statements of Loss and Deficit for the
three and nine month periods ended September 30, 1996 and September 30, 1995,
the unaudited Consolidated Statements of Changes in Financial Position for the
nine month periods ended September 30, 1996 and September 30, 1995 and the
unaudited Consolidated Balance Sheets as at September 30, 1996 and December 31,
1995, of Hariston Corporation ("Hariston" or the "Company") follow.
<PAGE> 3
HARISTON CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $1,308 $1,419
Receivables 537 457
Inventory 1,079 1,335
Prepaids 147 147
- --------------------------------------------------------------------------------------------------
3,071 3,358
Investments (Note 12) 1,688 1,956
Furniture and equipment 406 207
Goodwill, licenses, mailing lists, and other intangibles 4,368 4,667
- --------------------------------------------------------------------------------------------------
6,462 6,830
- --------------------------------------------------------------------------------------------------
$9,533 $10,188
==================================================================================================
LIABILITIES
Current
Payables $1,657 $1,829
Deferred revenues 19 185
Put option 300 -
Current portion of term debt 3,975 413
- --------------------------------------------------------------------------------------------------
5,951 2,427
Term debt 172 3,200
Put option - 300
- --------------------------------------------------------------------------------------------------
172 3,500
- --------------------------------------------------------------------------------------------------
6,123 5,927
SHAREHOLDERS' EQUITY
Capital stock 31,999 29,887
Deficit (28,589) (25,626)
- --------------------------------------------------------------------------------------------------
3,410 4,261
- --------------------------------------------------------------------------------------------------
$9,533 $10,188
==================================================================================================
</TABLE>
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 4
HARISTON CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT (UNAUDITED)
(Expressed in thousands of U.S. dollars except per share amounts)
<TABLE>
<CAPTION>
3 MONTHS ENDED SEPTEMBER 30 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Software sales $1,246 503
Book sales 151 -
Software royalties and license fees 1 15
Other - 39
- ---------------------------------------------------------------------------------------------------------------
1,398 557
- ---------------------------------------------------------------------------------------------------------------
COST OF SALES AND PRODUCTION EXPENSES
Direct cost of sales 944 409
Royalties 30 16
- ---------------------------------------------------------------------------------------------------------------
974 425
- ---------------------------------------------------------------------------------------------------------------
GROSS MARGIN 424 132
- ---------------------------------------------------------------------------------------------------------------
OPERATING AND CORPORATE EXPENSES
Administration, office, and travel 104 90
Consultants and directors fees, salaries and employee benefits 641 79
Accounting, legal and other professional fees 134 10
Marketing, catalog and trade show costs 395 40
Depreciation and amortization 309 80
Rent 44 42
- ---------------------------------------------------------------------------------------------------------------
1,627 341
- ---------------------------------------------------------------------------------------------------------------
(1,203) (209)
- ---------------------------------------------------------------------------------------------------------------
OTHER
Net interest (expense) income (81) (2)
Net gain on recovery of doubtful receivables - (83)
Gain on sale of shares 514 123
Provision for loss on settlement of note (179) -
Other (2) (18)
- ---------------------------------------------------------------------------------------------------------------
252 20
- ---------------------------------------------------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (951) (189)
- ---------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 11)
Quebec industrial condominium rental property - (2)
Minerals recovery project - (221)
Oil and gas working and royalty interests (3) 1,138
- ---------------------------------------------------------------------------------------------------------------
(3) 915
- ---------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME ($954) $726
DEFICIT, beginning of period (27,635) (25,201)
- ---------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD ($28,589) ($24,475)
===============================================================================================================
PRIMARY (LOSS) INCOME PER SHARE (Note 13) ($0.08) $0.07
Shares used in primary computation 11,515,287 11,066,974
FULLY DILUTED (LOSS) INCOME PER SHARE (Note 13) ($0.08) $0.07
Shares used in fully diluted computation 11,515,287 11,066,974
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 5
HARISTON CORPORATION
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT (UNAUDITED)
(Expressed in thousands of U.S. dollars except per share amounts)
<TABLE>
<CAPTION>
9 MONTHS ENDED SEPTEMBER 30 1996 1995
===========================================================================================================
<S> <C> <C>
REVENUES
Software sales $4,176 503
Book sales 319 -
Software royalties and license fees 80 15
Other 20 39
- -----------------------------------------------------------------------------------------------------------
4,595 557
- -----------------------------------------------------------------------------------------------------------
COST OF SALES
Direct cost of sales 3,095 409
Royalties 117 16
- -----------------------------------------------------------------------------------------------------------
3,212 425
- -----------------------------------------------------------------------------------------------------------
GROSS MARGIN 1,383 132
- -----------------------------------------------------------------------------------------------------------
OPERATING AND CORPORATE EXPENSES
Administration, office, and travel 504 263
Consultants and directors fees, salaries and employee benefits 1,831 399
Accounting, legal and other professional fees 471 194
Marketing, catalog and trade show costs 697 40
Depreciation and amortization 826 90
Rent 148 87
- -----------------------------------------------------------------------------------------------------------
4,477 1,073
- -----------------------------------------------------------------------------------------------------------
(3,094) (941)
- -----------------------------------------------------------------------------------------------------------
OTHER
Net interest (expense) income (249) (20)
Net gain on recovery of doubtful receivables 10 131
Gain on sale of shares 573 123
Provision for loss on settlement of note (179) -
Other 2 (18)
- -----------------------------------------------------------------------------------------------------------
157 216
- -----------------------------------------------------------------------------------------------------------
NET LOSS FROM CONTINUING OPERATIONS (2,937) (725)
- -----------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (Note 11)
Quebec industrial condominium rental property - 9
Minerals recovery project - (287)
Oil and gas working and royalty interests (26) 1,330
- -----------------------------------------------------------------------------------------------------------
(26) 1,052
- -----------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME ($2,963) $327
DEFICIT, beginning of period (25,626) (24,802)
- -----------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD ($28,589) ($24,475)
===========================================================================================================
PRIMARY (LOSS) INCOME PER SHARE (Note 13) ($0.26) $0.03
Shares used in primary computation 11,421,313 10,851,476
FULLY DILUTED (LOSS) INCOME PER SHARE (Note 13) ($0.26) $0.03
Shares used in fully diluted computation 11,421,313 11,066,974
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 6
HARISTON CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (UNAUDITED)
(Expressed in thousand of U.S. dollars)
<TABLE>
<CAPTION>
9 MONTHS ENDED SEPTEMBER 30 1996 1995
========================================================================================================
<S> <C> <C>
OPERATING ACTIVITIES
Net loss from continuing operations ($2,937) ($725)
Non-cash items:
Amortization and depreciation 826 146
Gains on disposal of investments (573) (123)
Provision for loss on settlement of note 179 -
Net increase in non-cash working capital items (178) (389)
- --------------------------------------------------------------------------------------------------------
CASH USED FOR CONTINUING OPERATIONS (2,683) (1,091)
- --------------------------------------------------------------------------------------------------------
Net (loss) income from discontinued operations (26) 1,051
Non-cash items:
Amortization - 146
Costs (gain) on disposal of discontinued operations 26 (867)
- --------------------------------------------------------------------------------------------------------
CASH PROVIDED BY DISCONTINUED OPERATIONS - 330
- --------------------------------------------------------------------------------------------------------
CASH USED FOR OPERATING ACTIVITIES (2,683) (761)
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net term debt issuances 534 1,731
Issuances of common stock 2,113 539
- --------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 2,647 2,270
- --------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisitions of multimedia software businesses (641) (5,650)
Net (additions) disposals of other assets (97) 69
Collection of notes receivable - 1,170
Net proceeds from disposal of PLI shares 670 -
Net (purchase of) proceeds from sales of Madison shares (7) 156
Sale of oil and gas working and royalty interests - 3,318
Minerals recovery project - (365)
- --------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (75) (1,302)
- --------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH (111) 207
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,419 1,199
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,308 $1,406
========================================================================================================
</TABLE>
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE> 7
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
9 MONTHS ENDED SEPTEMBER 30, 1996
================================================================================
NOTE 1. OPERATIONS
The Company is incorporated under the Canada Business Corporations Act and has
operated historically as a diversified holding company. On August 25, 1995, the
Company focused on the multimedia CD-ROM software business with the purchase of
all of the assets, and the assumption of certain liabilities, of a group of
affiliated companies doing business under the trade name Educorp. These
affiliated companies now operate as part of Educorp Multimedia, a wholly-owned
multimedia software publishing and distribution subsidiary. Effective January
1, 1996, the Company purchased substantially all of the assets and assumed
certain liabilities of HighText Publications, Inc., a book and multimedia
software developer and publisher. This business now also operates as part of
Educorp Multimedia. In addition, the Company continues to hold a large minority
shareholding in Polish Life Improvement S.A., a Polish retailer co-founded by
the Company in 1993.
NOTE 2. ACCOUNTING POLICIES
BASIS OF PRESENTATION
In accordance with the requirements of the Canada Business Corporations Act,
the Company's accounting and reporting policies conform to Canadian generally
accepted accounting principles ("Canadian GAAP"). Accordingly, these
consolidated financial statements have been prepared in accordance with
Canadian GAAP. These interim statements also conform in all material respects
with United States generally accepted accounting principles ("U.S. GAAP"). A
reconciliation to U.S. GAAP is presented at Note 10. For further information on
the Company's accounting policies, reference should be made to Note 2 of the
Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
In the opinion of management, all adjustments necessary to fairly state the
results of operations for the three and nine month periods ended September 30,
1996, are of a normal recurring nature and have been made. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These interim
consolidated financial statements should therefore be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
PRINCIPLES OF CONSOLIDATION
These interim consolidated financial statements include the accounts of the
Company, Hariston Corporation, and its wholly-owned subsidiaries: EuroEastern
Investment Corp., Educorp Multimedia, Inc., Educorp Direct, Inc., and HighText
Interactive, Inc. All significant intercompany accounts and transactions have
been eliminated on consolidation.
NOTE 3. PURCHASE OF HIGHTEXT
Effective January 1, 1996, a newly incorporated wholly-owned subsidiary of the
Company acquired substantially all of the assets and assumed certain
liabilities of HighText Publications, Inc., a company
<PAGE> 8
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
9 MONTHS ENDED SEPTEMBER 30, 1996
================================================================================
engaged in the development and distribution of books and multimedia CD-ROM
software titles. On January 22, 1996, the subsidiary changed its name to
HighText Interactive, Inc. ("HighText").
The purchase price of $641,421 was satisfied as follows:
<TABLE>
<S> <C>
166,139 shares of the Company valued at approximately $2.82 per share $469,080
Assumption of current liabilities 172,341
--------
$641,421
========
The purchase price was allocated as follows:
Inventories, accounts receivable, furniture and equipment, prepaids $186,550
Customer and supplier lists 15,000
Goodwill and other intangibles 439,871
--------
$641,421
========
</TABLE>
Further consideration may become payable with respect to the purchase of the
book publishing operations. The amount will vary depending on the profitability
of the operations over a five year period commencing with the fiscal year
ending December 31, 1996, and whether these operations are sold in an arm's
length transaction prior to December 31, 2000. The minimum consideration for
the five year period will be 4,000 Hariston shares per year, or an aggregate of
20,000 shares. An estimate of this minimum amount has been booked by the
Company and is reflected in the purchase price. The maximum shares issuable
with respect to each year will be the number of shares equivalent to the
after-tax income, as defined, of the book publishing operations, based on
valuing the Hariston shares at the average closing sale price for the 20
trading days prior to December 31 of each fiscal year.
If the book publishing operations are sold prior to December 31, 2000, the
above obligation for the year of sale and subsequent periods is replaced by an
obligation to issue Hariston shares to the sellers equivalent to the after-tax
sale proceeds, still subject to the 20,000 shares minimum requirement. As
management cannot predict with reasonable assurance the net income of the book
publishing operations within the five year period, nor the selling price if
these operations were to be sold within that period, additional consideration
beyond an estimate of the value of the 20,000 shares minimum payment has not
been recorded on the Company's books at this time.
Additional consideration, up to a maximum of $60,000, may become payable
contingent on a U.S. patent being issued no later than December 31, 1998 with
respect to a feature of the sellers' multimedia products. As management cannot
predict with reasonable assurance when or if this patent will be issued, the
additional consideration has not been recorded on the Company's books at this
time.
Pro forma results of operations, as though the purchase of HighText had ocurred
on January 1, 1995, are not presented in these interim financial statements as
the effect on the Company's 1995 results of operations would not be material.
NOTE 4. SUMMARY OF SECURITIES ISSUED DURING THE THIRD QUARTER
On September 27, 1996, the Company issued 1.2 million units by private
placement, for total cash proceeds of $1.2 million. Each unit consisted of one
common share, one-half A warrant and one-half B warrant. Each A warrant allows
the holder to purchase one common share of Hariston at a price of $1.75 per
share if exercised on or before September 27, 1997. Each B warrant allows the
holder to purchase one common share of Hariston at a price of $2.50 per share
if exercised on or before September 27, 1998. Further, B warrants are only
exercisable to the extent an equivalent number of A warrants have been
previously exercised.
<PAGE> 9
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
9 MONTHS ENDED SEPTEMBER 30, 1996
================================================================================
NOTE 5. SUMMARY OF OPTIONS GRANTED DURING THE THIRD QUARTER
<TABLE>
<CAPTION>
Date Option Number of Shares Option Option
Granted under Vested Option Optionee Exercise Price Expiry Date
===================================================================================================================
<S> <C> <C> <C> <C>
July 17, 1996 40,000 James P. Angus 1.25 July 17, 2003
July 17, 1996 40,000 Nuno Brandolini 1.25 July 17, 2003
July 17, 1996 40,000 Neil S. MacKenzie 1.25 July 17, 2003
July 17, 1996 250,000 J. V. McGoodwin 1.25 July 19, 1999
July 17, 1996 90,000 Nicholas Mosich 1.25 July 17, 2003
July 17, 1996 50,000 L. James Porter 1.25 July 17, 2003
- -------------------------------------------------------------------------------------------------------------------
August 16, 1996 40,000 James P. Angus 1.25 August 16, 2003
August 16, 1996 133,333 Nuno Brandolini 1.25 August 16, 2003
August 16, 1996 40,000 Neil S. MacKenzie 1.25 August 16, 2003
August 16, 1996 100,000 Kevin R. McCarthy 1.25 August 16, 2003
August 16, 1996 63,333 L. James Porter 1.25 August 16, 2003
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
By resolutions dated July 17 and August 16, 1996, Hariston's Board resolved to
cancel the 1995 Stock Option Plan and all outstanding option grants thereunder,
and to create the 1996 Stock Option Plan and the 1996 Stock Option Plan No. 2.
Stock option grants under the 1996 Stock Option Plan vested immediately as of
the date of grant. Stock option grants under the 1996 Stock Option Plan No. 2
vest as follows: one-third immediately as of the date of grant, one third to
vest as of August 16, 1997 and the remainder to vest as of August 16, 1998. The
vested option grants during the third quarter are shown in the schedule above.
Total option grants in the third quarter under the 1996 plans consisted of
options to purchase 1,280,000 shares at $1.25 per share granted to employees,
and options to purchase 360,000 shares at $1.25 per share granted to directors.
NOTE 6. AUTHORIZED AND ISSUED SHARE CAPITAL AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Class Par Value Authorized Number Issued Number Amount
===================================================================================================================
<S> <C> <C> <C> <C>
Common None Unlimited 12,663,113 $31,999,167
</TABLE>
NOTE 7. SHARES IN ESCROW OR SUBJECT TO POOLING AS OF SEPTEMBER 30, 1996
The common shares issued on September 27, 1996 as described in Note 4 were
issued in a Regulation S foreign private placement not registered under the
Securities Act of 1933. The shares were accordingly placed in escrow for the
duration of a mandatory forty day hold period.
NOTE 8. LIST OF DIRECTORS AS OF SEPTEMBER 30, 1996 (Note 14)
Nuno Brandolini James P. Angus Neil S. MacKenzie Kevin R. McCarthy
(Chairman) L. James Porter
<PAGE> 10
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
9 MONTHS ENDED SEPTEMBER 30, 1996
================================================================================
NOTE 9. OPTIONS AND WARRANTS OUTSTANDING AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Number of Shares Exercise Market Price
OPTION ISSUE TYPE under Vested Option Price on Date of Grant Expiry Date
===================================================================================================================
<S> <C> <C> <C> <C>
Employee options 10,000 1.86 2.49 November 30, 1997
Employee options 10,000 3.15 4.57 February 17, 1998
Director options 20,000 3.53 4.57 March 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Employee options 250,000 1.25 1.13 July 19, 1999
Employee options 140,000 1.25 1.13 July 17, 2003
Director options 120,000 1.25 1.13 July 17, 2003
- -------------------------------------------------------------------------------------------------------------------
Employee options 296,666 1.25 1.25 August 16, 2003
Director options 80,000 1.25 1.25 August 16, 2003
----------
926,666
==========
</TABLE>
<TABLE>
<CAPTION>
Number Exercise Market Price
WARRANT HOLDER of Shares Price on Date of Grant Expiry Date
=====================================================================================================================
<S> <C> <C> <C> <C>
Commonwealth Consulting Corporation 125,000 2.25 2.62 December 31, 1996
Dahlia Financial 150,000 1.75 1.06 September 27, 1997
Dahlia Financial 150,000 2.50 1.06 September 27, 1998
Daryl Jamison 125,000 2.25 2.62 December 31, 1996
Near East Commercial Bank SAL 625,000 4.00 5.00 November 21,1997
Kinaro S.A. 250,000 2.50 2.25 August 24, 2000
Neval Management Ltd. 250,000 2.50 2.25 August 24, 2000
Privatim Finanz A.G. 250,000 2.50 2.25 August 24, 2000
Silvercreek Investments, Ltd. 150,000 1.75 1.06 September 27, 1997
Silvercreek Investments, Ltd. 150,000 2.50 1.06 September 27, 1998
Tross Ltd. 150,000 1.75 1.06 September 27, 1997
Tross Ltd. 150,000 2.50 1.06 September 27, 1998
Wallington Investments Ltd. 150,000 1.75 1.06 September 27, 1997
Wallington Investments Ltd. 150,000 2.50 1.06 September 27, 1998
Zocal Foundation 250,000 2.50 2.25 August 24, 2000
---------
3,075,000
=========
</TABLE>
NOTE 10. RECONCILIATION TO U.S. GAAP
In certain respects, Canadian generally accepted accounting principles differ
from U.S. generally accepted accounting principles. If U.S. GAAP were to be
applied, the following difference would exist:
(Expressed in thousands of U.S. dollars)
<TABLE>
<S> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1996
Net loss according to Canadian GAAP ($2,963)
Non cash compensation expense (59)
- -------------------------------------------------------------------------------------------------------------------
NET LOSS ACCORDING TO U.S. GAAP ($3,022)
</TABLE>
There would be no differences in net assets or shareholders' equity.
