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This filing is made pursuant
to Rule 424(b)(3) under the
Securities Act of 1933 in
connection with Registration
No. 333-7843
PROSPECTUS
HARISTON CORPORATION
346,139 SHARES OF COMMON STOCK
The shares of Common Stock ("Common Stock") of Hariston Corporation
(the "Company") which are the subject of this Prospectus have been registered
under the Securities Act of 1933, as amended (the "Act"), to permit certain
securityholders of the Company (the "Selling Securityholders"), to offer and
sell such securities (the "Securities") from time to time in the future in the
manner set forth herein. The Securities may be offered (the "Offering") in
regular brokerage transactions through registered broker-dealers, in privately
negotiated transactions, or otherwise, at market prices prevailing at the time
of the sale, or at prices otherwise negotiated.
The Company's Common Stock is traded on the Nasdaq SmallCap Market. On
July 8, 1996, the closing sale price of the Company's Common Stock, as reported
by Nasdaq was $1.00 per share. None of the proceeds from the sale of the
Securities which are the subject of this Prospectus will be received by the
Company.
The Selling Securityholders will each be individually responsible for
the payment of any applicable selling commissions, transfer taxes or other
miscellaneous expenses related to the sale of the Securities. The Company knows
of no existing selling arrangement between any broker or dealer and the Selling
Securityholders. The Selling Securityholders may be deemed to be "underwriters"
within the meaning of the Act. Brokers or dealers who execute sales for the
Selling Securityholders may also be deemed to be "underwriters" within the
meaning of said Act, and the commissions and trading profits received by
participating brokers and dealers, respectively, may be deemed to be
underwriting commissions within the meaning of the Act.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
____________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF ITS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
____________
THE DATE OF THIS PROSPECTUS IS JULY 22, 1996
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith the Company files reports and other information with the
Securities and Exchange Commission (the "Commission"). Certain information
concerning the Company is disclosed in proxy statements and annual reports
distributed to shareholders of the Company and filed with the Commission. Such
proxy statements, reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at 450 5th Street,
N.W., Washington, D.C. 20549 and at certain of its regional offices, located at
26 Federal Plaza, Room 1102, New York, New York 10278; Room 1204, Everett
McKinley Dirksen Building, 219 South Dearborn Street, Chicago, Illinois 60604;
and Suite 1710, 10960 Wilshire Boulevard, Los Angeles, California 90024. Copies
of all such material may be obtained from the Public Reference Section of the
Commission, 500 North Capital Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Company's outstanding Common Stock is listed on the Nasdaq SmallCap
Market. Copies of such reports, proxy statements and other information
concerning the Company may be inspected at the offices of the Nasdaq Stock
Market. The Company intends to provide its security holders with annual reports
which include audited financial information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated by this reference into this Prospectus:
1. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1995, filed July 5, 1996.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1995, filed November 14, 1995, as amended by Form 10-Q/A
filed November 16, 1995.
3. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended by Form 10-K/A filed April 19, 1996 and Form
10-K/A filed April 13, 1996, pursuant to Section 13(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which Report contains
among other information, a description of the Company's business, as amended by
Form 10-K/A Amendment No. 1 filed April 19, 1996, and as amended by Form 10-K/A
Amendment No. 2 filed June 28, 1996.
4. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996, filed May 13, 1996.
5. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 20-FR filed with the Commission on
November 1, 1985.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the Offering which is the
subject of this Prospectus shall be deemed to be incorporated herein by this
reference and to be made a part hereof from the date of filing of such
documents.
Upon the written or oral request of any person to whom this Prospectus
is delivered, the Company will provide, without charge, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents). Requests for such informational documents
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should be directed to Hariston Corporation, 1500 West Georgia Street, Suite
1555, Vancouver, British Columbia, Canada V6G 2Z6, telephone number (604)
685-8514, Attention: Chief Financial Officer.
