<PAGE>
As filed with the Securities and Exchange Commission on August __, 1996.
File No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------
TELLURIAN, INC.
(Name of small business issuer in its charter)
----------
Delaware 3570 22-3451918
- --------------------------------------------------------------------------------
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
----------
Stuart French
Tellurian, Inc.
15 Industrial Avenue
Upper Saddle River, NJ 07458
(201) 818-6767
(Address and telephone number of principal executive offices)
----------
Stuart French
Tellurian, Inc.
15 Industrial Avenue
Upper Saddle River, NJ 07458
(201) 818-6767
(Address and (Name, address and telephone number of agent for service)
----------
Copies of all communications should be sent to:
Steven Morse, Esq. Henry C. Malon, Esq.
Lester Morse P.C. One Battery Park Plaza, Third Floor
111 Great Neck Road New York, New York 10004
Great Neck, NY 11021 (212) 483-9600
(516) 487-1446
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective. [X]
If any of the securities being registered on this form are to be offered on a
delayed basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.
If the delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed
Maximum Proposed
Amount to Offering Maximum
Title of Each Class of Securities to be Price Per Aggregate Offering Amount of
be Registered Registered Unit (1) Price (1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par 2,085,000 $ 5.00 $10,425,000 $ 3,594.83
value $.01 per share ("Common
Stock") (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Common Stock 1,063,750 $ .25 $ 359,375 --- (11)
Purchase Warrants
("Warrants") (3)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock 1,063,750 $ 6.00 $ 6,382,500 $ 2,200.86
underlying the Warrants (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Warrant to 140,000 $ .001 $ 140 --- (11)
purchase Common Stock (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Representative's Warrant to 92,500 $ .001 --- (11)
Purchase Warrants (6) $ 92.5
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants underlying 92,500 $ .30 $ 27,750 $ 9.57
Representative's Warrants (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock 140,000 $ 6.00 $ 840,000 $ 289.66
underlying Representative's 92,500 $ 6.00 $ 555,000 $ 191.38
Warrants (8)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Warrants (9) 3,000,000 $ .25 $ 750,000 --- (11)
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock 3,000,000 $ 6.00 $18,000,000 $ 6,206.90
underlying Other Warrants
(10)
- ------------------------------------------------------------------------------------------------------------------------------------
Totals $37,339,902.50 $12,493.20
====================================================================================================================================
</TABLE>
- ----------------
(1) Total estimated solely for the purpose of determining the
registration fee.
(2) Includes (i) 210,000 shares of Common Stock subject to sale upon
exercise of an over-allotment option granted to the Underwriters, (ii)
450,000 to be sold by Selling Security Holders and (iii) 25,000 shares
to be sold by an Additional Selling Security Holder outside of the Firm
Commitment
Offering.
(3) Includes 138,750 Warrants subject to sale upon exercise of an
over-allotment option granted to the Underwriters.
(4) Reserved for issuance upon exercise of the Warrants.
(5) Represents Warrants to purchase Common Stock to be issued to
the Representative.
<PAGE>
(6) Represents Warrants to purchase Warrants to be issued to the
Representative.
(7) Number of Warrants to be issued upon exercise of
Representative's Warrant to purchase Warrants.
(8) Reserved for issuance upon exercise of Representative's Warrants to
purchase Common Stock and upon exercise of the Warrants underlying the
Representative's Warrants to purchase Warrants.
(9) Other Warrants to be offered on behalf of certain Warrant
Holders described in the Prospectus.
(10) Reserved for issuance upon exercise of Other Warrants by
Warrant Holders.
(11) No fee due under Rule 457(g) since the Warrants are registered
contemporaneously with the Common Stock underlying the Warrants.
Pursuant to Rule 416 of the Securities Act of 1933, as amended, the number of
securities issuable upon exercise of the Representative's Warramts and
Representative's Warrants to purchase Warrants are subject to the anti-dilution
provisions of the Warrant.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
TELLURIAN, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
Location of Caption
Form SB-2 Item Number and Caption in Prospectus
- --------------------------------- -------------
<S> <C> <C>
1. Front of Registration Statement and
Outside Front Cover Page of Prospectus Outside Cover Page
2. Inside Front and Outside Back Cover Inside Front and Outside
Pages of Prospectus Back Cover Pages
3. Summary Information and Risk Factors Prospectus Summary;
Investment Considerations
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page;
Risk Factors; Underwriting
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Stockholders,
Additional Selling Stockholders and
Warrant Holders
8. Plan of Distribution Outside Cover Page;
Underwriting
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Management;Principal
Promoters and Control Persons and Selling Stockholders
11. Security Ownership of Certain Principal and Selling Stockholders;
Beneficial Owners and Management Certain Transactions
12. Description of the Securities Description of Securities;
Underwriting
13. Interests of named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Management
Indemnification for Securities Act
Liabilities
15. Organization Within Last Five Years Management; Principal and Selling
Stockholders; Certain Transactions
16. Description of Business Prospectus Summary;
Business
17. Management's Discussion and Analysis Managements discussion and
or Plan of Operation analysis of financial condition
and results of operations
18. Description of Property Business
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity and Cover Page; Risk Factors
Related Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure *
</TABLE>
- -----------------
* Omitted because item is inapplicable or answer is in the negative.
<PAGE>
Subject to Completion August __, 1996
TELLURIAN, INC.
1,850,000 SHARES OF COMMON STOCK AND
925,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Of the 1,850,000 shares of Common Stock and 925,000 Redeemable Common
Stock Purchase Warrants (the "Warrants," which together with the Common Stock
are collectively referred to as the "Securities") offered hereby, 1,400,000
shares and 925,000 Warrants are being sold by Tellurian, Inc. (the "Company" or
"Tellurian") and 450,000 shares are being sold by certain selling stockholders
(the "Selling Stockholders"). The Company will not receive any proceeds from the
sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
The offering of Common Stock and Warrants made pursuant to this
Prospectus is referred to herein as the "Offering." Each Warrant entitles the
owner thereof to purchase one share of the Company's Common Stock at an exercise
price of $6.00 per share (the "Warrant Exercise Price"), subject to adjustment
under certain circumstances, at any time during the five year period that
commences from the date hereof. The Common Stock and the Warrants offered hereby
will be separately tradeable and transferable immediately upon issuance and may
be purchased separately. Beginning one year from the date hereof the Warrants
may be redeemed by the Company, at $.30 per Warrant if certain conditions are
met. See "Description of Securities - Warrants."
Prior to the Company Offering, there has been no public market for the
Common Stock or the Warrants and there can be no assurance that such a market
for the Common Stock or Warrants will develop after the closing of the Offering
or that, if developed, it will be sustained. The offering price of the Common
Stock and the Warrants and the initial exercise price of and other terms of the
Warrants were established by negotiation between the Company and J.W. Barclay &
Co., Inc., the representative (the "Representative") of the underwriters of the
Offering (collectively, including the Representative, the "Underwriters"), and
do not necessarily bear any direct relationship to the Company's assets,
earnings, book value per share or other generally accepted criteria of value.
For information regarding the factors considered in determining the initial
offering prices of the Securities and the terms of the Warrants, see "Risk
Factors" and "Underwriting." The Common Stock and Warrants are expected to trade
on the Nasdaq SmallCap Market ("NASDAQ SmallCap") under the symbols "TLRN" and
"TLRNW", respectively.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION
AS DESCRIBED HEREIN. FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES, SEE "RISK
FACTORS" BEGINNING ON PAGE __ AND "DILUTION" BEGINNING ON PAGE __.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
Underwriting Proceeds Proceeds to
Price to Discounts and to the Selling
Public Commissions (1) Company (2) Stockholders
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ 5.00 $ .50 $ 4.50 $ 4.50
Per Warrant .25 .025 .225 --
Total (3) $9,481,250 $948,125 $6,508,125 $2,025,000
</TABLE>
(footnotes appear on next page)
The Securities included in the underwritten offering are being offered
by the Underwriters on a "firm commitment" basis subject to prior sale, when, as
and if delivered to and accepted and subject to certain conditions. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and to
reject any order in whole or in part. It is expected that delivery of
certificates evidencing the Securities will be made at the offices of the
Representative, New York, NY, against payment therefor on or about __________,
1996.
J.W. Barclay & Co., Inc.
The date of the Prospectus is __________,1996
The following legend belongs on left side of cover page in red:
"Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State."
<PAGE>
(continued from cover page)
(1) Does not include additional compensation to the Underwriters in the form
of (a) a non-accountable expense allowance of three (3%) percent of the
gross proceeds of this Offering and (b) a Warrant, purchasable at a nominal
price, giving the holders the right to acquire 140,000 shares of Common
Stock at an initial exercise price of $6.00 per share (the "Underwriters'
Stock Warrants") and 92,500 Warrants at an initial exercise price of $.30
per Warrant (the "Underwriters' Warrants"). The Underwriters' Stock
Warrants and the Underwriters' Warrants are collectively referred to as the
"Underwriters' Securities". In addition, the Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act"), to
retain the Representative as a financial consultant for a two year period
following the closing of this Offering for an aggregate fee of $144,625 to
be paid at the closing of the Offering and, commencing one year from the
date hereof, to pay the Representative a commission of 10% of the exercise
price of the Warrants, payable upon exercise. See "Underwriting."
(2) Before deducting estimated expenses (including the non-accountable
expense allowance payable to the Representative) of approximately $717,000
payable by the Company and $67,500 payable by the Selling Stockholders. See
"Principal and Selling Stockholders."
(3) Solely for the purpose of covering over-allotments, if any, the Company
has granted to the Underwriters options, exercisable within 45 days of the
date hereof, to purchase an additional 210,000 shares of Common Stock and
138,750 Warrants upon the same terms and conditions as the Securities
offered hereby. If such over-allotment options are exercised in full, the
Total Price to Public will be $10,565,937.50, the Total Underwriting
Discount will be $1,056,593.75, and the Total Proceeds to the Company will
be $7,484,343.75. See "Underwriting."
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company has registered for sale on behalf of certain security
holders (the "Warrant Holders") 3,000,000 additional warrants to purchase Common
Stock. Such warrants are identical to the Warrants and are issuable
automatically upon the completion of the Offering in exchange for certain
outstanding warrants of Tellurian. The Company has also registered the shares of
Common Stock issuable upon the exercise of such warrants. Such warrants are not
being underwritten in the Offering, and the Company will not receive any
proceeds from the sale of such warrants. See "Warrant Holders." The Company has
also registered for sale on behalf of certain security holders (the "Additional
Selling Stockholders"), the resale of 25,000 shares (the "Additional Registered
Shares") that are issuable automatically upon the completion of the Offering in
exchange for certain outstanding notes. Such shares are not being underwritten
in the Offering and the Company will not receive any proceeds from the sale of
such shares. The Additional Registered Shares may not be sold by the Additional
Selling Stockholders for a period of six months after the date of this
Prospectus without the prior written consent of the Representative. See
"Additional Selling Stockholders."
<PAGE>
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined and reported upon by an
independent certified public accounting firm and to make available copies of
quarterly reports containing unaudited financial statements. The Company's
fiscal year end is December 31. The Company has filed a Registration Statement
on Form 8-A with the Securities and Exchange Commission (the "Commission") to
register under, and be subject to the reporting requirements of, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and will file proxy
statements and other information with the Commission.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read
in conjunction with, the more detailed information and the Company's financial
statements (including the notes thereto) appearing elsewhere in the Prospectus.
Unless otherwise indicated, all information included in this Prospectus assumes
that the Underwriters' over-allotment options will not be exercised. All share
and per share amounts in the Prospectus give retroactive effect to a
98.52216749-for-1 forward stock split effective March 15, 1995. Also, all
references to "Tellurian" or the "Company" includes Tellurian, Inc., a South
Carolina corporation, which was formed on August 10, 1988 and reincorporated in
Delaware via merger into its wholly-owned subsidiary effective July 2, 1996. An
investment in the Securities offered hereby involves a high degree of risk and
immediate substantial dilution. See "Risk Factors" and "Dilution."
THE COMPANY
Tellurian, Inc. ("Tellurian" or the "Company"), a Delaware corporation,
is engaged in the design, development and marketing of virtual reality products
which include image generators, related software, helmets and motion systems.
The term virtual reality refers to artificial environments of sight, sound and
motion created with the use of specialized computers and visual and audio
equipment. The Company also provides consulting services via developing
customized software and databases for customers who purchase its image
generators and need such services for specific application requirements.
Since 1988, the Company has been designing, building and selling a line
of specialized computers and ancillary software which are used to generate
visual images in realtime for use in flight trainers and other simulation
equipment. Since 1992, the Company's principal product has been its AT-200 image
generator which is sold to customers who manufacture training and simulation
equipment such as Hughes/Link Corporation, Aviation Simulation Technology, Inc.,
and Ship Analytics, Inc. Since June 1994, the Company has been adapting its
AT-200 Image Generator and has been selling this product and ancillary software
for use in virtual reality entertainment devices to companies such as
Fightertown Entertainment Centers, Ride & Show Engineering Corp., and MaxFlight
Corp.
Beginning in 1994, the Company has been designing and engineering a new
image generation product known as the "EAGLE", a specialized computer, which is
specifically designed for the virtual reality entertainment market. In July
1996, Tellurian delivered its first production units of the EAGLE pursuant to
purchase orders. The Company intends to utilize a portion of the net proceeds of
the Offering to purchase production tooling necessary to produce the Eagle
products in higher volume. The Eagle which is available in multiple resolution
formats, is faster
3
<PAGE>
and less expensive to produce than the Company's previous products, the AT-100
and AT-200. It is also different from such previous products in that it is being
tailored for entertainment use. Each unit is composed of proprietary hardware
and software which when combined with motion and sound simulate a full-immersion
experience. The "EAGLE" is intended for use at amusement/theme parks, video
arcades, family fun centers, and other Location Based Entertainment Centers
("LBE").
Utilizing the "EAGLE" technology, Tellurian is currently designing
helmets and motion products to complement the Eagle for the entertainment
market. These new products are expected to be marketed and sold on two levels.
The first level will be components for other virtual reality game manufacturers.
The second level of marketing will be for Tellurian to build its own complete
game units and using these units to establish one or more joint ventures, or
revenue share agreements with owners and operators of LBE's. See "Business."
In January 1996, Tellurian signed a Technology Transfer Agreement with
Voyager Graphics, Inc. ("Voyager") pursuant to which Tellurian granted Voyager
an irrevocable, exclusive, assignable, fully paid license (the "License") to be
the exclusive supplier of the EAGLE Image Generator in various Asian and middle
east countries. In consideration of the License and technology transfer, Voyager
agreed to pay Tellurian $1,500,000, of which Tellurian has agreed to pay
$650,000 to two parties unrelated to Tellurian, resulting in a net amount of
$850,000 to Tellurian before payments of certain royalties. As of July 31, 1996,
Tellurian has received payments totalling $416,000 of the above referenced
$850,000 from Voyager. Under the contract, Tellurian will be entitled to receive
royalties of 2% of Voyager's net sales of the products and derivative products
sold pursuant to the License. See "Business -- Licensing of Tellurian
Technology."
Tellurian, Inc. is headquartered at 15 Industrial Avenue,
Upper Saddle River, NJ 07458. The Company's telephone number at
this office is (201) 818-6767.
THE OFFERING
Securities Offered 1,850,000 shares of Common Stock and
925,000 Warrants. Of these Securities,
1,400,000 shares and 925,000 Warrants are
being offered by Tellurian and 450,000
shares are being offered by the Selling
Stockholders. Each Warrant entitles the
registered holder thereof to purchase one
share of Common Stock at the Warrant
Exercise Price at any time during the
five-year period commencing after the
date of this Prospectus. The Warrants
will be redeemable under certain
circumstances. The Common Stock and the
4
<PAGE>
Warrants are separately tradeable and
transferable immediately upon issuance.
See "Description of Securities."
Common Stock outstanding
before offering 1,600,000 shares (1)
Common Stock outstanding
after offering 3,025,000 shares (1)
Use of Proceeds The net proceeds from this Offering will
be utilized by the Company towards the
repayment of promissory notes and certain
current liabilities, establishment of
Location Based Entertainment Centers,
sales and marketing, research and product
development, general and administrative
expenses and working capital. See "Use
of Proceeds."
Risk Factors The Securities offered hereby involve a
high degree of risk and substantial
immediate dilution to investors.
Prospective investors, before purchasing
any securities offered, should review
carefully and consider the information
contained in the Prospectus and
particularly the items set forth under
"Risk Factors" and "Dilution."
NASDAQ SmallCap Common Stock "TLRN"
Symbols (2) Warrants "TLRNW"
Additional Offering(3) The Company has registered for sale on
behalf of the Warrant Holders 3,000,000
additional warrants to purchase Common
Stock, the exercise of such warrants and
the resale of 25,000 shares by the
Additional Selling Stockholders. See
"Warrant Holders" and "Additional Selling
Stockholder."
- -----------------
(1) Does not include the following: (i) up to 925,000 shares of Common Stock
issuable upon exercise of the Warrants sold to the public; (ii) up to
3,000,000 shares of Common Stock issuable upon exercise of the Warrants
which will be issued to the Warrant Holders; (iii) up to 140,000 shares of
Common Stock issuable upon exercise of the Underwriters' Stock Warrants,
(iv) up to 92,500 shares of Common Stock issuable upon exercise of the
Warrants underlying the Underwriters' Warrants; and (v) up to 400,000
shares of Common Stock issuable under Tellurian's Stock Option Plan.
(2) There is no assurance that a trading market will develop for the
Company's Common Stock and Warrants or that, if developed, it will be
sustained. If the Company fails to meet certain maintenance standards
imposed by the NASD, delisting of its securities from NASDAQ SmallCap
is possible. See "Risk Factors - Requirements for Listing Securities on
NASDAQ SmallCap."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following selected information has been derived from the historical
financial statements of Tellurian included elsewhere in this Prospectus and
should be read in conjunction therewith, including the notes thereto. The as
adjusted balance sheet as of March 31, 1996 gives effect to the issuance of
$175,000 in principal amount of promissory notes in the second quarter of 1996
and the receipt by the Company of net proceeds of approximately $148,000. The
pro forma as adjusted balance sheet as of March 31, 1996 gives effect to (i) the
sale of 1,400,000 shares of Common Stock and 925,000 Warrants offered hereby,
after deducting underwriting discount and commissions and other Offering
expenses and the anticipated application of the net proceeds of the Offering to
retire long-term indebtedness, recording of interest on various notes and loans
through repayment date, and (ii) the issuance of 25,000 shares to the Additional
Selling Stockholders upon the conversion of certain long-term indebtedness. See
"Use of Proceeds."
Income Statement Data:
<TABLE>
<CAPTION>
================================================================================================================================
Three Months Ended Year Ended Year Ended
================================================================================================================================
March 31, March 31, Dec. 31, Dec. 31
1996 1995 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 54,898 $ 120,655 $ 477,311 $ 461,832
Gross Profit
(loss) (2,806) 38,610 138,091 (155,608)
Net Loss (1) (344,183) (162,524) (699,665) (579,902)
Net Loss per
Common Share (.22) (.16) (.48) (.58)
Weighted Average
Number of
Common Shares
Outstanding (2) 1,600,000 1,000,000 1,450,000 1,000,000
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
March 31,
1996 March 31,
March 31, (As 1996
1996 Adjusted)(3) (Pro
forma)(4)(5)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Working Capital
(Deficiency) $(1,766,119) $(1,618,119) $ 3,302,881
Total Assets 320,928 468,928 4,839,928
Long-Term Debt 720,000 895,000 -0-
Total Liabilities 2,610,220 2,785,220 1,340,220
Stockholders'
Equity
(Deficiency) (2,289,292) (2,316,292) 3,499,708
================================================================================================================================
</TABLE>
(1) Although the Company's S corporation status for tax purposes will
terminate upon the completion of the Offering, the Company is an S
corporation for all periods presented. Pro forma net loss assuming the
6
<PAGE>
Company files its income tax return as a C corporation would be the
same as if an S corporation.
(2) See Notes 1 and 13 of Notes to Financial Statements for an explanation
of the calculation of shares used in computing net loss per share.
(3) Reflects the issuance of promissory notes totalling $175,000 net of debt
acquisition costs of $27,000.
(4) Gives effect to the sale 1,400,000 shares of common stock and 925,000
Warrants offered hereby and the anticipated application of the estimated
net proceeds of $5,791,000 therefrom. See "Use of Proceeds".
(5) Gives effect to the repayment of certain indebtedness from the proceeds of
the Offering.
7
<PAGE>
RISK FACTORS
An investment in the Securities involve a high degree of risk and
immediate substantial dilution. Prospective investors should consider carefully
the following risk factors, in addition to other information contained in this
Prospectus, in evaluating an investment in the Securities offered hereby.
Arrears in Payroll Taxes to IRS and New Jersey. As of the date of
this Prospectus, the Company owes approximately $100,000 in payroll taxes,
interest and penalties to the Internal Revenue Service ("IRS") and the State of
New Jersey. Periodic payments are being made to the IRS, which has filed a tax
lien in the approximate amount of $92,000. Failure to make payments to the IRS
and the State of New Jersey could result in additional liens and levying on the
Company's assets which would materially adversely effect the Company and its
operations. The Company intends to pay off these payroll obligations utilizing a
portion of the net proceeds of the offering. See "Use of Proceeds" and "Notes to
Financial Statements."
Financial Condition; Losses; Deficit Net Worth. The Company
sustained net losses of $344,183 and $162,524 for the three months ended March
31, 1996 and 1995, respectively, and $699,665 and $576,902 for the years ended
December 31, 1995 and 1994, respectively, and continues to incur losses from
operations. In the past two fiscal years and the three months ended March 31,
1996, the Company has spent an aggregate of $902,180 for research and product
development purposes. For the three months ended March 31, 1996 and March 31,
1995 and for the years ended December 31, 1995 and 1994, the Company had sales
of $54,898, $120,655, $477,311 and $461,832, respectively. There can be no
assurance that the Company will be able to operate profitably in the future. See
"Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Uncertain Market Acceptance; Lack of Marketing Organization; and
Distribution Network. The Company's future success depends upon the acceptance
of its new virtual reality entertainment products, parts of which are currently
in the development stage. With any new technology, there is a substantial risk
that the market may not appreciate the benefits or recognize the potential of
the technology. Market acceptance of the Company's virtual reality entertainment
products will depend in large part, upon the ability of the Company to
demonstrate the technological advantages of the Company's products over other
types of virtual reality entertainment products or other more passive
entertainment systems. The inability of the Company to successfully introduce
its new products, establish these products as a standard in the industry and
cause name recognition will have a material adverse effect on the Company's
financial condition and results of operation. Successful penetration of the
Company's proposed markets will be substantially dependent on the Company's
ability to develop a marketing and sales organization and/or distribution
network and establish one or more LBE's. There can be no assurances that the
Company can develop such an organization or, if developed, that such an
8
<PAGE>
organization will be able to successfully penetrate the Company's proposed
markets. See "Business-Sales and Marketing."
Dependence Upon Material Contract. The Company has a material contract
with Voyager pursuant to which the Company is entitled to receive up to $850,000
net upon the occurrence of certain milestones as specified in the contract. The
contract requires Tellurian to train Voyager personnel in the design and
fabrication techniques of the Company's new Eagle image generator so that
Voyager can manufacture the unit in Taiwan for sale on an exclusive basis in the
Licensed Territory as defined herein countries and elsewhere worldwide on a
non-exclusive basis. No assurances can be given that Voyager and Tellurian will
each fulfill its contractual obligations. Further, since Voyager has worldwide
non-exclusive rights to sell the Eagle image generator, any sales by Voyager
outside of the Licensed Territory may be in direct competition with Tellurian
and could adversely impact Tellurian notwithstanding Tellurian's entitlement to
be paid by Voyager a two percent royalty on all sales of Eagle and derivative
products. See "Business."