<PAGE> 11
HARISTON CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
9 MONTHS ENDED SEPTEMBER 30, 1996
================================================================================
The above variance in the net loss figure results from the difference in the
accounting treatment for employee stock options. During 1995, options to
purchase shares of the Company were issued to employees and directors at prices
below the traded price of the stock on the measurement date. Under U.S. GAAP,
the difference in value must be recognized as a non-cash compensation expense
over the period during which the options vest, regardless of whether the
options expire or are cancelled before exercise (Note 5). Under Canadian GAAP,
the issuance, exercise, expiration or cancellation of employee stock options
does not affect the reported profitability of the Company.
NOTE 11. DISCONTINUED OPERATIONS
Effective April 29, 1995 the Company sold its Metanetix minerals recovery
operations. On July 20, 1995 the Company sold its Quebec industrial condominium
rental property. Effective August 1, 1995, the Company sold its Canadian oil
and gas working and royalty interests. Accordingly, these operations are
presented as discontinued operations for purposes of the 1995 comparatives in
these interim financial statements.
NOTE 12. INVESTMENTS
<TABLE>
<CAPTION>
Amount
============
<S> <C>
Polish Life Improvement S.A.
1,657,205 shares owned as of December 31, 1995 $1,123,420
143,481 shares sold January 1 to September 30, 1996 (97,266)
----------
1,513,724 shares owned as of September 30, 1996 $1,026,154
Collateral interest in 1.4 million shares under note receivable in default 832,714
Provision for estimated loss on settlement of note (178,500)
----------
$1,680,368
Madison Holdings Limited 7,304
----------
Investments as of September 30, 1996 $1,687,672
==========
</TABLE>
NOTE 13. LOSS PER SHARE
Primary and fully diluted loss per share have been computed using the weighted
average number of shares of common stock outstanding during the periods
presented. Stock options and warrants have not been included in these
calculations as their impact would be antidilutive.
NOTE 14. CHANGES IN MANAGEMENT AND BOARD OF DIRECTORS
As announced by news release dated July 18, 1996, effective July 19, 1996 J.V.
McGoodwin resigned from the positions of President, Chief Executive Officer and
as a Director of the Company. Concurrently, Nuno Brandolini was appointed Chief
Executive Officer and elected Chairman of the Board, and Kevin R. McCarthy was
appointed President and elected to the Board.
<PAGE> 12
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
OVERVIEW
During the third quarter of 1996, Hariston completed one full calendar year of
being primarily a multimedia CD-ROM publisher and distributor. Previously, the
Company had participated in such diverse businesses and investments as
environmental remediation technology, oil and gas working and royalty
interests, receivables factoring, and retailing of sports memorabilia and
commemorative coins. The Company continues to participate in retailing in
Poland through its minority shareholding in Polish Life Improvement S.A.
("PLI"), an operator of hardware stores in Poland. Management currently intends
to rationalize the Company's U.S. multimedia operations and expand the
Company's investment activities in Poland.
On August 25, 1995 the Company purchased substantially all of the assets and
assumed certain liabilities of a group of affiliated businesses operating under
the trade name Educorp. These affiliated businesses now operate under the name
Educorp Direct ("Direct"), as part of the Company's wholly-owned subsidiary
Educorp Multimedia. Effective January 1, 1996 the Company acquired
substantially all of the assets and selected liabilities of HighText
Publications, Inc. This business now operates under the name HighText
Interactive ("HighText"), also as part of Educorp Multimedia.
Founded in 1984, Direct is a San Diego, California based publisher and direct
mail distributor of CD-ROM multimedia software. Through its catalogs, Direct
offers what is believed to be one of the largest selections of consumer CD-ROM
software titles in the industry. In fiscal 1995, Direct mailed more than two
million catalogs and newsletters to its customer base. From January 1 to
September 30, 1996, Direct mailed 2,140,000 catalogs and newsletters to its
customer base. Direct is also involved in the development and publishing of
software titles as well as wholesale and international distribution.
Founded in 1990, HighText is a San Diego, California based developer and
publisher of books and educational CD-ROM software titles. HighText's primary
emphasis is on the development of educational multimedia software for the adult
consumer, higher education, and corporate markets. HighText has released ten
software titles to date as part of its Crash Course product series. These
titles are distributed through catalog sales direct to end-users and by
wholesale dealers to college and specialty bookstores, and computer software
stores.
By news release dated September 27, 1996, the Company announced that its new
management team had completed a review of the Company's operations and had
concluded that a change in strategic direction would be in the best interests
of shareholders. Under the direction of Nuno Brandolini, the Company's recently
appointed Chairman and Chief Executive Officer, management decided that
Hariston's resources should be concentrated on further investments in Poland.
This decision follows Hariston's successful investment in PLI, a company it
co-founded in February, 1993. While Hariston continues to retain a large
minority investment in PLI, directly and through a collateral position for a
note receivable, during the second and third quarters the Company affirmed the
liquidity and value of its investment by selling a limited number of PLI shares
in public trades on the parallel market of the Warsaw Stock Exchange.
Given the disappointing results of the Company's multimedia operations and new
management's stated intention to focus the Company's resources on Poland, the
Company is considering various alternatives in order to maximize the value of
its investment in these multimedia operations. Such alternatives may include
but are not limited to: (1) the disposition of the operations in whole or in
part, (2) the merger with or acquisition of complementary businesses, (3) the
development of new distribution channels, and (4) international expansion of
the business. No assurances can be given that these or any other activities
will be undertaken or if undertaken will be successful.
<PAGE> 13
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
CORPORATE STRUCTURE
During June, 1995, Hariston incorporated a wholly-owned California subsidiary,
CD-Soft Corporation. In July, 1995, CD-Soft Corporation incorporated a
wholly-owned California subsidiary, for the purpose of acquiring substantially
all of the assets and selected liabilities of a group of businesses operating
under the trade 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, 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.
("Educorp Multimedia"), a wholly-owned Delaware subsidiary of Hariston formed
in January, 1996. Upon this merger, Educorp Multimedia became the holding
company for all of Hariston's book and multimedia CD-ROM development,
publishing, and distribution operations.
In October, 1995, Hariston formed a wholly-owned Delaware subsidiary,
EuroEastern Investment Corp. ("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
As announced by news release dated July 18, 1996, effective July 19, 1996 James
V. McGoodwin resigned as Hariston's President and Chief Executive Office. He
also resigned from the Company's Board, and from his positions with Hariston's
affiliated and subsidiary companies. Concurrently, 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.
Mr. McGoodwin had served as a Director and Officer of the Company since
December, 1994 and left to pursue other interests. He agreed to assist with an
orderly management transition, for which the Company has agreed to pay him,
through his private company McGoodwin James & Co., payments through the period
ending December 31, 1996.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1995
The Company incurred a consolidated net loss of $2,963,822 for the nine months
ended September 30, 1996. Of this loss, $2,081,694 was attributable to Educorp
Multimedia and its subsidiaries, $778,002 to Hariston, and $104,126 to
EuroEastern. Of the $2,081,694 loss attributable to the Company's multimedia
operations, $976,575 arose from the Direct operations, $610,340 from the
HighText operations, and the remainder was due to operating and corporate
expenses incurred at the Educorp Multimedia level. Of the $778,002 loss
incurred at the Hariston legal entity level, $231,696 was attributable to
interest expense on debt, and the remainder related primarily to corporate
administration and overhead costs.
An analysis of the results is presented below. For comparative purposes, the
analysis of Direct considers the comparable results during 1995, where
available, of the operations of its predecessor, Gazelle Technologies, Inc. and
its affiliates, which had been doing business under the trade name Educorp.
Similarly, the analysis of HighText considers the comparable results during
1995, where available, of the operations of its predecessor, HighText
Publications, Inc.
<PAGE> 14
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
The results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results of operations to be expected for the
entire fiscal year ending December 31, 1996.
EDUCORP DIRECT
On August 25, 1995, Hariston, through a wholly-owned subsidiary, acquired
substantially all of the assets and assumed certain liabilities of a group of
businesses now operated under the name Educorp Direct for a purchase price of
$6,067,071. This transaction was accounted for as a purchase.
Direct generated revenues of $4,180,498 for the nine months ended September 30,
1996, comprised of $3,098,376 from retail sales to end-users, $1,001,848 from
sales to dealers, and $80,274 from software royalties and license fees. Direct
realized gross profit of $1,218,349 for the nine months ended September 30,
1996, incurred a loss for the period of $281,168 before interest, depreciation
and amortization, and incurred a net loss after these items of $976,575.
RETAIL SOFTWARE SALES
Retail software sales for the nine months ended September 30, 1996 of
$3,098,376 declined 14% relative to retail software sales of $3,618,299 for the
same period during 1995. The primary reasons for the decline in same period
sales were, first, the 14% decline in the average CD-ROM retail price realized
by Direct in 1996, $29.80 as compared to $34.56 in the same period in 1995; and
second, the discontinuance, in the second half of 1995, of sales of certain
software titles that were incompatible with the Company's future business
plans.
Second quarter, 1996 sales were also adversely affected by a delay in the
mailing of a catalog due to the implementation of a new Management Information
System by Direct. Implementation of the new system required an allocation of
resources for both training and problem resolution.
Other factors adversely affecting nine month sales included a significant
slowdown in the software industry in general during the first half of 1996, and
with respect to sales of Macintosh CD-ROM titles, the widely publicized
problems at Apple Computer.
International retail software sales were $525,754, or 17% of total retail
sales, for the nine months ended September 30, 1996, versus $524,487 or 15% of
total retail sales for the comparable prior year period. The increase in
international retail sales as a percentage of total retail sales was primarily
due to the decline of domestic software sales as described above.
DEALER SOFTWARE SALES
Dealer software sales for the nine months ended September 30, 1996 of
$1,001,848 declined 37% relative to dealer software sales of $1,586,570 for the
same period during 1995. The decline in same period sales primarily reflects
lower unit sales volume due to an increased level of competition, arising
partly from new distribution channels that have opened for the supply of CD-ROM
titles to dealers. These new channels include a trend towards publishers
selling their titles directly to dealers. Additionally, there was a 13%
decrease in the average CD-ROM dealer price realized by Direct. The average
price realized was $26.90 for the first nine months of 1996 as compared to
$30.85 for the first nine months of 1995.
International dealer software sales were $813,822, or 81% of total software
sales to dealers, for the nine months ended September 30, 1996, versus
$1,198,084 or 76% for the comparable prior year period. The 32% decline in
international dealer sales reflected smaller international order sizes due to
an increasing number of publishers seeking direct distribution to foreign
dealers. However, international dealer sales represented a larger percentage of
the Company's sales to dealers reflecting the fact that there were more
distribution sources available to domestic dealers than to foreign dealers.
<PAGE> 15
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
HARDWARE SALES
The Company decided in early 1995 to discontinue selling computer hardware. As
a result, there were no retail sales of hardware for the nine months ended
September 30, 1996. During the comparable period of 1995, retail hardware sales
were $107,900. The decision to terminate this product line was based on the
relatively low gross profit margins realized by hardware relative to CD-ROM
software, and the relatively high inventory maintenance costs of hardware as
compared to those of CD-ROM software.
ROYALTIES AND LICENSE FEES
Royalties and license fees of $80,274 for the nine months ended September 30,
1996 decreased 76% relative to royalty and license fees of $334,120 for the
same period during 1995. The primary reason for the decrease was the expiration
during 1996 of a bundling license the Company had negotiated with Apple
Computer. Under the terms of the license, Apple Computer had bundled
educational software titles published by the Company with sales of certain
computers.
GROSS PROFIT
Direct realized a gross profit of $1,218,349 for the nine months ended
September 30, 1996, representing 29% of revenues. Comparative nine month
figures for 1995 (i.e. prior to Educorp's acquisition by Hariston) are not
readily available; however, historically the Educorp operations realized a
higher gross profit. The decline of 1996 results from historical levels
primarily reflects the lower realized prices per title as a result of increased
competition, the discontinuance of a higher margin product line that was
incompatible with the Company's business plans, and the reduced share of higher
margin self-published titles.
OPERATING AND CORPORATE EXPENSES
Operating and corporate expenses were $2,189,324 for the nine months ended
September 30, 1996, representing approximately 52% of revenues for the period.
This figure includes amortization of goodwill and other intangibles arising
from the August 25, 1995 acquisition of the Direct operations. After adjusting
for this amortization expense of $656,108, operating and corporate expenses
were $1,533,216 or 37% of total revenues for the period.
HIGHTEXT INTERACTIVE
Effective January 1, 1996, the Company, through a wholly-owned subsidiary,
purchased substantially all of the assets and assumed certain liabilities of
HighText Publications, Inc., for a purchase price of $641,421. This transaction
was accounted for as a purchase.
HighText generated revenues of $414,730 for the nine months ended September 30,
1996, comprised of $115,933 from retail sales to end-users, $278,535 from sales
to dealers, and $20,262 from technical documentation fees. HighText realized a
gross profit of $164,562 for the nine months ended September 30, 1996, and
incurred a net loss for the period of $610,340.
SOFTWARE SALES
Software sales for the nine months ended September 30, 1996 were $75,529,
comprised of $35,799 sales to end-users and $39,730 sales to dealers. HighText
realized an average CD-ROM title price of $21.59. Comparable results for 1995
are not readily available.
HighText's first CD-ROM title was published in May, 1995, followed by two
additional titles in November, 1995. During the first quarter of 1996, HighText
focused on the development of seven additional titles, at the expense of
developing distribution for existing products. During the second quarter,
HighText substantially completed the development of the seven software titles
and commenced the development of seven new software titles. During the third
quarter, HighText substantially completed the development of three software
titles. As of September 30, 1996, HighText had ten software titles available
for sale, three software titles in beta testing, and four software titles under
development, for a total of seventeen software
<PAGE> 16
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
titles. HighText's software sales increased from $12,063 in the first quarter
to $14,733 in the second quarter and $48,733 in the third quarter.
BOOK SALES
Sales for the nine months ended September 30, 1996 were $318,939, consisting of
$80,134 retail sales to end-users and $238,805 sales to dealers. HighText
realized an average book price of $19.31 during the nine months ended September
30, 1996. By comparison, for the nine months ended September 30, 1995, retail
sales were $72,347 and dealer sales were $231,360.
HighText published its first book title in June, 1991. As of January 1, 1996,
HighText had published fifteen book titles. During the nine months ended
September 30, 1996, HighText published one additional book title. As of
September 30, 1996, HighText had three book titles under development.
OPERATING AND CORPORATE EXPENSES
The most significant components of HighText's $771,102 of operating and
corporate expenses for the nine months ended September 30, 1996 were salary
costs totaling $331,014, marketing and trade show costs of $227,811, and
depreciation and amortization expense of $116,103. HighText expenses the costs
of developing new software and book titles as they are incurred. During the
period January 1 to September 30, 1996, HighText had fourteen software and four
book titles under development.
EDUCORP MULTIMEDIA OPERATING AND CORPORATE EXPENSES
The majority of Educorp Multimedia's $487,057 of non-consolidated operating and
corporate expenses for the nine months ended September 30, 1996 arose from
general, administrative and salary costs, including $101,849 of accounting and
legal fees, $314,196 of salaries and consultants fees, and $31,250 of
recruiting fees. These costs reflected legal and accounting costs incurred in
connection with the January 1, 1996 acquisition of HighText, and costs
attributable to the building of a management structure at the Educorp
Multimedia level. There are no prior year comparable figures for Educorp
Multimedia as it was incorporated in January, 1996 and although its
predecessor, CD-Soft Corporation, was incorporated in June, 1995, it remained
an inactive holding company during the comparable prior year period.
HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES
Due to the divestitures during 1995 of Hariston's operating businesses and the
subsequent acquisition of new businesses, Hariston's non- consolidated
operating and corporate expenses for the nine months ended September 30, 1996
of $925,979 are not directly comparable to the $885,000 of costs for the same
period of a year earlier. The majority of Hariston's non-consolidated operating
and corporate expenses for the nine months ended September 30, 1996 consisted
of $329,284 of accounting and legal fees, $283,392 of salaries, directors fees
and consultants fees, $108,606 of shareholder communications costs including
transfer agent and investor relations firm fees, $53,724 of insurance costs,
$39,212 of rent expense, and $37,131 of travel costs. Hariston incurred
exceptional salaries and consultants fees during the third quarter 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 Direct and the January 1, 1996 acquisition of
HighText. Hariston also incurred significant non-recurring legal, accounting
and other professional fees during the nine months ended September 30, 1996 due
to the restructuring proposals under examination by the Company.