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THE COMPANY
GENERAL
Hariston Corporation ("Hariston" or the "Company") is a Canadian
holding company which has historically made investments in a wide variety of
start-up or early-stage businesses. Within the last twelve months, management
commenced efforts to sell all of its assets except the Company's investment in
Polish Life Improvement, S.A. ("PLI"), an early-stage supermarket and
home-improvement retailer in Poland, and subsequently invested the proceeds in a
business or businesses that might offer the potential to increase long-term
share value.
In July 1995, the Company sold Metanetix Corporation and related
technology to Consolidated Western and Pacific Corporation ("Consolidated"), its
partner in the development of a metals recovery project in Butte, Montana, for a
purchase price of up to $9 million, with payments dependent upon the Butte
project's future profitability. Consolidated subsequently informed the Company
that it did not want to acquire the related technology license, thereby reducing
the maximum purchase price to approximately $7 million.
In August 1995, the Company sold its ownership interests in
approximately 40 Canadian oil and natural gas properties to a private third
party for $2.4 million cash and the assumption of $957,000 million of debt.
During this period, the Company also sold a portion of its investment in Madison
Partners Limited, as market conditions would allow.
Concurrently with these divestitures, the Company's Board of Directors
adopted a strategy to position the Company, through one or more select
acquisitions, as a publisher and distributor of educational multimedia software.
In August 1995, Hariston, through a wholly-owned subsidiary, acquired certain
assets and liabilities of a CD-ROM catalog retailer doing business under the
name "Educorp." Located in San Diego, this subsidiary has since been renamed
Educorp Direct ("Direct"), with a strategic focus on the direct marketing and
distribution of educational CD-ROM software. The businesses previously operated
under the name "Educorp" which were acquired in August 1995 may be deemed a
predecessor of the Company.
In January 1996, Hariston, through a wholly-owned subsidiary, completed
the purchase of certain assets and liabilities of a book and multimedia software
publisher known as HighText Publications, Inc. Also located in San Diego, and
since renamed HighText Interactive, Inc. ("HighText"), this subsidiary is
focused on the development and publishing of adult-learning interactive
multimedia software.
Direct and HighText are operated as the sole operating subsidiaries of
Educorp Multimedia, Inc. ("Educorp"), Hariston's multimedia software subsidiary.
Educorp is positioned as a developer, publisher, and distributor of interactive
multimedia software with an emphasis on adult-learning titles.
Hariston's other major remaining asset is its investment in PLI, a
supermarket and home improvement retailer, co-founded by the Company in 1992.
Following several partial sales from the Company's initial stock ownership
position in PLI, Hariston now retains an approximately 23% ownership interest in
PLI and a $7 million note, currently in default, secured by an additional 20%
ownership interest. PLI is now one of the largest multi-store retail chains in
Poland operating eight supermarkets under the name MAX, and four
home-improvement stores under the name NOMI. PLI generated unaudited total
revenues of approximately $33 million in 1995, an increase of 120% over the
prior year.
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Hariston's strategy is to seek to increase Company value through the
independent development and growth of Educorp, and to continue to explore
possibilities for maximizing value from its investment in PLI. As a 100% owned
subsidiary, Educorp is currently the Company's primary focus.
The principal offices of the Company are located at 1500 West Georgia
Street, Suite 1555, Vancouver, British Columbia, Canada V6G 2Z6, telephone (604)
685-8514, with offices in the United States located at 611 Anton Boulevard,
Suite 1270, Costa Mesa, California 92626, and its telephone number is (714)
556-1755.
A description of the Company's business is set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the
"Company Form 10-K"), as amended, which description is incorporated herein by
this reference.
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RISK FACTORS
The Securities offered hereby are highly speculative in nature and
involve a high degree of risk. Prospective investors should carefully consider,
along with the other information contained in this Prospectus, the following
considerations and risks in evaluating an investment in the Company.