Dependence on Joint Venture Agreements for LBE's. Tellurian intends to
utilize the Eagle technology to build its own complete game units and use these
units to establish one or more LBE's to be owned solely by Tellurian or jointly
with others. Depending upon the cash requirements of the LBE, Tellurian may
finance the LBE utilizing a portion of the proceeds of the Offering or Tellurian
may enter into joint venture or revenue sharing agreements with third parties
such as existing owners and operators of LBE's. In some cases, the Company may
provide the equipment for the facility and assist in the designing, developing,
construction and themeing of the LBE. The Company has no experience in owning,
financing and operating LBE's and is likely to be dependent in such areas upon
third parties to assist it, or participate with it, in establishing LBE's. The
Company has no binding agreements with respect to any of these opportunities and
there can be no assurances that Tellurian will be successful in establishing or
entering into revenue sharing agreements for one or more LBE's and deriving
operating profits from such operations. The Company has allocated $1,650,000 of
the proceeds of the Offering which may be used to establish or enter into
revenue sharing agreements for one or more LBE's. See "Use of Proceeds."
Rapid Changes in Technology. The technology underlying Tellurian's
products is subject to rapid change. The Company maintains an ongoing research
and development program and its success will depend in part upon its continuing
ability to respond quickly and successfully to technological advances by
developing and introducing new and improved products. There can be no assurance
that the Company will be able to foresee and respond to such advances or that
competitors, including those with greater financial and other resources, will
not succeed in developing technologies and products that are more effective than
the Company's. See "Business - Research and Development."
9
<PAGE>
Competition. Competition in the virtual reality entertainment market
comes primarily from defense related manufacturers, many of which have much
greater financial, technical, manufacturing and sales and marketing resources
than the Company. In addition, as the virtual reality market develops and
continues to grow, many larger companies will also enter this market increasing
the competition. Although the Company believes that its developing virtual
reality system and other virtual reality devices will be highly competitive due
to performance and cost factors, there can be no assurance that the marketplace
will consider the Company's products to be superior to competing products or
that the Company can effectively compete with these larger companies in the
future. See "Business - Competition."
Dependence Upon Proprietary Technology; Intellectual Property Rights.
Tellurian regards its products as proprietary and relies primarily on a
combination of technological complexity trade secret protection, employee and
third party non-disclosure agreements, and other intellectual proprietary
protection methods to protect its proprietary rights. Although the Company
believes that its products are uncopyable, it may be possible in the future, for
unauthorized third parties to copy or reverse engineer certain portions of the
Company's products or obtain or use information that the Company regards as
proprietary. The Company currently has no patents. Although the Company's
competitive position may be adversely affected by unauthorized use of its
proprietary information, the Company believes that the ability to fully protect
its intellectual property is less significant to its success than are other
factors, such as the knowledge, ability and experience of its employees and its
ongoing product development and customer support activities. There can be no
assurance that third parties will not assert infringement or other claims
against the Company with respect to any existing or future products, or that
licenses would be available if any Tellurian technology were successfully
challenged by a third party, or if it became desirable to use any third party
technology to enhance Tellurian's products. Litigation to protect the Company's
proprietary information or to determine the validity of any third party claims
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel, whether or not such litigation is
determined in favor of the Company. See "Business - Lack of Patent Protection."
Dependence on Key Employees. The Company is particularly dependent on
the services of its key employees, Dr. Ronald Swallow and Mr. Stuart French, the
loss of one or more of whom could have a material adverse effect on the
Company's operations. The Company intends to apply for key man life insurance in
the amount of $1,000,000 on the lives of Dr. Swallow and Mr. French. No
assurances can be given that such insurance will adequately compensate Tellurian
in the event of the loss of such key personnel. The Company believes that its
success will depend in large part upon its ability to attract and retain
highly-skilled technical, managerial, sales and marketing personnel. The
business of the Company is highly technical in nature. The Company's future
10
<PAGE>
growth is dependent upon its ability to attract and retain qualified technical
personnel. There can be no assurance that the Company will be successful in
attracting and retaining the personnel it requires to market its products.
Competition for such personnel in the computer technology industry is intense.
Failure to attract and retain such personnel could have an adverse effect on the
Company's business, operating results and financial condition.
Control by Principal Shareholders. Following the completion of the
Offering, without giving effect to the potential exercise of the Warrants, the
current principal shareholders and Management of the Company will beneficially
own 886,699 shares of Common Stock, or approximately 29.3% of the then
outstanding shares of Common Stock of the Company. Accordingly, the current
principal shareholders and Management will be in a position to influence the
election of the Board of Directors of the Company. See "Principal and Selling
Stockholders."
No Dividends and None Anticipated. The payment by Tellurian of cash
dividends on its Common Stock, if any, in the future rests within the discretion
of its Board of Directors and will depend, among other things, upon the
Company's earnings, its capital requirements and its financial condition as well
as other relevant factors. Tellurian has not paid or declared any cash dividends
upon its Common Stock since its inception and, by reason of its present
financial status and its contemplated future financial requirements, does not
contemplate or anticipate making any cash distributions upon its Common Stock in
the foreseeable future. See "Dividends Policy."
Determination of Offering Price. The initial public offering price of
the Shares and Warrants has been determined by negotiations between the Company
and the Representative and are not necessarily related to the Company's asset
value, net worth, or other established criteria of value. See "Underwriting."
Immediate and Substantial Dilution. The purchasers of the Shares
offered hereby will incur an immediate and substantial dilution in the value of
their Common Stock in that the net tangible book value of the Common Stock
immediately after this Offering will be $(1.53) per share as compared to the
initial public offering price of $5.00 per share, representing a dilution to new
investors of $3.90 per share, or approximately 78%. Additional dilution to
public investors may result to the extent that outstanding warrants and the
Underwriters' Securities are exercised at a time when the net tangible book
value per share of the Common Stock exceeds the exercise price of such warrants
or when the Company could receive a higher price for the sale of its Common
Stock. See "Dilution" and "Description of Securities."
Shares Eligible for Future Sale. Sales of substantial amounts of
Securities or the perception that such sales could occur could adversely effect
11
<PAGE>
the market price for the Securities. Upon consummation of the Offering, the
Company will have 3,025,000 shares of Common Stock outstanding (3,235,000 shares
if the Underwriters' over-allotment options are exercised in full) and 925,000
Warrants outstanding (1,063,750 if the Underwriter's over-allotment options are
exercised in full). In addition, the Company will have 3,000,000 warrants
outstanding held by the Warrant Holders, 185,000 Underwriters' Stock Warrants
and 92,500 Underwriters' Warrants outstanding held by the Underwriters. Of these
shares of Common Stock and warrants, 1,875,000 shares of Common Stock (2,152,500
if the Underwriters' over-allotment options are exercised in full), 925,000
Warrants (1,063,750 Warrants if the Underwriter's over-allotment options are
exercised in full), 3,000,000 warrants held by the Warrant Holders, 185,000
Underwriters' Stock Warrants and 92,500 Underwriters' Warrants will be freely
tradeable in the public market without restriction under the Securities Act,
except for Securities purchased by an "affiliate" of the Company (as that term
is defined under the rules and regulations of the Securities Act), which will be
subject to the resale limitations of Rule 144 under the Securities Act ("Rule
144"), and except that (i) 25,000 shares owned and offered by the Additional
Selling Stockholders may not be sold for a period of six months without the
prior written consent of the Representative, and (ii) the Underwriters'
Securities may not generally be transferred by the holders thereof for a period
of one year after the date of this Prospectus. All of the remaining shares of
Common Stock to be outstanding after the Offering, 1,150,000 shares of Common
Stock, will be "restricted securities" as that term is defined in the Securities
Act and will not have been registered under the Securities Act. The holders of
such shares of Common Stock have agreed with the Representative not to sell or
otherwise transfer any of their shares of Common Stock for a period of 24 months
after the date of this Prospectus, without the prior written consent of the
Representative. At the end of this period (or earlier with the consent of the
Representative) these shares will be eligible for sale, subject to the
restrictions imposed by Rule 144. Some of these stockholders may elect to sell
some or all of these shares as soon as they are permitted to do so. Ordinarily,
under Rule 144, a person holding restricted securities for a period of two years
may, every three months thereafter, sell in ordinary brokerage transactions or
in transactions directly with a market maker, an amount of shares equal to the
greater of one percent of the Company's then-outstanding Common Stock or the
average weekly trading volume in the same securities during the four calendar
weeks prior to such sale. See "Shares Eligible For Future Sale" and
"Underwriting."
Requirements for Listing and Maintaining Listing of Securities on
NASDAQ Smallcap. The Company has applied to have the Securities approved for
quotation on NASDAQ SmallCap. The rules of NASDAQ SmallCap establish criteria
for initial and continued quotation of securities on The NASDAQ SmallCap. While
the Company expects to meet the initial criteria, there can he no assurance that
it will be able to maintain the standards for continued quotation. These
12
<PAGE>
standards will require the Company to maintain total assets of $2,000,000,
capital and surplus of $1,000,000 and, in certain circumstances, a minimum bid
price for its Common Stock of $1.00 per share. If the Company fails to meet the
criteria for initial quotation or the standards for continued quotation, the
market for the Securities may be affected adversely and holders may be unable to
sell their shares of Common Stock or Warrants. Trading, if any, in the listed
securities would thereafter be conducted in the over-the-counter market in what
are commonly referred to as the "pink sheets" or on the NASD electronic bulletin
board. If this result were to occur, an investor may find it more difficult to
dispose of, or in the case of the "pink sheets," to obtain accurate quotations
as to the price of, the Securities.
"Penny Stock" Regulations. The Commission has adopted regulations under
the Exchange Act which generally define a "penny stock" to be any equity
security that has a market price (as defined in the Exchange Act) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. If the securities offered hereby are not approved for
quotation on or are removed from NASDAQ SmallCap, the Securities may be deemed
to be "penny stocks" and become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities. For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to the transaction, of a disclosure schedule prepared by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities, information on the limited market in
penny stocks and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. In addition, the broker-dealer must obtain a written
acknowledgement from the customer that such disclosure information was provided
and must retain such acknowledgement for at least three years. Further, monthly
statements must be sent disclosing current price information for the penny stock
held in the account. While many securities quoted on the NASDAQ SmallCap
("NASDAQ") would otherwise be covered by the definition of penny stock,
transactions in a non-NASDAQ security would be exempt from all but the sole
market maker provision for (i) issuers who have $2,000,000 in tangible assets if
such issuer has been in continuous operation for three years, or $5,000,000 in
tangible assets if such issuer has been in continuous operation for less than
three years, (ii) transactions in which the customer is an institutional
accredited investor and (iii) transactions that are not recommended by the
broker-dealer. In addition, transactions in a NASDAQ security directly with a
NASDAQ market maker for such securities would be subject only to the sole market
marker disclosure, and the disclosure with respect to commissions to be paid to
the broker-dealer and the registered representative.
The above-described rules may materially adversely affect the liquidity
for the market of the securities should they cease to be quoted on NASDAQ
13
<PAGE>
SmallCap. Such rules may also affect the ability of broker-dealers to sell the
Securities and may impede the ability of Warrant Holders or subsequent holders
of the shares of Common Stock or the Warrants (including, specifically, the
purchasers in the Offering) to sell such securities in the secondary market.
Current Prospectus and State "Blue Sky" Registration Required to
Exercise the Warrants. The Warrants provide that the Company shall not be
obligated to issue shares of Common Stock upon exercise of the Warrants unless
there is a current prospectus relating to the Common Stock issuable upon the
exercise of the Warrants under an effective registration statement filed with
the Commission and unless such Common Stock is qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various holders of the Warrants reside. In accordance with the
Securities Act, a prospectus ceases to be current nine months after the date of
such prospectus if the information therein (including financial statements) is
more than sixteen months old or sooner if there have been other fundamental
changes in the matters discussed in the prospectus. Although the Company has
agreed to use its best efforts to meet such regulatory requirements in the
jurisdictions in which the Securities are sold in the Offering, there can be no
assurance that the Company can continue to meet these requirements. The
Securities are not expected to be qualified for sale or exempt under the
securities laws of all states. Although the Securities will not knowingly be
sold to purchasers in jurisdictions in which the Securities are not qualified
for sale or exempt, purchasers may buy Warrants in the secondary market or may
move to jurisdictions in which the shares of Common Stock issuable upon exercise
of the Warrants are not so qualified or exempt. In this event, the Company would
be unable lawfully to issue shares of Common Stock to those persons upon
exercise of the Warrants unless and until the Common Stock issuable upon
exercise of the Warrants is qualified for sale or exempt from qualification in
jurisdictions in which such persons reside. There is no assurance that the
Company will be able to effect any required registration or qualification. The
value of the Warrants could be adversely affected if a then current prospectus
covering the Common Stock issuable upon exercise of the Warrants is not
available pursuant to an effective registration statement or if such Common
Stock is not qualified for sale or exempt from qualification in the
jurisdictions in which the holders of the Warrants reside. Further, under the
terms of the agreement under which the Warrants will be issued, the Company is
not permitted to redeem such Warrants unless a current prospectus is available
at the time of notice of redemption and at all subsequent times to and including
the date of redemption. See "Description of Securities -- Warrants."
Potential Adverse Effect of Redemption of Warrants; Possible Expiration
Without Value; Effect of Warrants, Warrants held by Warrant Holders and
Representative's Warrant Securities on Value of Common Stock. The Warrants are
redeemable by the Company, in whole or in part, upon 30 days' prior written
notice at $.30 per Warrant, beginning 12 months after the date hereof and
14
<PAGE>
provided certain specified market conditions are met. Redemption of the Warrants
could force the holders to exercise the Warrants and pay the Warrant Exercise
Price at a time when it may be disadvantageous for the holders to do so, to sell
the Warrants at the then current market price when they might otherwise wish to
hold the Warrants for possible additional appreciation or to accept the
redemption price, which is likely to be substantially less than the market value
of the Warrants at the time of redemption. In addition, if the market price of
the Common Stock does not exceed the Warrant Exercise Price at the expiration of
the exercise period, the Warrants may expire without value. See "Description of
Securities - Warrants." The exercise of the Warrants, the warrants held by the
Warrant Holders and the Underwriters' Securities and the sale of the underlying
shares of Common Stock (or even the potential of such exercise or sale) may have
a depressive effect on the market price of the Company's securities. The
exercise of such warrants also may have a dilutive effect on the interest of
investors in the Offering. Moreover, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected because the
holders of such outstanding warrants can be expected to exercise them, to the
extent that they are able to, at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than those provided in such warrants. See "Description of Securities"
and "Underwriting." As a result of the Warrants, the warrants held by the
Warrant Holders and the Underwriters' Securities being outstanding, the Company
may be deprived of favorable opportunities to obtain additional equity capital,
if it should then be needed, for its business. It is also possible that, as long
as the Warrants held by the Warrant Holders and the Underwriters' Securities
remain outstanding, their existence might limit increases in the price of the
Common Stock. See "Risk Factors - Representative's Potential Influence on the
Market" and "- Current Prospectus and State "Blue Sky" Registration Required to
Exercise the Warrants," "Description of Securities - Warrants" and
"Underwriting."
No Prior Market; Possible Volatility of Share Price. Prior to this
Offering, there has been no public trading market for the Securities. Although
the Company intends to apply to have its Common Stock and Warrants included on
NASDAQ SmallCap and the Representative has indicated that it intends to make a
market in the Securities following this Offering, the Representative is not
required to make such a market and there can be no assurance that an active
public trading market for the Securities will be developed or, if developed,
that it will be sustained. Accordingly, purchasers of the Common Stock and
Warrants may experience substantial difficulty selling such Securities.
Representative's Influence on the Market. A significant amount of the
securities offered hereby may be sold to customers of the Representative. Such
customers subsequently may engage in transactions for the sale or purchase of
such Securities through or
15
<PAGE>
with the Representative. Although it has no obligation to do so, the
Representative intends to make a market in the Securities and may otherwise
effect transactions in such Securities. If it participates in the market, the
Representative may exert a dominating influence on the market, if one develops,
for the Securities. Such market making activity may be discontinued at any time.
The price and liquidity of the Securities may be significantly affected by the
degree, if any, of the Representative's participation in such market.
Additionally, if the Representative should exercise its registration rights to
effect the distribution of the Underwriters' Securities, or the shares of Common
Stock underlying the Underwriters' Securities, the Representative, immediately
prior to and during such distribution, will be unable to make a market in the
Securities. If the Representative ceases making a market, the market and market
prices for the Securities may be adversely affected and holders thereof may be
unable to sell such Securities.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,400,000 shares of
Common Stock and 925,000 Warrants offered hereby, after deducting underwriting
discounts and commissions and other expenses of the Offering payable by the
Company, will be approximately $5,791,000 (approximately $6,876,000 if the
Underwriters' over-allotment option is exercised in full). The Company
anticipates that the net proceeds of this Offering will be used approximately as
follows:
Amount Percentage
------ ----------
Locations Based Entertainment Centers (1) $1,650,000 28%
Repayment of Promissory Notes and Payment of
Certain Current Liabilities (2) 1,420,000 25
Research and Product Development (3) 900,000 16
Sales and Marketing (4) 820,000 14
General and Administrative 350,000 6
Working Capital (5) 651,000 11
---------- ---
Total $5,791,000 100%
========== ====
- -----------------
(1) See "Business-Location Based Entertainment Centers."
(2) Tellurian intends to utilize $1,420,000 toward repayment of promissory
notes and certain current liabilities approximately as follows: (i)
$880,000 for repayment of Subordinated promissory notes in the principal
amount of $870,000 plus interest at the rate of 8% per annum. These long
term notes provide for prepayment of the notes upon the completion of the
Offering. These funds were spent for the following purposes: payroll
taxes, reduction of stockholder loans to Charles Powers, expenses of the
Company's private placement, general working capital and advances toward
the expenses of the Offering; (ii) $100,000 to the Internal Revenue
Service and State of New Jersey for payroll tax arrears; and (iii)
$429,900 to reduce Tellurian's then accounts payable, accrued expenses,
unpaid salaries of employees and officers of the Company, and unpaid
consulting fees of consultants. See "Certain Transactions."
16
<PAGE>
(3) The Company has allocated $550,000 for the completion of product
development of the Company's virtual reality entertainment system. The
Company has also allocated $350,000 for future research and development.
See "Business - Products" and "Business - Research and Development."
(4) See "Business - Sales and Marketing."
(5) If the Underwriters' over-allotment options are exercised in full, the
working capital amount will be increased to approximately $1,595,000. The
funds allocated for working capital will be available for all general
corporate purposes and may be utilized at the Board's discretion, for
among other purposes, to make payments of approximately $160,000 to TTY
Graphics, Inc. and Gregory Gustin. See "Business-Background."
The foregoing represents the Company's best estimate of its expected
use of the net proceeds of the Offering. The amounts actually expended for
certain purposes described above may vary significantly depending on numerous
factors, including but not limited to, the market demand for the Company's
virtual reality products, and the technological and development progress of new
products including helmets and motion systems. The Company may in the future
find it necessary or desirable to change the allocation of net proceeds due to
certain exigencies of the business and, therefore, there could be significant
variations in the above use of proceeds. In the event one or more of such
exigencies occurs, the Company will reallocate the net proceeds of this Offering
in response thereto.
The Company has estimated the net proceeds from this Offering together
with revenues from operations will be sufficient to meet the Company's cash
requirements for a period of between 12 and 15 months following the date of this
Prospectus. However, there can be no assurance that unexpected future
developments may result in the Company requiring additional financing and that
if required, additional financing will be available to the Company.
Pending application of the net proceeds of this Offering, the Company
may make temporary investments in interest-bearing savings accounts,
certificates of deposit, United States government obligations, money market
accounts, interest-bearing securities or other insured short-term,
interest-bearing investments. Any additional proceeds received upon exercise of
the Underwriters' over-allotment options or the Underwriters' Warrants
Securities, as well as income from such investments, will be used for working
capital.
DIVIDEND POLICY
Tellurian has not paid any cash dividends and does not anticipate
paying any dividends in the foreseeable future. Tellurian intends to retain any
future earnings to finance the growth and development of its business. Any
future determination as to the payment of dividends will be at the discretion of
the Board of Directors of Tellurian and will depend on the Company's operating
results, financial condition, capital requirements and such other factors as the
Board of Directors of Tellurian may deem relevant. See "Risk Factors - No
Dividends and None Anticipated" and "Description of Securities."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (a) as
of March 31, 1996, (b) as of March 31, 1996, as adjusted, to give effect to the
issuance of $175,000 in principal amount of promissory notes in the second
quarter of 1996 and (c) pro forma as of March 31, 1996, as adjusted, to reflect
(i) the sale by the Company of 1,400,000 shares of Common Stock at $5.00 per
share, and 925,000 Warrants, at a price of $.25 per warrant, offered hereby
(after deducting the underwriting discounts and commissions and expenses of the
Offering); (ii) the application of a portion of the estimated net proceeds of
the Offering as described under "Use of Proceeds," and (iii) recording of
interest on various notes and loans through repayment date and the issuance of
25,000 shares to the Additional Selling Stockholders upon the conversion of
certain indebtedness. This table should be read in conjunction with the
Company's financial statements and the related notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
As
Actual Adjusted Pro Forma
------ -------- ---------
<S> <C> <C> <C>
Long-term debt 720,000 895,000 -0-
Stockholders' equity
(deficiency)(1):
Common stock-$.01 par value:
authorized 10,000,000 shares,
issued 1,600,000 shares
and issued 3,025,000
pro forma 16,000 16,000 30,250
Additional paid-in capital 135,265 135,265 5,937,015
Accumulated deficit (2,440,557) (2,467,550) (2,467,557)
----------- ----------- -----------
Stockholders' equity (deficiency) (2,289,292) (2,316,292) 3,499,708
----------- ----------- ----------
Total capitalization (1,569,292) (1,421,292) 3,499,708
=========== =========== ==========
</TABLE>
- ------------------
(1) Does not include the following: (i) up to 925,000 shares of Common Stock
issuable upon exercise of the Warrant; (ii) up to 3,000,000 shares of
Common Stock issuable upon exercise of certain other warrants which will
be issued to the Warrant Holders upon the closing of the Offering; (iii)
up to 140,000 shares of Common Stock issuable upon exercise of the
Underwriters' Stock Warrants; (iv) up to 92,500 shares of Common Stock
issuable upon exercise of the Warrants underlying the Underwriters'
Warrants; and (v) 400,000 shares of Common Stock issuable upon exercise
of stock options granted under Tellurian's Stock Option Plan.
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<PAGE>
DILUTION
Net tangible book value (deficit) per share represents the amount of
total tangible assets less total liabilities of the Company, divided by the
number of shares of Common Stock outstanding, which will be 1,600,000 shares
prior to and 3,025,000 shares immediately after the completion of the Offering.
At March 31, 1996, the Company had a net tangible book value (deficit) of
approximately $(2,455,000) or $(1.53) per share of Common Stock.