The majority of EuroEastern's non-consolidated operating and corporate
expenses, totaling $104,126, consisted of $63,176 of salaries and consultants
fees and $31,852 of rent expense. There are no prior year comparable figures
for EuroEastern as it was incorporated in October, 1995.
<PAGE> 17
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995
The Company incurred a consolidated net loss of $954,287 for the three months
ended September 30, 1996, as compared to net income of $726,000 for the same
period of the prior year. Eliminating the impact of discontinued operations,
the Company incurred a net loss of $189,000 for the same period of the prior
year. Of the third quarter 1996 loss, $823,382 was attributable to Educorp
Multimedia and its subsidiaries, $87,235 to Hariston, and $43,670 to
EuroEastern. Of the $823,382 loss attributable to the Company's multimedia
operations, $358,656 arose from the Direct operations, $273,183 from the
HighText operations, and the remainder was due to operating and corporate
expenses incurred at the Educorp Multimedia level. Of the $87,235 loss incurred
at the Hariston legal entity level, $68,221 was attributable to interest
expense on debt, and the remainder related primarily to corporate
administration and overhead costs.
An analysis of the results is presented below. For comparative purposes, the
analysis of Direct considers the comparable results during 1995, where
available, of the operations of its predecessor, Gazelle Technologies, Inc. and
its affiliates, which had been doing business under the trade name Educorp.
Similarly, the analysis of HighText considers the comparable results during
1995, where available, of the operations of its predecessor, HighText
Publications, Inc.
The results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results of operations to be expected for the
three months ending December 31, 1996.
EDUCORP DIRECT
Direct generated revenues of $1,199,412 for the three months ended September
30, 1996, comprised of $875,474 from retail sales to end users, $322,436 from
sales to dealers, and $1,502 from software license fees. Direct realized a
gross profit of $362,615 for the third quarter of 1996, incurred a loss of
$125,459 before interest, depreciation and amortization, and a net loss for the
quarter of $358,656.
RETAIL SOFTWARE SALES
Retail software sales for the quarter ended September 30, 1996 of $875,474
declined 15% relative to retail software sales of $1,034,993 for the same
period during 1995. The primary reasons for the decline in same period sales
were, first, the decline in the average CD-ROM retail price realized by Direct
in 1996; second, the discontinuance, in the second half of 1995, of sales of
certain software titles that were incompatible with the Company's future
business plans; and third, the widely publicized problems at Apple Computer.
International retail software sales were $146,955, or 17% of total retail
sales, for the three months ended September 30, 1996, versus $153,378 or 15% of
total retail sales for the comparable prior year period. The increase in
international retail sales as a percentage of total retail sales was primarily
due to the decline of domestic software sales as described above.
DEALER SOFTWARE SALES
Dealer software sales for the quarter ended September 30, 1996 of $322,436
declined 34% relative to dealer software sales of $489,632 for the same period
during 1995. The decline in same period sales
<PAGE> 18
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
primarily reflects lower unit sales volume due to an increased level of
competition, arising partly from new distribution channels that have opened for
the supply of CD-ROM titles to dealers. These new channels include a trend
towards publishers selling their titles directly to dealers. Additionally,
there was a decrease in the average CD-ROM dealer price realized by Direct.
International dealer software sales were $275,430, or 85% of total software
sales to dealers, for the three months ended September 30, 1996, versus
$401,021 or 82% for the comparable prior year period. The 31% decline in
international dealer sales reflected smaller international order sizes due to
an increasing number of publishers seeking direct distribution to foreign
dealers.
ROYALTIES AND LICENSE FEES
Royalties and license fees of $1,502 for the quarter ended September 30, 1996
compare to royalty and license fees of $71,570 for the same period during 1995.
The primary reason for the decrease was the expiration during 1996 of a
bundling license with Apple Computer.
GROSS PROFIT
Direct realized a gross profit of $362,615 for the quarter ended September 30,
1996, representing 30% of revenues. Comparative figures for the full three
months ended September 30, 1995 (i.e. including the period prior to Educorp's
August 25, 1995 acquisition by Hariston) are not readily available. However,
for the five weeks from August 25, 1995 to September 30, 1995, Direct realized
a gross profit of $125,000 on revenues of $550,000, for a gross profit margin
of 23%. Cost of sales included a one-time inventory adjustment relating to the
acquisition. Without this adjustment, Direct would have earned a gross profit
margin for the five weeks ending September 30, 1995 of 33%. The 3% reduction in
comparable margin from third quarter, 1995 to third quarter, 1996 primarily
reflects lower realized prices per title as a result of increased competition.
OPERATING AND CORPORATE EXPENSES
Operating and corporate expenses were $714,675 for the quarter ended September
30, 1996, representing approximately 60% of revenues for the quarter. This
figure includes amortization of goodwill and other intangibles arising from the
August 25, 1995 acquisition of the Direct operations. After adjusting for this
amortization expense of $218,014, operating and corporate expenses were $496,661
or 41% of total revenues for the quarter.
HIGHTEXT INTERACTIVE
Effective January 1, 1996, the Company, through a wholly-owned subsidiary,
purchased substantially all of the assets and assumed certain liabilities of
HighText Publications, Inc.
HighText generated revenues of $199,629 for the three months ended September
30, 1996, comprised of $50,343 from retail sales to end-users and $149,286 from
sales to dealers. HighText realized a gross profit of $61,395 for the third
quarter, 1996, and incurred a net loss for the quarter of $273,183.
SOFTWARE SALES
Software sales for the quarter ended September 30, 1996 were $48,733,
consisting of $23,933 sales to end-users and $24,800 sales to dealers.
Comparable results for 1995 are not readily available.
During the third quarter, 1996, HighText substantially completed the
development of three software titles. As of September 30, 1996, HighText had
ten software titles available for sale, three software titles in beta testing,
and four software titles under development, for a total of seventeen software
titles.
<PAGE> 19
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
BOOK SALES
Sales for the quarter ended September 30, 1996 were $150,896, consisting of
$29,474 retail sales to end-users and $121,422 sales to dealers. By comparison,
for the three months ended September 30, 1995, retail sales were $22,111, and
dealer sales were $81,612.
During the third quarter, 1996, HighText published no further book titles and
continued development of three book titles.
OPERATING AND CORPORATE EXPENSES
The most significant components of HighText's $334,193 of operating and
corporate expenses for the quarter ended September 30, 1996, were salary costs
totaling $146,452, marketing and trade show costs of $85,906, and depreciation
and amortization expense of $75,945. HighText expenses the costs of developing
new software and book titles as they are incurred.
EDUCORP MULTIMEDIA OPERATING AND CORPORATE EXPENSES
The majority of Educorp Multimedia's $183,820 of non-consolidated operating and
corporate expenses for the quarter ended September 30, 1996 arose from general,
administrative and salary costs, including $168,495 of salaries and consultants
fees. There are no prior year comparable figures for Educorp Multimedia as it
was incorporated in January, 1996 and its predecessor, CD-Soft Corporation,
although incorporated in June, 1995, remained an inactive holding company
during the comparable prior year period.
HARISTON AND EUROEASTERN OPERATING AND CORPORATE EXPENSES
Due to the divestitures during 1995 of Hariston's operating businesses and the
subsequent acquisition of new businesses, Hariston's non- consolidated
operating and corporate expenses for the quarter ended September 30, 1996 of
$350,342 are not directly comparable to the $153,000 of costs for the same
period of a year earlier. The majority of Hariston's non-consolidated operating
and corporate expenses for the third quarter of 1996 consisted of $112,907 of
salaries and consultants fees including severance payments, $110,678 of
accounting and legal fees, $48,596 of shareholder communications costs, $27,309
of travel costs and $13,035 of insurance costs. Hariston incurred exceptional
salaries and consultants fees during the third quarter due to the closure of
the Costa Mesa, California offices.
The majority of EuroEastern's non-consolidated operating and corporate
expenses, totaling $43,670, were general, administrative and salary costs.
There are no prior year comparable figures for EuroEastern as it was
incorporated in October, 1995.
INVESTMENTS
POLISH LIFE IMPROVEMENT S.A.
PLI is a public Polish company which during 1995 applied for its shares to be
listed and traded on the Warsaw Stock Exchange. Approval for share trading was
obtained in early 1996, and on February 5, 1996, PLI's shares began trading on
the parallel market of the Warsaw Stock Exchange. Hariston co-founded PLI in
1993 and currently holds a large minority interest in the company.
PLI is a retail operator of five home improvement stores in Poland, operated
under the name NOMI, and was previously also the operator of eight supermarkets
in Poland, operated under the name MAX.
<PAGE> 20
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
In December, 1995 PLI sold a 51% interest in its former supermarket subsidiary
for $10.5 million, to a joint venture controlled by Royal Ahold NV, one of the
world's largest food retailers with headquarters in the Netherlands. As
announced by news release dated July 11, 1996, PLI has additionally sold its
remaining 49% interest to the Royal Ahold joint venture for $9.4 million.
As of September 30, 1996, 2,613,724 shares in PLI were reported on Hariston's
balance sheet, at an average cost of approximately $0.64 per share. These
include 1.1 million shares out of a total of 1.4 million shares which the
Company agreed in 1994 to sell to a third party and for which it received a
promissory note that is presently in default. The promissory note is secured by
the 1.4 million shares; however, Hariston does not control or vote these
shares. Management has determined that collection on the note is not reasonably
assured and is discussing with the purchaser arrangements for the return of the
shares. Based on present negotiations, the Company has provided in its third
quarter results for $178,500 of estimated loss on settlement of the collateral
claim under the note receivable.
Not including the 1.4 million PLI shares discussed above, Hariston's percentage
ownership in PLI is approximately 21%. Management is of the opinion that due to
the Company's minority ownership position in PLI, Hariston has not been able to
exercise significant influence over the operating, investing, and financial
policies of PLI and therefore the investment in PLI shares is accounted for on
the cost method.
During the second and third quarters, the Company sold a limited number of PLI
shares in public trades on the parallel market of the Warsaw Stock Exchange.
The Company sold 128,346 PLI shares during the third quarter realizing net
proceeds of $600,444. During 1996 to date, Hariston has sold a total of 143,481
PLI shares realizing net proceeds of approximately $670,000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had cash balances of $1,307,761, a
working capital ratio of 0.52 and a debt/equity ratio of 1.80. The Company's
principal capital requirements include working capital to finance the
multimedia operations including the development of new multimedia CD-ROM
titles, capital to fund debt repayments, and capital to effect the acquisition
of businesses or investments in the future.
Historically, the Company has required capital to finance operating losses,
having incurred operating losses in each year after 1990. As of September 30,
1996, the Company had an accumulated deficit of $28,588,806. The Company has
continued to experience negative operating cash flows.
Based on historical results and management's expectations for future
operations, the Company expects that the Direct operations will require modest
capital infusion to cover their operating requirements for the immediate
future. However, with the need to finance HighText's product development
efforts, Educorp Multimedia's and Hariston's general corporate expenses, and
Hariston's debt repayments, the Company will have to raise additional equity
and/or debt capital in 1996 or early 1997, or sell assets or business units
within this time-frame. Management is currently considering a number of
alternatives.
There is no assurance that cash flows from operations will be sufficient to
meet operating requirements, that additional debt or equity financing will be
available on terms acceptable to the Company, or that the Company will be able
to conclude the sale of assets or business units on terms acceptable to the
Company.
In order to finance working capital needs, during the third quarter the Company
raised $1,200,000 from the private placement of shares and share purchase
warrants.
Also during the third quarter, the Company continued limited sales of PLI
shares on the parallel market of the Warsaw Stock Exchange. To date, 143,481
PLI shares have been sold raising net proceeds of
<PAGE> 21
HARISTON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
approximately $670,000. The proceeds of sales to date have been primarily
invested in the operations of Educorp Multimedia and its subsidiaries.
Importantly, these share sales have also served to demonstrate the liquidity
and value of the Company's investment in PLI. The Company continues to own
outright in excess of 1.5 million PLI shares, not including shares pledged to
the Company as collateral on a note receivable that is in default.
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
marketplace, general economic conditions, the efficiency of the Company's
operations, the timely development and introduction of new products which
address market needs, and continuing access to investment capital.
SEASONALITY OF BUSINESS
Historically, the Educorp Multimedia operations have been subject to a seasonal
effect during the "back to school" and year-end holiday buying seasons,
commencing in August and peaking during the period November through January. To
generate gift sales, Direct has historically timed the mailing of its catalogs
to be received by potential customers during November and early December.
Management expects that this seasonal effect will continue to have an impact for
the foreseeable future.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes forward-looking information, which
may include but is not limited to information concerning the Company's business
strategies, plans and objectives for product development and releases,
marketing plans, financing plans and the settlement of a note receivable. These
forward-looking statements are subject to risks and uncertainties, including
technological uncertainties in the development and testing of new products, the
impact of competitive products and pricing, the Company's ability to recruit
and retain qualified personnel, the Company's ability to raise financing or
sell assets, and other factors, which could cause actual results to differ from
those projected.
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 30, 1996, the Company held its annual meeting of
stockholders. At the meeting, James P. Angus, Nuno Brandolini, Neil S.
MacKenzie, Kevin R. McCarthy, and L. James Porter were elected to serve as
directors of the Company for the ensuing year. In addition, the Report of the
Directors, the Consolidated Financial Statements for the fiscal year ended
December 31, 1995 and the Auditor's Report thereon were received, the
appointment of Arthur Andersen & Co. as auditors for the Company was approved,
and the amended and restated By-Laws were confirmed.
The following table provides the number of votes cast for, against or
withheld as to each matter submitted to a vote of stockholders at the meeting:
Matter
<TABLE>
<CAPTION>
Election of Directors: For Against Withheld
- --------------------- --- ------- --------
<S> <C> <C> <C>
James P. Angus 6,486,232 0 195,946
Nuno Brandolini 6,486,201 0 195,977
Neil S. MacKenzie 6,486,432 0 195,746
Kevin R. McCarthy 6,593,652 0 88,526
L. James Porter 6,486,342 0 195,836
</TABLE>
<TABLE>
<CAPTION>
Matter For Against Withheld
- ------ --- -------- --------
<S> <C> <C> <C>
Appointment of Auditors 6,663,363 9,905 8,910
</TABLE>
<TABLE>
<CAPTION>
Matter For Against Withheld
- ------ --- ------- --------
<S> <C> <C> <C>
Confirmation of By-Laws 2,929,229 142,146 35,380
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.2 Amended and Restated By-Laws of Hariston Corporation
Exhibit 4.8 1996 Hariston Corporation Stock Option Plan
Exhibit 4.9 1996 Hariston Corporation Stock Option Plan No. 2
<PAGE> 23
(b) Reports on Form 8-K
On July 22, 1996, the Company filed a Current Report on Form 8-K with
respect to the resignation of J.V. McGoodwin as Director, President and Chief
Executive Officer of the Company and from his positions with the Company's
affiliated and subsidiary companies. Nuno Brandolini was appointed Chairman
and Chief Executive Officer of the Company, and Kevin McCarthy was appointed
President of the Company and as a Director to hold office until the next
shareholders meeting.
<PAGE> 24
SIGNATURE
Pursuant to the requirements 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.
HARISTON CORPORATION
Dated: November 19, 1996 By: /s/ L. James Porter
---------------------------------
L. James Porter,
Chief Financial Officer
(Duly authorized officer and Principal
Financial and Accounting Officer)
<PAGE> 1
EXHIBIT 3.2
HARISTON CORPORATION
BY-LAW NO. 1 (1995)
A by-law relating generally to the conduct of the affairs of HARISTON
CORPORATION.
BE IT ENACTED AND IT IS HEREBY ENACTED as a by-law of HARISTON
CORPORATION (hereinafter called the "Corporation") as follows:
1. DEFINITIONS
1.1 In this by-law and all other by-laws of the Corporation, unless the
context otherwise specifies or requires:
(a) "Act" means the Canada Business Corporations Act, Revised
Statutes of Canada 1985, c. C-44, as from time to time
amended, and every statute that may be substituted therefor
and, in the case of such amendment or substitution, any
references in the by- laws of the Corporation shall be read as
referring to the amended or substituted provisions therefor;
(b) "by-laws" means any by-law of the Corporation from time to
time in force and effect;
(c) all terms contained in the by-laws which are defined in the
Act shall have the meanings given to such terms in the Act;
(d) words importing the singular number only shall include the
plural and vice versa; words importing the masculine gender
shall include the feminine and neuter genders; words importing
persons shall include bodies corporate, corporations,
companies, partnerships, syndicates, trusts and any number or
aggregate of persons; and
(e) the headings used in the by-laws are inserted for reference
purposes only and are not to be considered or taken into
account in construing the terms or provisions thereof or to be
deemed in any way to clarify, modify or explain the effect of
any such terms or provisions.
2. REGISTERED OFFICE
2.1. The Corporation may from time to time:
(a) by resolution of the directors change the address of the
registered office of the Corporation within the place in
Canada specified in its articles; and
(b) by an amendment to its articles change the place in Canada in
which its registered office is situated.
<PAGE> 2
2
3. SEAL
3.1. The directors may provide for a seal for the Corporation, and such
duplicate seal or seals as they may determine for use in any province,
not being the province where the head office of the Corporation is
situated, or for use in any other state, territory or country, and
such duplicate seal or seals shall bear on the face thereof the
Corporation's name and such other words as the directors may
determine.
4. DIRECTORS
4.1. NUMBER AND POWERS
Whenever the Articles provide for a minimum and maximum number of
directors, the number of directors within the stipulated range shall
be as determined from time to time by resolution of the Board of
Directors. A majority of the directors shall be resident Canadians.