Risk of Inability to Satisfy Requirements for Additional Funds. The
Company's principal capital requirements include working capital to finance the
internal expansion of Educorp, and costs which may be incurred in connection
with the acquisition of businesses in the future. Historically, the Company has
also required capital to finance operating losses. With the subsequent
acquisition of HighText, and the need to finance product development and general
corporate expenses until both Direct and HighText earn a sufficient profit, the
Company will have to raise additional equity and/or debt capital in 1996. To the
extent excess cash is generated from operations, the Company intends to reinvest
it in the growth and development of its multimedia software publishing and
distribution operations. There is no assurance that cash flows from operations
will be sufficient to meet operating requirements or, if required, that
additional debt or equity financing will be available at all, or will be
available on terms acceptable to the Company. Any additional equity financings
may be dilutive to shareholders, and debt financing, if available, may involve
restrictive covenants. Adequate funds for the Company's operations may not be
available when needed or on terms acceptable to the Company. The Company's
inability to obtain additional financing when needed would have a material
adverse effect on the Company.
Risk from Accumulated Deficit, Tangible Net Worth and Operating Losses.
As of December 31, 1995, the Company had an accumulated deficit of approximately
$25,626,000 and negative tangible net worth of approximately $406,000. For the
year ended December 31, 1995, the Company had an operating loss of approximately
$1.8 million. There can be no assurance that the Company's continuing operations
will result in net income.
Risk from Competitors of Educorp. The software industry is intensely
competitive. Educorp competes primarily against other companies that publish or
distribute multimedia CD-ROM software in the education, entertainment, and
reference categories. Educorp has competition in several areas. As a distributor
of third party titles, Educorp competes with other direct marketing companies
such as Micro Warehouse, Tiger Direct, Multiple Zones, and Creative Computers.
On the retail level, Educorp competes with large computer retailers such as Comp
USA, Computer City, Best Buy, and Micro Center; software vendors such as
Egghead; and mass merchants such as Toys R Us, Walmart, Price/Costco and Sears.
As a software developer and publisher, Educorp competes indirectly against
developers and publishers that sell multimedia titles outside of Educorp's
subject focus, and directly against software developers and publishers that
offer multimedia product for the adult consumer, higher education, and corporate
management and training markets. Examples of established competitors include
Softkey, Cliff Studyware, Princeton Review, and Export Software. Products in the
market compete primarily on the basis of subjective factors such as
entertainment value and objective factors such as price, graphics and sound
quality. Large diversified entertainment, cable and telecommunications
companies, in addition to large software companies such as Microsoft
Corporation, are increasing their focus on the interactive entertainment and
education software market, which will result in even greater competition for
Educorp. Many of these companies have substantially greater financial, marketing
and technical resources than Educorp. As competition increases, significant
price competition and reduced profit margins may result. In response to
increased competition for shelf space, Educorp may need to increase marketing
expenditures. In addition, competition from new technologies (such as new
hardware platforms) may reduce demand in markets in which Educorp has
traditionally competed. Manufacturers and developers of cartridge-based video
games, such as Nintendo and Sega and their licensees, also are indirect
competitors of Educorp. Prolonged price competition or reduced demand as a
result of competing
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technologies would have a material adverse effect on Educorp's business,
financial condition and operating results. There can be no assurance that
Educorp will be able to compete successfully against current or future
competitors or that competitive pressures faced by Educorp will not materially
and adversely affect its business, operating results or financial condition.
Risk from Uncertainty of Market Acceptance. Consumer preferences for
adult-learning, education and entertainment software products are continually
changing and are extremely difficult to predict. Few such products achieve
sustained market acceptance. There can be no assurance that new products
distributed or introduced by Educorp will achieve any significant degree of
market acceptance or that any such acceptance, if achieved, will be sustained
for a sufficient period of time to permit Educorp to recover its development and
marketing costs. There can be no assurance that HighText's products will be
accepted by the adult-learning market to the extent necessary for such products
to be profitable or even for HighText to recover its development and marketing
costs related to such products. In addition, Educorp believes that as ownership
of CD-ROM-based personal computers ("PC's") and other emerging platforms becomes
more widespread, and as Educorp diversifies its product offerings, it must
market its products to a broader market than it has in the past, thereby
increasing overall marketing expenditures without any assurance of profitability
justifying expansion into such broader markets. In seeking to appeal to a
broader market, Educorp will face significant new challenges, including intense
competition from larger companies with established market positions. Educorp
will also face the risk that it may lose existing customers who may dislike the
changes in Educorp's products and marketing approach. There can be no assurance
that Educorp will be able to compete successfully in this broader market.