After giving effect to the conversion of $25,000 of long-term
indebtedness into 25,000 shares of the Company's Common upon the completion of
the Offering and sale by the Company of the 1,400,000 shares of Common Stock and
925,000 Warrants offered hereby (and after deducting the underwriting discounts
and commissions and Offering expenses) and the application of the estimated net
proceeds therefrom of approximately $5,791,000, the pro forma net tangible book
value of the Company at March 31, 1996 would have been approximately $3,336,000
or 1.10 per share. This represents an immediate increase in net tangible book
value of $2.63 per share to the existing stockholders and an immediate dilution
in net tangible book value of $3.90 per share to purchasers of Common Stock in
this Offering. The following table illustrates the dilution in net tangible book
value per share to new investors:
Price to public (1) $5.00
Net tangible book value
before Offering $(1.53)
Increase per share attributable to
sale of Securities 2.63
------
Pro forma net tangible book value per
share of Common Stock, after the Offering $1.10
-----
Net tangible book value dilution
per share of Common Stock to public investors (2) $3.90
=====
- --------------------------
(1) Does not include the following: (i) up to 925,000 shares of Common
Stock issuable upon exercise of the Warrant; (ii) up to 3,000,000 shares of
Common Stock issuable upon exercise of certain other warrants which will be
issued to the Warrant Holders upon the closing of the Offering; (iii) up to
140,000 shares of Common Stock issuable upon exercise of the
Representative's Stock Warrants; (iv) up to 92,500 shares of Common Stock
issuable upon exercise of the Warrants underlying the Representative's
Warrants; and (v) 400,000 shares of Common Stock issuable upon exercise of
stock options granted under Tellurian's Stock Option Plan.
(2) If the Underwriter's over-allotment options are exercised in full, the
pro forma net tangible book value would be approximately $4,280,000 or
$1.32 per share and the dilution to public investors in the Offering would
be $3.68 per share.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected information has been derived from the historical
financial statements of Tellurian included elsewhere in this Prospectus and
should be read in conjunction therewith, including the notes thereto. The as
adjusted balance sheet as of March 31, 1996 gives effect to the issuance of
$175,000 in principal amount of promissory notes in the second quarter of 1996
and the receipt by the Company of net proceeds of approximately $148,000. The
pro forma as adjusted balance sheet as of March 31, 1996 gives effect to (i) the
sale of 1,400,000 shares of Common Stock and 925,000 Warrants offered hereby,
after deducting underwriting discount and commissions and other Offering
expenses and the anticipated application of the net proceeds of the Offering to
retire long-term indebtedness, recording of interest on various notes and loans
through repayment date, and (ii) the issuance of 25,000 shares to the Additional
Selling Stockholders upon the conversion of certain long-term indebtedness. See
"Use of Proceeds."
Income Statement Data:
<TABLE>
<CAPTION>
================================================================================================================================
Three Months Ended Year Ended Year Ended
================================================================================================================================
March 31, March 31, Dec. 31, Dec. 31
1996 1995 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 54,898 $ 120,655 $ 477,311 $ 461,832
Gross Profit
(loss) (2,806) 38,610 138,091 (155,608)
Net Loss (1) (344,183) (162,524) (699,605) (576,902)
Net Loss per
Common Share (.22) (.16) (.48) (.58)
Weighted Average
Number of
Common Shares
Outstanding (2) 1,600,000 1,000,000 1,450,000 1,000,000
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
March 31, March 31,
1996 1996
March 31, (As Adjusted) (Pro forma) Dec. 31,
1996 (3) (4)(5) 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Working Capital
(Deficiency) $(1,766,119) $(1,618,119) $ 3,302,881 $(1,841,510)
Total Assets 320,928 468,928 4,839,928 223,560
Long-Term Debt 720,928 895,000 -0- 192,000
Total Liabilities 2,610,220 2,785,220 1,340,220 2,172,669
Stockholders'
Equity
(Deficiency) (2,289,292) (2,316,292) 3,499,708 (1,949,109)
</TABLE>
20
<PAGE>
(1) Although the Company's S corporation status for tax purposes will
terminate upon the completion of the Offering, the Company is an S
corporation for all periods presented. Pro forma net loss assuming the
Company files its income tax return as a C corporation would be the
same as if an S corporation.
(2) See Notes 1 and 13 of Notes to Financial Statements for an explanation
of the calculation of shares used in computing net loss per share.
(3) Reflects the issuance of promissory notes totalling $175,000 net of debt
acquisition costs of $27,000.
(4) Gives effect to the sale 1,400,000 shares of common stock and 925,000
Warrants offered hereby and the anticipated application of the estimated
net proceeds of $5,791,000 therefrom. See "Use of Proceeds".
(5) Gives effect to the repayment of certain indebtedness from the proceeds of
the Offering.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY AND
ITS SUBSIDIARIES
INTRODUCTION
The Company was founded in 1988 as a South Carolina corporation by Drs.
Ronald and Richard Swallow, and Mr. Charles Powers to design, manufacture, and
sell computer image generators for use in flight and other simulation training.
Since 1992, the Company's principal product has been its second generation unit,
the AT-200, a specialized computer, which is largely used in simulators for
training aircraft and ship pilots.
Since 1994, the Company has been designing and engineering its latest
image generation product known as the "EAGLE", a specialized computer which is
specifically designed for the virtual reality entertainment market. In July
1996, Tellurian delivered its first production units of the EAGLE pursuant to
purchase orders. The Company intends to utilize a portion of the net proceeds of
the Offering to purchase production tooling necessary to produce the Eagle
products in higher volume. The Eagle which is available in multiple resolution
formats, is faster and less expensive to produce than the AT-200. It is also
different from the AT-200 in that it is being tailored for entertainment use.
Each unit is composed of proprietary hardware and software which when combined
with motion and sound simulate a full-immersion experience. The "EAGLE" is
intended for use at amusement/theme parks, video arcades, family fun centers,
and other LBE's.
The Company expects that substantially all of its immediate future
revenues will be dependent upon the sales of the EAGLE image generator and the
development and introduction of its complementary products. The Company has
invested significant resources in product research, development, and engineering
activities, and has incurred significant losses while completing the EAGLE. The
Company has received deposits on future deliveries totalling approximately
$200,000 and has a backlog of firm orders of approximately $570,000 as of June
30, 1996.
Plan of Operation
For the twelve months following the completion of the Offering, the
Company plans to focus its efforts on the following three areas: (i) increasing
revenues through marketing efforts of its new EAGLE product; (ii) developing its
virtual reality helmet and motion system and establishing a virtual reality
showplace for demonstrations of Tellurian's products; and (iii) entering into
joint ventures or revenue sharing agreements with third parties for the purpose
of owning, operating and/or having an interest in one or more LBE's for the sale
and/or use of its virtual reality game units.
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<PAGE>
Marketing of the new EAGLE image generator will be accomplished by
directing efforts towards three different customer groups: (i) the training and
simulation market where Tellurian has been selling its AT-200 unit and as of
June 30, 1996 has received deposits totalling $48,000 for its new EAGLE product;
(ii) pursuing the VR game developer market through trade show exhibits,
advertisements and newsletters; and (iii) pursuing the inter-active thrill-ride
market for which the Company has received deposits of $156,000 as of June 30,
1996. The Company intends to expand its current customer list as several
manufacturers move into this new type of themed adventure. Trade shows,
marketing brochures, and personal contacts will be used to gain customers.
To effectively market Tellurian's products, it is planning to have a
complete virtual reality showplace ready for demonstrations approximately seven
months after the closing of the Offering. The Company's range of VR devices
which includes modern fighter cockpits, dune buggies, spacecraft and full
immersion helmet experiences will be displayed at the game room; but the
centerpiece of the facility will be the six cockpit "Battle of the Bulge"
simulation. The Showplace will consist of approximately 3,000 square feet in a
retail zoned area of Orlando, Florida. The units will act as a marketing tool
for sales, and also as a very controlled environment for the introduction of new
experiences. Although this facility is expected to be geared to testing and
market response, it is anticipated to have a revenue stream.
The Company is engaged and intends to continue to engage in ongoing
research and development efforts to expand and enhance the technical
capabilities, design features and range of uses of its products. The Company
currently employs nine persons, seven of which are engineers. Due to the
increasing competition and rapid technological change in the VR marketplace, the
Company believes that it must continue to improve and refine its products. The
Company intends to hire additional full time personnel subsequent to the
completion of the Offering, including two additional engineering technicians and
two sales/marketing employees.
Tellurian intends to utilize the Eagle technology to build its own
complete game units and use these units to establish one or more LBE's to be
owned solely by Tellurian or jointly with others. Depending upon the cash
requirements of the LBE, Tellurian may finance the LBE utilizing a portion of
the proceeds of the Offering or Tellurian may enter into joint venture or
revenue sharing agreements with third parties such as existing owners and
operators of LBE's. In some cases, the Company may provide the equipment for the
facility and assist in the designing, developing, construction and themeing of
the LBE. The Company has no experience in owning, financing and operating LBE's
and is likely to be dependent in such areas upon third parties to assist it or
participate with it in establishing LBE's. The Company has no binding agreements
with respect to any of these opportunities and there can be no assurances that
Tellurian will be successful in establishing or entering into revenue sharing
agreements for one or more LBE's and deriving operating profits from such
23
<PAGE>
operations. The Company has allocated $1,650,000 of the proceeds of the
Offering which may be used to establish or enter into revenue sharing agreements
for one or more LBE's.
The Company has estimated the net proceeds from this Offering together
with revenues from operations will be sufficient to meet the Company's cash
requirements for a period of between 12 and 15 months following the date of this
Prospectus. However, there can be no assurance that unexpected future
developments may result in the Company requiring additional financing and that
if required, additional financing will be available to the Company.
Results of Operations
Three Months Ended March 31, 1996 vs. March 31, 1995
Tellurian's net sales for the three months ended March 31, 1996 were
$54,898, a decrease of $65,757 or approximately 55% over the comparable period
of the prior year. Net sales consist of sales of the Company's AT-200 image
generator, repairs and maintenance to existing AT-200 image generators and sales
of ancillary software products. Tellurian's gross profit for the three months
ended March 31, 1996 was $(2,806), a decrease of $41,416 or approximately 105%
over the comparable period of the prior year. Tellurian's gross profit
percentage for the three months ended March 31, 1996 was approximately (5)%, a
decrease from 32% for the comparable period of the prior year. The decrease in
net sales, gross profit and gross profit percentage was due to the delay in
completing the production of the Company's Eagle product. As a result of this
delay, Tellurian filled purchase orders for EAGLE with delivery of the AT-200 at
EAGLE prices which are substantially lower than the sales prices for the
Company's AT-200.
Tellurian's research and development activities for the three months
ended March 31, 1996 was $180,546, an increase of $85,106 or approximately 89%
over the comparable period of the prior year. The large increase in research and
development activities related to Tellurian's development of the "EAGLE,"
Tellurian's new image generator product specifically designed for the virtual
reality entertainment market. Research and development activities include costs
of the Company's product design, quality insurance, engineering support
activities and microcode consulting. The Company intends to commit significant
resources to future research and development activities and has allocated
expenses of approximately $900,000 of the proceeds of the Offering towards
research and development.
Selling, general and administrative expenses for the three months ended
March 31, 1996 were $141,749, an increase of $51,841 or approximately 58% from
the comparable period of the prior year. The increase in selling, general and
administrative expenses was substantially due to professional fees and
participation in a trade show. Selling, general and administrative expenses
expressed as a percentage of sales was approximately 258% for the three months
24
<PAGE>
ended March 31, 1996, an increase of approximately 183% from the comparable
period of the prior year. This increase was due to the sharp drop in sales
combined with increases in selling, general and administrative expenses. The
Company expects that it will incur substantial increases in selling, general
and administrative expenses over the next 12 months as a result of planned
marketing efforts for the EAGLE and its complimentary products.
For the three months ended March 31, 1996, interest expense was $26,621
as compared to $15,786 for the comparable period of the prior year. The increase
of $10,835 was due to Tellurian's long-term indebtedness of $720,000, $192,000
of which was issued on December 27, 1995 and $528,000 was issued on January 22,
1996.
Tellurian's net loss for the three months ended March 31, 1996 was
$344,183 as compared to $162,524 for the comparable period of the prior year.
The increase in the net loss was primarily due to an increase of approximately
$116,000 of operating expenses and the Company's reduction in net sales and
gross profit for the reasons described above.
Year Ended December 31, 1995 vs. Year Ended December 31, 1994
Tellurian's net sales for the year ended December 31, 1995 were
$477,311, an increase of $15,479 or approximately 3% over the comparable period
of the prior year. Net sales consisted of sales of the Company's AT-200 image
generator, repairs and maintenance to existing AT-200 image generators and sales
of ancillary software products. During 1994, approximately 4% of sales were
derived from royalties on manufacturing licenses. Tellurian has occasionally
licensed the right to manufacture and sell its AT-200 Image Generator to
non-affiliated third parties in return for a royalty fee.
Tellurian's gross profit for the year ended December 31, 1995 was
$138,091, a decrease of $17,517 or approximately 11% over the comparable period
of the prior year. Tellurian's gross profit percentage for 1995 was
approximately 29%, a decrease of approximately 4% from the comparable period of
the prior year. The decrease in gross profit percentage was due to sales of the
Company's AT-200 image generator at lower prices to encourage customers to
purchase this product pending the completion of the production of the Eagle.
Tellurian's research and development activities for the year ended
December 31, 1995 was $423,770, an increase of $125,906 or approximately 42%
over the comparable period of the prior year. The large increase in research and
development activities related to Tellurian's development of the "EAGLE,"
Tellurian's new image generator product specifically designed for the virtual
reality entertainment market. Research and development activities include costs
of the Company's product design, quality insurance, engineering support
activities and microcode consulting.
25
<PAGE>
Selling, general and administrative expenses for the year ended
December 31, 1995 were $349,630, a decrease of $22,629 or approximately 6% from
the comparable period of the prior year. The decrease in selling, general and
administrative expenses was due to lower rent payment and the shifting of one
employee from administrative responsibilities to research and development.
Selling, general and administrative expenses expressed as a percentage of sales
was approximately 73% for 1995, a decrease of approximately 10% from the
comparable period of the prior year. This decrease was a result of increased
sales combined with a decline in selling, general and administrative expenses.
For the year ended December 31, 1995, interest expense paid to a
related party was $64,356 as compared to $62,387 for the comparable period of
the prior year.
Tellurian's net loss for the year ended December 31, 1995 was $699,665
as compared to $576,902 for the comparable period of the prior year. The
increase in the net loss was primarily due to an increase of approximately
$126,000 in research and development activities related to Tellurian's
development of the EAGLE.
Liquidity and Capital Resources
From inception through March 31, 1995, cash flow from financing
activities principally came from Charles Powers, a founder of the Company, who
was then a principal stockholder of the Company prior to his transfer of his
stockholdings in October 1995 to a family member, and to a lesser extent, from
monies borrowed from officers, directors and their family members. In March
1995, the Company sold 600,000 shares of Common Stock at a purchase price of
$100,000. Between December 1995 and January 1996 the Company raised $750,000 in
gross proceeds from the sale of promissory notes in the principal amount of
$720,000 and 3,000,000 warrants which are automatically convertible into
3,000,000 warrants identical to those sold herein upon the completion of the
Offering. In June 1996 the Company received gross proceeds of $175,000 from the
sale of its promissory notes in the principal amount of $175,000, $25,000 of
which automatically converts into 25,000 shares of the Company's Common Stock
upon the completion of the Offering. See "Certain Transactions."
The Company requires significant financing for it to meet its liquidity
needs. As of March 31, 1996, the Company has a working capital deficit of
approximately $1,766,000. The Company intends to satisfy its cash resources and
liquidity needs for a period of between twelve and fifteen months from the
proceeds of the Offering and cash flow from operations. See "Use of Proceeds."
During the three months ended March 31, 1996, net cash of $385,777 was
used in operating activities as compared to net cash used in operating
activities of $87,639 for the three months ended March 31, 1995. During the
three months ended March 31, 1996, Tellurian's current liabilities were reduced
26
<PAGE>
by approximately $115,000 from December 31, 1995. During the three months ended
March 31, 1996 and 1995, net cash was used in operating activities to purchase
property and equipment of $6,680 and $318, respectively. During the three months
ended March 31, 1996 and 1995, net cash was provided by financing activities
totaling $353,327 and $90,151, respectively. During the three months ended
March 31, 1996, the Company received $528,000 in proceeds from long-term debt
and retired $100,000 of notes payable to related parties. During the three
months ended March 31, 1995, the Company received proceeds from the sale of its
Common Stock of $90,266.
For the year ended December 31, 1995, net cash of $233,791 was used in
operating activities due to the Company's net loss reduced by substantial
increases in the Company's payables and decreases in the Company's inventories.
For the year ended December 31, 1994, net cash of $9,080 was provided by
operating activities as a result of substantial increases in the Company's
payables and decreases in its inventories over and above the Company's net loss.
BUSINESS
General
The Company is engaged in the design, development and marketing of
virtual reality products which include image generators, related software,
helmets and motion systems. The Company also provides consulting services by
developing customized software and databases for customers who purchase its
image generators and need such services for specific application requirements.
Since 1988, the Company has been designing, building and selling a line of
specialized computers and ancillary software which are used to generate visual
images in realtime for use in flight trainers and other simulation equipment.
Since 1992, the Company's principal product has been its AT-200 image generator,
a specialized computer, which is sold to customers who manufacture training and
simulation equipment. Beginning June 1994, the Company has been adapting its
AT-200 Image Generator and has been selling this product and ancillary software
for use in virtual reality entertainment devices.
Since 1994, the Company has been designing and engineering a new image
generation product known as the "EAGLE", a specialized computer, which is
specifically designed for the virtual reality entertainment market. In July
1996, Tellurian delivered its first production units of the EAGLE pursuant to
purchase orders.
Background
The Company's AT-100 and AT-200 image generators were, in part, based
upon developments by Ronald Swallow in computer graphics hereinafter referred to
as the "Quantum flat-shaded technology" while he was a principal in Quantum
Graphics Corporation ("Quantum"), a corporation which he had founded in 1987 and
which became 80% owned by him, Richard Swallow and Charles Powers. The
development activities
27
<PAGE>
of Quantum became adversely affected because of its inability to obtain adequate
funding and disagreements among its shareholders, and it filed for protection
under the Bankruptcy Act in 1988. During the course of bankruptcy proceedings,
an adversarial proceeding was commenced by the trustee in bankruptcy concerning
the ownership of the Quantum flat-shaded technology. As a result of such
adversarial proceeding, an agreement was entered into on November 5, 1991
between the trustee of Quantum, TTY Graphics, Inc. ("TTY") and Greg Gustin
("Gustin"), hereinafter referred to as the "Purchase Agreement", the latter two
having been investors or principals in a predecessor of Quantum prior to its
formation. The agreement acknowledged that Quantum, TTY and Gustin each owned an
undivided one-third interest in the Quantum flat-shaded technology and provided
for the sale of the interests owned by Quantum and Gustin to TTY for a cash
consideration of $150,000 and royalties to be paid by TTY or Tellurian equal to
two-thirds of four percent of revenues derived from the licensing of, or sales
of products incorporating, the Quantum flat-shaded technology and one percent of
revenues derived from the licensing of, or sales of products incorporating,
computer graphics technology other than the Quantum flat-shaded technology.
Payment of the royalties is secured by a security agreement granting the
bankruptcy trustee of Quantum and Gustin a lien on the Quantum flat-shaded
technology and all revenues, products, accounts receivable and contract rights
arising from or related to the technology, and providing that TTY cannot, except
for non-exclusive licenses sell, contract to sell, encumber or otherwise dispose
of the Quantum flat-shaded technology without the prior written consent of the
trustee of Quantum. Except for the above mentioned payment of royalties of one
percent, the foregoing provisions are not applicable to the EAGLE, which is not
based upon the technology of the AT-100 and AT-200.
TTY assigned the Purchase Agreement to Tellurian in exchange for the
forgiveness of certain financing provided by Tellurian to TTY and a royalty of
one-third of four percent of all sales of Quantum flat shaded technology up to a
maximum of $500,000. In August 1996, TTY agreed to cancel its right to receive
future royalties in exchange for Tellurian agreeing to pay accrued and unpaid
royalties to it of $10,529.50 and an additional $70,000. Such $80,529.50 is
payable $45,529.50 on the earlier of March 31, 1997 or the completion of the
Offering and the balance one year thereafter. Similarly, in August 1996, Gustin
agreed to cancel his rights to receive future royalties under the Purchase
Agreement in exchange for Tellurian agreeing to pay him accrued and unpaid
royalties fixed at $5,000 and an additional $75,000. Such $80,000 is payable
$42,500 on the earlier of March 31, 1997 or the completion of the Offering and
the balance one year thereafter.
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VIRTUAL REALITY
Virtual Reality is an artificial environment of sight, sound and motion
created with the use of computers. The earliest example of a rudimentary virtual
reality device is the Link Trainer, which was used in training pilots for
instrument flying. With the availability of modern computers, simulators have
undergone rapid development, particularly in the presentation of visual scenes
and sound effects. Present day simulators not only provide motion, but also
visual pictures and sound effects, which are altered as the controls are
manipulated. Simulators are presently extensively used in training ship pilots
and air traffic controllers, as well as aircraft pilots.
The hallmark of virtual reality entertainment is its ability to immerse
the user in a fantasy experience. The four dimensions to present day VR are
sight, sound, motion, and interactivity with other players. Tellurian's "ICE
Falcon" is a prime example of virtual reality entertainment. The unit consists
of a fiberglass cockpit similar to that of an F-16 fighter aircraft, and it is
outfitted with a control stick, throttle, and all the gauges one would expect to
find in the actual jet. Once seated, the player views what appears to be the
outside world via three 27" video monitors. Game play begins when the player
taxis down the runway and takes off. Using only the visual display, the player
is able to see a view of the world which the computer is constantly creating and
changing in response to the manipulation of the controls by the player. This
continual interaction between player and computer maintains the virtual reality
of the F-16's pitch and direction and allows the player to choose his own
adventure. If the player heads off in the direction of the enemy's airport, for
example, the computer will create and control a visual image of an attacking
aircraft for the player to destroy. If the player moves in a direction away from
an enemy airport, the player is free to practice his flying skills without being
confronted by an enemy aircraft.
PRODUCTS
Tellurian has been designing, building and selling low cost, high speed
image generators since 1988. The first generator, known as the AT-100 was used
exclusively for flight training applications. Since 1992, the Company has been
selling the AT-200 image generator which is a second generation unit and is
largely used in simulators for training aircraft pilots and ship captains. The
AT-200 is currently installed on Link Flight Trainer Devices ("FTD") simulators,
ships handling training devices, and air traffic control simulators. The AT-200
provides realtime image generation with high resolution, multi-channel operation
and full color using proprietary hardware and software. As of June 30, 1996, the
Company has built and sold over 250 AT-200 systems.
The Company currently sells its AT-200 unit and ancillary software
(including performing repairs and maintenance and providing related consulting
29
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services) to two types of customers: those engaged in the production of training
devices, and those who specialize in entertainment devices. The first category
of customers includes such companies as Hughes/Link Corporation, Ship Analytics
Corp., and Grumman Aerospace Corporation (currently known as Northrop/Grumman
Aerospace Corporation). During the three months ended March 31, 1996 and the
year ended December 31, 1995, revenues from this category amounted to 100% and
31%, respectively, of the Company's total revenues for each applicable period.
The latter group includes MaxFlight Corp., Ride & Show Engineering, and the
Fightertown Entertainment Centers. During the three months ended March 31, 1996
and the year ended December 31, 1995, revenues from this group amounted to 0%
and 69%, respectively, of the Company's total revenues for each applicable
period.