Subject to any unanimous shareholder agreement, the directors shall
manage the business and affairs of the Corporation and may exercise
all such powers and do all such acts and things as may be exercised or
done by the Corporation and are not by the Act, the articles, the
by-laws, any special resolution, a unanimous shareholder agreement or
by statute expressly directed or required to be done in some other
manner.
4.2. QUORUM AND VOTING
(a) A majority of directors constitute a quorum for the
transaction of business unless the shareholders by resolution
otherwise determine. Subject to the Act, no business shall be
transacted by the directors except at a meeting of directors
at which a quorum is present and at which a majority of the
directors present are resident Canadians. Questions arising
at any meeting of directors shall be decided by a majority of
votes. In the case of an equality of votes, the chairman of
the meeting shall not have a second or casting vote.
(b) Notwithstanding any vacancy among the directors, a quorum of
directors may exercise all the powers of the directors.
(c) Subject to the Act and to the Corporation's articles, where
there is a quorum of directors in office and a vacancy occurs,
the directors remaining in office may appoint a qualified
person to hold office for the unexpired term of his
predecessor.
4.3. DUTIES
Every director of the Corporation in exercising his powers and
discharging his duties shall:
(a) act honestly and in good faith with a view to the best
interest of the Corporation; and
(b) exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances.
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3
4.4 ELECTION AND REMOVAL
(a) Directors shall be elected at each annual general meeting of
the shareholders. Except for those directors elected for an
expressly stated term, all the directors then in office shall
cease to hold office at the close of the next annual meeting
following their election but, if qualified, are eligible for
re-election.
(b) Subject to the Act, the shareholders of the Corporation may,
by ordinary resolution, remove any director before the
expiration of his term of office and elect any person in his
stead for the remainder of his term. A director removed by
ordinary resolution shall vacate office forthwith on the
passing of the resolution for his removal. Subject to the
Act, if the shareholders do not fill the vacancy created by
the removal of a director the directors may do so.
(c) Whenever at any election of directors of the Corporation the
number or the minimum number of directors required by the
articles is not elected by reason of the disqualification,
incapacity or the death of any candidate the directors elected
at that meeting may exercise all the powers of the directors
if the number of directors so elected constitutes a quorum.
4.5. VALIDITY OF ACTS
An act of a director is valid notwithstanding an irregularity in his
election or appointment or a defect in his qualification.
4.6. QUALIFICATION
Every director shall be an individual eighteen or more years of age
and no one who is of unsound mind and has been so found by a court in
Canada or elsewhere or who has the status of a bankrupt shall be a
director.
4.7. TERM OF OFFICE
A director's term of office (subject to his election for an expressly
stated term) shall be from the date of the meeting at which he is
elected or appointed until the close of the annual meeting next
following, unless he sooner ceases to hold office.
4.8. VACATION OF OFFICE
The office of a director shall be vacated if the director:
(a) dies or sends to the Corporation a written resignation and
such resignation, if not effective immediately, becomes
effective in accordance with its terms;
(b) is removed from office;
(c) becomes bankrupt; or
(d) is found by a court in Canada or elsewhere to be of unsound
mind.
<PAGE> 4
4
5. MEETINGS OF DIRECTORS
5.1. PLACE OF MEETING
Meetings of directors and of any committee of directors may be held at
any place. A meeting of directors may be convened at any time by the
Chairman of the Board (if any), the President or by a Vice President
or any two directors and the Secretary shall upon direction of any of
the foregoing convene a meeting of directors.
5.2. NOTICE
(a) Notice of the time and place for the holding of any such
meeting shall be given to each director personally or by mail,
telegraph, cable or telex to each director.
(b) For the first meeting of directors to be held following the
election of directors at an annual or special meeting of the
shareholders or for a meeting of directors at which a director
is appointed to fill a vacancy in the board, no notice of such
meeting need be given to the newly elected or appointed
director or directors in order for the meeting to be duly
constituted, provided a quorum of the directors is present.
5.3. WAIVER OF NOTICE, IRREGULARITY
Notice of any meeting of directors or of any committee of directors or
any irregularity in any meeting or in the notice thereof may be waived
by any director in writing or by telegram, cable or telex addressed to
the Corporation or in any other manner, and such waiver may be validly
given either before or after the meeting to which such waiver relates.
Attendance of a director at a meeting of directors is a waiver of
notice of the meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business on
the ground that the meeting is not lawfully called.
5.4. TELEPHONE PARTICIPATION
Where all the directors have consented thereto (either before or after
the meeting), a director may participate in a meeting of directors or
of any committee of directors by means of such telephone or other
communications facilities as permit all persons participating in the
meeting to hear each other, and a director participating in such a
meeting by such means shall be deemed for the purposes of the Act to
be present at that meeting.
5.5. ADJOURNMENT
Any meeting of directors or of any committee of directors may be
adjourned from time to time by the chairman of the meeting, with the
consent of the meeting, to a fixed time and place and no notice of the
time and place for the holding of the adjourned meeting need be given
to any director. Any adjourned meeting shall be duly constituted if
held in accordance with the terms of the adjournment and a quorum is
present at it. The directors who formed a quorum at the original
meeting are not required to form the quorum at the
<PAGE> 5
5
adjourned meeting. If there is no quorum present at the adjourned
meeting, the original meeting shall be deemed to have terminated
forthwith after its adjournment.
6. REMUNERATION OF DIRECTORS, OFFICERS AND EMPLOYEES
6.1. The remuneration to be paid to the directors, officers and employees
of the Corporation shall be such as the directors shall from time to
time determine and such remuneration shall be in addition to the
salary paid to any officer or employee of the Corporation who is also
a director. The directors may also by resolution award special
remuneration to any director undertaking any special services on the
Corporation's behalf other than the routine work ordinarily required
of a director by the Corporation. The confirmation of any such
resolution or resolutions by the shareholders shall not be required.
The directors, officers and employees shall also be entitled to be
paid their travelling and other expenses properly incurred by them in
connection with the affairs of the Corporation.
7. SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL
7.1. The directors in their discretion may submit any contract, act or
transaction for approval, ratification and/or confirmation at any
annual meeting of the shareholders or at any special meeting of the
shareholders called for the purpose of considering the same and any
contract, act or transaction that is approved, ratified and/or
confirmed by resolution passed by a majority of the votes cast at any
such meeting (unless any different or additional requirement is
imposed by the Act or by the Corporation's articles or any other by-
law) shall be as valid and as binding upon the Corporation and upon
all the shareholders as though it had been approved, ratified and/or
confirmed by every shareholder of the Corporation.
8. INDEMNITIES TO DIRECTORS AND OTHERS
8.1. Subject to the Act, except in respect of an action by or on behalf of
the Corporation or body corporate to procure a judgment in its favor,
the Corporation shall indemnify a director or officer of the
Corporation, a former director or officer of the Corporation or a
person who acts or acted at the Corporation's request as a director or
officer of a body corporate of which the Corporation is or was a
shareholder or creditor, and his heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to
settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding
to which he is made a party by reason of being or having been a
director or officer of the corporation or such body corporate, if:
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was lawful.
<PAGE> 6
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9. OFFICERS
9.1. ELECTION AND APPOINTMENT OF OFFICERS
(a) The directors shall annually or as often as may be required
appoint a President and a Secretary and if deemed advisable
may annually or as often as may be required appoint one or
more Vice Presidents, a Treasurer and one or more Assistant
Secretaries and/or one or more Assistant Treasurers. None of
such officers need be a director of the Corporation. Two or
more of such offices may be held by the same person. In case
and whenever the same person holds the offices of Secretary
and Treasurer he may but need not be known as the
Secretary-Treasurer. The directors may from time to time
appoint such other officers, employees and agents as they
shall deem necessary who shall have such authority and shall
perform such functions and duties as may from time to time be
determined by the directors.
(b) An act of an officer is valid notwithstanding an irregularity
in his election or appointment or a defect in his
qualification.
9.2. REMOVAL OF OFFICERS, ETC.
All officers, employees and agents shall be subject to removal by
resolution of the directors at any time, with or without cause but
without prejudice to their rights under any agreement with the
Corporation.
9.3. DUTIES OF OFFICERS MAY BE DELEGATED
In case of the absence or inability or refusal to act of any officer
of the Corporation or for any other reason that the directors may deem
sufficient, the directors may delegate all or any of the powers of
such officer to any other officer or to any director for the time
being.
9.4. PRESIDENT
The President shall be the chief executive officer of the Corporation
and, subject to the authority of the board and of the Managing
Director (if any), shall exercise general supervision over the
business and affairs of the Corporation. In the absence of the
Chairman of the Board (if any) and the Managing Director (if any) and
if the President is also a director of the Corporation, the President
shall, when present, preside at all meetings of the directors, any
committee of the directors and shareholders; he may sign such
contracts, documents or instruments in writing as require his
signature and shall have such other powers and shall perform such
other duties as may from time to time be assigned to him by the
directors or as are incident to his office.
9.5. VICE PRESIDENT
The Vice President or, if more than one, any Vice President shall be
vested with all the powers and shall perform all the duties of the
President in the absence or inability or refusal to act of the
President, provided, however, that a Vice President who is not a
director shall not preside as chairman at any meeting of directors or
shareholders. The
<PAGE> 7
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Vice President or, if more than one, the Vice Presidents may sign such
contracts, documents or instruments in writing as require his or their
signatures and shall also have such other powers and duties as may
from time to time be assigned to him or them by the directors or as
are incident to his or their office.
9.6. SECRETARY
The Secretary shall give or cause to be given notices for all meetings
of the directors, any committee of the directors and shareholders when
directed to do so and shall have charge of the minute books of the
Corporation and, subject to the provisions of paragraph 12.3 hereof,
of the documents and registers referred to in the Act. He may sign
such contracts, documents or instruments in writing as require his
signature and shall have such other powers and duties as may from time
to time be assigned to him by the directors or as are incident to his
office.
9.7. TREASURER
Subject to the provisions of any resolution of the directors, the
Treasurer shall have the care and custody of all the funds and
securities of the Corporation and shall deposit the same in the name
of the Corporation in such bank or banks or with such other depositary
or depositaries as the directors may by resolution direct. He shall
prepare and maintain adequate accounting records. He may sign such
contracts, documents or instruments in writing as require his
signature and shall have such other powers and duties as may from time
to time be assigned to him by the directors or as are incident to his
office. He may be required to give such bond for the faithful
performance of his duties as the directors in their uncontrolled
discretion may require provided that no director shall be liable for
failure to require any such bond or for the insufficiency of any such
bond or for any loss by reason of the failure of the Corporation to
receive any indemnity thereby provided.
9.8. ASSISTANT SECRETARY AND ASSISTANT TREASURER
The Assistant Secretary or, if more than one, the Assistant
Secretaries and the Assistant Treasurer or, if more than one, the
Assistant Treasurers shall perform all the duties of the Secretary and
Treasurer, respectively, in the absence or inability to act of the
Secretary or Treasurer as the case may be. The Assistant Secretary or
Assistant Secretaries, if more than one, and the Assistant Treasurer
or Assistant Treasurers, if more than one, may sign such contracts,
documents or instruments in writing as require his or their signatures
respectively and shall have such other powers and duties as may from
time to time be assigned to them by the directors or as are incident
to his or their office.
9.9. MANAGING DIRECTOR
The directors may from time to time appoint from their number a
Managing Director who is a resident Canadian and may delegate to the
Managing Director any of the powers of the directors subject to the
limitations on delegation of authority provided in the Act. In the
absence of the Chairman of the Board (if any), the Managing Director
shall, when present, preside at all meetings of the directors and
shareholders. A Managing Director shall conform to all lawful orders
given to him by the directors of the Corporation and
<PAGE> 8
8
shall at all reasonable times give to the directors or any of them all
information they may require regarding the affairs of the Corporation.
Any agent or employee appointed by the Managing Director shall be
subject to discharge by the directors.
9.10. VACANCIES
If the office of President, Vice-President, Secretary, Assistant
Secretary, Treasurer, Assistant Treasurer or any other office created
by the directors pursuant to these by-laws shall be or become vacant
by reason of death, resignation or in any other manner whatsoever, the
directors shall in the case of the President or the Secretary and may
in the case of the other officers appoint an officer to fill such
vacancy.
9.11. DUTIES
Every officer of the Corporation in exercising his powers and
discharging his duties shall:
(a) act honestly and in good faith with a view to the best
interest of the Corporation; and
(b) exercise the care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances.
10. COMMITTEE OF DIRECTORS
10.1. The directors may from time to time appoint from their number a
committee of directors and may delegate to such committee any of the
powers of the directors subject to the limitations on delegation of
authority provided in the Act. A majority of the members of a
committee of directors must be resident Canadians.
11. SHAREHOLDERS' MEETINGS
11.1. ANNUAL MEETING
The annual meeting of the shareholders shall be held at the registered
office of the Corporation or at such other place within Canada (or
elsewhere, if consented to by all shareholders) as the directors may
determine, on such day in each year and at such time as the directors
may determine.
11.2. SPECIAL MEETINGS
Special meetings of the shareholders may be convened by order of the
Chairman of the Board (if any), the President or a Vice-President who
is a director or by the directors at any date and time and at any
place within Canada (or elsewhere, if consented to by all
shareholders).
11.3. NOTICE
11.3. A printed, written or typewritten notice stating the day, hour
and place of meeting and, if special business is to be transacted
thereat, stating:
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(a) the nature of that business in sufficient detail to permit the
shareholder to form a reasoned judgment thereon; and
(b) the text of any special resolution to be submitted to the
meeting;
shall be given in accordance with Article 15 hereof to each person who
is entitled to notice of such meeting and who on the record date for
notice appears on the records of the Corporation as a shareholder of
the Corporation not less than twenty-one days and not more than fifty
days before the date of every meeting.
11.4. MEETING HELD BY CONSENT
A meeting of shareholders may be held for any purpose at any date and
time and at any place without notice if all the shareholders entitled
to notice of such meeting are present in person or represented by
proxy at the meeting (except where a shareholder attends the meeting
for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called).
11.5. WAIVER OF NOTICE
Notice of any meeting of shareholders or any irregularity in any such
meeting or in the notice thereof may be waived by any shareholder, the
duly appointed proxy of any shareholder, any director or the auditor
of the Corporation in writing or by telegram, cable or telex addressed
to the Corporation, and any such waiver may be validly given either
before or after the meeting to which such waiver relates.
11.6. NOTICE TO AUDITOR
The auditor of the Corporation is entitled to attend any meeting of
shareholders of the Corporation and to receive all notices and other
communications relating to any such meeting that a shareholder is
entitled to receive.
11.7. NOTICE TO DIRECTORS
Every Director of the Corporation is entitled to receive notice of and
to attend and to be heard at every meeting of shareholders.
11.8. OMISSION OF NOTICE
The accidental omission to give notice of any meeting to or the
non-receipt of any notice by any person shall not invalidate any
resolution passed or any proceeding taken at any meeting of
shareholders.
11.9. VOTES
Every question submitted to any meeting of shareholders shall be
decided in the first instance on a show of hands and in case of an
equality of votes the chairman of the
<PAGE> 10
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meeting shall not have a second or casting vote (either on a show of
hands or on a poll) in addition to the vote or votes to which he may
be entitled as a shareholder or proxy holder.
11.10. CHAIRMAN'S DECLARATION OF RESULT
At any meeting, unless a poll is demanded by a shareholder or
proxyholder entitled to vote at the meeting either before or after any
vote by a show of hands, a declaration by the chairman of the meeting
that a resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority
shall be conclusive evidence of the fact without proof of the number
or proportion of votes recorded in favor of or against the motion.
11.11. POLL
(a) If at any meeting a poll is demanded on the election of a
chairman or on the question of adjournment or termination it
shall be taken forthwith without adjournment. If a poll is
demanded on any other question or as to the election of
directors it shall be taken by ballot in such manner and
either at once or later at the meeting or after adjournment as
the chairman of the meeting directs. The result of a poll
shall be deemed to be the resolution of the meeting at which
the poll was demanded. A demand for a poll may be withdrawn.
(b) Where a person holds shares as a personal representative, such
person or his proxy is the person entitled to vote at all
meetings of shareholders in respect of the shares so held by
him.
(c) Where two or more persons hold the same share or shares
jointly, any one of such persons present at a meeting of
shareholders has the right, in the absence of the other or
others, to vote in respect of such share or shares, but if
more than one of such persons are present or represented by
proxy and vote, they shall vote together as one on the share
or shares jointly held by them.
(d) Votes at meetings of shareholders may be given either
personally or by proxy. At every meeting at which he is
entitled to vote every shareholder present in person and every
proxyholder, unless he has conflicting instructions from more
than one shareholder, shall have one vote on a show of hands.
Upon a poll at which he is entitled to vote every shareholder
present in person or by proxy shall (subject to the
provisions, if any, of the Corporation's articles) have one
vote for every share registered in his name.
11.12. CHAIRMAN
In the absence of the Chairman of the Board (if any), the Managing
Director (if any), the President and any Vice-President who is a
director, the shareholders present entitled to vote shall choose
another director as chairman of the meeting and if no director is
present or if all the directors present decline to take the chair then
the shareholders present shall choose one of their number to be
chairman.
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11.13. PROXIES
(a) Every shareholder, including a shareholder that is a body
corporate, entitled to vote at a meeting of shareholders may
by means of a proxy appoint a proxyholder or one or more
alternate proxyholders, who are not required to be
shareholders, to attend and act at the meeting in the manner
and to the extent and with the authority conferred by the
proxy.
(b) An instrument appointing a proxyholder shall be in writing and
executed by the shareholder or his attorney authorized in
writing and is valid only at the meeting in respect of which
it is given or at any adjournment thereof.