Risk from Dependence on Vendors. Educorp either purchases or licenses a
material proportion of its products, or certain rights to products, from
vendors. The termination or interruption of Educorp's relationships with these
vendors, or modification of the terms or discontinuance of the license
agreements with Educorp, could adversely affect Educorp's operating income and
cash flow. Educorp's success is, in part, dependent upon the ability of its
vendors to develop and market products that meet the changing requirements of
the marketplace. Similarly, even if certain of Educorp's vendors introduce new
products that are popular, there can be no assurance that Educorp will be able
to obtain authorizations to offer such products.
Risk of Diminished Ability to Compete Resulting from Changing Methods
of Distribution. The manner in which personal computers and related software and
products are distributed and sold is changing, and new methods of distribution
and sale, such as on-line shopping services and catalogs published on CD-ROM,
may emerge. Hardware and software vendors have sold, and may intensify their
efforts to sell, their products directly to end users. From time to time,
certain vendors have instituted programs for the direct sale of large order
quantities of software to certain major corporate accounts. These types of
programs may continue to be developed and used by various vendors. Vendors also
may attempt to increase the volume of software products distributed
electronically to end users' personal computers. Any of these competitive
programs, if successful, could have a material adverse effect on Educorp's
business and financial results.
Risk from Rising Postage, Shipping and Paper Costs. Postage and
shipping are significant expenses in the operation of Educorp's business.
Educorp ships its products to customers by overnight delivery and ground
delivery services and generally mails its catalogs through the U.S. Postal
Service. As is customary in the direct response marketing industry, Educorp
generally passes on only a portion of the costs of overnight delivery and parcel
shipments directly to customers as separate shipping and handling charges. Any
increases in postal or shipping rates in the future could therefore have an
adverse effect on Educorp's operating results. The cost of paper is also a
significant expense of Educorp in printing its catalogs. The cost of paper has
increased significantly over the last several years. Educorp
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may not be able to pass through a significant portion of these increased postage
and paper costs to its customers through increased prices, thereby having a
material adverse effect on Educorp's business and financial results.
Risk of Delays in Introduction of New Products. Educorp's success
depends on its ability to identify, develop and make timely introductions of
successful new products or enhancements of existing products to replace
declining revenues from older products. The effective lives of the products that
Educorp distributes have tended to become shorter due to the introduction of new
hardware platforms, technologies and competitive products, the increase in
competition for retail shelf space among software products and other factors. As
a result, Educorp's ability to introduce and distribute new products on a timely
basis has become increasingly important, as revenues from new products are
essential to replace declining revenues from older products. As its products
have become more complex and costly to develop and market, it has become more
difficult to bring products to market profitably. It is highly likely that
Educorp will experience delays in developing and introducing at least some
future new products. There can be no assurance that such delays will not have a
material adverse effect on Educorp's business and operating results.
Risk from Increasing Complexities and Technical Sophistication of Newly
Developed Products. Because of increasing competition in the adult-learning
interactive software market and as a result of increasingly sophisticated
products, HighText must develop titles incorporating high-quality graphics,
animation, images, video and audio. Such increasing competition and
sophistication has necessitated the allocation of increased financial and human
resources to new product development, packaging, preparation of user
instructional materials and marketing. Due to competitive pressures, however,
HighText's ability to increase product prices is limited. Greater product
development, identification and marketing expenditures also result in greater
financial risk to HighText if the product is not successful.
Risk from Business Interruption. Educorp believes that its success to
date has been, and future results of operations will be, dependent in large part
upon its ability to provide prompt and efficient service to its customers. As a
result, any disruption of the Educorp's day-to-day operations could have a
material adverse effect upon Educorp and any failure of Educorp's management
information systems, distribution center or telephone system could impair its
ability to receive and process customer orders and ship products on a timely
basis."