Tellurian's most recently developed image generation product is the
"EAGLE," a system specifically designed for the VR entertainment market. The
EAGLE, which is available in multiple resolution formats, is faster and less
expensive to produce than the AT-200. Each unit is composed of proprietary
hardware and software which combined with motor and sound simulate a full-
immersion experience. The EAGLE is intended for use at amusement/ theme parks,
video arcades, family fun centers and other location based entertainment
facilities. In July 1996, the Company completed and delivered the first
production units pursuant to purchase orders. The Company intends to utilize a
portion of the net proceeds of the Offering to purchase production tooling
necessary to produce the EAGLE products in higher volume.
Using the EAGLE, the Company is currently developing a class of games
in which a significant portion of the entertainment center is themed to a
particular time and place. For example, the Company's Battle of the Bulge"
adventure will be based on the legendary P-51 Mustang fighter plane of WW II.
The following describes this specific experience; however, the Company has
already been contacted to design other adventures themed around NASCAR racing,
ancient civilizations and under sea exploration.
The Battle of the Bulge VR experience will be a theme area within a
LBE. Although the size of the area will be flexible, a minimum of 60' x 40' is
recommended. Within the entertainment area will be a Flight Shop where the
guests register for the P-51 experience and can purchase items such as T-shirts,
hats, jackets, models, dog tags, and coffee mugs bearing the P-51 logo. This
area is intended to resemble a WW-II Officers Club with rustic wood tables and
counters, and planked wood floors. The ceiling will have corrugated metal which
has been curved to meet the area of Flight Shop and Briefing Room. Walls will be
adorned with maps, squadron insignias, and pin-up girls with period music (such
as Glenn Miller) playing.
Behind the Flight Shop will be a small "Briefing Area," consisting of
wooden benches, a video tape machine, and chalk board. The purpose of this area
will be to get guests ready for their experience. In addition to receiving
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instructions on how to best use the P-51, each guest will be interviewed by the
"Flight Leader" (a uniformed employee) to establish the level of difficulty each
guest wishes to experience. Basic introduction to the experience will be handled
via video tape. The Flight Leader will be there to answer questions. The floor
of the Briefing Area will contain planked wood and the walls will have military
aeronautical maps, detailed maps of certain target areas, and silhouettes of
various aircraft (both friendly and foe). A rough wooden door will be the exit
into the "Hanger Area." Around the door are sand bags, various warning signs,
and a small chalk board with weather conditions over the target area. Sound in
this room will be of muffled "mic chatter," engines starting, and the occasional
signal siren. Since each experience will last approximately eight minutes, the
amount of time a guest spends in the "Briefing Area" will be limited. The size
of the "Briefing Area" will be determined by the number of VR units in the
"Hanger Area." When the "Hanger Area" is ready for the guests, a bare red light
bulb will flash above the exit door.
The "Squadron Leader" (a uniformed employee - in flight gear) will meet
the guests as they enter the "Hanger Area," and escort them to their P-51
aircraft. Each P-51 will be a 70% scale model of the actual Mustang aircraft.
The aircraft will be made of fiberglass and painted with authentic markings.
Each aircraft will have two seats, the pilot's cockpit, and a "back seat
observer." The interior of the P-51 will be equipped with instruments, control
stick and throttle, radios, rudder peddles. The canopy opens and closes. Each
cockpit will be mounted on a two axis platform which provides both guests with
motion cues. The experience will differ for each crew, based on the interview
data given to the Flight Leader in the Briefing Room. The experience will be
generally the same; however, the guests are to meet up with, and escort B-17
bombers on a raid over enemy territory.
Other Products and Services
There are various manufacturers which produce helmets and motion
systems for the virtual reality experience. Tellurian believes that it would be
advantageous to utilize the technologies of the "Eagle" in developing its own
proprietary products of this type.
Helmet
After the completion of the Offering, approximately two months will be
required to complete development of the Company's own VR helmet. This device
will be tailored to maximize the performance of the EAGLE and to replace the
cumbersome 27" monitors now being used on Tellurian's game units. When combined
with the EAGLE, the helmet's special optics and ear phones will give the player
stereo viewing and sound.
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Motion System
Once the helmet is completed and tested, the Company will focus its
efforts on the design and manufacturing of a low cost, high performance motion
system which will be adaptable to a variety of game platforms including cars,
planes, and space ships. This project is expected to take four to six months.
Once completed, individual vehicle models (in software) will be written to give
the motion system full realism.
Virtual Reality Showplace
To effectively market Tellurian's products, it is planning to have a
complete virtual reality showplace ready for demonstrations approximately seven
months after the closing of the Offering. The Company's range of VR devices
which includes modern fighter cockpits, dune buggies, spacecraft and full
immersion helmet experiences will be displayed at the game room; but the
centerpiece of the facility will be the six cockpit "Battle of the Bulge"
simulation. The Showplace will consist of approximately 3,000 square feet in a
retail zoned area of Orlando, Florida. The units will act as a marketing tool
for sales, and also as a very controlled environment for the introduction of new
experiences. Although this facility is expected to be geared to testing and
market response, it is anticipated to have a revenue stream.
Consulting Services
When a customer purchases the Company's image generator, the Company
provides the customer with a standard variety of databases and software.
However, from time to time a customer's application may demand a unique database
and software for specific application requirements. Upon a customer's request,
the Company will build a customized database and software under a separate
consulting agreement.
Sales and Marketing
Tellurian's core product line includes the AT-200 and the EAGLE
computer image generators. They are special purpose computers designed and built
by the Company to render images in a variety of display devices, such as,
helmets, projection screens and TV monitors. The AT-200 is being sold in the
training, simulation and entertainment markets. Location based entertainment
operations, which currently utilize devices employing the AT-200 image
generators are Six Flags (Great Adventure - Jackson, NJ, Magic Mountain - Los
Angeles, CA and Fightertown - Lake Forest, CA). Entering the entertainment
market is believed to be a natural progression of the technology and products
which the Company is presently developing.
The Company's marketing efforts to date have been concentrated on
selling image generating systems to manufacturers of trainers and simulators.
The sales and marketing are presently conducted by officers of the Company.
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<PAGE>
For 1994, three customers, namely, CAE/Link Corp., Ship Analytics Corp., and
Fightertown, Inc. represented approximately 24%, 19% and 18%, respectively, of
the Company's revenues. During 1995, three customers, namely, Ride & Show
Engineering Corp. (a vendor to Six Flags), Virtual Reality Entertainment Center
and Voyager accounted for 32%, 21% and 11%, respectively, of the Company's
revenues. During the three months ended March 31, 1996, two principal customers,
namely, Voyager and AST Simulation, Inc. accounted for 87% and 10%,
respectively, of the Company's revenues.
It is anticipated that several sales persons will be hired at the
Company's New Jersey facility as the Company expands its marketing activities
into the entertainment market. Traditional trade magazine advertising will be
done on a regional scale, while trade show participation will be done on a
national level.
The goal of the Company is to use its products in arcades, family fun
centers, LBE's and theme parks. The second market for the Company's products
consists of company's which develop virtual reality games.
Location Based Entertainment Centers
Tellurian intends to utilize the Eagle technology to build its own
complete game units and use these units to establish one or more LBE's to be
owned solely by Tellurian or jointly with others. Depending upon the cash
requirements of the LBE, Tellurian may finance the LBE utilizing a portion of
the proceeds of the Offering or Tellurian may enter into joint venture or
revenue sharing agreements with third parties such as existing owners and
operators of LBE's. In some cases, the Company may provide the equipment for the
facility and assist in the designing, developing, construction and themeing of
the LBE. The Company has no experience in owning, financing and operating LBE's
and is likely to be dependent in such areas upon third parties to assist it or
participate with it in establishing LBE's. The Company has no binding agreements
with respect to any of these opportunities and there can be no assurances that
Tellurian will be successful in establishing or entering into revenue sharing
agreements for one or more LBE's and deriving operating profits from such
operations. The Company has allocated $1,650,000 of the proceeds of the Offering
which may be used to establish or enter into revenue sharing agreements for one
or more LBE's.
In March 1996, Tellurian entered into an agreement to enter into a
joint venture agreement with Eye Wonder Studios of Fenwick, Canada ("Eye
Wonder"), for the purpose of establishing a LBE at the Canadian side of Niagra
Falls. Under the contract, Tellurian is to provide at cost its skill and
expertise in image generators and virtual reality equipment and Eye Wonder is to
provide all funding. Tellurian has agreed to assist Eye Wonder in securing such
funds. All other terms and conditions of the joint venture agreement have not
been determined. The location of the anticipated attraction is expected to be on
the Canadian side of Niagara Falls, and is anticipated to be part of
redevelopment of the area making it a destination resort. The Canadian
33
<PAGE>
government has granted licenses for casino gambling in the city, and the new
entertainment center is intended to be right in the middle of this renovation.
In addition to providing a portion of the equipment in the facility, Tellurian
intends to assist in the design, development and construction of this 32,000 sq.
ft. facility. No assurances can be given that the Company will enter into a
definitive agreement with Eye Wonder Studios on terms satisfactory to the
Company, if at all.
Licensing of Tellurian Technology
Pursuant to an agreement dated as of January 1, 1996 by and between
Tellurian and Voyager Graphics, Inc., a Republic of China corporation,
("Voyager") Tellurian granted Voyager an irrevocable, exclusive, assignable
fully paid license (the "License") to be the exclusive supplier of the EAGLE
image generator (the "Product") within a restricted group of countries (the
"Licensed Territory") and to sell the Products worldwide. The Licensed Territory
consists of Afghanistan, Australia, Bahrain, Bangladesh, Bhutan, Burma, China
(including Taiwan, Hong Kong and Mainland China), Cyprus, India, Indonesia,
Iran, Iraq, Japan, Jordan, Kampuchea (Cambodia), Korea (North), Korea (South),
Kuwait, Laos, Lebanon, Malaysia, Maldives, Marshall, Mongolia, Nepal, New
Zealand, Oman, Pakistan, Philippines, Qatar, Saudia Arabia, Singapore, Sri Lanka
(Ceylon), Syria, Thailand, Turkey, United Arab Emirates, Vietnam, Yemen (Aden
and Sana). The License includes all the know-how, patent rights and copyright
matter, if any (hereinafter the know how, copyrights and patent rights are
collectively referred to as the "Intellectual Property"), and the right to grant
sub-licenses to third parties without the consent of Tellurian. Tellurian
retains the right to grant licenses of the Intellectual Property to third
parties outside of the Licensed Territory and to sell the Products and/or any
derivative products (i.e. computer image generators that are manufactured based
on and by utilizing partly the Intellectual Property of Tellurian, hereinafter
referred to as the "Derivative Products") outside the Licensed Territory. As
part of the License Agreement, Tellurian is responsible to provide a classroom
training and production training program of a total of twelve weeks for up to
twelve engineers at Tellurian's facilities in Upper Saddle River, New Jersey, to
provide each Voyager engineer with a sound working knowledge of every aspect of
the computer image generator known as EAGLE and to build ten working units
during the program.
In consideration of the License and technology transfer, Voyager has
agreed to pay Tellurian $1,500,000 as follows: 4% upon signing of the License
Agreement, 16% upon the completion of the first prototype of the EAGLE, 10% upon
delivery of design data package, 40% upon the completion of training program,
20% in 90 days after the completion of the training program, and 10% in 180 days
after the completion of the training program. Of the $1,500,000, Tellurian,
pursuant to separate agreements have agreed to pay $500,000 to Voyager
Simulation Company Ltd. and $150,000 to TTY Graphics, Inc. ("TTY") resulting in
a net amount of $850,000 to Tellurian before payment of royalties as
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<PAGE>
described under "Background." The License Agreement provides that in addition to
the foregoing payment of $1,500,000, Voyager shall pay Tellurian for a period of
five years until January 1, 2001, a royalty equal to 2% of the net sales value
of the Products sold and in the case of Derivative Products, a royalty equal to
2% of the Derivative Products multiplied by the ratio of the material cost of
components common to the Products to the total cost of the Derivative Products.
The License Agreement contains provisions to protect Voyager's licensing and
sales rights that require Tellurian to pay Voyager a sum equivalent to 100 times
the net sales value of each Product or Derivative Product sold by Tellurian in
the Licensed Territory and in the event that Tellurian is in breach of the grant
of License by allowing third parties to use Intellectual Property in the
Licensed Territory, Tellurian shall compensate Voyager in an amount equivalent
to five times the price payable under the License Agreement. As of July 31,
1996, Tellurian has received payments totalling $416,000 of the above referenced
$850,000 from Voyager.
Manufacturing
The Company designs and manufactures its products according to its
proprietary designs and engineering. The Company uses vendors to produce the
circuit boards used in its products. The Company also purchases integrated
circuits (IC) from a variety of sources and is not dependent upon any one
supplier with the exception of its central processing unit (CPU) for the EAGLE.
The Company purchases its CPU from analog devices corp. and does not anticipate
any supply problems in either the short or long term. Once all the components
are assembled at the Company, the products are forwarded to another vendor for
soldering. After soldering, the completed boards are returned to the Company for
final integration into units ready for shipment.
Backlog
As of June 30, 1996, the Company has received deposits on the Company's
products of approximately $200,000 against a backlog of written orders of
approximately $570,000, all of which are anticipated to be filled by December
31, 1996. As of May 31, 1996 and 1995 the Company had a backlog of orders of
approximately $360,000 and $190,000, respectively.
Research and Development
The Company is engaged and intends to continue to engage in ongoing
research and product development efforts to expand and enhance the technical
capabilities, design features and range of uses of its products. The Company
currently employs seven engineers who are involved in research and product
development. Due to the increasing competition and rapid technological change in
the VR marketplace, the Company believes that it must continue to improve and
refine its products.
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<PAGE>
Competition
The market for the Company's products is highly competitive and rapidly
changing, and the Company expects competition to continue to be intense in the
foreseeable future. There are two major categories of competitors for the
Company's products. The first are the "high end" (costly) real time image
generators from companies such as Silicon Graphics, Inc., Evans & Sutherland,
Inc. and Lockheed Martin Corp. These real-time image generators are generally
used for military training and simulation applications; as engineering and
graphics work stations; and as animation design tools. These costly systems
provide photo realistic images by creating objects from polygons and laminating
each surface with a texture pattern whereas the Company's products produce a
non-textured polygon image. Although these competitive systems provide very
desirable images, the Company's products are substantially cheaper than those of
such competitors. The second type of competitors are the manufacturers of "low
end" (less costly) video arcade devices. These electronic devices have no
computers and are limited as to the quality and complexity of the images they
produce. Management believes that both categories of competitors will continue
to improve their products in either price or performance as developments permit.
The Company believes that its products provide a balanced approach the proper
mix of image quality with price. Many of the Company's current and prospective
competitors have (or will likely have) significantly greater financial,
technical, manufacturing and marketing resources and experience, and a larger
installed base, than the Company.
The Company believes that its ability to compete depends on elements
both within and outside its control, including the success and timing of new
product development by the Company and its competitors, product performance and
price, distribution and customer support. Although the Company believes that it
offers products with price and performance characteristics competitive with
other manufacturers' products, there is no assurance that products can be
developed, produced or marketed successfully in the future. In order to be
successful in the future, the Company must continue to respond promptly and
effectively to the challenges of technological change and its competitors'
innovations. Performance in these areas will, in turn, depend on the Company's
ability to attract and retain highly qualified technical personnel in a
competitive market for experienced and talented computer hardware developers and
managers. There is no assurance that the Company will be able to compete
successfully in its chosen markets.
Lack of Patent Protection
The Company does not currently hold any patents and the technology
embodied in the Company's current product line cannot be patented. The Company
relies on confidentiality agreements with its key employees to the extent it
deems such to be necessary. Although the Company intends to file a patent
application for its new products to the extent any technology included in such
products is patentable, if any, there can be no assurance that any patents
36
<PAGE>
in fact, will be issued or that such patents will be effective to protect the
Company's products from duplication by other manufacturers. In addition, there
can be no assurance that the Company will be able to afford the expense of any
litigation which may be necessary to enforce its rights under any patent.
Employees
Currently, the Company has nine full-time employees, including one
executive employee, one production person and seven engineers. The Company
intends to hire additional full time personnel subsequent to the completion of
this offering, including two additional engineering technicians and two
sales/marketing employees. The Company believes that its relations with its
employees is good. None of the Company's employees is represented by a union.
Facilities
In May 1996, the Company entered into a two year lease expiring May
31,1998 for approximately 7500 square feet of space at 15 Industrial Avenue,
Upper Saddle River, New Jersey 07458. Pursuant to the lease, the Company pays a
monthly rent of $5,125. The Company has the option to renew the lease for two
one year periods at fair market value. Upon the completion of the Offering, the
Company intends to lease additional facilities for its operations in the New
Jersey area. The Company believes that suitable additional facilities can be
found on terms satisfactory to the Company.
37
<PAGE>
MANAGEMENT
Executive Officers and Directors
The names of the executive officers and directors of the Company are as
follows:
Name Age Position
- ---- --- --------
Dr. Ronald Swallow* 60 Chairman of the Board of
directors and
Chief Executive Officer
Stuart French 50 President, Chief Financial
and Accounting Officer and
a director of the Company
Dr. Richard Swallow* 58 Secretary and a director
of the Company
- ------------------
* May be deemed a founder of the Company. Dr. Ronald Swallow and Dr. Richard
Swallow are brothers.
All directors of the Company hold office until the next annual meeting
of shareholders of the Company or until their successors are elected and
qualified. Executive officers hold offices until their successors are elected
and qualified, subject to earlier removal by the Board of Directors.
Set forth below is a biographical description of each director and
executive officer of the Company based upon information supplied by them:
Dr. Ronald Swallow has been the Chief Executive Officer, Chairman of
the Board and Vice President-Engineering of Tellurian and its predecessor under
the same name since 1988. Dr. Swallow has a Bachelor of Science degree in
Engineering Physics, a Masters degree in Electrical Engineering and a Ph.D in
Biophysics, all from the University of Illinois.
Stuart French has been Chief Financial and Accounting Officer since
January, 1996, has served as a member of the Board of Directors since March
1995, the President of the Company since October 1993, and prior thereto was the
Vice President of Operations and Marketing from August 1991. Mr. French joined
the Company after the sale of Flightmatic Corp. which he owned and operated from
1987 through 1991. Flightmatic was a flight simulation company manufacturing and
selling low cost general aviation training equipment. Previously, he spent ten
years at Grumman Aerospace as a Business Development Manager for US Air Force
contracts. After receiving a BS degree in Marketing from New England College,
Mr. French was a pilot in the US Navy.
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<PAGE>
Dr. Richard Swallow has been a director of Tellurian and its
predecessor under the same name since its inception in 1988. From 1988 to
October 1993 Dr. Swallow also held the position of President. Since 1973, Dr.
Swallow has been a member of the faculty and staff of Coker College in
Hartsville, South Carolina, where he is currently the Director of Information
Services. Dr. Swallow received his Ph.D. degree in Zoology from the University
of Missouri in 1968, his Masters of Science degree from the University of
Missouri in June 1966 and Bachelor of Science degree from the University of
Illinois in June 1963.
Bankruptcy of Quantum Graphics Corporation
On March 16, 1987, Dr. Ronald Swallow founded and served as Chairman of
the Board and principal stockholder of Quantum Graphic Corporation, an image
generator research and development private company which owned certain rights to
a prototype of the AT-100. Dr. Richard Swallow was also a founder and a director
of Quantum. On April 12, 1988, Quantum, as a result of its inability to raise
sufficient funding and due to disagreements among Quantum stockholders, filed
for bankruptcy protection in the Western District of Texas, Austin Division
under Chapter 11, which was converted into a Chapter 7 filing on May 12, 1988.
On May 27, 1988, the Chapter 7 filing was dismissed and on May 31, 1988, a new
Chapter 7 filing was made with the Court and the case was closed by the
Bankruptcy Court on April 19, 1995. In November, 1991, the Bankruptcy Court
confirmed the sale of the technology relating to the AT-100 prototype to TTY
Graphics, Inc. ("TTY"). See "Business-Background."
Employment Agreements
During 1996, Dr. Ronald Swallow and Stuart French have been receiving
salaries at the annual rate of $108,000 and $84,000, respectively and Mr. French
has been receiving a sales commission of five percent. Upon the completion of
the Offering, the Company intends to enter into employment agreements with Dr.
Ronald Swallow and Stuart French. The agreements will provide for a term of two
years and a continuation of their current compensation arrangements with salary
increases and bonuses based upon profitability to be determined by the Board of
Directors. The employment agreements will provide for covenants not to compete
during the term of the agreements and for a period of one year thereafter and
indemnification against liabilities as an officer and director of the Company to
the fullest extent permitted by applicable law. Prior to the Offering, the Board
of Directors granted Dr. Ronald Swallow and Stuart French options to purchase
73,000 shares and 150,000 shares, respectively, of the Company's Common Stock.
See "Stock Option Plan."
Director Compensation
Directors of the Company do not currently receive cash compensation for
their services as directors, although each director has been granted stock
39
<PAGE>
options under the Company's Stock Option Plan. See "Executive Compensation -
Stock Option Plan." The Board of Directors has the right to compensate its
directors in the future.
Limitation of Directors' Liability; Indemnification
Pursuant to Tellurian's By-Laws, Tellurian must, to the fullest extent
permitted by the General Corporation Law of the State of Delaware (the "GCL"),
as amended from time to time, indemnify all persons (e.g., directors and
officers) whom it may indemnify pursuant thereto and to advance expenses
incurred in defending any proceeding for which such right to indemnification is
applicable, provided that, if the GCL so requires, the indemnitee must provide
Tellurian with an undertaking to repay all amounts advanced if so determined by
a final judicial decision. Tellurian's Certificate of Incorporation contains a
provision eliminating, to the full extent permitted by Delaware law, the
personal liability of Tellurian's directors for monetary damages for breach of a
fiduciary duty. By virtue of this provision, under current Delaware law, a
director of Tellurian will not be personally liable for monetary damages for
breach of his fiduciary duty as a director, except for liability for (i) any
breach of his duty of loyalty to Tellurian or to its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) dividends or stock purchases or redemptions that are
unlawful under Delaware law and (iv) any transaction from which he derives an
improper personal benefit. This provision of Tellurian's Certificate of
Incorporation pertains only to breaches of duty by directors as directors and
not in any other corporate capacity such as officers, and limits liability only
for breaches of fiduciary duties under Delaware corporate law and not for
violations of other laws such as the federal securities laws. As a result of the
inclusion of such provision, stockholders may be unable to recover monetary
damages against directors for actions taken by them that constitute negligence
or gross negligence or that are in violation of their fiduciary duties, although
it may be possible to obtain injunctive or other equitable relief with respect
to such actions. The inclusion of this provision in Tellurian's Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action if successful, might otherwise have benefitted
Tellurian and its stockholders.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
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<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors and Executive Officers
The following table sets forth the amount of all compensation paid by
Tellurian for services rendered during the years ended December 31, 1995 and
1994 to Tellurian's Chief Executive Officer, Dr. Ronald Swallow and Stuart
French, President.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
===================================================================================================
Annual Compensation
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e)
Other
Name Annual
and Compen-
Principal Salary Bonus sation
Position Year ($) ($) ($)
- ---------------------------------------------------------------------------------------------------
Dr. Ronald Swallow, 1995 108,000 -0- -0-
Chief Executive ----------------------------------------------------------------------
Officer (3) 1994 108,000 -0- -0-
- ---------------------------------------------------------------------------------------------------
Stuart French 1995 84,000 -0- 13,814
President (4) ----------------------------------------------------------------------
1994 84,000 -0- 13,420
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================================================
Long Term Compensation
------------------------------------------------------------
Awards Payouts
- ----------------------------------------------------------------------------------------------------------------
(f) (g) (h) (i)
<S> <C> <C> <C> <C>
All
Restricted Number Other
Stock of LTIP Compen-
Award(s) Options Payouts sation
($) (1) ($) ($)(2)
- ----------------------------------------------------------------------------------------------------------------
Dr. Ronald Swallow, -0- -0- -0- 4,200
Chief Executive -----------------------------------------------------------------------------------
Officer (3) -0- -0- -0- 4,200
- ----------------------------------------------------------------------------------------------------------------
Stuart French -0- -0- -0- 4,200
President (4) -----------------------------------------------------------------------------------
-0- -0- -0- 4,200
================================================================================================================
</TABLE>
(1) Does not include options to purchase 73,000 shares and 150,000 shares of
the Company's Common Stock granted in June 1996 to Dr. Ronald Swallow and
Stuart French, respectively, and exercisable at $5.00 per share commencing
on July 1, 1997. See "Stock Options."