(c) An instrument appointing a proxyholder may be in the following
form or in any other form which complies with the requirements
of the Act:
The undersigned shareholder of
__________________________________ hereby appoints
_____________________________________________ of
_____________________________________________, or failing
him, _________________________ of
_____________________________ as the nominee of the
undersigned to attend and act for and on behalf of the
undersigned at the ________ _____________________________
meeting of the shareholders of the said Corporation to be
held on the ______ day of ______________, 19__, and at any
adjournment thereof in the same manner, to the same extent
and with the same power as if the undersigned were
personally present at the said meeting or such adjournment
thereof.
DATED the ______ day of ____________, 19__.
__________________________________________
Signature of Shareholder
This form of proxy must be signed by a shareholder or by his
attorney authorized in writing.
(d) The directors may from time to time pass regulations regarding
the lodging of instruments appointing a proxyholder at some
place or places other than the place at which a meeting or
adjourned meeting of shareholders is to be held and for
particulars of such instruments to be telegraphed, cabled,
telexed or sent in writing before the meeting or adjourned
meeting to the Corporation or any agent of the Corporation
appointed for the purpose of receiving such particulars and
providing that instruments appointing a proxyholder so lodged
may be voted upon as though the instruments themselves were
produced at the meeting or adjourned meeting and votes given in
accordance with such regulations shall be valid and shall be
counted. The chairman of any meeting of shareholders may,
subject to any regulations made as aforesaid, in his discretion
accept telegraphic, telex, cable or written communication as to
the authority of anyone claiming
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to vote on behalf of and to represent a shareholder
notwithstanding that no instrument of proxy conferring such
authority has been lodged with the Corporation, and any votes
given in accordance with such telegraphic, telex, cable or
written communication accepted by the chairman of the meeting
shall be valid and shall be counted.
11.14. ADJOURNMENT
The chairman of the meeting may with the consent of the meeting
adjourn any meeting of shareholders from time to time to a fixed time
and place and if the meeting is adjourned for less than thirty days no
notice of the time and place for the holding of the adjourned meeting
need be given to any shareholder or other person entitled to receive
notice of a shareholders meeting, other than by announcement at the
earliest meeting which is adjourned. If a meeting of shareholders is
adjourned by one or more adjournments for an aggregate of thirty days
or more, notice of the adjourned meeting shall be given as for an
original meeting but, unless the meeting is adjourned by one or more
adjournments for an aggregate of more than ninety days management is
not required to solicit proxies. Any adjourned meeting shall be duly
constituted if held in accordance with the terms of the adjournment
and a quorum is present at it. The persons who formed a quorum at the
original meeting are not required to form the quorum at the adjourned
meeting. If there is no quorum present at the adjourned meeting, the
original meeting shall be deemed to have terminated forthwith after
its adjournment. Any business may be brought before or dealt with at
any adjourned meeting which might have been brought before or dealt
with at the original meeting in accordance with the notice calling the
same.
11.15. QUORUM FOR MEETINGS OF SHAREHOLDERS
Two persons present and each holding or representing by proxy at least
one issued share of the Corporation shall be a quorum at any meeting
of shareholders for the choice of a chairman of the meeting and for
the adjournment of the meeting to a fixed time and place but may not
transact any other business; for all other purposes a quorum for any
meeting shall be persons present not being less than two in number and
holding or representing by proxy not less than ten percent of the
total number of the issued shares of the Corporation entitled to be
voted at such meeting. If a quorum is present at the opening of a
meeting of shareholders, the shareholders present may proceed with the
business of the meeting, notwithstanding that a quorum is not present
throughout the meeting.
11.16. QUORUM WHERE ONLY ONE SHAREHOLDER
Notwithstanding paragraph 11.15, if the Corporation has only one
shareholder, or only one shareholder of any class or series of
shares, that shareholder present in person or by proxy constitutes a
meeting and a quorum for such meeting.
12. SHARES AND TRANSFERS
12.1. ISSUANCE
Subject to the articles of the Corporation, shares in the Corporation
may be issued at such times and to such persons and for such
consideration as the directors may determine.
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12.2. SECURITY CERTIFICATES
Security certificates (and the form of transfer power on the reverse
side thereof) shall, subject to compliance with the Act, be in such
form, if any, as the directors may from time to time approve and such
certificates need not be under the corporate seal and shall be signed
manually by such directors and officers of the Corporation as the
directors may from time to time determine but until otherwise
determined they shall be signed by a director, or if a registrar,
transfer agent or branch transfer agent has been appointed such
security certificates shall be counter-signed by or on behalf of the
registrar, transfer agent or branch transfer agent of the Corporation.
A trustee may certify them in accordance with a trust indenture.
Notwithstanding any change in the persons holding an office between
the time of actual signing and the issuance of any certificate and
notwithstanding that the person signing may not have held office at
the date of issuance of such certificate, any such certificate so
signed shall be valid and binding upon the Corporation.
12.3. AGENT FOR MAINTAINING SECURITIES REGISTER
The directors may from time to time appoint or remove an agent to
maintain a central securities register and branch securities registers
for the Corporation.
12.4. SURRENDER OF SECURITY CERTIFICATES
No transfer of a security issued by the Corporation shall be recorded
or registered unless or until the security certificate representing
the security to be transferred has been surrendered and canceled or,
if no security certificate has been issued by the Corporation in
respect of such security, unless or until a duly executed security
transfer power in respect thereof has been presented for registration.
12.5. DEFACED, DESTROYED, STOLEN OR LOST SECURITY CERTIFICATES
In case of the defacement, destruction, theft or loss of a security
certificate, the fact of such defacement, destruction, theft or loss
shall be reported by the owner to the Corporation or its appointed
agent, with a statement verified by oath or statutory declaration as
to the defacement, destruction, theft or loss and the circumstances
concerning the same and with a request for the issuance of a new
security certificate to replace the one so defaced, destroyed, stolen
or lost. Upon the giving to the Corporation or its appointed agent of
a bond of a surety company (or other security approved by the
directors) in such form as is approved by the directors or by the
Chairman of the Board (if any), the President, a Vice-President, the
Secretary or the Treasurer of the Corporation, indemnifying the
Corporation (and the Corporation's appointed agent, if any) against
all loss, damage or expense which the Corporation and/or the
Corporation's appointed agent may suffer or be liable for by reason
of the issuance of a new security certificate to such shareholder, and
provided the Corporation or the Corporation's appointed agent does not
have notice that the security has been acquired by a bona fide
purchaser, a new security certificate may be issued in replacement of
the one defaced, destroyed, stolen or lost, if such issuance is ordered
and authorized by any one of the Chairman of the Board (if any),
<PAGE> 14
14
the President, a Vice-President, the Secretary or the Treasurer of the
Corporation or by the directors.
13. DIVIDENDS
13.1. The directors may from time to time declare and the Corporation may
pay dividends on its issued shares, subject to the provisions (if any)
of the Corporation's articles.
13.2. The directors shall not declare and the Corporation shall not pay a
dividend if there are reasonable grounds for believing that:
(a) the Corporation is, or would after the payment be, unable to
pay its liabilities as they become due; or
(b) the realizable value of the Corporation's assets would thereby
be less than the aggregate of its liabilities and stated
capital of all classes.
13.3. Subject to the Act, the Corporation may pay a dividend in money or
property or by issuing fully paid shares of the Corporation.
13.4. In case several persons are registered as the joint holders of any
securities of the Corporation, any one of such persons may give
effectual receipts for all dividends and payments on account of
dividends, principal, interest and/or redemption payments on
redemption of securities (if any) subject to redemption in respect of
such securities.
14. VOTING SECURITIES IN OTHER BODIES CORPORATE
14.1. All securities of any other body corporate carrying voting rights held
from time to time by the Corporation may be voted at all meetings of
shareholders, bondholders, debentureholders or holders of such
securities, as the case may be, of such other body corporate and in
such manner and by such person or persons as the directors of the
Corporation shall from time to time determine. The duly authorized
signing officers of the Corporation may also from time to time execute
and deliver for and on behalf of the Corporation proxies and/or
arrange for the issuance of voting certificates and/or other evidence
of the right to vote in such names as they may determine without the
necessity of a resolution or other action by the directors.
15. NOTICES, RECORD DATES, ETC.
15.1. SERVICE
(a) Any notice or other documents required to be given or sent by
the Corporation to any shareholder or director of the
Corporation shall be delivered personally or sent by prepaid
mail or by telegram, telex or cablegram addressed to:
(i) the shareholder at his latest address as shown on the
records of the Corporation or its transfer agent; and
<PAGE> 15
15
(ii) the director at his latest address as shown in the
records of the Corporation or in the last notice
filed under the Act.
With respect to every notice or other document sent by prepaid
mail it shall be sufficient to prove that the envelope or
wrapper containing the notice or other document was properly
addressed and put into a post office or into a post office
letter box.
(b) If the Corporation sends a notice or document to a shareholder
and the notice or document is returned on three consecutive
occasions because the shareholder cannot be found, the
Corporation is not required to send any further notices or
documents to the shareholder until he informs the Corporation
in writing of his new address.
15.2. SHARES REGISTERED IN MORE THAN ONE NAME
All notices or other documents may, with respect to any shares in the
capital of the Corporation registered in more than one name, be given
to whichever of such persons is named first in the records of the
Corporation and any notice or other document so given shall be
sufficient notice or delivery of such document to all the holders of
such shares.
15.3. DECEASED SHAREHOLDER
Any notice or other document delivered or sent by post or left at the
address of any shareholder as the same appears in the records of the
Corporation shall, notwithstanding that such shareholder be then
deceased and whether or not the Corporation has notice of his decease,
be deemed to have been duly served in respect of the shares held by
such shareholder (whether held solely or with other persons) until
some other person be entered in his stead in the records of the
Corporation as the holder or one of the holders thereof and such
service shall for all purposes be deemed a sufficient service of such
notice or other document on his heirs, executors, or administrators
and all persons (if any), interested with him in such shares.
15.4. SIGNATURES TO NOTICES
The signatures of any director or officer of the Corporation to any
notice may be written, stamped, typewritten or printed or partly
written, stamped, typewritten or printed.
15.5. COMPUTATION OF TIME
Where a given number of days' notice or notice extending over any
period is required to be given under any provisions of the articles or
by-laws of the Corporation, the day of service or posting of the
notice shall, unless it is otherwise provided, be counted in such
number of days or other period and such notice shall be deemed to have
been given or sent on the day of service or posting.
<PAGE> 16
16
15.6. PROOF OF SERVICE
A certificate of any officer of the Corporation in office at the time
of the making of the certificate or of an agent of the Corporation as
to the facts in relation to the mailing or delivery or service of any
notice or other document to any shareholder, director, officer or
auditor or publication of any notice or other document shall be
conclusive evidence thereof and shall be binding on every shareholder,
director, officer or auditor of the Corporation, as the case may be.
15.7. RECORD DATES
(a) Subject to the Act, the directors may fix in advance a date as
the record date for the determination of shareholders:
(i) entitled to receive payment of a dividend;
(ii) entitled to participate in a liquidation
distribution;
(iii) entitled to receive notice of a meeting of
shareholders; or
(iv) for any other purpose but such record date shall not
precede by more than fifty days the action to be
taken.
(b) If no record date is fixed, then:
(i) the record date for the determination of shareholders
entitled to receive notice of a meeting of
shareholders shall be:
A. at the close of business on the day
immediately preceding the day on which the
notice is given; or
B. if no notice is given, the day on which the
meeting is held; and
(ii) the record date for the determination of shareholders
for any purpose other than that specified in
subparagraph 15.7(b)(i) shall be at the close of
business on the day on which the directors pass the
resolution relating thereto.
16. CHEQUES, DRAFTS, NOTES, ETC.
16.1. All cheques, drafts or orders for the payment of money and all notes,
acceptances and bills of exchange shall be signed by such director or
directors, officer or officers or other person or persons, whether or
not officers of the Corporation, and in such manner as the directors
may from time to time designate by resolution.
17. CUSTODY OF SECURITIES
17.1 All securities (including warrants) owned by the Corporation shall be
lodged (in the name of the Corporation) with a chartered bank or a
trust company or in a safety deposit box or vault,
<PAGE> 17
17
or if so authorized by the directors, with such other depositaries or
in such other manner as may be determined from time to time by the
directors.
17.2. All securities (including warrants) belonging to the Corporation may
be issued and held in the name of a nominee or nominees of the
Corporation (and if issued or held in the names of more than one
nominee shall be held in the names of the nominees jointly with right
of survivorship) and shall be endorsed in blank with endorsement
guaranteed in order to enable transfer thereof to be completed and
registration thereof to be effected.
18. EXECUTION OF INSTRUMENTS
18.1. The seal of the Corporation shall not be affixed to any instrument
except in the presence of the following persons, namely:
(a) a director or the President together with one of a
Vice-President, the Secretary, an Assistant Secretary, the
Treasurer or an Assistant Treasurer; or
(b) any two directors; or
(c) such person or persons as the directors may from time to time
by resolution appoint;
and the directors, officers, person or persons in whose presence the
seal is so affixed to an instrument shall sign such instrument. For
the purpose of certifying under seal true copies of any document or
resolution the seal may be affixed in the presence of any one of the
foregoing persons.
18.2. The signature or signatures of any officer or director of the
Corporation or any other person may, if specifically authorized by
resolution of the directors, be printed, engraved, lithographed or
otherwise mechanically reproduced upon any contracts, documents or
instruments in writing or bonds, debentures or other securities of the
Corporation executed or issued by or on behalf of the Corporation and
all contracts, documents or instruments in writing or bonds,
debentures or other securities of the Corporation on which the
signature or signatures of any of the foregoing officers, directors or
persons authorized as aforesaid shall be so reproduced pursuant to
special authorization by resolution of the directors shall be deemed
to have been manually signed by such officers, directors or persons
whose signature or signatures is or are so reproduced and shall be as
valid to all intents and purposes as if they had been signed manually
and notwithstanding that the officers, directors or persons whose
signature or signatures is or are so reproduced may have ceased to
hold office at the date of delivery or issue of such contracts,
documents or instruments in writing or bonds, debentures or other
securities of the Corporation.
19. ENFORCEMENT OF LIEN FOR INDEBTEDNESS
19.1 Subject to the Act, if the articles of the Corporation provide that
the Corporation has a lien on a share registered in the name of a
shareholder or his legal representative for a debt of that shareholder
to the Corporation, the directors of the Corporation may refuse to
<PAGE> 18
18
permit the registration of a transfer of any such share or shares
until the debt has been paid in full.
20. FISCAL YEAR
20.1. Unless otherwise determined by the directors, the fiscal year of the
Corporation shall end on the 31st day of December in each year.
MADE by the Board the 20th day of July, 1995.
James V. McGoodwin (signed)
President
L. James Porter (signed)
Secretary
CONFIRMED by the Shareholders in accordance with the Act the _____ day
of _______ 199___.
-----------------------------------
Secretary
<PAGE> 19
HARISTON CORPORATION
BY-LAW NO. 2 (1995)
A by-law respecting the borrowing of money by HARISTON CORPORATION.
BE IT ENACTED AND IT IS HEREBY ENACTED as a by-law of HARISTON
CORPORATION (hereinafter called the "Corporation") as follows:
1. The directors may from time to time:
(a) borrow money upon the credit of the Corporation;
(b) issue, reissue, sell or pledge debt obligations of the
Corporation; and
(c) mortgage, hypothecate, pledge or otherwise create a security
interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any debt obligations of the
Corporation.
The words "debt obligations" as used in this paragraph mean bonds, debentures,
notes or other evidences of indebtedness or guarantees of the Corporation,
whether secured or unsecured.
2. The directors may from time to time by resolution delegate to such one
or more of the officers and directors of the Corporation all or any of
the powers conferred on the directors by paragraph 1 of this by-law to
the full extent thereof or such lesser extent as the directors may in
any such resolution provide.
3. The powers hereby conferred shall be deemed to be in supplement of and
not in substitution for any powers to borrow money for the purposes of
the Corporation possessed by its directors or officers independently
of a borrowing by-law.
MADE by the Board the 20th day of July, 1995.
James V. McGoodwin (signed)
President
L. James Porter (signed)
Secretary
CONFIRMED by the Shareholders in accordance with the Act the ____ day
of _______ 199___.
-----------------------------------
Secretary
<PAGE> 1
EXHIBIT 4.8
1996 HARISTON CORPORATION
STOCK OPTION PLAN
(Effective as of July 17, 1996)
1. NAME, PURPOSE AND TERM OF PLAN
1.1 The stock option plan constituted hereby shall be known as the 1996
Hariston Corporation Stock Option Plan.
1.2 The purpose of the Plan is to provide an incentive to officers,
consultants and employees for continuing beneficial service to the
Company and its affiliates by encouraging and facilitating the
acquisition and ownership of common shares of the Company.
1.3 The Plan shall become effective as of the date set forth above (the
"Effective Date"). Except with respect to options then outstanding,
if not sooner terminated under Section 16.1, the Plan shall
terminate upon, and no further options shall be granted after, the
expiration of ten years from the Effective Date.
2. INTERPRETATION
In this Plan, unless the context otherwise requires:
2.1 "Board of Directors" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.2 "Committee" means a committee of the Board of Directors appointed by
the Board of Directors as contemplated in subsection 4.2.
2.3 "Company" means Hariston Corporation and any successor or continuing
company resulting from the amalgamation of the Company and any other
company or resulting from any other form of corporate
reorganization.
2.4 "Employee" means an individual who is an officer, director,
consultant or a bona fide full-time salaried employee of the Company
or any of its Subsidiaries or of any partnership of such
corporations or companies.
2.5 "Incentive Stock Options" means "incentive stock options" as set
forth in Section 422(b) of the Code.
2.6 "ISO Expiration Date" means the date determined by the Committee
after which an Incentive Stock Option granted hereunder is no longer
exercisable.