Risk from Seasonality and Substantial Fluctuations in Revenue.
Educorp's business is seasonal, with the highest level of net sales and earnings
typically occurring during the months from August to January of each year, and
substantially lower levels in other months. Educorp's quarterly operating
results may fluctuate throughout the year as a result of a variety of additional
factors, including delays in market acceptance, changes in platform standards,
the timing of new product introductions by Educorp or its competitors, the
timing of orders for Educorp's products and increases in product returns.
Because a majority of the unit sales for a particular new product typically
occurs in the first several months after the product is introduced, Educorp's
revenues may increase in a quarter in which a major product introduction occurs
and may decline in subsequent quarters.
Risk from Dependence on Key Personnel. Educorp's success depends on the
continued service of its key product design, development, sales, marketing and
management personnel and its ability to continue to attract, motivate and retain
highly qualified employees and contractors. In order to introduce timely and
successful new products, Educorp must retain its key design, development and
purchasing personnel. Competition for skilled product buyers, designers, artists
and technical personnel is intense. The inability of Educorp to attract or
retain product buyers and key design and development personnel could have a
material and adverse effect on Educorp's business and operating results.
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International Risks. Educorp anticipates that international sales will
continue to account for a material share of Educorp's total revenues in the
future. International sales are subject to inherent risks, including changes in
export controls, tariffs and other regulatory requirements and fluctuating
exchange rates. European and Asian distribution channels are more decentralized
and hence more difficult to enter efficiently. Effective competition in
international markets is also likely to require Educorp to translate and
culturally adapt its products and documentation. This will result in higher
levels of specialized inventory and a greater risk of inventory obsolescence.
Furthermore, the laws of certain foreign countries may not protect Educorp's
intellectual property rights to the same extent as do the laws of the United
States. The Company's interest in PLI is also subject to the risks inherent in
transacting business internationally, such as export and monetary controls,
political instability, language and cultural barriers and fluctuating exchange
rates.
Risk of Increased Government Regulation. Legislation has been proposed
to establish an independent agency to work with the video game industry to
create a system for providing parents and other purchasers of software with
information about graphic violence or sexually explicit material contained in
such software. The implementation of such a system may require software
publishers to communicate information regarding the content of their products
(particularly violent or sexually explicit material) to consumers through
appropriate package labeling, advertising and marketing presentations. Similar
developments are also taking place outside the United States. Educorp is unable
to predict what effect, if any, a rating system may have on Educorp's business
and there can be no assurance that such a rating system would not adversely
affect Educorp's results of operations.
Risk from Limited Protection of Proprietary Rights. Educorp regards its
software as proprietary and relies on a combination of patent, trade secret,
copyright and trademark laws, nondisclosure agreements, license agreements and
certain technical measures to protect its proprietary rights. There can be no
assurance that these efforts will be successful. Educorp is aware that
unauthorized copying occurs within the entertainment and education software
industry. It may be possible for third parties to copy Educorp's products or
otherwise obtain and use information that Educorp regards as proprietary.
Policing unauthorized use of Educorp's products is difficult and costly, and
software piracy and unauthorized copying can be expected to be a major
persistent problem. The laws of the United States provide only limited
protection of intellectual property rights, and the laws of certain other
countries in which Educorp's products are or may be distributed provide less
protection. As the number of entertainment and education software products
increases and the functionality of these products overlaps, Educorp believes
that software developers and publishers may increasingly become subject to
infringement claims. From time to time, Educorp may receive communications from
third parties asserting that features or content of certain of its products may
infringe upon intellectual property rights of such parties. There can be no
assurance that claims against Educorp will not result in costly litigation and
require Educorp to license the intellectual property of others. There can be no
assurance that such licenses will be available on reasonable terms, or at all.