(2) Includes the value of car leases paid by the Company at a rate of
approximately $350 per month.
(3) During 1994 and 1995, the Company accrued salaries for Dr. Swallow of
$22,000 and $43,143, respectively. As of July 31, 1996, Dr. Swallow is
owed accrued salary and expense reimbursement totaling $113,323.
(4) Stuart French earns other annual compensation in the form of a sales
commission of 5%, which is reflected in column (e). During 1994 and
1995, the Company accrued salaries and commissions of $1,420 and $9,614,
respectively. During 1994, Mr. French also received payment of $2,000
toward prior years accrued salaries. As of July 31, 1996, Mr. French is
owed accrued salary and expense reimbursement totaling $96,834.
Since inception, the Company has not granted stock appreciation rights
and does not have a defined benefit or actuarial plan.
41
<PAGE>
Stock Option Plan
The Company has adopted a Stock Option Plan covering 400,000 shares of
Common Stock (subject to adjustment to cover stock splits, stock dividends,
recapitalizations and other capital adjustments) for employees, including
officers and directors and consultants of the Company. The Plan provides that
options to be granted under the Plan will be designated as incentive stock
options or non-incentive stock options by the Board of Directors or a committee
thereof, which also will have discretion as to the persons to be granted
options, the number of shares subject to the options and the terms of the
options. Options designated as incentive stock options are intended to receive
incentive stock option tax treatment pursuant to Section 422 of the Internal
Revenue Code of 1986, as amended.
The Plan provides that all options granted thereunder shall be
exercisable during a period of no more than 10 years from the date of grant
(five years for options granted to holders of 10% or more of the outstanding
shares of common stock), depending upon the specific stock option agreement and
that the option exercise price for incentive stock options shall be at least
equal to 100% of the fair market value of Common Stock on the date of grant
(110% for options granted to holders of 10% or more of the outstanding shares of
Common Stock), but in no event less than the initial public offering price of
the Company's proposed public offering. Pursuant to the provisions of the Plan,
the aggregate fair market value (determined on the date of grant) of the shares
of the Common Stock for which incentive stock options are first exercisable
under the terms of the Plan by an option holder during any one calendar year
cannot exceed $100,000.
Currently, the Plan provides that if the employment of an optionee is
terminated other than by reason of death, disability or retirement at age 65,
any options granted to the optionee will immediately terminate. If employment is
terminated by reason of disability or retirement at age 65, the optionee may,
within one year from the date of termination, in the event of termination by
reason of disability, or three months from the date of termination, in the event
of termination by reason of retirement at age 65, exercise the option (but not
after the normal termination date of the option). If employment is terminated by
death, the person or persons to whom the optionee's rights under the option are
transferred by will or the laws of descent and distribution have similar rights
of exercise within three months after such death (but not after the normal
termination date of the option).
Options are not transferable otherwise than by will or the laws of
descent and distribution and during the optionee's lifetime are exercisable only
by the optionee. Shares subject to options which expire or terminate may be the
subject of future options. the Plan will terminate in 2005. In 1996, the Company
granted non-qualified stock options to purchase 300,000 shares of its Common
Stock at an exercise price of $5.00 per share over a term of ten years.
42
<PAGE>
Dr. Ronald Swallow, Stuart French, Dr. Richard Swallow, Steven Morse and
Lester Morse received options to purchase 73,000 shares, 150,000 shares, 27,000
shares, 25,000 shares and 25,000 shares, respectively. See "Legal Matters."
These options are not exercisable until July 1, 1997. The Company has agreed
with the Representative that it will not grant the remaining available options
to purchase 100,000 shares to 5% or greater shareholders for a period of three
years without the consent of the Representative.
CERTAIN TRANSACTIONS
Effective July 2, 1996, Tellurian, Inc., a South Carolina corporation
reincorporated in Delaware under the same name by merging itself into a wholly
owned subsidiary formed for that purpose on January 25, 1996. All references in
the Prospectus to the "Company" or "Tellurian" includes Tellurian, Inc., a South
Carolina corporation unless the context indicates otherwise. The following
discussion regarding the issuances of shares gives retroactive effect to such
merger.
In March 1995, Tellurian completed a private placement of 600,000
shares of its common stock for a purchase price of $100,000. Investors in the
private placement were Dennis Giunta (200,000 shares), Joseph Defalco (125,000
shares), Matthew Langden (125,000 shares), John Bruno (45,000 shares), John
Cioffoletti (45,000 shares), Michael Wills (45,000 shares) and Douglas Spinosa
(15,000 shares). Messrs., Defalco, Giunta and Langdon are Selling Stockholders.
See "Principal and Selling Stockholders." Messrs. Bruno, Cioffoletti and Wills
are principals, and Mr. Spenosa is an employee, of the Representative. See
"Underwriting."
In March 1995, Dr. Ronald Swallow and Dr. Richard Swallow transferred
from their holdings, without payment therefore, an aggregate of 152,710 shares
of Tellurian to nine non-affiliated persons including 49,261 shares to Stuart
French, and subsequently, they transferred 100,000 shares to Charles Power, a
founder of the Company.
Since the inception of Tellurian, Charles Powers has advanced monies to
Tellurian for working capital purposes and the acquisition of certain
technological licensing rights from TTY relating to Tellurian's image generator.
As of May 31, 1996, Mr. Powers was owed approximately $752,000, inclusive of
interest at a rate of 10% per annum. Such $752,000 includes $470,505 of
principal and $281,693, of accrued and unpaid interest (including $127,460 of
interest accumulated between January 1, 1994 and May 31, 1996). From January 1,
1994 until May 31, 1996, the Company has repaid Powers a total of $100,000,
which payment was made in January 1996. In June 1996, Tellurian entered into
agreements with Mr. Powers which provide that upon his receipt from Tellurian of
$121,200 in reduction of outstanding indebtedness, Tellurian's remaining
indebtedness owing to him will not be payable until August 1, 1997. To help
secure repayment of such $121,200, Tellurian has granted to Mr. Powers a
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<PAGE>
security interest in its contract with Voyager and has assigned to him
Tellurian's right to receive $121,200 of payments required to be made under
Tellurian's agreement with Voyager. As of July 31, 1996, Tellurian has paid Mr.
Powers $60,000 of the $121,200.
Since inception, Ronald Swallow, Richard Swallow, their family members
and Stuart French have made various cash loans to Tellurian that are repayable
upon demand. As of July 31, 1996, Tellurian owes (inclusive of interest) $60,330
to Dr. Richard Swallow, $97,812 to family members of Doctors Ronald and Richard
Swallow and $8,180 to Stuart French. The foregoing amounts do not include
accrued and unpaid compensation and expense reimbursement as of July 31, 1996 of
$113,323 owed to Dr. Ronald Swallow and $96,834 owed to Stuart French, which
monies will be paid to such officers from the proceeds of the Offering.
Tellurian completed a Private Placement of securities for an aggregate
sum of $750,000 between December 1995 and January 1996, consisting of (i)
$192,000 in principal amount of unsecured and subordinated 8% Promissory Notes
due December 27, 1997 and $528,000 in principal amount of unsecured and
subordinated 8% Promissory Notes due January 22, 1998, with such Notes providing
for accelerated payment upon the completion of the Offering, and (ii) 3,000,000
Common Stock Purchase warrants sold at a price of $.01 per warrant. Each warrant
entitles the holder thereof to purchase one share of Common Stock at a price of
$6.00 per share, subject to adjustment, at any time for a period of five years
from the date of issuance. In the event that the Company completes the Offering,
the warrants shall be automatically exchanged for Warrants identical to those
sold to the public. As compensation for its services as placement agent of such
private placement. J. W. Barclay & Co., Inc. was paid a commission of $75,000
and an expense allowance of $22,500 and was issued 300,000 Common Stock Purchase
Warrants for a cash consideration of $6,000. On June 27, 1996, J. W. Barclay &
Co., Inc. returned the 300,000 Warrants to the Company and the Company agreed to
pay $6,000 to J. W. Barclay & Co., Inc. upon the completion of the Offering. See
"Description of Securities" and "Warrant Holders."
On June 27, 1996, the Company issued its promissory notes in the
principal amount of $175,000 to three non-affiliated persons and received net
proceeds of approximately $148,000 after deduction of certain compensation to
the Placement Agent of such offering, J.W. Barclay & Co., Inc., of $26,250. Of
the $175,000 of Notes, (i) $150,000 are represented by 8% Subordinated
Non-Convertible Notes due June 27, 1998 or upon the completion of the Offering
or series of private placements wherein the Company receives gross proceeds of
at least $5,000,000, and (ii) $25,000 is an 8% Subordinated Convertible Note due
June 27, 1998 (the "Convertible Note"), provided that the principal amount of
the Convertible Note will convert into 25,000 shares automatically upon the
completion of the Offering. See "Additional Selling Stockholders."
44
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of the date of
this Prospectus, and as adjusted to reflect the completion of the Offering
regarding the beneficial ownership of the Company's Common Stock by: (i) all
persons known by the Company to own beneficially more than 5% of the Company's
Common Stock; (ii) each director and officer of the Company; (iii) all directors
and officers of the Company as a group; and (iv) the Selling Stockholders. All
information with respect to ownership by the Selling Stockholders has been
furnished by the Selling Stockholders.
<TABLE>
<CAPTION>
==========================================================================================================================
Percent of
Outstanding
Stock Owned
Amount and Shares ------------------------
Nature of Shares Owned Before After
Name and Address of Beneficial Being After Offering Offering
Beneficial Owner (1) Ownership Offered Offering (2) (2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Ronald Swallow
15 Industrial Avenue
Upper Saddle River, NJ 297,908 --- 297,908 18.6 9.8
07458 (3)
- --------------------------------------------------------------------------------------------------------------------------
Dr. Richard Swallow
15 Industrial Avenue
Upper Saddle River, NJ 109,481 --- 109,481 6.8 3.6
07458 (4)
- --------------------------------------------------------------------------------------------------------------------------
Stuart French
15 Industrial Avenue
Upper Saddle River, NJ 49,261 --- 49,261 3.1 1.6
07458 (5)
- --------------------------------------------------------------------------------------------------------------------------
Mary Elizabeth Huggins
Trust
2419 West Sumter
Florence, SC 29572 (6) 430,049 --- 430,049 26.9 14.2
- --------------------------------------------------------------------------------------------------------------------------
Joseph DeFalco
2335 Promenade
Westfield, NJ 07090 125,000 125,000 --- 7.8 ---
- --------------------------------------------------------------------------------------------------------------------------
Matthew Langdon
70 Cantiagle Rock Road
Hicksville, New York
11801 125,000 125,000 --- 7.8 ---
- --------------------------------------------------------------------------------------------------------------------------
Dennis Giunta
183 Taylors Mills Road
Manalapan, NJ 07726 200,000 200,000 --- 12.5 ---
- --------------------------------------------------------------------------------------------------------------------------
All officers and
directors
as a group (3 persons)
(7) 456,650 --- 456,650 28.5 15.1
==========================================================================================================================
</TABLE>
(1) Unless otherwise indicated below, all shares are owned beneficially and of
record.
45
<PAGE>
(2) Based upon 1,600,000 shares outstanding before the Offering and 3,025,000
shares outstanding after the Offering without giving effect to the
issuance of shares under the Company's Warrants, Stock Option Plan,
Underwriters' Stock Warrants, Underwriters' Warrants, and other
outstanding warrants.
(3) Does not include options to purchase 73,000 shares, which options become
exercisable at $5.00 per share commencing July 1, 1997.
(4) Does not include options to purchase 27,000 shares, which options became
exercisable at $5.00 per share commencing July 1, 1997.
(5) Does not include options to purchase 150,000 shares, which options became
exercisable at $5.00 per share commencing July 1, 1997.
(6) Trust set up by Charles H. Powers, a founder and former shareholder,
officer and director of the Company, for the benefit of his granddaughter,
with Jane Powers Huggins as Trustee.
(7) Does not include options to purchase 250,000 shares, which options became
exercisable at $5.00 per share commencing July 1, 1997.
46
<PAGE>
DESCRIPTION OF SECURITIES
Tellurian's Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the issuance of 10,000,000 shares of Common Stock,
$.01 par value. The following are brief descriptions of Tellurian's securities.
The rights of the stockholders of Tellurian are established by Tellurian's
Certificate of Incorporation, the Bylaws, and law of the State of Delaware. The
descriptions set forth below are intended as summaries only and are qualified in
their entirety by reference to the Certificate of Incorporation, the Bylaws, and
the relevant Delaware law.
Common Stock
As of the date hereof, 1,600,000 shares of Common Stock were
outstanding, held by 20 stockholders of record. Immediately following the
closing of this Offering (assuming the Underwriter's over-allotment options are
not exercised), 3,025,000 shares of Common Stock will be issued and outstanding
(excluding shares of Common Stock underlying outstanding, but unexercised
warrants).
The holders of the shares of Common Stock have no preemptive or
subscription rights in later offerings of Common Stock and are entitled to share
ratably (i) in such dividends as may be declared by the Board of Directors of
Tellurian out of funds legally available for such purpose, and (ii) upon
liquidation, in all assets of Tellurian remaining after payment in full of all
debts and obligations of Tellurian and any preferences granted in the future to
any preferred stock. To date, Tellurian has not paid any dividends on the Common
Stock. The Company intends to follow a policy of retaining all of its earnings,
if any, to finance the development and continued expansion of its business.
There can be no assurance that dividends will ever be paid by the Company.
The holders of shares of Common Stock are entitled to one vote for each
share of Common Stock held of record on all matters submitted to a vote of the
stockholders and have no cumulative voting rights. Accordingly, the holders of
more than 50% of the issued and outstanding shares of Common Stock entitled to
vote for election of directors are able to elect all of Tellurian's directors.
All shares of Common Stock now outstanding are fully paid and nonassessable, and
all shares of Common Stock, which are the subject of this Offering, when issued,
will be fully paid and nonassessable. The Board of Directors of Tellurian is
authorized to issue additional shares of Common Stock within the limits
authorized by the Certificate of Incorporation without stockholder action.
Warrants
The Warrants offered hereby will be issued pursuant to a Warrant
Agreement (the "Warrant Agreement") between Tellurian, the Representative, and
Continental Stock Transfer & Trust Company, as Warrant Agent (the "Warrant
Agent") and will be in registered form.
47
<PAGE>
The following summary of the provisions of the Warrants is qualified in its
entirety by reference to the Warrant Agreement, a copy of which is filed as an
exhibit to the Registration Statement, of which this Prospectus is a part.
Each Warrant will be separately transferable and will entitle the
registered holder thereof to purchase one share of Common Stock at $6.00 per
share (subject to adjustment as described below) at any time during the period
commencing on the date hereof and expiring on the fifth anniversary hereof.
Unless exercised or extended by the board of directors, the Warrants will expire
on ________________________ [fifth anniversary of date of Prospectus]. A Warrant
Holder may exercise his Warrants by surrendering the certificate evidencing such
Warrants to the Warrant Agent, together with the form of election to purchase on
the reverse side of such certificate attached thereto, properly completed and
executed, and the payment of the exercise price and any transfer tax. If less
than all of the Warrants evidenced by a Warrant certificate are exercised, a new
certificate will be issued for the remaining number of Warrants. Under certain
circumstances, the Representative will receive a warrant solicitation fee equal
to 10% of the exercise price of all Warrants solicited by an NASD member. See
"Underwriting."
For a Warrant Holder to exercise his Warrants, there must be a current
registration statement on file with the Commission and the relevant state
securities commissions. The Company will be required to file post-effective
amendment to the registration statement when events require such amendments, and
to take appropriate action under state securities laws. While it is the
Company's intention to file post-effective amendments when necessary and to take
appropriate action under applicable state securities laws, there is no assurance
that a registration statement will be kept effective or that appropriate action
under applicable state securities laws will be effected. If a registration
statement is not kept current for any reason, or if the Common Stock is not
registered or qualified for sale in the state in which a Warrant Holder resides,
the exercise of the Warrants and the resale or other disposition of Common Stock
issued upon such exercise could be unlawful and the Warrants will not be
exercisable, and holders thereof may be deprived of value.
Tellurian has authorized and reserved for issuance a number of shares
of Common Stock sufficient to provide for the exercise of the Warrants. When
issued, each share of Common Stock will be fully paid and nonassessable. Warrant
Holders will not have any voting or other rights as stockholders of Tellurian
unless and until their Warrants are exercised and shares of Common Stock are
issued pursuant thereto. The exercise price and the number of shares of Common
Stock issuable upon the exercise of each Warrant are subject to adjustment in
the event of a stock split, stock dividend, recapitalization, merger,
consolidation or certain other events.
48
<PAGE>
At any time after one year from the date of this Prospectus, any or all
of the Warrants may be redeemed by Tellurian at a price of $.30 per Warrant,
upon the giving of 30 days prior written notice to the Warrant Holders, and
provided that the trading price of the Common Stock for 20 consecutive trading
days ending within 10 days prior to such notice of redemption delivered by
Tellurian to the Warrant Holders has equalled or exceeded $_______. The right to
purchase the Common Stock issuable upon exercise of the Warrants noticed for
redemption will be forfeited unless such Warrants are exercised prior to the
date specified in the notice of redemption. While Tellurian may legally be
permitted to give notice to redeem the Warrants at a time when a current
Prospectus is not available, thereby leaving the Warrant Holders no opportunity
to exercise their Warrants prior to redemption, Tellurian does not intend to
redeem the Warrants unless a current Prospectus is available both at the time of
mailing of notice of redemption and at the time of redemption.
Anti-Takeover Statute
Section 203 of the Delaware General Corporation Law provides that if a
person acquires 15% or more of the stock of a Delaware corporation, he becomes
an "interested stockholder" and may not engage in a "business combination" with
that corporation for a period of three years. The term "business combination"
includes a merger, a sale of assets, or a transfer of stock. The three year
moratorium may be terminated if any of the following conditions are met: (1) the
Board of Directors approved the acquisition of stock or the business combination
before the person became an interested stockholder, (2) the interested
stockholder acquired 85% of the outstanding voting stock in such transaction,
excluding in the determination of outstanding stock is any stock owned by
individuals who are officers and directors of the corporation and any stock
owned by certain employee stock plans, or (3) the business combination is
approved after the person became an interested stockholder by 2/3 of the voting
stock which is not owned by the interested stockholder.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Securities or the perception that such
sales could occur could adversely effect the market price for the Securities.
Upon consummation of the Offering, the Company will have 3,025,000 shares of
Common Stock outstanding (3,235,000 shares if the Underwriters' over-allotment
options are exercised in full) and 925,000 Warrants outstanding (1,063,750
Warrants if the Underwriter's over-allotment options are exercised in full). In
addition, the Company will have 3,000,000 warrants outstanding held by the
Warrant Holders, 185,000 Underwriters' Stock Warrants and 92,500 Underwriters'
Warrants outstanding held by the Underwriters. Of these shares of Common Stock
and warrants, 1,875,000 shares of Common Stock (2,152,500 if the Underwriters'
over-allotment options are exercised in full), 925,000 Warrants (1,063,750 if
the Underwriter's over-allotment options are exercised in full), 3,000,000
49
<PAGE>
warrants held by the Warrant Holders, 185,000 Underwriters' Stock Warrants and
92,500 Underwriters' Warrants will be freely tradeable in the public market
without restriction under the Securities Act, except for Securities purchased
by an "affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act ("Rule 144"), and except that
(i) 25,000 shares owned and offered by the Additional Selling Stockholders may
not be sold for a period of six months without the prior written consent of the
Representative, and (ii) the Underwriters' Securities may not generally be
transferred by the holders thereof for a period of one year after the date of
this Prospectus. All of the remaining shares of Common Stock to be outstanding
after the Offering, 1,150,000 shares of Common Stock, will be "restricted
securities" as that term is defined in the Securities Act and will not have been
registered under the Securities Act. The holders of such shares of Common Stock
have agreed with the Representative not to sell or otherwise transfer any of
their shares of Common Stock for a period of 24 months after the date of this
Prospectus, without the prior written consent of the Representative. At the end
of this period (or earlier with the consent of the Representative) these shares
will be eligible for sale, subject to the restrictions imposed by Rule 144. Some
of these stockholders may elect to sell some or all of these shares as soon as
they are permitted to do so. Ordinarily, under Rule 144, a person holding
restricted securities for a period of two years may, every three months
thereafter, sell in ordinary brokerage transactions or in transactions directly
with a market maker, an amount of shares equal to the greater of one percent of
the Company's then-outstanding Common Stock or the average weekly trading volume
in the same securities during the four calendar weeks prior to such sale. See
"Underwriting."
50
<PAGE>
UNDERWRITING
Subject to the terms and conditions in the underwriting agreement
between Tellurian and the Underwriters named below, including the Representative
(the "Underwriting Agreement"; a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part), Tellurian and the
Selling Stockholders have agreed to sell to each of the Underwriters named
below, and each of such Underwriters has severally agreed to purchase, the
number of shares of Common Stock and number of Warrants set forth opposite each
name.
Number of Number of
Underwriter Shares Warrants
- ----------- --------- ---------
J.W. Barclay & Co., Inc.
--------- -------
TOTAL 1,400,000 925,000
========= =======
The Underwriters are committed, subject to certain conditions
precedent, to purchase all of the Securities offered hereby if any such
Securities are purchased.
The Representative has advised the Company that the Underwriters
propose to offer the Common Stock and the Warrants to the public at the offering
prices set forth on the cover page of this Prospectus and that the Underwriters
may allow certain dealers who are members in good standing of the National
Association of Securities Dealers, Inc. ("NASD") concessions of $_______ per
share of Common Stock and $______ per Warrant. After the initial public
offering, the public offering price and concessions may be changed by the
Representative.
The Company has granted the Underwriters an option, exercisable for 45
days from the date of this Prospectus, to purchase up to 210,000 shares of
Common Stock and 138,750 Warrants at the public offering prices less the
underwriting discounts set forth on the cover page of this Prospectus. The
Underwriters may exercise this option solely to cover over-allotments in the
sale of the shares of Common Stock and Warrants.
The Company has agreed to pay the Representative a non-accountable
expense allowance of 3% of the gross proceeds of the shares of Common Stock and
Warrants sold in the offering (including the over-allotment option), of which
$25,000 has been paid.
51
<PAGE>
The Company has agreed to enter into an agreement with the
Representative retaining the Representative as financial consultant for a period
of two years from the date hereof, pursuant to which the Representative will
receive a fee of $72,312.50 per year payable in full at the closing of the
Offering.