<PAGE> 2
2.7 "Market Price" means the average price per Share computed on the
basis of the closing market price for board lots of the Shares
(which shall be deemed to be the mean of the closing bid and ask
prices of the Shares, on any day on which the Shares are not traded)
on the Nasdaq for the most recent twenty (20) trading days preceding
the date on which an Option is granted.
2.8 "Nonqualified Options" mean options granted hereunder, other than
Incentive Stock Options.
2.9 "Option" means any option granted pursuant to the Plan and evidenced
by an agreement in such form and not inconsistent with the Plan as
the President shall approve from time to time.
2.10 "Optionee" means an Employee who has been granted an Option.
2.11 "Option Price" means the price at which Optioned Shares may be
subscribed for pursuant to an Option as determined pursuant to
Section 6 (Option Price).
2.12 "Optioned Shares" means the Shares subject to an Option or Options
as the case may be.
2.13 "Plan" means the Stock Option Plan as embodied herein and as from
time to time amended in accordance with the provisions hereof, and
the guidelines, rules and regulations from time to time in effect
hereunder.
2.14 "Shares" means common shares without par value in the capital of the
Company, as constituted at the effective date hereof.
2.15 "Subsidiary" means any corporation or company of which outstanding
securities to which are attached more than 50% of the votes that may
be cast to elect directors thereof are held (provided that such
votes are sufficient to elect a majority of such directors), other
than by way of security only, by or for the benefit of the Company
and/or by or for the benefit of any other corporation or company in
like relation to the Company, and includes any corporation or
company in like relation to a Subsidiary.
2.16 "10% Eligible Employees" means an Employee who, at the time an
Incentive Stock Option is granted hereunder, owns more than 10% of
the total combined voting power of all classes of stock of the
Company or any subsidiary corporation, within the meaning of Section
422(b)(6) of the Code.
2.17 The masculine gender shall include the feminine gender and the
singular shall include the plural and vice versa.
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<PAGE> 3
2.18 A reference to a section includes all subsections in that section.
3. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with the provisions of Section
15 (Changes in Capitalization or Number of Outstanding Shares), the
maximum number of Shares which may be reserved for issuance under
the Plan shall be Five Hundred Ten Thousand (510,000).
4. GRANT OF OPTIONS AND ADMINISTRATION OF THE PLAN
4.1 Persons eligible to receive grants of Options under the Plan shall
be limited to Employees.
4.2 This Plan will be administered by the Board or a committee of the
Board duly appointed for this purpose by the Board and consisting of
not less than three directors, a majority of whom shall be
nonemployee directors of the Company within the meaning of Rule
16b-3. If a committee is appointed for this purpose, all references
to the term "Board of Directors," other than in this subsection 4.2
and subsection 4.3.6, will be deemed to be references to the
Committee.
4.3 Subject only to the express provisions of the Plan, the Board of
Directors shall have, and hereby is specifically granted, the sole
authority:
4.3.1 to grant Options to Employees and to determine the
terms of, and the limitations, restrictions and
conditions upon, such grants;
4.3.2 to specify whether Options granted hereunder are
Incentive Stock Options or Nonqualified Options;
4.3.3 to authorize any officer or officers to execute and
deliver any option agreement, notice or document and
to do any other act as contemplated by the terms of
the Plan for and on behalf of the Company;
4.3.4 to interpret the Plan and to adapt, amend and rescind
such administrative guidelines and other rules and
regulations relating to the Plan as it may from time
to time deem advisable;
4.3.5 to make all other determinations and perform all such
other actions as the Board of Directors deems
necessary or advisable to implement and administer the
Plan; and
4.3.6 to appoint a Committee to make recommendations to the
Board of Directors regarding the grant of Options to
specified Employees, and to delegate to
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<PAGE> 4
such Committee on such terms as the Board of Directors
in its discretion determines all or any part of the
powers and authority of the Board of Directors
hereunder to implement and administer the Plan.
4.3.7 with the consent of the affected holders of options,
to reprice any outstanding options under the Plan,
and/or to cancel any outstanding options under the
Plan and to grant in substitution therefor new options
under the Plan pursuant to terms consistent therewith,
covering the same or different numbers of shares of
stock, provided, however, that no Incentive Stock
Option shall be repriced or regranted on terms that
would constitute a "modification" within the meaning
of Section 424(h)(3) of the Code which would
disqualify such option as an Incentive Stock Option
described in Section 422 of the Code unless the
Company and the holder of such option shall so agree.
4.4 The determinations of the Board of Directors under the Plan
(including, without limitation, determinations of the Employees who
are to receive grants of Options and the amount and timing of such
grants), need not be uniform and may be made by it selectively among
Employees who receive, or are eligible to receive, grants of Options
under the Plan, whether or not such Employees are similarly situated
as to office, length of service, salary or any other factor. The
Board of Directors may, in its discretion, authorize the granting of
additional Options to an Optionee before an existing Option has
terminated.
4.5 All guidelines, rules, regulations, decisions and interpretations of
the Board of Directors respecting the Plan or Options shall be
binding and conclusive on the Company and on all Optionees and their
respective legal personal representatives, heirs and legatees and on
all Employees.
5. TERM OF OPTIONS
Each Option shall be for the term determined by the Board of
Directors, but in no case shall an Option be granted by the Board of
Directors for a term of longer than seven years from the date of the
granting of the Option.
6. OPTION PRICE
The Option Price in any Option shall be determined from time to time
by the Board of Directors but shall not be less than 85% of the
Market Price on the date on which the Option is granted for
Nonqualified Options, and not less than the
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<PAGE> 5
Market Price on the date on which the Option is granted, for
Incentive Stock Options.
7. EXERCISE OF OPTIONS
7.1 Subject to the provisions of subsection 7.4 and of Sections 11 (No
Fractional Shares), 12 (Death of Optionee) and 15 (Changes in
Capitalization or Number of Outstanding Shares), the terms for
exercise of each Option shall be determined by the Board of
Directors.
7.2 An Option may be exercised by the Optionee or his personal
representatives, heirs or legatees at the applicable times and in
the applicable amounts by giving to the Company at its principal
executive office written notice of exercise specifying the number of
Shares to be subscribed for. Such notice must be accompanied by
full payment for the Shares to be subscribed for. Upon any such
exercise of an Option, the Company shall forthwith cause the
transfer agent and the registrar of the Company for the time being
to deliver to the Optionee or his personal representatives, heirs or
legatees (or as the Optionee or his personal representatives, heirs
or legatees may otherwise direct in the written notice of exercise)
a certificate or certificates in the name of the Optionee or his
personal representatives, heirs or legatees (or as otherwise
directed in the written notice of exercise) representing in the
aggregate such number of Shares as the Optionee or his personal
representatives, heirs or legatees shall have then paid for.
7.3 All Shares subscribed for under an Option shall be paid for in full
at the time of subscription.
7.4 Notwithstanding any other provision of the Plan, the Board of
Directors may at any time, by notice in writing to all Optionees
under the Plan in connection with (i) any proposed sale or
conveyance of all or substantially all of the property and assets of
the Company, (ii) any proposed consolidation, amalgamation or other
form of corporate reorganization of the Company, other than
emigration of the Company to a foreign jurisdiction in which the
options of the surviving company are not exchanged on a pro-rata
basis for options held, or (iii) any proposed offer by any person to
acquire or redeem all the outstanding voting or equity securities of
any class of the Company (in each case, a "Proposed Transaction"),
require each Optionee to elect either to, within such period as the
Board of Directors shall prescribe,
7.4.1 subscribe and pay for a part or the whole of the
Optioned Shares then remaining unsubscribed for under
his Option (whether or not such Option would otherwise
then be exercisable), or to accept
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<PAGE> 6
termination his Option in the event of his failing
within such period to either subscribe and pay for all
such remaining Optional Shares to elect to accept
payment under subsection 7.4.2 or subsection 7.4.3, as
the case may be;
7.4.2 subject to subsection 7.5, accept payment in cash in
respect of a part or the whole of the Optioned Shares
then remaining unsubscribed for under his Option
(whether or not such Option would otherwise then be
exercisable) of an amount equal to the result obtained
by multiplying the excess, if any, of the higher of
(i) the Market Price of the Shares on the date notice
is given under this subsection 7.4 or (ii) the Market
Price of the Shares on the date of completion of the
Proposed Transaction, over the Option Price, by the
number of Optioned Shares then remaining unsubscribed
for under such Option (whether or not such Option
would otherwise then be exercisable), or
7.4.3 subject to subsection 7.5, if the Option Price for a
part or the whole of the Optioned Shares exceeds the
Market Price of the Shares on both the date notice is
given under this subsection 7.4 and on the date of
completion of the Proposed Transaction, accept payment
of a total of $1 in respect of all rights to such
Optioned Shares,
provided that if a Proposed Transaction in respect of which a notice
has been given under this subsection 7.4 has not been completed (in
the case of an offer, completed by taking up and paying for the
securities tendered) within six months after the date of such
notice, any rights in respect of Optioned Shares under such Options
which have not been exercised as contemplated in subsection 7.4.1
and in respect of which payment has not been made as contemplated in
subsections 7.4.2 or 7.4.3 shall continue in effect, exercisable in
accordance with the terms thereof as at the time immediately
preceding the giving of such notice.
For the purposes of this subsection 7.4, the term "date of
completion" means the date on which the sale, conveyance, corporate
reorganization, acquisition or redemption contemplated by the
subsection takes effect with respect to the Shares. In the event
that the Market Price of the Shares is not for any reason available
at the date of completion, the Board of Directors shall, in good
faith and in such manner as it considers appropriate, determine the
current market value of the Shares at that date, which shall be
deemed to be the Market Price of the Shares for the purpose of part
(ii) of subsection 7.4.2 and for
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<PAGE> 7
subsection 7.4.3. If a Proposed Transaction is completed, the
Market Price for purposes of part (ii) of subsection 7.4.2 and for
subsection 7.4.3 shall be the same as the value of the consideration
paid for Shares under the Proposed Transaction.
7.5 The Board of Directors may require that an Optionee who has elected
to accept payment in cash in accordance with subsection 7.4.2 or
subsection 7.4.3 in consideration for the cancellation of the
Optionee's rights in respect of the Optioned Shares remaining
unsubscribed for under his Option (whether or not such Option would
otherwise then be exercisable) shall accept such payment on a date
prior to the date of completion of the Proposed Transaction and
based on the Market Price on the date notice is given under
subsection 7.4, provided that the Company shall forthwith after
completion of the Proposed Transaction pay to each such Optionee an
amount equal to the result obtained by multiplying the excess, if
any, between (i) the Market Price of the Shares at the date of
completion of the Proposed Transaction by the number of Optioned
Shares in respect of which that Optionee previously received payment
under subsection 7.4.2 or 7.4.3 and (ii) the Market Price of the
Shares on the date notice is given under subsection 7.4.
7.6 The provisions of subsection 7.4 requiring Optionees to make an
election to exercise an Option or to accept payment in satisfaction
of an Option, shall only be invoked with respect to Optionees
generally and not with respect to one Optionee and not other
Optionees.
8. SPECIAL PROVISIONS RELATING TO INCENTIVE STOCK OPTIONS
8.1 The exercise price to be paid for each share of Common Stock
deliverable upon exercise of each Incentive Stock Option granted
hereunder shall be equal to the Market Price per share of Common
Stock at the time of grant as determined by the Committee; provided,
however, that in the case of a 10% Eligible Employee the exercise
price per share shall be at least 110% of the Market Price per share
of Common Stock at the time of grant. If there is no such reported
Market Price, the Market Price shall be deemed to be the fair market
value as determined by the Committee in its sole discretion.
8.2 Incentive Stock Options shall be in such form as the Committee may
from time to time approve, shall be subject to the following terms
and conditions and may contain such additional terms and conditions,
not inconsistent with this Section 8, as the Committee shall deem
desirable:
8.2.1 No Incentive Stock Option shall be exercisable with
respect to any of the shares subject to such Incentive
Stock Option later than the ISO Expiration Date, which
shall be no later than ten years after the date of
grant; provided, however, that in the
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<PAGE> 8
case of any 10% Eligible Employee, the ISO Expiration
Date of any Incentive Stock Option granted thereto
shall not be later than five years after the date of
such grant. To the extent not prohibited by other
provisions of the Plan, each Incentive Stock Option
shall be exercisable at such time or times as the
Committee in its discretion may determine at or prior
to the time such Incentive Stock Option is granted.
In the event the Committee makes no such
determination, each Incentive Stock Option shall be
exercisable from time to time, in whole or in part,
subject to the monetary limitations set forth in
Section 8.3, at any time prior to the ISO Expiration
Date.
8.2.2 For purposes of this Section 8, and each Incentive
Stock Option granted hereunder, an Employee's
employment shall be deemed to have terminated at the
close of business on the day preceding the first date
on which such Employee is no longer for any reason
whatsoever (including the death of such Employee)
employed by the Company or a subsidiary of the
Company. An Employee shall be considered to be in the
employment of the Company or a subsidiary of the
Company as long as such Employee remains an employee
of the Company or a subsidiary of the Company, whether
active or on any authorized leave of absence. Any
question as to whether and when there has been a
termination of such employment, and the cause of such
termination, shall be determined by the Committee and
its determination shall be final and conclusive. If
an Employee's employment is terminated for any reason
whatsoever (including the death of such Employee),
each Incentive Stock Option thereunto granted
hereunder and all rights thereunder shall wholly and
completely terminate as follows:
(a) With respect to Incentive Stock
Options not then exercisable, at the time the
Employee's employment is terminated; and
(b) With respect to Incentive Stock
Options then exercisable:
(1) At the time the Employee's
employment is terminated if his employment is
terminated because he is discharged for fraud, theft
or embezzlement committed against the Company or a
subsidiary, affiliated entity or customer of the
Company, or for conflict of interest (other than
legitimate competition); or
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<PAGE> 9
(2) At the expiration of a period
of one year after the Employee's death (but in no
event later than the ISO Expiration Date) if the
Employee's employment is terminated by reason of his
death. An Incentive Stock Option may be exercised by
the Employee's estate or by the person or persons who
acquire the right to exercise such Incentive Stock
Option by bequest or inheritance; or
(3) At the expiration of a period
of three years (but in no event later than the ISO
Expiration Date) after the Employee's employment is
terminated if the Employee's employment has terminated
because of retirement or disability ; or
(4) At the expiration of a period
of three months after the Employee's employment is
terminated (but in no event later than the ISO
Expiration Date) if the Employee's employment is
terminated for any reason other than the reasons
specified in subsections 8.2(b)(1)-(3).
In the event and to the extent that an Incentive Stock
Option granted under this Section 8 is not exercised
(i) within three months after the Employee's
employment is terminated because of retirement or
disability not within the meaning of Section 22(e)(3)
of the Code, or (ii) within one year after the
Employee's employment is terminated because of
disability within the meaning of Section 22(e)(3) of
the Code, such option shall be taxed as a Nonqualified
Option.
8.3 Notwithstanding any other provision of the Plan, the aggregate fair
market value (determined as of the time an Incentive Stock Option is
granted), based upon the calculation of the exercise price as
provided in Section 8.1 of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an
Employee, under all Incentive Stock Option plans of the Company and
its subsidiaries, during any calendar year cannot exceed U.S.
$100,000 or such other maximum amount permitted under Section 422(d)
of the Code. If the date on which one or more of such Incentive
Stock Options could first be exercised would be accelerated pursuant
to any provision of the Plan or any option agreement, and the
acceleration of such exercise date would result in a violation of
the monetary restriction set forth in the preceding sentence, then,
notwithstanding any such provision, but subject to the provisions of
the next succeeding sentence, the exercise dates of such Incentive
Stock Options shall be accelerated only to the date or dates, if
any, that do not result in a violation of such restriction and, in
such event the exercise date of the Incentive Stock Options with the
lowest
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<PAGE> 10
option prices shall be accelerated to the earliest such dates. The
Committee may, in its discretion, authorize the acceleration of the
exercise date of one or more Incentive Stock Options even if such
acceleration would violate the monetary restriction set forth in the
first sentence of this Section 8.3 and even if such Incentive Stock
Options were thereby converted in whole or in part to Nonqualified
Options.
9. RELATED RIGHTS AND OTHER BENEFIT PLANS
9.1 No Optionee shall have any of the rights of a shareholder of the
Company with respect to any Optioned Shares until such Optioned
Shares have been issued to him upon exercise of the Option and full
payment therefor has been made by him to the Company.
9.2 Participation in the Plan shall not affect an Employee's eligibility
to participate in any other benefit or incentive plan of the
Company, its Subsidiaries or any combination or partnership thereof.
9.3 Any Option granted pursuant to this Plan shall not obligate the
Company to make any benefit available to an Employee under any other
plan of the Company unless otherwise specifically provided therein.
9.4 Nothing contained in this Plan will prevent the Company, any
Subsidiary or any combination or partnership thereof from adopting
other or additional compensation arrangements for the benefit of any
Employee, subject to any required shareholder or regulatory
approval.
10. NON-TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable otherwise
than by will or by the laws of descent and distribution. During the
lifetime of the Optionee, an Option granted under the Plan shall be
exercisable only by the Optionee. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of, or to subject to
execution, attachment or similar process, any option granted under
the Plan, or any right thereunder, contrary to the provisions
hereof, shall be void and ineffective, shall give no right to the
purported transferee, and shall, at the sole discretion of the
Committee, result in forfeiture of the option with respect to the
shares involved in such attempt.