Risk of Supply Interruption. Substantially all Educorp's products are
stored on CD-ROM media. As is typical in the industry, Educorp out-sources the
CD-ROM manufacturing function to third parties. In the future, it is possible
that there may be periodic shortages of CD-ROM media and potentially late
deliveries of CD-ROM products from outside duplicating sources. Educorp's
dependence on third parties to perform the manufacturing function could result
in material problems if production were substantially delayed. Educorp produces
its diskette-based products by duplicating master software diskettes onto blank
diskettes acquired in quantity from a number of sources. Educorp occasionally
has difficulty in obtaining blank diskettes of appropriate quality. In addition,
Educorp has occasionally incurred higher than normal production expenses as a
result of supplementing its internal production staff with outside contractors
to meet production deadlines.
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Repatriation Risk. In order to access funds generated by PLI if and
when such excess funds are available, if ever, PLI must either declare and pay
dividends or the Company must sell shares of its PLI stock. PLI is not expected
to declare dividends in the foreseeable future. Although there is currently a
market for PLI's common stock on the Warsaw Stock Exchange, the Company's
ability to sell any of its holdings in PLI is limited. Even if the Company is
more easily able to sell some or all of its PLI common stock, there can be no
assurance that the Company will be able to repatriate the proceeds of such sale.
Risk of Rapid Industry Changes. Both the supermarket and home
improvement industries in Poland are new. As such industries develop in Poland,
they are undergoing accelerated change as producers, manufacturers, distributors
and retailers seek to lower costs and increase services in an increasingly
competitive environment of relatively static over-all demand. More traditional
distribution outlets may have more long term customer loyalty, thus making
extrapolation of current trends an ineffective method of predicting future
results. As investors and established foreign retailers have come to recognize
the retail opportunities in Poland, an increasing number of foreign retailers
have entered the market. PLI has competition, particularly in Warsaw, from
several more established, better capitalized companies. As their home markets
become increasingly competitive, retailers from Germany (Hit), France (Dock de
France), Austria (Billa), and England have opened stores, or acquired an
interest in stores, in Poland. No assurance can be given that increasing
competition in PLI's markets will not adversely affect its financial performance
and results of operations in future periods.
Risk from Changing Economic Conditions. PLI's retail stores are subject
to regional and local economic conditions. There can be no assurance that future
regional or local economic downturns will not have a material adverse effect on
PLI's results of operations and financial condition.
Risk from Competitors of PLI. In its retail operations, PLI competes
with other food outlets on the basis of price, quality and assortment, store
location and format, sales promotions, advertising, availability of parking,
hours of operation and store appeal. To meet the challenges of a rapidly
changing and highly competitive retail environment, PLI must maintain
operational flexibility and develop effective strategies across many market
segments. No assurance can be given that PLI will maintain such flexibility and
develop effective strategies.
Investment Risk Resulting from Volatility of Stock Price. The market
price of the Company's Common Stock has been highly volatile. Such volatility
does not necessarily relate to the Company's financial performance. In the
future, the market price of the Company's Common Stock may be significantly
affected by factors such as the announcement of new products or technological
innovations by the Company or its competitors, quarterly variations in the
Company's results of operations, market conditions in the entertainment and
education software industry, market conditions or political instability in
Eastern Europe, general conditions in the financial markets, conditions in the
economy in general or other factors that might affect discretionary spending by
consumers. In addition, the stock market has experienced and continues to
experience extreme price and volume fluctuations that have particularly affected
the market price for many entertainment and education software companies and
that have often been unrelated to the operating performance of these companies.
These broad market fluctuations, as well as general economic and political
conditions, may adversely affect the market price of the shares offered hereby.
Risk from Unprofitable Acquisitions. The Company, in the ordinary
course of its business, considers acquisitions of, and mergers and other
strategic transactions with, third parties on a regular basis, and it is likely
that the Company will engage in more such transactions in the future. Such
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transactions often involve substantial risks, and there can be no assurance that
any such transactions that are consummated will prove to be beneficial.