The Company will pay the Representative, commencing one year from the
date hereof, a commission equal to ten percent of the exercise price of the
Warrants exercised, provided that (i) at the time of exercise the market price
of the Common Stock is greater than the exercise price of the Warrants, and (ii)
the exercise of the Warrants was solicited by a member of the NASD and the NASD
member is designated in writing by the Warrant Holder, (iii) the Warrants
exercised are not held in discretionary accounts, (iv) disclosure of the
compensation arrangements has been made both at the time of exercise, and (v)
the solicitation of the exercise of the Warrants is not in violation of Rule
10b-6 under the Securities Exchange Act of 1934. A portion of such commission
may be reallocated to any dealer who solicited such exercise.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933.
The Company has agreed to sell to the Underwriters or their designees,
at a price of $.001 per warrant, a total of 140,000 warrants (the "Underwriters'
Stock Warrants") to purchase a like number of shares of Common Stock of the
Company and 92,500 warrants (the "Underwriters' Warrants") to purchase a like
number of Common Stock Purchase Warrants. The Underwriters' Stock Warrants will
be exercisable at a price of $6.00 per share and the Underwriters' Warrants will
be exercisable at a price of $.30 per Common Stock Purchase Warrant for a period
of four years commencing one year after the date hereof, and they will not be
transferable for one year after the date hereof except to Underwriters and
selected dealers and officers and partners thereof. Any profit realized upon any
resale of the Underwriters' Stock Warrants or the Underwriters' Warrants
underlying same may be deemed to be additional underwriter's compensation. The
Company has agreed to register (or file a post-effective amendment with respect
to any registration statement registering) the Underwriters' Stock Warrants and
the Underwriters' Warrants and their underlying securities under the Securities
Act at its expense on one occasion, and at the expense of the holders thereof on
another occasion, upon the request of a majority of the holders thereof. The
Company has also agreed to certain "piggy-back" registration rights for the
holders of the Underwriters' Stock Warrants and the Underwriters' Warrants and
their underlying securities.
The Underwriters have informed the Company that they do not expect
sales of shares of Common Stock to be made to discretionary accounts to exceed
2% of the shares of Common Stock offered hereby.
52
<PAGE>
All current Common Stock holders of the Company, excluding the Warrant
holders and the Additional Selling Stockholders, have agreed that they will not,
directly or indirectly, offer to sell, contract to sell, sell, transfer, assign,
encumber, grant an option to purchase, pledge or otherwise dispose of any
beneficial interest in such securities, for a period of twenty-four months
following the date hereof, without the prior written consent of the
Representative. The Additional Selling Stockholders have agreed not to sell the
25,000 shares that the Additional Selling Stockholders will receive upon the
completion of the Offering for a period of six months without the prior written
consent of the Representative.
The Underwriting Agreement provides that the Representative has the
right, for a period of five years from the date of the closing of the Offering,
to designate one person to attend Board of Directors meetings. Such person shall
be entitled to attend all such meetings and to receive all notices and other
correspondence and communications sent by the Company to members of its Board of
Directors. The Company shall reimburse the designee of the Representative for
his out-of-pocket expenses incurred in connection with his attendance at such
meetings. As of the date of this Prospectus, the Representative has not
designated any director.
The Company has agreed that for a period of six months from the date
hereof, it will not issue any securities not contemplated by this Prospectus and
for a period of three years, it will not issue any Preferred Stock without the
prior written consent of the Representative.
See "Certain Transactions" regarding the following transactions
involving the Company, the Representative, Selling Stockholders and Additional
Selling Stockholders: (i) the Company's March 1995 sale of 600,000 shares of its
Common Stock which included 450,000 shares to the Selling Stockholders and
150,000 shares to certain principals and an employee of the Representative; (ii)
the Company's December 1995/January 1996 private placement wherein the
Representative acted as Placement Agent and received cash compensation equal to
13% of the gross proceeds or $97,500 (not including 300,000 warrants which have
been returned to the Company and have been cancelled); and (iii) the private
placement completed on June 27, 1996 wherein the Representative acted as
Placement Agent and received cash compensation equal to 15% of the gross
proceeds or $26,250.
Pricing of the Offering
Prior to this offering, there has been no public trading market for any
of the Company's securities. Consequently, the initial public offering of the
shares of Common Stock and Warrants have been determined by negotiations between
the Company and the Representative. Among the factors considered in determining
the offering prices were the Company's financial condition and prospects, the
53
<PAGE>
industry in which the Company is engaged, certain financial and operating
information of companies engaged in activities similar to those of the Company
and the general market condition of the securities markets. Such prices do not
necessarily bear any relationship to any established standard or criteria of
value based upon assets, earnings, book value or other objective measures.
WARRANT HOLDERS
Upon the consummation of the Offering, certain outstanding warrants of
Tellurian automatically convert into warrants identical to the Warrants. This
Prospectus relates to the registration of 3,000,000 of such warrants as well as
shares of Common Stock issuable upon exercise of such Warrants. The 3,000,000
warrants will not be issued and delivered to Warrant Holders until on or after
the closing date of the Offering. Such Warrant Holders will receive their
warrants upon the consummation of the Offering via automatic conversion of
outstanding warrants received by them in connection with the Company's private
placement completed between December 1995 and January 1996. See "Certain
Transactions."
Each of the Warrant Holders may be deemed to be an "underwriter" of the
Common Stock offered hereby, as that term is defined under the Securities Act.
Each of the Warrant Holders may sell its warrants from time to time on or after
the date of the closing of the Offering for its own account in the open market
at the prices prevailing therein, or in individually negotiated transactions at
such prices as may be agreed upon. The net proceeds from any sale of such
warrants by the Warrant Holders will inure entirely to their benefit and not to
that of the Company except for the purchase price received by the Company from
the exercise of any such warrants.
None of the Warrant Holders have any material relationship with the
Company or any of its predecessors or affiliates, except as Warrant and Note
holders.
The Warrant Holders are required to deliver a current prospectus in
connection with the offer or sale of such warrants. The Warrant Holders have
been advised that Rules 10b-6 and 10b-7 of the General Rules and Regulations
promulgated under the Exchange Act will be applicable to their sales of
warrants. These rules contain various prohibitions against trading by persons
interested in a distribution and against so-called "stabilization" activities.
Any sale of warrants by Warrant Holders through broker-dealers may
cause the broker-dealers to be considered as participating in a distribution and
subject to Rule 10b-6 promulgated under the Exchange Act. If any such
transaction were a "distribution" for purposes of Rule 10b-6, then such
broker-dealers might be required to cease making a market in the Company's
equity securities for either two or nine trading days prior to a sale in such
transaction.
54
<PAGE>
The following table provides a list of the names, addresses and amount
of warrants to purchase shares of Common Stock beneficially owned by Warrant
Holders.
<TABLE>
<CAPTION>
==================================================================================================================
Approximate
Approximate % of Class
Number % of Class Owned After
of Owned Prior the
Name and Address of Warrants to Offering Offering
Security Holders Held (1)(3) (2)(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jericho Limited
c/o Intertrust 2,200,000 73.3 56.1
Management S.A.
P.O. Box 3292
16 rue de la Pelisserie
1211 Geneva 3
SWITZERLAND
- ------------------------------------------------------------------------------------------------------------------
Imafina S.A.
c/o Hubert Hendrick 800,000 27.7 20.4
21 Rue de Camps
75116 Paris
FRANCE
==================================================================================================================
</TABLE>
(1) Does not give effect to the completion of the Offering by the Company.
(2) Gives effect to the completion of the Offering by the Company.
(3) Based upon 3,000,000 warrants outstanding prior to the Offering and
3,925,000 warrants outstanding after the Offering without giving effect to
the possible issuance of any Warrants pursuant to the exercise of the
Underwriter's over-allotment option or the Representative's Warrants. See
"Underwriting."
ADDITIONAL SELLING STOCKHOLDERS
The Company has registered for sale on behalf of certain security
holders named in the table below (the "Additional Selling Stockholders"), the
resale of 25,000 shares (the "Additional Registered Shares") that are issuable
automatically upon the completion of the Offering in exchange for the
Convertible Note described under "Certain Transactions." Such shares are not
being underwritten in the Offering and the Company will not receive any proceeds
from the sale of such shares. The Additional Registered Shares may not be sold
by the Additional Selling Stockholders for a period of six months after the date
of this Prospectus without the prior written consent of the Representative.
55
<PAGE>
The Additional Selling Stockholders have advised the Company that the
Additional Registered Shares may be offered for sale from time to time by them
in regular brokerage transactions in the over-the-counter market, or, either
directly or through brokers or to dealers, or in private sales or negotiated
transactions, or otherwise, at prices related to the then prevailing market
prices. Such Additional Selling Stockholders have also been advised that Rules
10(b)6 and 10(b)7 of the General Rules and Regulations promulgated under the
Securities Exchange Act of 1934 the ("Act") will be applicable to sales of the
Additional Registered Shares. Such rules contain various prohibitions against
trading by persons interested in a distribution and against so-called
"stabilization" activities.
The Additional Selling Stockholders may be deemed to be underwriters of
the Common Stock offered hereby, as that term is defined under the Securities
Act. Prior to making loans totaling $175,000 to the Company in June 1996, as
more fully described under "Certain Transactions," the Additional Selling
Stockholders had no position or office, or any relationship with the Company or
any of its predecessors or affiliates.
<TABLE>
<CAPTION>
===================================================================================================================================
Number of
Shares
to be Approximate Approximate
Number of Number of Retained on % of Class % of Class
Name and Address of Shares Shares Completion Owned Prior Owned After
Security Holders Held Offered of Offering to Offering Offering
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Andrew F. Nicoletta 10,000 10,000 -0- * -0-
111 Broadway
3rd Floor
New York, NY 10006
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Bulavinetz 10,000 10,000 -0- * -0-
240-31 Alameda Ave.
Douglaston, NY
11362
- -----------------------------------------------------------------------------------------------------------------------------------
Alec McDonald 5,000 5,000 -0- * -0-
41 Plein St.
Pietewsburg, Republic
of South Africa 0700
===================================================================================================================================
</TABLE>
- --------------
* Represents less than 1% of Tellurian's issued and outstanding shares.
56
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by the law firm of Lester Morse P.C. Certain legal
matters will be passed upon on behalf of the Underwriters by Henry C. Malon,
Esq. Members of the family of Lester Morse own options to purchase 50,000 shares
of the Company's Common Stock.
EXPERTS
The Company's financial statement, included in this Prospectus, have
been audited by Miller Ellin & Co., Inc., independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, which are included in reliance upon the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form SB-2 (of which this Prospectus is a part) under
the Securities Act with respect to the Securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information about the Company
and the Securities offered hereby, reference is made to the Registration
Statement and to the exhibits filed as a part thereof. The statements contained
in this Prospectus are not necessarily complete and, in each instance, reference
is made to a copy of the relevant contract or document filed as an exhibit to
the Registration Statement, each statement being qualified in any and all
respects by such reference. The Registration Statement, including exhibits, may
be inspected without charge at the Public Reference facilities of the Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
10549, and at the offices of the Commission located at the Northeast Regional
Office, 7 World Trade Center, 13th Floor, New York, NY 10048 and the Midwest
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and copies of such material can be obtained upon request and
payment of the appropriate fee from the Public Reference Section of the
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
57
<PAGE>
TELLURIAN, INC.
REPORT ON FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS F-2
BALANCE SHEETS F-3 - F-4
STATEMENTS OF OPERATIONS F-5
STATEMENTS OF STOCKHOLDERS' DEFICIENCY F-6
STATEMENTS OF CASH FLOWS F-7 - F-8
NOTES TO FINANCIAL STATEMENTS F-9 - F-22
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Tellurian, Inc.
We have audited the accompanying balance sheet of Tellurian, Inc. as at December
31, 1995, and the related statements of operations, stockholders' deficiency and
cash flows for the years ended December 31, 1995 and 1994. These financial
statements are the responsibility of the management of Tellurian, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tellurian, Inc. as at December
31, 1995 and the results of its operations and cash flows for the years ended
December 31, 1995 and 1994 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
Tellurian, Inc. will continue as a going concern. As discussed in Note 1 to the
financial statements, Tellurian, Inc.'s significant operating losses,
accumulated deficit and working capital deficiencies raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters are described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
MILLER, ELLIN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
March 29, 1996, except
for Note 1, which is
dated July 2, 1996 and
Note 10, which is dated
August 2, 1996
F-2
<PAGE>
TELLURIAN, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 39,130
Accounts receivable 5,000 5,000
Inventories (Note 2) 119,101 87,218
Prepaid expenses and other current assets - 7,811
---------- ----------
Total current assets 124,101 139,159
---------- ----------
PROPERTY AND EQUIPMENT - at cost
less accumulated depreciation (Note 3) 36,548 32,711
---------- ----------
OTHER ASSETS:
Deferred offering costs 159,354 50,765
Security deposits 925 925
---------- ----------
160,279 51,690
---------- ----------
$ 320,928 $ 223,560
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
TELLURIAN, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Cash overdraft $ 31,080 $ -
Accounts payable 50,929 29,321
Accrued expenses (Note 6) 75,855 144,131
Payroll payable 285,805 212,302
Payroll taxes payable (Note 5) 112,248 241,749
Consulting fees payable 280,293 255,693
Notes payable - related parties (Note 4) 576,486 670,921
Interest payable - related parties (Note 4) 320,225 293,604
Note payable - other 851 500
Deferred revenue (Note 7) 156,448 156,448
------------ ------------
Total current liabilities 1,890,220 2,004,669
------------ ------------
LONG-TERM DEBT (Note 8) 720,000 192,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' DEFICIENCY:
Common stock - $.01 par value (Note 12)
Authorized - 10,000,000 shares
Issued and outstanding - 1,600,000 shares 16,000 16,000
Additional paid-in capital 135,265 107,265
Accumulated deficit (2,440,557) (2,096,374)
------------ ------------
Total stockholders' deficiency (2,289,292) (1,973,109)
------------ ------------
$ 320,928 $ 223,560
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
TELLURIAN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE
MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
----------------------------------- ------------------------
1996 1995 1995 1994
--------------- ----------------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SALES $ 54,898 $ 120,655 $ 477,311 $ 461,832
COST OF GOODS SOLD 57,704 82,045 339,220 306,224
----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) (2,806) 38,610 138,091 155,608
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Research and development 180,546 95,440 423,770 297,864
Selling 27,211 21,367 92,505 73,758
General and administrative 114,538 68,541 257,125 298,501
----------- ----------- ----------- -----------
322,295 185,348 773,400 670,123
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (325,101) (146,738) (635,309) (514,515)
----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSES:
Other income 7,539 - - -
Interest expense - related parties (Note 4) (26,621) (15,786) (64,356) (62,387)
----------- ----------- ----------- -----------
(19,082) (15,786) (64,356) (62,387)
----------- ----------- ----------- -----------
NET LOSS $ (344,183) $ (162,524) $ (699,665) $ (576,902)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE ($.22) $(.16) $(.48) $(.58)
===== ===== ===== =====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,600,000 1,000,000 1,450,000 1,000,000
========= ========= ========= =========
PRO FORMA INFORMATION (Note 17):
Net loss as presented $ (344,183) $ (162,524) $ (699,665) $ (576,902)
Provision for income tax benefits
reflecting C corporation status - - - -
----------- ----------- ----------- -----------
Pro forma net loss $ (344,183) $ (162,524) $ (699,665) $ (576,902)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
TELLURIAN, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY
------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT January 1, 1994 -
as previously reported (Note 12) 1,000,000 $ 10,000 $ 20,000 $ (824,807) $ (794,807)
Prior period adjustment (Note 16) - - (5,000) 5,000 -
---------- -------- --------- ------------- ------------
BALANCE AT January 1, 1994 -
as restated 1,000,000 10,000 15,000 (819,807) (794,807)
Net loss for the year ended
December 31, 1994 - - - (576,902) (576,902)
---------- -------- --------- ------------- ------------
BALANCE AT December 31, 1994 1,000,000 10,000 15,000 (1,396,709) (1,371,709)
Issuance of common stock for cash
(Note 12) 600,000 6,000 94,000 - 100,000
Costs relating to issuance of common
stock for cash - - (9,735) - (9,735)
Issuance of warrants in connection with
private placement (Notes 12 and 13) - - 8,000 - 8,000
Net loss for the year ended
December 31, 1995 - - - (699,665) (699,665)
---------- -------- --------- ------------- ------------
BALANCE AT December 31, 1995 1,600,000 16,000 107,265 (2,096,374) (1,973,109)
Issuance of warrants in connection with
private placement (Notes 12 and 13) - - 28,000 - 28,000
Net loss for the three months ended
March 31, 1996 (Unaudited) - - - (344,183) (344,183)
---------- -------- --------- ------------- ------------
BALANCE AT March 31, 1996
(Unaudited) 1,600,000 $ 16,000 $ 135,265 $ (2,440,557) $ (2,289,292)
========== ======== ========= ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
TELLURIAN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
----------------------------------- ------------------------
1996 1995 1995 1994
---------------- ----------------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (344,183) $ (162,524) $ (699,665) $ (576,902)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,842 18,387 41,611 70,245
Changes in assets and liabilities:
Accounts receivable - (47,700) (5,000) 8,500
Inventories (31,883) 24,022 75,981 108,889
Prepaid expenses and other current assets 7,811 - (7,811) -
Security deposits - - (925) -
Cash overdraft 31,080 - - -
Accounts payable 21,609 (18,501) (55,801) (22,476)
Accrued expenses (68,276) 24,124 99,898 30,472
Payroll payable 73,503 23,671 79,864 34,025
Payroll taxes payable (129,501) 8,182 89,520 103,581
Consulting fees payable 24,600 20,914 79,231 27,922
Interest payable 26,621 15,786 63,306 74,376
Deferred revenue - 6,000 6,000 150,448
---------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (385,777) (87,639) (233,791) 9,080
---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,680) (318) (11,214) (7,791)
---------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (6,680) (318) (11,214) (7,791)
---------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-7
<PAGE>
TELLURIAN, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------------------ ------------------------
1996 1995 1995 1994
---------------- ------------------ ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ - $ 90,266 $ 90,266 $ -
Proceeds from issuance of warrants in
connection with private placement 28,000 - 8,000 -
Proceeds from notes payable - related parties 5,565 2,185 53,190 8,790
Repayments of notes payable - related parties (100,000) (9,300) (8,635) (10,000)
Proceeds from notes payable - other 351 7,000 7,000 -
Repayments of notes payable - other - - (7,000) -
Proceeds from long-term debt 528,000 - 192,000 -
Payments of deferred offering costs (108,589) - (50,765) -
---------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 353,327 90,151 284,056 (1,210)
---------- ----------- ----------- -----------
NET CHANGE IN CASH (39,130) 2,194 39,051 79
CASH - beginning 39,130 79 79 -
---------- ----------- ----------- -----------
CASH - ending $ -0- $ 2,273 $ 39,130 $ 79
========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 6,000 $ - $ - $ 2,000
Cash paid for income taxes - - - -
</TABLE>
The accompanying notes are an integral part of the financial statements
F-8
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
Tellurian, Inc. (the "Company"), a South Carolina corporation, was
incorporated on August 10, 1988 for the purpose of designing and
manufacturing real time image generation equipment for training and
simulation. The Company also provides consulting and parts/repair services
related to computer image generator technology. These operations constitute
a single business segment. The Company sells its image generators to two
types of entities, those which are interested in training and simulation
and those which specialize in entertainment devices and games.
In January 1996, the Company formed a wholly-owned subsidiary in the State
of Delaware and merged the Company into such corporation on July 2, 1996.
Pursuant to the merger, the holders of all of the shares of common stock of
the Company exchanged their 1,600,000 shares outstanding for 1,600,000
shares of the new corporation on a pro rata basis.
Interim Consolidated Financial Statements
The consolidated balance sheet of the Company at March 31, 1996 and the
consolidated statements of operations, stockholders' deficiency and cash
flows for the three months ended March 31, 1996 and 1995 are unaudited but
include all adjustments which, in the opinion of management, are necessary
for the fair presentation of the Company's financial position and results
of operations for the periods then ended. All such adjustments are of a
normal recurring nature. The results of operations for the interim periods
are not necessarily indicative of the results of operations for a full
fiscal year.
Going Concern
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate continuation of
the Company as a going concern. However, the Company has sustained
substantial losses since inception including net losses of approximately
$700,000 and $577,000 for the years ended December 31, 1995 and 1994,
respectively. Further, at December 31, 1995, total liabilities exceeded
total assets by approximately $1,973,000. During 1995, the Company borrowed
approximately $53,000 from related parties and $192,000 through a private
placement to meet its current operating needs.
F-9
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern (Continued)
In view of these matters, realization of a major portion of the assets in
the accompanying balance sheets is dependent upon the continued operations
of the Company, which in turn is dependent upon the Company's ability to
achieve profitable operations and to meet its financing requirements. The
Company is planning a $7,000,000 public offering (see Note 15) and if
successful, will use the net proceeds of such offering to reduce its debt
and provide working capital.
Deferred Revenue
Deferred revenue consists of customer advances which are reflected in
current liabilities and is expected to be recognized as revenue when the
finished product is shipped.
Revenue Recognition
Sales are recognized when the finished product is shipped.
Concentrations of Credit Risk
Accounts Receivable
The Company sells primarily to aviation training and entertainment
entities throughout the United States. It is the Company's policy to
require a substantial deposit prior to commencement of production for
specific orders with the balance due upon completion.
Cash
The Company maintains cash balances in its banks which, at times, may
exceed the limits of the Federal Deposit Insurance Corp.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from these
estimates.
F-10
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets as
follows:
Machinery and equipment - 5 years
Furniture and fixtures - 7 years
Expenditures for repairs and maintenance are charged to expense as
incurred.
Technology Rights
Technology rights are valued at cost and are amortized over a four year
period, which approximates its useful life.
Amortization expense amounted to $-0-, $15,582, $31,163 and $62,326 for the
three months ended March 31, 1996 and 1995 (unaudited) and for the years
ended December 31, 1995 and 1994, respectively.
Deferred Offering Costs
Deferred offering costs incurred in connection with the Company's private
placement agreement are being amortized over the respective terms of the
promissory notes issued (see Note 8).
No amortization expense has been incurred on these deferred offering costs
for the year ended December 31, 1995.
Research and Development
Research and development costs are charged to expense in the period
incurred. For the three months ended March 31, 1996 and 1995 (unaudited)
and for the years ended December 31, 1995 and 1994, research and
development costs amounted to $180,546, $95,440, $423,770 and $297,864,
respectively.
F-11
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company has elected to be treated as an "S" corporation for federal and
South Carolina purposes whereby net income or loss is recorded by the
stockholders on their individual income tax returns. There are no corporate
income taxes or deferred income taxes.
New Accounting Standards
The adoption of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets," is not expected to materially affect the Company's financial
position or results of operations. The Company is not adopting SFAS No.
123, "Accounting for Stock Based Compensation." However, the Company will
make all necessary disclosures required in fiscal 1996.
Loss Per Common Share
Net loss per common share is based on the weighted average number of common
shares outstanding during the period. The weighted average number of shares
outstanding has been adjusted to reflect the recapitalization in connection
with the private placement as if it had occurred as of the beginning of the
period for which loss per share is presented.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified to
conform to the 1995 presentation.
NOTE 2 - INVENTORIES
Inventories are comprised of the following:
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
Raw materials $ 76,545 $ 58,762
Work-in-process 42,556 28,456
Finished goods - -
---------- ---------
$ 119,101 $ 87,218
========== =========
F-12
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of:
March 31, December 31,
1996 1995
----------------- --------------
(Unaudited)
Equipment $ 70,850 $ 68,452
Computer software 17,901 13,621
Office furniture 2,374 2,373
--------- ---------
91,125 84,446
Less: Accumulated depreciation
and amortization 54,577 51,735
--------- ---------
$ 36,548 $ 32,711
========= =========
Depreciation expense amounted to $2,842, $2,805, $10,448 and $7,919 for the
three months ended March 31, 1996 and 1995 (unaudited) and for the years
ended December 31, 1995 and 1994, respectively.