11. NO FRACTIONAL SHARES
Under no circumstances shall the Company be obligated to issue any
fractional Shares upon the exercise of an Option. To the extent
that an Optionee would otherwise have been entitled to receive on
the exercise or partial exercise of
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<PAGE> 11
an Option a fraction of a Share in any year, that fraction of a
Share shall be added to and become available to the Optionee upon
exercise of the Option in the next succeeding year following the
anniversary of the date of grant of the Option. To the extent that
an Optionee would otherwise have been entitled to receive on an
exercise or partial exercise of an Option a fraction of a Share or
any other kind of share or obligation as a result of a change in
capitalization or number of outstanding Shares as described in
Section 15 (Change in Capitalization or Number of Outstanding
Shares), the Company shall pay to the Optionee the current market
value of such fraction computed in a manner which the Board of
Directors considers appropriate.
12. DEATH OF OPTIONEE
Subject to Section 8 with respect to Incentive Stock Options, in the
event of the termination of employment of an Optionee by reason of
death at any time during the term of an Option, then within 90 days
of the date of death, the Option may be exercised by the Optionee's
legal personal representative or representatives up to such maximum
number of Optioned Shares which the Optionee was entitled to
exercise at the date of his death, but in no event shall the Option
be exercisable beyond the expiration date set forth in the Option at
the time of its grant.
13. TERMINATION OF EMPLOYMENT OF OPTIONEE
Nothing contained in the Plan or any Option shall confer on any
Optionee any right to, or guarantee of, continued employment by the
Company or any Subsidiary or any combination or partnership thereof,
or in any way limit the right of the Company or a Subsidiary or any
combination or partnership thereof to terminate the employment of
the Optionee at any time.
14. SHARES RELEASED FROM OPTIONS
Any Shares released from an Option by the provisions of Section 12
(Death of Optionee) may be made the subject of further Option or
Options.
15. CHANGE IN CAPITALIZATION OR NUMBER OF OUTSTANDING SHARES
15.1 If, and whenever, prior to the issuance by the Company of all the
Optioned Shares under an Option, the Shares are from time to time
consolidated into a lesser number of Shares or subdivided into a
greater number of Shares, the number of Optioned Shares remaining
unissued under the Option shall be decreased or increased
proportionately, as the case may be, and the subscription price to
be paid by the Optionee for each such Share shall be adjusted
accordingly.
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<PAGE> 12
15.2 Subject to subsection 7.4, if the Company enters into, and is
continued or survives as a result of, any amalgamation or merger
with one or more other companies or corporations whether by way of
arrangement, by the sale of its assets and undertaking or otherwise,
then and in each such case each Option shall extend to and cover the
number, class and kind of shares or other obligations to which the
Optionee would have been entitled had the Option been fully
exercised immediately prior to the date such amalgamation or merger
becomes effective (whether or not such Option would otherwise then
have been fully exercisable) and the then prevailing subscription
price of the shares or other obligations so covered shall be
correspondingly adjusted if and to the extent that the Board of
Directors considers it to be equitable and appropriate.
15.3 Except as expressly provided in this Section 15, the grant of any
Option shall not in any way limit or affect the rights or powers of
the Company or its directors or shareholders to make any changes or
deal in any manner with the authorized, issued or unissued shares or
any other securities of the Company and no such change or dealing
shall give any right or entitlement to the holder of any Option in
respect or as a result thereof.
16. AMENDMENT AND TERMINATION OF THE PLAN AND OPTIONS
16.1 Subject to applicable legislation, any required regulatory or
shareholder approval and the rules of any stock exchange on which
shares in the capital of the Company are listed, the Board of
Directors may at any time terminate the Plan or make such amendments
to the Plan as it shall deem advisable provided that, except as
otherwise specifically provided by Section 15 and subsection 7.4, no
such termination or amendment shall adversely affect the rights of
any Optionee under any Option previously granted except with the
consent of such Optionee. Each such amendment of the Plan (a)
extending the period within which options may be granted under the
Plan, (b) increasing the aggregate number of shares of Common Stock
to be optioned under the Plan except as provided in the adjustment
provisions hereof, (c) materially modifying the requirements as to
eligibility of employees or consultants receiving options under, or
changing the eligibility of employees or class of employees to whom
options may be granted hereunder, (d) materially increasing the
benefits to optionees under the Plan, shall, in each case, be
subject to approval by the shareholders of the Company. The
Committee may, with the consent of the person or persons entitled to
exercise any outstanding option granted under the Plan, amend such
option; provided, however, that any such amendment shall be subject
to shareholder approval when required as set forth above. The
Committee may at any time or from time to time, in its discretion,
in the case of any option previously granted
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<PAGE> 13
under the Plan which is not then immediately exercisable in full,
accelerate the time or times at which such option may be exercised
to any earlier time or times. Any adjustment of an Incentive Stock
Option pursuant to this Section 16.1 shall be made in such manner as
not to constitute a "modification" within the meaning of Section
424(h)(3) of the Code.
16.2 If the Plan is terminated, the provisions of the Plan and any
administrative guidelines and other rules and regulations adopted by
the Board of Directors and in force on the date of termination will
continue in effect as long as any Option or any rights pursuant
thereto remain outstanding and, notwithstanding the termination of
the Plan, the Board of Directors shall remain able to make such
amendments to the Plan or the Options as they would have been
entitled to make if the Plan were still in effect.
17. GENERAL REQUIREMENTS
Each grant of an Option under the Plan shall be subject to the
requirement that if at any time the Board of Directors shall
determine that any agreement, undertaking or other action or
cooperation on the part of an Optionee, including in respect to a
disposition of the Shares, is necessary or desirable as a condition
of, or in connection with (i) the listing, registration or
qualification of the Shares subject to the Plan upon any stock
exchange or under the laws of any applicable jurisdiction, or (ii)
obtaining a consent or approval of any governmental or other
regulatory body, the exercise of such Option and the issue of Shares
thereunder may be deferred in whole or in part by the Board of
Directors until such time as the agreement, undertaking or other
action or cooperation shall have been obtained in a form and on
terms acceptable to the Board of Directors.
18. RIGHT TO OPTIONS
Nothing contained herein or in any resolution previously or
hereafter adopted by the Board of Directors shall vest the right in
any person whomsoever to receive any Option. No person shall
acquire any of the rights of any Optionee unless and until a written
option agreement, in form satisfactory to the President of the
Company, shall have been duly executed on behalf of the Company and
delivered to the Optionee and executed and delivered by the Optionee
to the Company. Any agreement purporting to be an Option shall, to
the extent it may be contrary to the express provisions of the Plan,
be unenforceable by the Optionee against the Company.
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<PAGE> 14
19. WITHHOLDING
Whenever the Company proposes or is required to issue or transfer
Shares pursuant to an Option, the Company shall have the right to
withhold from salary payments or to require the recipient of such
Shares to remit to the Company an amount sufficient to satisfy any
federal, provincial, state and/or local withholding tax requirements
prior to the delivery of any certificate or certificates for such
Shares. Whenever under the Plan payments are to be made in cash
such payments shall be net of an amount sufficient to satisfy any
federal, provincial, state and/or local withholding tax
requirements.
20. INTERPRETATION
Any question or interpretation of the Plan or any Option shall be
determined by the Board of Directors and such determination shall be
final and binding upon all persons.
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<PAGE> 1
EXHIBIT 4.9
1996 HARISTON CORPORATION
STOCK OPTION PLAN NO. 2
(Effective as of August 16, 1996)
1. NAME, PURPOSE AND TERM OF PLAN
1.1 The stock option plan constituted hereby shall be known as the 1996
Hariston Corporation Stock Option Plan No. 2.
1.2 The purpose of the Plan is to provide an incentive to officers,
consultants, and employees for continuing beneficial service to the
Company and its affiliates by encouraging and facilitating the
acquisition and ownership of common shares of the Company.
1.3 The Plan shall become effective as of the date set forth above (the
"Effective Date"). Except with respect to options then outstanding,
if not sooner terminated under Section 16.1, the Plan shall
terminate upon, and no further options shall be granted after, the
expiration of ten years from the Effective Date.
2. INTERPRETATION
In this Plan, unless the context otherwise requires:
2.1 "Board of Directors" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.2 "Committee" means a committee of the Board of Directors appointed by
the Board of Directors as contemplated in subsection 4.2.
2.3 "Company" means Hariston Corporation and any successor or continuing
company resulting from the amalgamation of the Company and any other
company or resulting from any other form of corporate
reorganization.
2.4 "Employee" means an individual who is an officer, director,
consultant, or a bona fide full-time salaried employee of the
Company or any of its Subsidiaries or of any partnership of such
corporations or companies.
2.5 "Incentive Stock Options" means "incentive stock options" as set
forth in Section 422(b) of the Code.
2.6 "ISO Expiration Date" means the date determined by the Committee
after which an Incentive Stock Option granted hereunder is no longer
exercisable.
<PAGE> 2
2.7 "Market Price" means the average price per Share computed on the
basis of the closing market price for board lots of the Shares
(which shall be deemed to be the mean of the closing bid and ask
prices of the Shares, on any day on which the Shares are not traded)
on the Nasdaq for the most recent twenty (20) trading days preceding
the date on which an Option is granted.
2.8 "Nonqualified Options" mean options granted hereunder, other than
Incentive Stock Options.
2.9 "Option" means any option granted pursuant to the Plan and evidenced
by an agreement in such form and not inconsistent with the Plan as
the President shall approve from time to time.
2.10 "Optionee" means an Employee who has been granted an Option.
2.11 "Option Price" means the price at which Optioned Shares may be
subscribed for pursuant to an Option as determined pursuant to
Section 6 (Option Price).
2.12 "Optioned Shares" means the Shares subject to an Option or Options
as the case may be.
2.13 "Plan" means the Stock Option Plan as embodied herein and as from
time to time amended in accordance with the provisions hereof, and
the guidelines, rules and regulations from time to time in effect
hereunder.
2.14 "Shares" means common shares without par value in the capital of the
Company, as constituted at the effective date hereof.
2.15 "Subsidiary" means any corporation or company of which outstanding
securities to which are attached more than 50% of the votes that may
be cast to elect directors thereof are held (provided that such
votes are sufficient to elect a majority of such directors), other
than by way of security only, by or for the benefit of the Company
and/or by or for the benefit of any other corporation or company in
like relation to the Company, and includes any corporation or
company in like relation to a Subsidiary.
2.16 "10% Eligible Employees" means an Employee who, at the time an
Incentive Stock Option is granted hereunder, owns more than 10% of
the total combined voting power of all classes of stock of the
Company or any subsidiary corporation, within the meaning of Section
422(b)(6) of the Code.
2.17 The masculine gender shall include the feminine gender and the
singular shall include the plural and vice versa.
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<PAGE> 3
2.18 A reference to a section includes all subsections in that section.
3. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with the provisions of Section
15 (Changes in Capitalization or Number of Outstanding Shares), the
maximum number of Shares which may be reserved for issuance under
the Plan shall be Two Million (2,000,000).
4. GRANT OF OPTIONS AND ADMINISTRATION OF THE PLAN
4.1 Persons eligible to receive grants of Options under the Plan shall
be limited to Employees.
4.2 This Plan will be administered by the Board or a committee of the
Board duly appointed for this purpose by the Board and consisting of
not less than three directors, a majority of whom shall be
nonemployee directors of the Company within the meaning of Rule
16b-3. If a committee is appointed for this purpose, all references
to the term "Board of Directors," other than in this subsection 4.2
and subsection 4.3.6, will be deemed to be references to the
Committee.
4.3 Subject only to the express provisions of the Plan, the Board of
Directors shall have, and hereby is specifically granted, the sole
authority:
4.3.1 to grant Options to Employees and to determine the
terms of, and the limitations, restrictions and
conditions upon, such grants;
4.3.2 to specify whether Options granted hereunder are
Incentive Stock Options or Nonqualified Options;
4.3.3 to authorize any officer or officers to execute and
deliver any option agreement, notice or document and
to do any other act as contemplated by the terms of
the Plan for and on behalf of the Company;
4.3.4 to interpret the Plan and to adapt, amend and rescind
such administrative guidelines and other rules and
regulations relating to the Plan as it may from time
to time deem advisable;
4.3.5 to make all other determinations and perform all such
other actions as the Board of Directors deems
necessary or advisable to implement and administer the
Plan; and
4.3.6 to appoint a Committee to make recommendations to the
Board of Directors regarding the grant of Options to
specified Employees, and to delegate to
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<PAGE> 4
such Committee on such terms as the Board of Directors
in its discretion determines all or any part of the
powers and authority of the Board of Directors
hereunder to implement and administer the Plan.
4.3.7 with the consent of the affected holders of options,
to reprice any outstanding options under the Plan,
and/or to cancel any outstanding options under the
Plan and to grant in substitution therefor new options
under the Plan pursuant to terms consistent therewith,
covering the same or different numbers of shares of
stock, provided, however, that no Incentive Stock
Option shall be repriced or regranted on terms that
would constitute a "modification" within the meaning
of Section 424(h)(3) of the Code which would
disqualify such option as an Incentive Stock Option
described in Section 422 of the Code unless the
Company and the holder of such option shall so agree.
4.4 The determinations of the Board of Directors under the Plan
(including, without limitation, determinations of the Employees who
are to receive grants of Options and the amount and timing of such
grants), need not be uniform and may be made by it selectively among
Employees who receive, or are eligible to receive, grants of Options
under the Plan, whether or not such Employees are similarly situated
as to office, length of service, salary or any other factor. The
Board of Directors may, in its discretion, authorize the granting of
additional Options to an Optionee before an existing Option has
terminated.
4.5 All guidelines, rules, regulations, decisions and interpretations of
the Board of Directors respecting the Plan or Options shall be
binding and conclusive on the Company and on all Optionees and their
respective legal personal representatives, heirs and legatees and on
all Employees.
5. TERM OF OPTIONS
Each Option shall be for the term determined by the Board of
Directors, but in no case shall an Option be granted by the Board of
Directors for a term of longer than seven years from the date of the
granting of the Option.
6. OPTION PRICE
The Option Price in any Option shall be determined from time to time
by the Board of Directors but shall not be less than 85% of the
Market Price on the date on which the Option is granted for
Nonqualified Options, and not less than the
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<PAGE> 5
Market Price on the date on which the Option is granted, for
Incentive Stock Options.
7. EXERCISE OF OPTIONS
7.1 Subject to the provisions of subsection 7.5 and of Sections 11 (No
Fractional Shares), 12 (Death or Retirement of Optionee), 13
(Termination of Employment of Optionee) and 15 (Changes in
Capitalization or Number of Outstanding Shares), the terms for
exercise of each Option shall be determined by the Board of
Directors.
7.2 An Option may be exercised by the Optionee or his personal
representatives, heirs or legatees at the applicable times and in
the applicable amounts by giving to the Company at its principal
executive office written notice of exercise specifying the number of
Shares to be subscribed for. Such notice must be accompanied by
full payment for the Shares to be subscribed for. Upon any such
exercise of an Option, the Company shall forthwith cause the
transfer agent and the registrar of the Company for the time being
to deliver to the Optionee or his personal representatives, heirs or
legatees (or as the Optionee or his personal representatives, heirs
or legatees may otherwise direct in the written notice of exercise)
a certificate or certificates in the name of the Optionee or his
personal representatives, heirs or legatees (or as otherwise
directed in the written notice of exercise) representing in the
aggregate such number of Shares as the Optionee or his personal
representatives, heirs or legatees shall have then paid for.
7.3 All Shares subscribed for under an Option shall be paid for in full
at the time of subscription.
7.4 Except as provided in Sections 8.2, 10 (Non-Transferability of
Options), 12 (Death or Retirement of Optionee) and 13 (Termination
of Employment of Optionee), no Option may be exercised in whole or
in part at any time unless at the time of such exercise the Optionee
is an Employee.
7.5 Notwithstanding any other provision of the Plan, the Board of
Directors may at any time, by notice in writing to all Optionees
under the Plan in connection with (i) any proposed sale or
conveyance of all or substantially all of the property and assets of
the Company, (ii) any proposed consolidation, amalgamation or other
form of corporate reorganization of the Company, other than
emigration of the Company to a foreign jurisdiction in which the
options of the surviving company are not exchanged on a pro-rata
basis for options held, or (iii) any proposed offer by any person to
acquire or redeem all the outstanding voting or equity securities of
any class of the Company (in each case, a "Proposed Transaction"),
require each Optionee to elect
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<PAGE> 6
either to, within such period as the Board of Directors shall
prescribe,
7.5.1 subscribe and pay for a part or the whole of the
Optioned Shares then remaining unsubscribed for under
his Option (whether or not such Option would otherwise
then be exercisable), or to accept termination of his
Option in the event of his failing within such period
to either subscribe and pay for all such remaining
Optional Shares to elect to accept payment under
subsection 7.5.2 or subsection 7.5.3, as the case may
be;
7.5.2 subject to subsection 7.6, accept payment in cash in
respect of a part or the whole of the Optioned Shares
then remaining unsubscribed for under his Option
(whether or not such Option would otherwise then be
exercisable) of an amount equal to the result obtained
by multiplying the excess, if any, of the higher of
(i) the Market Price of the Shares on the date notice
is given under this subsection 7.5 or (ii) the Market
Price of the Shares on the date of completion of the
Proposed Transaction, over the Option Price, by the
number of Optioned Shares then remaining unsubscribed
for under such Option (whether or not such Option
would otherwise then be exercisable), or
7.5.3 subject to subsection 7.6, if the Option Price for a
part or the whole of the Optioned Shares exceeds the
Market Price of the Shares on both the date notice is
given under this subsection 7.5 and on the date of
completion of the Proposed Transaction, accept payment
of a total of $1 in respect of all rights to such
Optioned Shares,
provided that if a Proposed Transaction in respect of which a notice
has been given under this subsection 7.5 has not been completed (in
the case of an offer, completed by taking up and paying for the
securities tendered) within six months after the date of such
notice, any rights in respect of Optioned Shares under such Options
which have not been exercised as contemplated in subsection 7.5.1
and in respect of which payment has not been made as contemplated in
subsections 7.5.2 or 7.5.3 shall continue in effect, exercisable in
accordance with the terms thereof as at the time immediately
preceding the giving of such notice.