Risk from Litigation. The Company is currently a defendant in one
lawsuit and has received a letter from the Environmental Protection Agency that
its former subsidiary (since amalgamated with the Company) may be a "potentially
responsible party" under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA").
In September 1995, CAPOZZI, ET AL. V. HARISTON CORPORATION, ET AL., was
filed in the Superior Court of the Province of Quebec, District of Montreal
(Case No. CSM: 500-05-010184-958). The complaint alleges that the Company
(through the actions of persons allegedly acting on its behalf) made
misrepresentations which caused the plaintiffs to suffer a loss in connection
with the plaintiffs' transactions in the stock of the Company. The damages
claimed in this matter are approximately CDN $112,000. The litigation is in its
preliminary stages, and the ultimate outcome cannot be determined.
Until mid-1995, the Company's former subsidiary, Metanetix Corporation
("Metanetix") was engaged in the business of developing certain technology for
the removal of minerals and other inorganic compounds from water, soil and
sludge. In connection with these development efforts, Metanetix and affiliated
corporations operated a laboratory and plant in Butte, Montana, at the site of a
former copper mine which held large volumes of contaminated water. The Metanetix
operations involved, among other things, treating contaminated water extracted
from the mine, and returning the treated water to the mine shaft. This mine and
surrounding areas are part of a Superfund Area designated by the Environmental
Protection Agency ("EPA") under CERCLA. Under CERCLA, the EPA designates
"potentially responsible parties," including current and former owners of
property or property rights in the Superfund Area, and operators in connection
therewith, as parties who may be jointly and severally liable for clean-up costs
attributable to hazardous materials on and from their properties.
Pending the EPA's investigation of the mine and surrounding area, the
Company has received notification from the EPA indicating that the EPA believes
Metanetix to be a "potentially responsible party." The designation of a party as
a "potentially responsible party" under CERCLA does not necessarily mean that
party is liable under CERCLA, or that the EPA has decided to assert a CERCLA
claim against that party. Neither the EPA nor any other governmental agency have
made any formal claim that the Company is liable under CERCLA or any other
similar statute with respect to the Butte operations. No assurance can be given,
however, that such a claim will not be made in the future. If such a claim is
made and is successful, the costs (including defense costs), damages and fines
that may be imposed on the Company as a result could have a material adverse
effect on the Company.
Risk from Decision Not to Pay Dividends. The Company has not paid any
cash dividends upon its Common Stock since its inception and, by reason of its
present financial status and its contemplated financial requirements, does not
anticipate paying any cash dividends in the foreseeable future.
Risk from Possible Delisting of Securities from Nasdaq Stock Market.
The Company's Common Stock is listed on the Nasdaq SmallCap Market. For
continued inclusion on the Nasdaq SmallCap Market, the Company will have to
maintain specified levels of total assets and capital and surplus, as well as
meeting additional criteria concerning the minimum bid price of the Common
Stock, the number and value of shares in the public float, the number of active
market makers, and the number of holders of Common Stock.
If the Company is unable to satisfy Nasdaq's maintenance requirements,
its securities may be delisted from Nasdaq. In such event, trading, if any, in
the Common Stock may thereafter be conducted
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in the over-the-counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities could be impaired, not only in the number of securities which could
be bought and sold, but also through delays in the timing of the transactions,
reduction in security analysts' and the news media's coverage of the Company,
and lower prices for the Company's securities than might otherwise be attained.
Furthermore, the Company's Common Stock could become subject to Rule 15g-9 under
the Exchange Act, which imposes additional sales practice requirements on
broker-dealers, including requirements pertaining to the suitability of the
investment for the purchaser and the delivery of specific disclosure materials
and monthly statements. Consequently, this rule may adversely affect the ability
of broker-dealers to sell the Company's securities and may adversely affect the
ability of purchasers in this Offering to sell any of the securities acquired
hereby in the secondary market.
-14-
<PAGE> 13
SELLING SECURITYHOLDERS
The Securities offered hereby are being offered by the Selling
Securityholders listed in the table set forth below in the manner described
elsewhere herein. See "Plan of Distribution." The table sets forth certain
information as of June 26, 1996 concerning the Selling Securityholders,
including the securities offered by them and their beneficial ownership of the
Company's Common Stock.