NOTE 4 - NOTES PAYABLE - RELATED PARTIES
The Company has borrowed funds from officers and stockholders to finance
its operations. The notes are due on demand (except as described below) and
bear interest at the rate of 10% per annum.
In October 1995, the Company agreed to repay a portion of its debt owed to
a stockholder as follows:
1. $100,000 upon the completion of its private placement (see Note 8).
2. $121,200 from corporate receipts other than the private offering.
As of March 31, 1996 (unaudited), the stockholder has been paid $100,000.
In addition, the Company has assigned its proceeds from the Technology
Agreement (see Note 10) and granted a security interest until the
stockholder has received a total of $221,200. Once the total amount has
been paid, the stockholder has agreed to cancel the assignment and the
security interest. In addition, the stockholder agreed not to demand
payment of any sums due him through August 1, 1997.
F-13
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 4 - NOTES PAYABLE - RELATED PARTIES (CONTINUED)
As at December 31, 1995, notes payable amounted to $670,921 and accrued
interest payable amounted to $293,604. At March 31, 1996 (unaudited), notes
payable amounted to $576,486 and accrued interest payable amounted to
$320,225.
Interest expense charged to operations amounted to $26,621, $15,786,
$64,356 and $62,387 for the three months ended March 31, 1996 and 1995
(unaudited) and for the years ended December 31, 1995 and 1994,
respectively.
In April, May and June of 1996 (unaudited), a stockholder/director loaned
the Company $21,500, with interest at the rate of 10% per annum. There is
no definite maturity date for this loan.
NOTE 5 - PAYROLL TAXES PAYABLE
The Company owes federal and New Jersey payroll taxes from the fourth
quarter of 1993 through the fourth quarter of 1995. Interest and penalties
have been accrued (see Note 6). In January and March 1996, the Internal
Revenue Service filed tax liens totalling $92,007 for unpaid payroll taxes
for the quarters ended September 1994 through June 1995. In January 1996,
the Company paid approximately $150,000 including interest and penalties to
the Internal Revenue Service. The Company has reached oral agreements with
the Internal Revenue Service and the State of New Jersey to repay the
balances owed from the proceeds of the proposed public offering
(see Note 15).
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consist of:
March 31, December 31,
1996 1995
------------ -----------
(Unaudited)
Royalties (Note 10) $ 24,854 $ 29,854
Interest and penalties on unpaid
payroll taxes (Note 5) 38,000 60,000
Others 13,001 54,277
---------- ----------
$ 75,855 $ 144,131
========== ==========
F-14
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 7 - DEFERRED REVENUE
Deferred revenue consists of two customer deposits which are expected to be
recognized as revenue in 1996.
NOTE 8 - LONG-TERM DEBT
Long-term debt consists of subordinated promissory notes issued in
connection with the Company's private placement of securities. The notes
bear interest at 8% per annum and are due 24 months from the date of
issuance provided, however, that if the Company completes a public offering
of its securities prior to the expiration of such period, the principal
amount of the promissory notes together with any unpaid interest shall be
payable upon the closing of the public offering (see Note 15).
March 31, December 31,
1996 1995
-------------- -----------
(Unaudited)
Note, payable on
December 27, 1997 $ 192,000 $ 192,000
Note, payable on
January 22, 1998 528,000 -
---------- ----------
720,000 192,000
Less: Current portion - -
---------- ----------
$ 720,000 $ 192,000
========== ==========
The promissory notes are subordinated to all senior indebtedness, defined
as principal and interest on all indebtedness of the Company, whether
outstanding on the date of the issuance of the promissory notes or
subsequently created for money borrowed by the Company or other monetary
obligations of the Company, including debentures, other notes, letters of
credit, loan agreements or guarantees to banks, trust companies, leasing
companies, insurance companies or other institutional lenders and any
renewal, extension refunding, amendment or modifications of any such senior
indebtedness, including without limitation of the foregoing, purchase money
mortgages and mortgages made, given or guaranteed by the Company.
F-15
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 8 - LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
1996 $ -
1997 192,000
1998 528,000
----------
$ 720,000
==========
On June 27, 1996, the Company issued promissory notes totalling $175,000
under the same terms and interest rate as described above except as
follows:
1. The notes are due if and when the gross proceeds from a series of
private placements amount to at least $5,000,000.
2. One $25,000 note is convertible into 25,000 shares of common stock
automatically upon the completion of the proposed public offering (see
Note 15).
NOTE 9 - FINANCIAL INSTRUMENTS
The amounts at which cash, accounts receivable, accounts payable and other
current liabilities are presented in the balance sheets approximate their
fair value due to their short maturities. The following table presents the
carrying amount and fair value for long-term debt:
March 31, 1996 December 31, 1995
-------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(Unaudited)
Long-term debt $ 720,000 $ 616,500 $ 192,000 $ 160,800
The fair value of long-term debt has been determined based on discounted
cash flow using a market rate of interest at the balance sheet date as
applicable to comparable debt.
F-16
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Lease
All of the Company's operations take place in leased facilities.
Commencing December 1993, the Company began leasing its office and
manufacturing facility from an unrelated entity on a month-to-month basis.
In April 1995, the Company entered into a five year lease for the facility.
In May 1996, the Company terminated the lease and moved to a new facility
entering into a two year lease expiring in May 1998. The Company is also
responsible for its share of operating expenses (as defined).
Future minimum lease payments are as follows:
Year Ending
December 31,
------------
1996 $ 63,400
1997 61,500
1998 25,600
----------
$ 150,500
Rent expense amounted to $16,500, $15,000, $70,018 and $59,048 for the
three months ended March 31, 1996 and 1995 (unaudited) and for the years
ended December 31, 1995 and 1994, respectively.
Technology Agreement
In January 1996, the Company entered into an agreement with a Republic of
China corporation which replaces an earlier agreement entered into in 1995
with a different Republic of China corporation. There have been no
modifications to the old agreement other than the customer name. The
purpose of this agreement is to provide training, advice and consultation
in relation to computer image generator technology. The agreement provides
for a net fee of $1,000,000 payable as follows:
4% upon signing the agreement
16% upon the completion of the first prototype of the computer image
generator
10% upon delivery of the design data package
40% upon completion of the training program
20% 90 days after completion of the training program
10% 180 days after completion of the training program
F-17
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Technology Agreement (Continued)
As compensation for the license granted, the Company will receive royalty
payments at the rate of 2% of the sales value of the products or derivative
products sold by such corporation using the technology, payable annually
for a period of five years from the date of the agreement. In return, the
Company agrees not to market such products within a restricted group of
countries as defined in the agreement.
In October 1995, the Company assigned proceeds received under the agreement
and granted a security interest to a stockholder (see Note 4).
In May 1995, the Company entered into an agreement to pay 15% of the monies
received from the technology agreement to an unrelated corporation. Such
fee amounted to $10,650 for the year ended December 31, 1995.
Consulting fee income amounted to $71,000 for the year ended December 31,
1995 under the old agreement.
Royalties
In connection with the acquisition of technology rights, the Company is
obligated to pay royalties based upon revenues at a rate of 4% of image
generator sales and 1% of other revenue, as defined. Such agreement
stipulates that the royalties paid shall not exceed $1,500,000. Royalty
expense amounted to $-0-, $2,926, $8,573 and $15,889 for the three months
ended March 31, 1996 and 1995 (unaudited) and for the years ended
December 31, 1995 and 1994, respectively.
In July and August 1996, the Company has entered into agreements to
terminate two-thirds of all future royalty payments as of the respective
dates of the agreements. These agreements call for total payments of
$150,000 as well as a payment of $10,529 for unpaid royalties as follows:
1. $88,029 within ten business days from the closing of the Company's
proposed public offering (see Note 15) but no later than March 31,
1997.
2. $72,500 will be due and payable one year after the initial payments.
F-18
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11 - REVENUES
Revenues consist of:
<TABLE>
<CAPTION>
Three Months Ended Years Ended
March 31, December 31,
---------------------------- -----------------------------
1996 1995 1995 1994
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Real time image generators $ 5,000 $ 96,680 $ 267,428 $ 415,254
Consulting fees 2,000 - 169,558 40,740
Parts and repairs 47,898 23,975 40,325 5,838
--------- ---------- --------- ----------
$ 54,898 $ 120,655 $ 477,311 $ 461,832
========= ========== ========= ==========
</TABLE>
The Company operates principally in three geographic areas, the United
States, Canada and the Republic of China. The following is a summary of
information by area:
Revenues
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
United States $ - $ 105,655 $ 379,311 $ 405,718
Canada 7,000 15,000 27,000 35,000
Republic of China 47,898 - 71,000 21,114
--------- ---------- --------- ----------
$ 54,898 $ 120,655 $ 477,311 $ 461,832
========= ========== ========= ==========
</TABLE>
Revenues from major customers are as follows:
Customer A 87.2% 39.5% 31.8% 24.3%
Customer B - % 15.6% 20.5% 18.8%
Customer C - % 12.4% 10.7% 18.1%
NOTE 12 - COMMON STOCK
On March 24, 1995, in connection with its private placement, the Company
increased its authorized common stock from 10,150 shares to 10,000,000
shares and changed the par value from $1.00 per share to $.01 per share. In
addition, the Company issued 1,000,000 shares of $.01 par value common
stock to replace the 10,150 shares of $1.00 par value common stock that
were previously outstanding. All share data and per share amounts have been
adjusted to reflect this transaction. In March 1995, the Company completed
a private placement of 600,000 shares of its $.01 par value common stock
for $100,000, including 150,000 shares sold to principals and an employee
of the underwriter.
F-19
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 13 - WARRANTS
On December 27, 1995, the Company issued 800,000 warrants to purchase
800,000 shares of $.01 par value common stock at an exercise price of $6.00
per share. The warrants were issued in connection with the subordinated
promissory note and were valued at $.01 per warrant amounting to $8,000
(see Note 8). Such amount was credited to additional paid-in capital. The
warrants are exercisable from December 31, 1995 through December 31, 2000.
On January 22, 1996, the Company issued 2,500,000 warrants to purchase
2,500,000 shares of $.01 par value common stock at an exercise price of
$6.00 per share. The warrants, 2,200,000 issued in connection with the
subordinated promissory note and 300,000 issued for cash, were valued at
$.01 per warrant amounting to $28,000 (see Note 8). Such amounts were
credited to additional paid-in capital. The warrants are exercisable from
January 22, 1996 through January 22, 2001.
On June 27, 1996, an agreement was signed cancelling 300,000 of these
warrants. In addition, upon completion of the Proposed Public Offering
(see Note 15), the balance of the warrants (3,000,000) will automatically
convert to warrants identical to those sold to the public.
NOTE 14 - STOCK OPTION PLAN
On June 1, 1996, the Company adopted a Stock Option Plan (the "Plan")
covering 400,000 shares of common stock (subject to adjustment to cover
stock splits, stock dividends, recapitalizations and other capital
adjustments) for employees, including officers and directors and
consultants of the Company. The Plan provides that options to be granted
under the Plan will be designated as incentive stock options or
non-incentive stock options by the board of directors or a committee
thereof, which also will have discretion as to the persons to be granted
options, the number of shares subject to the options and the terms of the
options. Options designated as incentive stock options are intended to
receive incentive stock option tax treatment pursuant to Section 422 of the
Internal Revenue Code of 1986, as amended.
The Plan provides that all options granted thereunder shall be exercisable
during a period of no more than 10 years from the date of grant (five years
for options granted to holders of 10% or more of the outstanding shares of
common stock), depending upon the specific stock option agreement and that
the option exercise price for incentive stock options shall be at least
equal to 100% of the fair market value of common stock on the date of grant
(110% for options granted to holders of 10% or more of the outstanding
shares of common stock), but in no event less than the initial public
offering price of the Company's proposed public offering. Pursuant to the
provisions of the Plan, the aggregate fair market value (determined on the
date of grant) of the shares of the common stock for which incentive stock
options are first exercisable under the terms of the Plan by an option
holder during any one calendar year cannot exceed $100,000.
F-20
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 14 - STOCK OPTION PLAN (CONTINUED)
Currently, the Plan provides that if the employment of an optionee is
terminated other than by reason of death, disability or retirement at age
65, any options granted to the optionee will immediately terminate. If
employment is terminated by reason of disability or retirement at age 65,
the optionee may, within one year from the date of termination, in the
event of termination by reason of disability, or three months from the date
of termination, in the event of termination by reason of retirement at age
65, exercise the option (but not after the normal termination date of the
option). If employment is terminated by death, the person or persons to
whom the optionee's rights under the option are transferred by will or the
laws of descent and distribution have similar rights of exercise within
three months after such death (but not after the normal termination date of
the option).
Options are not transferable otherwise than by will or the laws of descent
and distribution and during the optionee's lifetime are exercisable only by
the optionee. Shares subject to options which expire or terminate may be
the subject of future options. The Plan will terminate in 2005. On June 1,
1996, the Company granted non-qualified stock options to purchase 300,000
shares of its common stock at an exercise price of $5.00 per share at any
time on or after July 1, 1997 until June 1, 2006, the expiration date of
such options.
NOTE 15 - PROPOSED PUBLIC OFFERING
The Company is filing a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, for the purpose of registering its
securities for sale to the public.
Pursuant to the registration statement, the Company will offer 1,400,000
shares of $.01 par value common stock for $7,000,000 and 925,000 five-year
warrants (to purchase 925,000 shares of $.01 par value common stock at
$6.00 per share) for $231,250. In addition, 450,000 shares are being sold
by certain existing stockholders for $2,250,000. The Company will not
receive any proceeds from the sale of these shares.
The Company has agreed to enter into a financial consulting agreement with
the underwriter for a period of two years from the date of the closing of
the proposed public offering.
F-21
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 16 - PRIOR PERIOD ADJUSTMENT
Accumulated deficit at January 1, 1994 has been adjusted to correct an
error made in 1988. The Company erroneously capitalized as additional
paid-in capital certain services rendered by existing stockholders. The
error had no effect on the net loss for 1994.
NOTE 17 - PRO FORMA INFORMATION
Pro forma net loss has been presented to show results of operations
assuming the Company filed its income tax returns as a C corporation. If
the Company was a C corporation, there would be no current income taxes and
deferred income taxes would consist solely of an asset for net operating
loss carryforwards offset by a 100% valuation allowance.
F-22
<PAGE>
================================================================================
No underwriter, dealer, salesman or other person has been authorized to
give any information or to make any representation, other than those contained
in this Prospectus, in connection with the Offering, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. The delivery of this Prospectus at any time does not imply that
there has not been any change in the information set forth herein or in the
affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the securities offered hereby, or an offer to sell or solicitation of
an offer to buy such securities in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom such offer or
solicitation would be unlawful.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary.......................................................
Summary Financial Data...................................................
Risk Factors.............................................................
Use of Proceeds..........................................................
Dividend Policy..........................................................
Capitalization...........................................................
Dilution.................................................................
Selected Financial Data..................................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operation...........................................................
Business.................................................................
Management...............................................................
Certain Transactions.....................................................
Security Ownership of Management
and Others.............................................................
Description of Securities................................................
Shares Eligible for Future Sale..........................................
Underwriting.............................................................
Legal Matters............................................................
Warrant Holders..........................................................
Experts..................................................................
Additional Information...................................................
Index to Financial Statements............................................
Until___, 1996, (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their solicitations to purchase the securities offered hereby.
================================================================================
================================================================================
TELLURIAN, INC.
1,850,000 Shares of
Common Stock
and 925,000 Warrants
TELLURIAN, INC.
----------
PROSPECTUS
----------
J.W. BARCLAY & CO., INC.
________, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Tellurian's Certificate of Incorporation contains a provision which, in
substance, eliminates the personal liability of the directors of Tellurian and
its stockholders for monetary damages for breaches of their fiduciary duties as
directors to the fullest extent permitted by Delaware law. By virtue of this
provision, under current Delaware law a director of Tellurian will not be
personally liable for monetary damages for breach of his fiduciary duty, except
for liability for (a) breach of his duty of loyalty to Tellurian or to its
stockholders, (b) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (c) dividends or stock
repurchases or redemptions that are unlawful under Delaware laws and (d) any
transaction from which he receives an improper personal benefit. This provision
pertains only to breaches of duty by directors as directors and not in any other
corporate capacity, such as officers, and limits liability only for breaches of
fiduciary duties under Delaware corporate law and not for violations of other
laws such as the federal securities laws. As a result of the inclusion of such
provision, stockholders may be unable to recover monetary damages against
directors for actions taken by them that constitute negligence or gross
negligence or that are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions. The inclusion of this provision in Tellurian's Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
Management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
Tellurian and its stockholders.
The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative in nature
to procure a judgment in its favor, by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, in a proceeding not by or in
the right of the corporation, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with such suit or
proceeding, if he acted in good faith and in a manner believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reason to
II-1
<PAGE>
believe his conduct was unlawful. Delaware law further provides that a
corporation will not indemnify any person against expenses incurred in
connection with an action by or in the right of the corporation if such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for the expenses
which such court shall deem proper.
The indemnification and advancement of expenses provided by, or granted
pursuant to Delaware Corporation Law is not be deemed exclusive of any other
rights to which those seeking indemnification or advance of expenses may be
entitled under any bylaw, agreement, vote of stockholders of disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Article IX of Tellurian's By-Laws provides that the officers and
directors of Tellurian shall be entitled to indemnification to the maximum
extent permitted by Delaware law.
The form of Underwriting Agreement included as Exhibit 1 provides for
indemnification of Tellurian and certain controlling persons under certain
circumstances, including liabilities under the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment of the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
Securities and Exchange Commission
Registration fee $12,493.20
NASD Registration Fee 4,234.00
NASDAQ filing fees *
Blue Sky qualification fees
and expenses *
Printing of Prospectus and Certificates *
Legal fees and expenses *
Accountants' fees and expenses *
Fees and expenses of Transfer Agent *
Miscellaneous *
------------
Total $500,000.00**
============
- ---------------
* To be filed by amendment
** Estimated
Item 26. Recent Sales of Unregistered Securities
(i) On March 17, 1995, Tellurian, Inc. (a South Carolina
corporation) sold 600,000 shares of its Common Stock at a purchase price of
$100,000 or $.167 per share. Of such shares, Dennis Giunta, Joseph DeFalco,
Matthew Langdon, John Cioffoletti, Michael Wills, and Douglas Spinosa purchased
200,000 shares, 125,000 shares, 125,000 shares, 45,000 shares, 45,000 shares,
45,000 shares, and 15,000 shares, respectively.
(ii) On December 27, 1995, the Issuer received $200,000 from
the sale of promissory notes in the principal amount of $192,000 and 800,000
warrants from Imafina S.A. On January 22, 1996, the Issuer received $550,000
from the sale of promissory notes in the principal amount of $528,000 and
2,200,000 warrants from Intertrust Management S.A.
(iii) On June 27, 1996, the Issuer received $175,000 from the
sale of promissory notes in the principal amount of $175,000. $150,000 of the
notes are not convertible and $25,000 of the notes are convertible at $1.00 per
share into 25,000 shares of the Issuer's Common Stock automatically upon the
completion of the Issuer's initial public offering. Of such notes, Andrew F.
Nicoletta, Karen Bulavimetz and Alec McDonald paid $70,000, $70,000 and $35,000,
respectively. The Company issued to each of Andrew F. Nicoletta and Karen
Bulavimetz non-convertible notes in the principal amount of $60,000 and
convertible notes in the principal amount of $10,000. The Company also issued to
Alec McDonald a non-convertible note in the principal amount of $30,000 and a
convertible note in the principal amount of $5,000.
II-3
<PAGE>
Each of the transactions described in subparagraphs (i), (ii)
and (iii) are exempt under Section 4(2), Section 4(6), Regulation 505 and/or
Regulation 506 of the Securities Act of 1933, as amended (the "Act").
The transactions described in sub-paragraphs (iv) and (v)
below are not considered sales within the meaning of Rule 145 of the Securities
Act of 1933, as amended.
(iv) On March 15, 1995, Tellurian, Inc. (a South Carolina
corporation) declared a 98.52216749-for-1 stock split.
(v) On July 2, 1996, Tellurian, Inc. (a South Carolina
corporation) reincorporated in the State of Delaware through a merger into and
with Tellurian, Inc. (a Delaware corporation) with the Delaware corporation as
the surviving corporation. As a result of the merger, the Company issued 430,049
shares to Charles Powers, 297,908 shares to Ronald Swallow, 109,481 shares to
Richard Swallow, 9,852 shares to Sergei Doroshov, 16,748 shares to Donald
Wnageran, 49,261 shares to Stuart French, 49,261 shares to Ching-yuan Tung,
9,852 shares to Hitesh Amin, 9,852 shares to Lawson Nichols, 4,926 shares to
Jerry Plotczyk, 4,926 shares to Karyssa Plotczyk, 4,926 shares to Richard
Mathiesen, 2,958 shares to Mat Adams, 45,000 shares to John Bruno, 45,000 shares
to Douglas Spinosa, 45,000 shares to Dennis Giunta, 15,000 shares to Michael
Wills, 125,000 shares to Joseph DeFalco, 125,000 shares to John Cioffoletti and
200,000 shares to Matthew Langdon.
Item 27. Exhibits
(a) Exhibits.
Exhibit No. Description
----------- -----------
1 Form of Agreement Among Underwriters, Underwriting
Agreement and Selected Dealer Agreement.
2 Agreement and Plan of Merger; Certificate of Ownership
and Merger (Delaware); Articles of Merger (South
Carolina)
3(a) Articles of Incorporation of Registrant
3(b) By-Laws of Registrant
4(a) Specimen of Common Stock*
4(b) Form of Warrant Agreement including Form of Warrant *
II-4
<PAGE>
4(c) Form of Underwriter's Warrants*
5 Opinion re: legality *
10(a) Indemnification Agreement dated October 10, 1995
between Charles Powers and the Registrant and an
amendment thereto dated June 17, 1996
10(b) Assignment of Contract Rights dated October 9, 1995
between Charles Powers and the Registrant and an
amendment thereto dated June 17, 1996
10(c) Form of Employment Agreement to be entered into
between Dr. Ronald Swallow and the Registrant *
10(d) Form of Employment Agreement to be entered into
between Stuart French and the Registrant *
10(e) Lease for Facilities in Upper Saddle River, New Jersey
10(f) Transfer Technology Agreement dated January 1, 1996
between Voyager Graphics, Inc. and the Registrant
10(g) Agreement dated November 14, 1994 between TTY
Graphics, Inc., Voyager Simulation Ltd. and the
Registrant.
10(h) Letter Agreement dated May 26, 1995 between the
Registrant and TTY Graphics, Inc. and amendment
thereto dated July 17, 1996.
10(i) Agreement dated November 5, 1991 by and among Greg
Gustin, Pat Lowe as Trustee for the Estate of Quantum
Graphics, Inc. and TTY Graphics, Inc.
10(j) Assignment Agreement dated as of November 5, 1991
between TTY Graphics, Inc. and the Registrant
10(k) Letter Agreement dated August 1, 1996 and August 2,
1995 between Greg Gustin and the Registrant
II-5
<PAGE>
10(l) Agreement dated July 23, 1996 between TTY Graphics,
Inc. and the Registrant
10(m) 1996 Incentive and Non-Statutory Stock Option Plan
10(n) Promissory Note dated December 27, 1995, issued to
Imafina S.A.