For the purposes of this subsection 7.5, the term "date of
completion" means the date on which the sale, conveyance, corporate
reorganization, acquisition or redemption contemplated by the
subsection takes effect with respect to the Shares. In the event
that the Market Price of the Shares is not for any reason available
at the date of
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<PAGE> 7
completion, the Board of Directors shall, in good faith and in such
manner as it considers appropriate, determine the current market
value of the Shares at that date, which shall be deemed to be the
Market Price of the Shares for the purpose of part (ii) of
subsection 7.5.2 and for subsection 7.5.3. If a Proposed
Transaction is completed, the Market Price for purposes of part (ii)
of subsection 7.5.2 and for subsection 7.5.3 shall be the same as
the value of the consideration paid for Shares under the Proposed
Transaction.
7.6 The Board of Directors may require that an Optionee who has elected
to accept payment in cash in accordance with subsection 7.5.2 or
subsection 7.5.3 in consideration for the cancellation of the
Optionee's rights in respect of the Optioned Shares remaining
unsubscribed for under his Option (whether or not such Option would
otherwise then be exercisable) shall accept such payment on a date
prior to the date of completion of the Proposed Transaction and
based on the Market Price on the date notice is given under
subsection 7.5, provided that the Company shall forthwith after
completion of the Proposed Transaction pay to each such Optionee an
amount equal to the result obtained by multiplying the excess, if
any, between (i) the Market Price of the Shares at the date of
completion of the Proposed Transaction by the number of Optioned
Shares in respect of which that Optionee previously received payment
under subsection 7.5.2 or 7.5.3 and (ii) the Market Price of the
Shares on the date notice is given under subsection 7.5.
7.7 The provisions of subsection 7.5 requiring Optionees to make an
election to exercise an Option or to accept payment in satisfaction
of an Option, shall only be invoked with respect to Optionees
generally and not with respect to one Optionee and not other
Optionees.
8. SPECIAL PROVISIONS RELATING TO INCENTIVE STOCK OPTIONS
8.1 The exercise price to be paid for each share of Common Stock
deliverable upon exercise of each Incentive Stock Option granted
hereunder shall be equal to the Market Price per share of Common
Stock at the time of grant as determined by the Committee; provided,
however, that in the case of a 10% Eligible Employee the exercise
price per share shall be at least 110% of the Market Price per share
of Common Stock at the time of grant. If there is no such reported
Market Price, the Market Price shall be deemed to be the fair market
value as determined by the Committee in its sole discretion.
8.2 Incentive Stock Options shall be in such form as the Committee may
from time to time approve, shall be subject to the following terms
and conditions and may contain such
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<PAGE> 8
additional terms and conditions, not inconsistent with this Section
8, as the Committee shall deem desirable:
8.2.1 No Incentive Stock Option shall be exercisable with
respect to any of the shares subject to such Incentive
Stock Option later than the ISO Expiration Date, which
shall be no later than ten years after the date of
grant; provided, however, that in the case of any 10%
Eligible Employee, the ISO Expiration Date of any
Incentive Stock Option granted thereto shall not be
later than five years after the date of such grant.
To the extent not prohibited by other provisions of
the Plan, each Incentive Stock Option shall be
exercisable at such time or times as the Committee in
its discretion may determine at or prior to the time
such Incentive Stock Option is granted. In the event
the Committee makes no such determination, each
Incentive Stock Option shall be exercisable from time
to time, in whole or in part, subject to the monetary
limitations set forth in Section 8.3, at any time
prior to the ISO Expiration Date.
8.2.2 For purposes of this Section 8, and each Incentive
Stock Option granted hereunder, an Employee's
employment shall be deemed to have terminated at the
close of business on the day preceding the first date
on which such Employee is no longer for any reason
whatsoever (including the death of such Employee)
employed by the Company or a subsidiary of the
Company. An Employee shall be considered to be in the
employment of the Company or a subsidiary of the
Company as long as such Employee remains an employee
of the Company or a subsidiary of the Company, whether
active or on any authorized leave of absence. Any
question as to whether and when there has been a
termination of such employment, and the cause of such
termination, shall be determined by the Committee and
its determination shall be final and conclusive. If
an Employee's employment is terminated for any reason
whatsoever (including the death of such Employee),
each Incentive Stock Option thereunto granted
hereunder and all rights thereunder shall wholly and
completely terminate as follows:
(a) With respect to Incentive Stock
Options not then exercisable, at the time the
Employee's employment is terminated; and
(b) With respect to Incentive Stock
Options then exercisable:
-8-
<PAGE> 9
(1) At the time the Employee's
employment is terminated if his employment is
terminated because he is discharged for fraud, theft
or embezzlement committed against the Company or a
subsidiary, affiliated entity or customer of the
Company, or for conflict of interest (other than
legitimate competition); or
(2) At the expiration of a period
of one year after the Employee's death (but in no
event later than the ISO Expiration Date) if the
Employee's employment is terminated by reason of his
death. An Incentive Stock Option may be exercised by
the Employee's estate or by the person or persons who
acquire the right to exercise such Incentive Stock
Option by bequest or inheritance; or
(3) At the expiration of a period
of three years (but in no event later than the ISO
Expiration Date) after the Employee's employment is
terminated if the Employee's employment has terminated
because of retirement or disability ; or
(4) At the expiration of a period
of three months after the Employee's employment is
terminated (but in no event later than the ISO
Expiration Date) if the Employee's employment is
terminated for any reason other than the reasons
specified in subsections 8.2(b)(1)-(3).
In the event and to the extent that an Incentive Stock
Option granted under this Section 8 is not exercised
(i) within three months after the Employee's
employment is terminated because of retirement or
disability not within the meaning of Section 22(e)(3)
of the Code, or (ii) within one year after the
Employee's employment is terminated because of
disability within the meaning of Section 22(e)(3) of
the Code, such option shall be taxed as a Nonqualified
Option.
8.3 Notwithstanding any other provision of the Plan, the aggregate fair
market value (determined as of the time an Incentive Stock Option is
granted), based upon the calculation of the exercise price as
provided in Section 8.1 of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by an
Employee, under all Incentive Stock Option plans of the Company and
its subsidiaries, during any calendar year cannot exceed U.S.
$100,000 or such other maximum amount permitted under Section 422(d)
of the Code. If the date on which one or more of such Incentive
Stock Options could first be exercised would be accelerated pursuant
to any provision of the Plan or any option agreement, and the
acceleration of
-9-
<PAGE> 10
such exercise date would result in a violation of the monetary
restriction set forth in the preceding sentence, then,
notwithstanding any such provision, but subject to the provisions of
the next succeeding sentence, the exercise dates of such Incentive
Stock Options shall be accelerated only to the date or dates, if
any, that do not result in a violation of such restriction and, in
such event the exercise date of the Incentive Stock Options with the
lowest option prices shall be accelerated to the earliest such
dates. The Committee may, in its discretion, authorize the
acceleration of the exercise date of one or more Incentive Stock
Options even if such acceleration would violate the monetary
restriction set forth in the first sentence of this Section 8.3 and
even if such Incentive Stock Options were thereby converted in whole
or in part to Nonqualified Options.
9. RELATED RIGHTS AND OTHER BENEFIT PLANS
9.1 No Optionee shall have any of the rights of a shareholder of the
Company with respect to any Optioned Shares until such Optioned
Shares have been issued to him upon exercise of the Option and full
payment therefor has been made by him to the Company.
9.2 Participation in the Plan shall not affect an Employee's eligibility
to participate in any other benefit or incentive plan of the
Company, its Subsidiaries or any combination or partnership thereof.
9.3 Any Option granted pursuant to this Plan shall not obligate the
Company to make any benefit available to an Employee under any other
plan of the Company unless otherwise specifically provided therein.
9.4 Nothing contained in this Plan will prevent the Company, any
Subsidiary or any combination or partnership thereof from adopting
other or additional compensation arrangements for the benefit of any
Employee, subject to any required shareholder or regulatory
approval.
10. NON-TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable otherwise
than by will or by the laws of descent and distribution. During the
lifetime of the Optionee, an Option granted under the Plan shall be
exercisable only by the Optionee. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of, or to subject to
execution, attachment or similar process, any option granted under
the Plan, or any right thereunder, contrary to the provisions
hereof, shall be void and ineffective, shall give no right to the
purported transferee, and shall, at the sole
-10-
<PAGE> 11
discretion of the Committee, result in forfeiture of the option with
respect to the shares involved in such attempt.
11. NO FRACTIONAL SHARES
Under no circumstances shall the Company be obligated to issue any
fractional Shares upon the exercise of an Option. To the extent
that an Optionee would otherwise have been entitled to receive on
the exercise or partial exercise of an Option a fraction of a Share
in any year, that fraction of a Share shall be added to and become
available to the Optionee upon exercise of the Option in the next
succeeding year following the anniversary of the date of grant of
the Option. To the extent that an Optionee would otherwise have
been entitled to receive on an exercise or partial exercise of an
Option a fraction of a Share or any other kind of share or
obligation as a result of a change in capitalization or number of
outstanding Shares as described in Section 15 (Change in
Capitalization or Number of Outstanding Shares), the Company shall
pay to the Optionee the current market value of such fraction
computed in a manner which the Board of Directors considers
appropriate.
12. DEATH OR RETIREMENT OF OPTIONEE
12.1 Subject to Section 8 with respect to Incentive Stock Options, in the
event of the termination of employment of an Optionee by reason of
death at any time during the term of an Option, then within 90 days
of the date of death, the Option may be exercised by the Optionee's
legal personal representative or representatives up to such maximum
number of Optioned Shares which the Optionee was entitled to
exercise at the date of his death, but in no event shall the Option
be exercisable beyond the expiration date set forth in the Option at
the time of its grant.
12.2 Subject to Section 8 with respect to Incentive Stock Options, in the
event of the termination of employment of an Optionee at any time
during the term of an Option by reason of retirement at or after the
age of 60 or after 20 years of employment by the Company, the rights
to purchase Shares under the Option which have accrued to the
Optionee and remain unexercised at, or which accrue subsequent to,
the date of his retirement shall remain exercisable by the Optionee
(or by the Optionee's legal personal representative or
representatives if the Optionee dies before the last date for
exercise of the Option) beyond that date in accordance with the
terms of the Option as if the Optionee had not retired subject to
the following:
12.2.1 in no event shall rights under the Option be
exercisable beyond the expiration date set forth in
the Option at the time of its grant;
-11-
<PAGE> 12
12.2.2 if at or after the retirement of the Employee, such
Employee has attained the age of 65, the Employee may
elect by notice given within the period of 90 days
immediately following the later of his or her 65th
birthday and the date of retirement, to exercise the
rights to purchase Shares under the Option in respect
of all or any part of the Shares subject thereto
(including rights accruing in respect of Shares during
the remainder of the term of the Option); and
12.2.3 if no election as contemplated in subsection 12.2.2 is
made, the retired Employee may thereafter exercise
rights to purchase Shares under the Option which have
accrued and remain unexercised from time to time in
accordance with the terms of the Option as if the
Employee had not retired.
13. TERMINATION OF EMPLOYMENT OF OPTIONEE
13.1 Except as set forth in Section 8.2, in the event of the termination
of employment of an Optionee for any reason other than as specified
in Section 12 (Death or Retirement of Optionee), the rights to
purchase Shares under the Option which have accrued to the Optionee
and remain unexercised at the date of termination of his employment
shall be exercisable by the Optionee within a period of ninety days
from the date of such termination as to all or any part of such
Shares, but in no event later than the expiration date set forth in
the Option at the time of its grant, and thereafter all such rights
shall terminate.
13.2 Nothing contained in the Plan or any Option shall confer on any
Optionee any right to, or guarantee of, continued employment by the
Company or any Subsidiary or any combination or partnership thereof,
or in any way limit the right of the Company or a Subsidiary or any
combination or partnership thereof to terminate the employment of
the Optionee at any time.
14. SHARES RELEASED FROM OPTIONS
Any Shares released from an Option by the provisions of Sections 12
(Death or Retirement of Optionee) or 13 (Termination of Employment
of Optionee) may be made the subject of further Option or Options.
15. CHANGE IN CAPITALIZATION OR NUMBER OF OUTSTANDING SHARES
15.1 If, and whenever, prior to the issuance by the Company of all the
Optioned Shares under an Option, the Shares are from time to time
consolidated into a lesser number of Shares or subdivided into a
greater number of Shares, the number of Optioned Shares remaining
unissued under the Option shall be
-12-
<PAGE> 13
decreased or increased proportionately, as the case may be, and the
subscription price to be paid by the Optionee for each such Share
shall be adjusted accordingly.
15.2 Subject to subsection 7.5, if the Company enters into, and is
continued or survives as a result of, any amalgamation or merger
with one or more other companies or corporations whether by way of
arrangement, by the sale of its assets and undertaking or otherwise,
then and in each such case each Option shall extend to and cover the
number, class and kind of shares or other obligations to which the
Optionee would have been entitled had the Option been fully
exercised immediately prior to the date such amalgamation or merger
becomes effective (whether or not such Option would otherwise then
have been fully exercisable) and the then prevailing subscription
price of the shares or other obligations so covered shall be
correspondingly adjusted if and to the extent that the Board of
Directors considers it to be equitable and appropriate.
15.3 Except as expressly provided in this Section 15, the grant of any
Option shall not in any way limit or affect the rights or powers of
the Company or its directors or shareholders to make any changes or
deal in any manner with the authorized, issued or unissued shares or
any other securities of the Company and no such change or dealing
shall give any right or entitlement to the holder of any Option in
respect or as a result thereof.
16. AMENDMENT AND TERMINATION OF THE PLAN AND OPTIONS
16.1 Subject to applicable legislation, any required regulatory or
shareholder approval and the rules of any stock exchange on which
shares in the capital of the Company are listed, the Board of
Directors may at any time terminate the Plan or make such amendments
to the Plan as it shall deem advisable provided that, except as
otherwise specifically provided by Section 15 and subsection 7.5, no
such termination or amendment shall adversely affect the rights of
any Optionee under any Option previously granted except with the
consent of such Optionee. Each such amendment of the Plan (a)
extending the period within which options may be granted under the
Plan, (b) increasing the aggregate number of shares of Common Stock
to be optioned under the Plan except as provided in the adjustment
provisions hereof, (c) materially modifying the requirements as to
eligibility of employees or consultants receiving options under, or
changing the eligibility of employees or class of employees to whom
options may be granted hereunder, (d) materially increasing the
benefits to optionees under the Plan, shall, in each case, be
subject to approval by the shareholders of the Company. The
Committee may, with the consent of the person or persons entitled to
exercise any outstanding option granted under the Plan, amend such
option; provided,
-13-
<PAGE> 14
however, that any such amendment shall be subject to shareholder
approval when required as set forth above. The Committee may at any
time or from time to time, in its discretion, in the case of any
option previously granted under the Plan which is not then
immediately exercisable in full, accelerate the time or times at
which such option may be exercised to any earlier time or times.
Any adjustment of an Incentive Stock Option pursuant to this Section
16.1 shall be made in such manner as not to constitute a
"modification" within the meaning of Section 424(h)(3) of the Code.
16.2 If the Plan is terminated, the provisions of the Plan and any
administrative guidelines and other rules and regulations adopted by
the Board of Directors and in force on the date of termination will
continue in effect as long as any Option or any rights pursuant
thereto remain outstanding and, notwithstanding the termination of
the Plan, the Board of Directors shall remain able to make such
amendments to the Plan or the Options as they would have been
entitled to make if the Plan were still in effect.
17. GENERAL REQUIREMENTS
Each grant of an Option under the Plan shall be subject to the
requirement that if at any time the Board of Directors shall
determine that any agreement, undertaking or other action or
cooperation on the part of an Optionee, including in respect to a
disposition of the Shares, is necessary or desirable as a condition
of, or in connection with (i) the listing, registration or
qualification of the Shares subject to the Plan upon any stock
exchange or under the laws of any applicable jurisdiction, or (ii)
obtaining a consent or approval of any governmental or other
regulatory body, the exercise of such Option and the issue of Shares
thereunder may be deferred in whole or in part by the Board of
Directors until such time as the agreement, undertaking or other
action or cooperation shall have been obtained in a form and on
terms acceptable to the Board of Directors.
18. RIGHT TO OPTIONS
Nothing contained herein or in any resolution previously or
hereafter adopted by the Board of Directors shall vest the right in
any person whomsoever to receive any Option. No person shall
acquire any of the rights of any Optionee unless and until a written
option agreement, in form satisfactory to the President of the
Company, shall have been duly executed on behalf of the Company and
delivered to the Optionee and executed and delivered by the Optionee
to the Company. Any agreement purporting to be an Option shall, to
the extent it may be contrary to the express provisions of the Plan,
be unenforceable by the Optionee against the Company.
-14-
<PAGE> 15
19. WITHHOLDING
Whenever the Company proposes or is required to issue or transfer
Shares pursuant to an Option, the Company shall have the right to
withhold from salary payments or to require the recipient of such
Shares to remit to the Company an amount sufficient to satisfy any
federal, provincial, state and/or local withholding tax requirements
prior to the delivery of any certificate or certificates for such
Shares. Whenever under the Plan payments are to be made in cash
such payments shall be net of an amount sufficient to satisfy any
federal, provincial, state and/or local withholding tax
requirements.
20. INTERPRETATION
Any question or interpretation of the Plan or any Option shall be
determined by the Board of Directors and such determination shall be
final and binding upon all persons.
-15-
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