<TABLE>
<CAPTION>
Securities Beneficially Securities to Ownership After the
Owned be Offered(1) Sale of the
Name of Securityholder Common Stock Common Stock Offered Securities(1)
- ---------------------- ----------------------- ------------- ----------------------
<S> <C> <C> <C>
Vahe Guzelimian 190,000 190,000 0
Suzanne Nawabi 10,000 10,000 0
Harry L. Helms 48,713 48,713 0
Carol S. Lewis 48,713 48,713 0
Jack W. Lewis 48,713 48,713 0
</TABLE>
- ---------------
(1) Assumes no exercise of warrants or options held by any Selling
Securityholder. The shares of Common Stock owned by Mr. Guzelimian
before and after the sale represent approximately 1.7% and 0%,
respectively, of the Company's outstanding Common Stock. No other
Selling Securityholder's ownership before or after the sale of the
offered securities exceeds 1% of the outstanding number of such
securities.
-15-
<PAGE> 14
DESCRIPTION OF SECURITIES
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the shareholders. The
outstanding shares of Common Stock are entitled to such dividends as are
declared by the Board of Directors. Holders of Common Stock have no preemptive
rights and no right to convert their Common Stock into any other securities. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities. There are no redemption or sinking fund provisions applicable to
the Common Stock. All outstanding shares are fully paid and nonassessable and
legally issued. The Board of Directors is authorized to issue additional shares
of Common Stock within the limits authorized by the Company's charter and
without shareholder action.
PLAN OF DISTRIBUTION
The Selling Securityholders have indicated to the Company that they
intend to offer the Securities for resale to the public from time to time in
regular brokerage transactions in the over-the-counter market, in privately
negotiated transactions or a combination of such methods of sale, at market
prices prevailing at the time of sale or at prices otherwise negotiated. Usual
and customary brokerage commissions will be paid by the Selling Securityholders
in connection with such sales, where appropriate.
Under the terms of certain agreements between the Company and certain
of the Selling Securityholders, the Company has agreed to indemnify such Selling
Securityholders against certain liabilities, including liabilities arising under
the Securities Act of 1933, as amended.
-16-
<PAGE> 15
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company provide that, subject to Section 124 of the
Canada Business Corporations Act ("CBCA"), the Company shall indemnify a
director or officer of the Company, a former director or officer of the Company
or a person who acts or acted at the Company's request as a director or officer
of a body corporate of which the Company is or was a shareholder or creditor,
and his heirs and legal representatives, against all costs, charges and expenses
reasonably incurred by him in respect of certain actions or proceedings to which
he is made a party by reason of his office, if he met certain specified
standards of conduct, and the Company shall also indemnify any such person in
such other circumstances as the CBCA or law permits or requires.
The Company believes the foregoing provisions are necessary to attract
and retain qualified persons as directors and officers.
At present, there is no litigation or proceeding pending involving a
director of the Registrant as to which indemnification is being sought, nor is
the Registrant aware of any threatened litigation that may result in claims for
indemnification by any director.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
-17-
<PAGE> 16
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No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offering described herein, and, if given or
made such other information or representations must not be relied upon as having
been authorized by the Company or the Selling Securityholders. This Prospectus
does not constitute an offer of any securities other than those to which it
relates or an offer to sell or a solicitation of an offer to buy in any
jurisdiction to any person to whom it is not lawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus, nor
any sale made hereunder, shall, under any circumstances, create an implication
that there has been no change in the facts herein set forth since the date
hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information .................................................... 4
Incorporation of Certain Documents
by Reference............................................................ 4
The Company............................................................... 6
Risk Factors ............................................................. 8
Selling Securityholders................................................... 15
Description of Securities................................................. 16
Plan of Distribution...................................................... 16
Indemnification of Directors and Officers................................. 17
</TABLE>
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HARISTON CORPORATION
July 22, 1996
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