10(o) Promissory Note dated January 22, 1996 issued to
Jericho Limited
10(p) Form of Convertible Promissory Note dated June 27,
1996 issued to Andrew Nicoletta, Karen Bulavinetz and
Alec McDonald
10(q) Form of Non-Convertible Promissory Note dated June 27,
1996 issued to Andrew Nicoletta, Karen Bulavinetz and
Alec McDonald
10(r) Common Stock Purchase Warrants dated December 27, 1995
issued to Imafina S.A.
10(s) Common Stock Purchase Warrants dated January 22, 1996
issued to Jericho Limited.
11 Earnings per share - See notes to financial statements
21 Subsidiaries of Registrant - None
23 Consent of Miller, Ellin & Co.
27 Selected Financial Data
- ---------------
* To be filed by amendment.
Item 28. Undertakings
The undersigned Registrant hereby further undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
II-6
<PAGE>
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment of the registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Company will provide to the Representative of the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Representative to
permit prompt delivery to each purchaser.
For determining any liability under the Securities Act, the Registrant
will treat the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Upper
Saddle River, State of New Jersey on the 6 day of August, 1996.
TELLURIAN, INC.
By: /s/ Stuart French
-------------------------
Stuart French, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed below by the following persons in the
capacities and on the dates stated:
Signatures Titles Date
- ---------- ------ ----
/s/ Dr. Ronald Swallow Chairman of the
- ----------------------------- Board, Chief
Dr. Ronald Swallow Executive Officer August 6, 1996
President, Chief Financial
/s/ Stuart French and Accounting Officer
- ----------------------------- and a Director of the
Stuart French Company August 6, 1996
/s/ Dr. Richard Swallow
- ----------------------------- Secretary and a Director
Dr. Richard Swallow of the Company August 6, 1996
II-8
<PAGE>
Exhibit 1
1,850,000 Shares of Common Stock
and
9250,000 Common Stock Purchase Warrants
TELLURIAN, INC.
AGREEMENT AMONG UNDERWRITERS
Dated: July , 1996
J.W. Barclay & Co., Inc.
as Representative of the Several Underwriters
1 Battery Park Plaza
New York, new York 10004
Dear Sirs:
We confirm our agreement with you as follows for the purchase by you and
the other several Underwriters hereinafter referred to, including ourselves, of
1,850,000 shares of Common Stock and 925,000 Common Stock Purchase Warrants plus
the option to purchase up to an aggregate of 210,000 additional shares of Common
Stock and 138,750 additional Common Stock Purchase Warrants (hereinafter
together referred to as the "Securities"), of Tellurian, Inc., a Delaware
corporation, (the "Company"). The Securities are to be purchased from the
Company and Selling Stockholders pursuant to an underwriting agreement, the form
of which is annexed hereto (the "Underwriting Agreement"), the number of
Securities to be purchased by us severally being indicated on Schedule A to the
Underwriting Agreement. The Securities are to be offered to the public, and such
offering will be made under a registration statement and prospectus relating
thereto filed by the Company with the Securities and Exchange Commission, under
the Securities Act of 1933, as amended (the "Act") copies of which, together
with amendments thereto, we have received. The registration statement in the
form in which it becomes effective and the prospectus, as then amended, are
hereinafter respectively referred to as the "Registration Statement" and the
"Prospectus".
1. Authority of Managing Underwriter. We hereby authorize you, on our
behalf, and as our agent and representative (in that capacity sometimes herein
called the "Managing Underwriter" or "Representative"), to execute and deliver
the Underwriting Agreement substantially in the form attached hereto, to act in
our behalf in carrying it out and to take such action and make such
determinations as you may deem advisable under and with respect thereto,
including agreement to any non-material modification thereto (but not
modifications as to price and number of Securities to be purchased by us).
2. Payment and Delivery. The purchase price of the Securities to be
purchased by us shall be $4.50 per share of Common
1
<PAGE>
Stock and $0.225 per Common Stock Purchase Warrant, and on the Closing Date we
will pay you the amount so due plus an additional amount equal to $_____ per
share of Common Stock and $______ per Common Stock Purchase Warrant for
Securities purchased by us, as compensation for your services as Managing
Underwriter. You shall give us at least 24 hours' notice of the Closing Date and
the place thereof pursuant to the Underwriting Agreement. We will deliver, at or
before 9:00 A.M., New York City time, on the day fixed as such Closing Date, to
you at the office of the Representative, or at such other place or time as
instructed by you, certified or bank cashier's checks, payable to the order of
the Representative, in New York Clearing House funds, for the price of the
Securities which we have agreed to purchase and for the aforesaid fee. Upon
receipt of such payment, you will make payment to the order of the Company, for
our account, of the purchase price of such Securities against delivery thereof
to you for our account. You shall thereupon deliver to us the Securities
purchased by us, less such amounts thereof as shall have been reserved for
offering to Selected Dealers if a selling group is formed. In the event we do
not pay you the purchase price in the amount and at the time stated above, you
may either treat our failure to do so as a default on our part or, at your
election, pay the purchase price to the Company on our behalf and charge us with
the amount thereof, with interest, withholding delivery of the Securities for
our account until such purchase price and interest are received by you.
3. Expenses. You shall charge our account with: (i) all transfer taxes, if
any, and other charges on purchases, sales or transfers for our account; and
(ii) our proportionate share (based upon the number of Securities we agree to
purchase) of all other expenses which are not paid by the Company and the
Selling Stockholders, including, but not limited to, advertising costs and legal
fees and disbursements of counsel for the Underwriters, incurred by you under
the terms of this Agreement or in connection with the purchase, carrying and
sale of the Securities, including the expenses chargeable to and caused by any
defaulting Underwriter hereunder. Funds of the Underwriters in your hands, as
Managing Underwriter, may be held in your general funds without accountability
for interest.
4. Public Offering. The initial public offering of the Securities, which
shall be made as set forth in the Prospectus, may be made on the date on which
the Registration Statement becomes effective or as soon thereafter as in your
judgment shall be practicable. The initial public offering prices for the
Securities shall be as shown on the cover page of the Prospectus. We authorize
you to determine the form of any advertisement of the Securities and the form of
agreements, if any, with dealers. We also authorize you to manage any such
public offering and to act as manager under agreements with dealers.
We authorize you to reserve for sale, sell and deliver, on
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our behalf and for our account, to dealers (who may include any Underwriter)
selected by you (herein sometimes referred to as the "Selected Dealers"), who
are members of the National Association of Securities Dealers, Inc. (the "NASD")
or to foreign banks, dealers and institutions not registered under the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") which agree to
make no sales within the Securityed States, its territories or possessions or to
persons who are citizens thereof or residents therein, and in making sales to
comply with the NASD's Interpretation With Respect to Free Riding and
Withholding, and to such persons other than dealers as you shall select, such
number of Securities purchased by us from the Company as you shall determine.
Such reservations and sales to Selected Dealers and other persons for the
respective accounts of the several Underwriters shall be made as you may
determine. The concessions to be allowed to Selected Dealers and by them to be
reallowed to others are specified in the form of Selected Dealer Agreement
annexed hereto. If no Selected Dealer Agreement is entered into, we hereby
authorize you to allow concessions not exceeding $0.125 per share of Common
Stock and $0.005 per Common Stock Purchase Warrant (no part of which may be
reallowed) to any other dealer who is a member of the National Association of
Securities Dealers, Inc. or is a foreign dealer. The concessions and
reallowances may be allowed only to dealers who are members in good standing of
said Association, or foreign banks, dealers or institutions not eligible for
membership in said Association who agree to make no sales within the Securityed
States, its territories or possessions or to persons who are citizens thereof or
residents therein, and in making other sales, to comply with said Associations'
Interpretation With Respect to Free-Riding and Withholding. Sales to others than
such members or such foreign banks, dealers or institutions will be made at the
public offering prices.
You shall advise us promptly on the public offering date of the number of
Securities purchased by us which you have not reserved for sale to dealers or
other persons. We will retain for direct sale all of such Securities and, at any
time prior to the termination of this Agreement, you may reserve for sale to
dealers and other persons additional Securities retained by us and remaining
unsold.
We agree that whether or not any Selected Dealer Agreement with Selected
Dealers is entered into we shall be governed by the provisions of the attached
form of Selected Dealer Agreement (except as otherwise expressly provided
herein) during the term hereof, whether or not we are a Selected Dealer.
Upon our request you may from time to time, in your discretion, release to
us for direct sale any Securities reserved by you for sale to Selected Dealers
and other persons on our behalf
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and not then sold, and any Securities so released shall not thereafter be
deemed reserved.
If prior to, or within seven days after, the termination of this Agreement
any Securities sold by us (other than Securities sold by you as Managing
Underwriter for the account of an Underwriter pursuant to this Agreement or any
Selected Dealer Agreement) shall be purchased by the Managing Underwriter or by
any Underwriter through the Managing Underwriter in the open market, then any of
such Securities shall be repurchased by us at a price equal to the total cost
thereof including commissions and transfer taxes, if any, on redelivery. The
Securities delivered on such repurchase need not be the identical Securities
originally so purchased. In lieu of the repurchase of such Securities you may,
at your option (a) charge us an amount equal to the difference between the
public offering prices and the cost prices to Selected Dealers of the Securities
so purchased, and any broker's commissions paid in connection with such
purchase, or (b) sell for our account the Securities so purchased, publicly or
privately without notice at such prices and upon such terms and to such
purchasers, including any of the several Underwriters, as you may determine,
charging us the amount of any loss and expense or crediting to us the amount of
any profit, less any expense, resulting from such sale.
5. Sale of Securities by Underwriters to Managing Underwriter. We will
advise you, from time to time upon request, of the number of Securities retained
by or released to us for direct sale which then remain unsold and until the
termination of this Agreement we will, upon your request, sell to you, in order
to enable you to consummate sales or cover over-allotments, such number of such
unsold Securities as you may specify, at such price as you may designate, but
not less than the purchase prices paid to the Company therefor.
6. Transactions in Securities by Underwriters. We agree that until
termination of this Agreement and the Selected Dealer Agreements, we will not
buy or sell for our account any of the Securities or outstanding shares of
Common Stock or warrants of the Company except as permitted in this Agreement
and the Selected Dealer Agreement or as a broker pursuant to unsolicited orders,
provided, however, that, subject to the approval of the Managing Underwriter,
any Underwriter may buy Securities from, or sell Securities to, any other
Underwriter at the public offering prices, less all or any part of a concession
of $0.125 per share of Common Stock and $0.005 per Common Stock Purchase
Warrant, and may buy from, and sell the same to, any Selected Dealer at the
public offering price less all or any part of any concession to Selected Dealers
in the amount specified in the form of Selected Dealer Agreement.
7. Loans and Advances. We authorize you to arrange such
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loans for our account, or to make such advances of your funds on our behalf, as
you may deem necessary or advisable in connection with the purchase, delivery or
carrying of any of the Securities (and as may be permitted by law), and to
pledge or hold as security therefor all or any part of the Securities which we
shall have purchased or agreed to purchase from the Company. We shall be paid or
credited with the proceeds of all loans made for our account.
You may, and at our request will, deliver to us from time to time on or
after the Closing Date and prior to the termination of this Agreement, for
carrying purposes only, any Securities purchased by us which have been reserved
for sale for our account but not sold and paid for. We will redeliver to you any
Securities so delivered to us for carrying purposes at such time or times prior
to such termination as you may demand.
8. Stabilization. We authorize you, in your discretion, during the term of
this Agreement, and for our account (a) to buy and sell Securities in the open
market or otherwise, for long or short account, in such amounts and on such
terms and at such prices as you may determine, provided that, during the term of
this Agreement and the Selected Dealer Agreement, any such sales of Securities
shall be made at the public offering prices or, in the case of sales of
Securities to a Selected Dealer or one of the Underwriters, at the public
offering prices less the concessions applicable thereto under Section 6 above,
or any part of such concessions, and (b) in arranging for sales of Securities to
Selected Dealers, to over-allot and to cover such over-allotments; it being
understood that such purchases and sales and over-allotments shall be as nearly
as practicable in the proportions in which the respective Underwriters have
agreed to purchase the Securities, and that at no time shall our net position,
for either long or short account including such over-allotments, exceed 15% of
the Securities which we have agreed to purchase under the Underwriting
Agreement. Upon your demand, we will pay you the cost of any Securities
purchased for our account and will deliver to you any Securities sold or
over-allotted for our account.
We authorize you to file on our behalf with the Securities and Exchange
Commission any reports required in connection with any transaction pursuant to
this Section 8. You shall notify us promptly if you effect such transactions.
9. Termination and Settlement. Unless earlier terminated by you, this
Agreement shall terminate at the close of business on the 30th day after the
initial public offering unless extended by you for an additional period or
periods not exceeding an aggregate of 30 additional days. You may extend this
Agreement for such period or periods and may terminate this Agreement at any
time without prior notice.
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As soon as practicable after any such termination, any Securities held by
you for our account or reserved by you for sale to dealers and other persons but
not sold and paid for, shall be delivered to us and our net credit or debit
balance, taking into account our share of known expenses and charges and any
necessary reserve for additional expenses, shall be received from or paid to
you.
Notwithstanding any settlement under this Agreement, we agree to pay our
proportion (based on the number of Securities we agree to purchase from the
Company) of the amount of any claim, demand or liability which may be asserted
against and discharged by the Underwriters, or any of them, based on the claim
that the Underwriters constitute an association, unincorporated business or
other separate entity, and also to pay a like proportion of any transfer taxes
which may be assessed after such settlement and a like proportion of the
expenses incurred by the Underwriters, or any of them, and approved by you in
contesting any such claim, demand, liability or tax.
10. Defaulting Underwriters. In the event of failure of any Underwriter to
perform its obligation to take up and pay for the Securities which it has agreed
to purchase, you shall have the right to arrange for other persons, who may
include yourselves, to take up and pay for such Securities. In the event that
such arrangements are made, the proportions of the Securities then to be
purchased by the other Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriters to the
other Underwriters for damages resulting from such default, nor shall default in
any way relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement, except as therein provided.
11. Position of Managing Underwriter. Except as herein otherwise expressly
provided, you shall have full authority to take such action as you may deem
necessary or advisable in respect of all matters pertaining to the Underwriting
Agreement and this Agreement, and the purchase, sale and distribution of the
Securities, but you shall be under no liability to us except for want of good
faith and for obligations assumed by you hereunder and except for any
liabilities under the Act. No obligation not expressly assumed by you in this
Agreement shall be implied herefrom.
12. Indemnity. (a) We agree, and each of the several Underwriters
(including yourselves) shall agree, to indemnify, defend and hold harmless each
other Underwriter and each person who controls any other Underwriter within the
meaning of Section 15 of the Act, to the extent and upon the terms that each
Underwriter agrees to indemnify and hold harmless the Company and the Selling
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Stockholders as set forth in Section 6 of the Underwriting Agreement.
(b) We will pay, upon your request, our proportionate share, based upon our
underwriting obligation, of any losses, damages, liabilities or expenses, joint
or several, paid or incurred by any Underwriter to any person other than an
Underwriter, arising out of or based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus, any amendments or supplements thereto or any preliminary prospectus
or any selling or advertising material approved by you for use by the
Underwriters in connection with the sale of the Securities, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading (other than an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company and the Selling Stockholders by an Underwriter specifically for use
therein) and such proportionate share of any legal or other expenses reasonably
incurred by you or with your consent in connection with investigating or
defending any claim or action in respect of such loss, damage, liability or
expense. In determining the amount of our obligation under this Section 12(b),
appropriate adjustment may be made by you to reflect any amounts received from
the Company and the Selling Stockholders by any one or more Underwriters in
respect of such claim pursuant to Section 6 or Section 7 of the Underwriting
Agreement or otherwise. There shall be credited against any amount paid or
payable by us pursuant to this Section 12(b) any loss, damage, liability or
expense which is incurred by us as a result of any such claim asserted against
us, and if such loss, damage, liability or expense is incurred by us subsequent
to any payment by us pursuant to this Section 12(b), appropriate provision shall
be made to effect such credit, by refund or otherwise. If any such claim is
asserted, you may take such action in connection therewith as you deem necessary
or desirable, including retention of counsel for the Underwriters and in your
discretion separate counsel for any particular Underwriter or groups of
Underwriters. In determining amounts payable pursuant to this Section 12(b) any
loss, damage, liability or expense incurred by any person controlling any
Underwriter within the meaning of Section 15 of the Act which has been incurred
by reason of such control relationship shall be deemed to have been incurred by
such Underwriter. Any Underwriter may elect to retain at its own expense its own
counsel. You may settle or consent to the settlement of any such claim with the
approval of a majority in interest of the Underwriters on advice of counsel
retained by you. Whenever you receive notice of the assertion of any claim to
which the provisions of this Section 12(b) would be applicable, you will give
prompt notice thereof to each Underwriter. You will also furnish each
Underwriter with periodic reports, at such times as you deem appropriate, as to
the status of such claim and the action
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<PAGE>
taken by you in connection therewith. If any Underwriter or Underwriters default
in their obligation to make any payments under this Section 12(b), each
non-defaulting Underwriter shall be obligated to pay its proportionate share of
all defaulted payments, based upon such Underwriter's underwriting obligation as
related to the underwriting obligations of all non-defaulting Underwriters.
Nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) The indemnity agreement in this Section shall survive the termination
of this Agreement.
13. Confirmation of Underwriters. We confirm that we have examined the
Registration Statement and the amendments thereto referred to in the
Underwriting Agreement, that we are familiar with the proposed final amendment
thereto (including the proposed final form of prospectus), that we are willing
to accept the responsibilities of an underwriter under the Act in respect of the
Registration Statement and are willing to proceed with the public offering of
the Securities in the manner contemplated, and that the form of the Selected
Dealer Agreement employed by you in connection with this offering is
satisfactory to us. We further confirm that the information relating to us in
such proposed final form of prospectus and the statements therein as to the
terms of the offering of the Securities under the heading "Underwriting" of the
Registration Statement insofar as they relate to us are correct, and we
authorize you, as our Managing Underwriter, so to advise the Company. We further
confirm that (a) we are members in good standing of the NASD, or (b) we are a
foreign bank, dealer or institution not registered under the Exchange Act and we
agree (i) that in making sales of the Securities outside the Securityed States
we will comply with the requirements of the NASD's Interpretation With Respect
to Free Riding and Withholding and (ii) that we will not offer or sell any of
the Securities within the United States, its territories or possessions or to
persons who are citizens thereof or residents therein and, (c) we have the ratio
of net capital to aggregate indebtedness, including the indebtedness represented
by our obligation under this Agreement and under the Underwriting Agreement,
required by Rule 15c3-1 promulgated by the Commission pursuant to the provisions
of Section 15(c)(3) of the Exchange Act. We know of no engineering, management
or similar report or memorandum relating to the Company prepared within the last
year in connection with the offering by or for the Company, a controlling person
of the Company or any Underwriter which has not been filed with the Commission.
We also confirm that copies of the latest preliminary prospectus with respect to
the Securities have been mailed, at least two days prior to the date hereof, to
all persons to whom it is presently expected we will sell Securities and that,
if we expect to mail a confirmation of any such sale to any person by air mail,
said preliminary prospectus has been sent to such person by air mail. In
response to Securities Act Release No. 5398, we agree that we will not sell more
than five (5%)
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percent of the Securities purchased by us hereunder to accounts over which we
exercise discretionary authority. We, and any affiliate of ours engaged in the
retail distribution of securities which is used by us in connection with the
offering of the Securities, will comply with the applicable provisions of the
Selected Dealer Agreement. We will not sell any Securities at prices less than
the Offering Prices except to persons who have entered into, or agreed to enter
into, the Selected Dealer Agreement. For a period of twenty-five (25) days after
the effectiveness of the Registration Statement, or until completion of the
public offering of the Securities, whichever is later, we will provide a copy of
the Prospectus to any person making a written request therefor.
14. Miscellaneous. Nothing herein contained shall constitute the several
Underwriters an association, or any Underwriters partners with you or us, or
with each other, or render any Underwriter liable for the obligations of any
other Underwriter; and the rights and liabilities of ourselves and of each of
the Underwriters shall be several and not joint.
The Securities purchased by us pursuant to the Underwriting Agreement shall
remain our property until sold, and no title to any such Securities shall pass
to you by virtue of any of the provisions of this Agreement.
Default by any one or more Underwriters in respect of their several
obligations shall not release us or any other Underwriter from any obligations
hereunder.
You shall not have any responsibility with respect to the right of any
Underwriter or other person to sell the Securities in any jurisdiction,
notwithstanding any information you may furnish in that connection. We authorize
you to file with the New York authorities, as syndicate manager, a Further State
Notice relating to the Securities if required.
The section headings in this Agreement have been inserted as a matter of
convenience of reference and are not a part of this Agreement.
This Agreement shall be governed by, and construed and enforced in
accordance with, the internal laws of the State of New York, and we hereby
consent and shall submit to the jurisdiction of the courts of the State of New
York and of any federal court sitting in the City of New York with respect to
controversies arising under this Agreement.
15. Notices. Any notice from you to us shall be deemed to have been duly
given if mailed, telephoned, telegraphed or delivered to us at our address set
forth after on Schedule A to the attached Underwriting Agreement.
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<PAGE>
16. Execution of Agreement. This Agreement has been executed by us and is
delivered to you in duplicate. Your confirmation hereof shall constitute this
Agreement a valid and binding contract between you and us and each party to a
similarly confirmed agreement substantially identical herewith, and this and
such other agreements shall constitute the Agreement Among Underwriters.
Very truly yours,
By:_________________________________
As Attorney-in-fact for each of the
Several Underwriters named in
Schedule A to the Underwriting
Agreement
Confirmed as of the date
first above written:
J.W. BARCLAY & CO., INC.
By:___________________________
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1,850,000 Shares of Common Stock
and
925,000 Common Stock Purchase Warrants
TELLURIAN, INC.
UNDERWRITING AGREEMENT
Dated: July , 1996
J.W. Barclay & Co., Inc.
as Representative of the Several Underwriters
One Battery Park Plaza
New York, New York 10004
Dear Sirs:
The undersigned, Tellurian, Inc., a Delaware corporation (the "Company"),
and the persons listed on Schedule annexed hereto (the "Selling Stockholders")
hereby confirm their agreement with J.W. Barclay & Co., Inc. (sometimes the
"Representative" or "you") and the several Underwriters named in Schedule A
hereto (the "Underwriters") as follows:
1. Description of Securities. The Company has authorized by appropriate
corporate action, and proposes to issue and sell to the Underwriters, 1,400,000
shares of Common Stock, par value $.01 per share, and 925,000 Common Stock
Purchase Warrants and the Selling Stockholders propose to sell to the
Underwriters an aggregate of 450,000 shares of Common Stock, said shares of
Common Stock and Warrants collectively hereinafter referred to as "Shares" and
"Warrants". Each Warrant shall be exercisable for one share of Common Stock. An
additional 210,000 Shares of Common Stock, and 138,750 Warrants, have been
authorized to cover over-allotments as provided in Section 3 below. The Shares
and Warrants shall hereinafter sometimes be collectively referred to as the
"Securities". The Shares and Warrants are more fully described in the
Registration Statement and Prospectus referred to hereinafter.
2. Representations and Warranties.
(a) The Company and each Selling Stockholder, jointly and severally,
represents and warrants to, and agrees with, you and the Underwriters that:
(i) A registration statement on Form SB-2 with respect
to the Securities, including a preliminary prospectus, copies of
<PAGE>
which have heretofore been delivered by the Company to you, has been carefully
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended, (hereinafter called the "Act") and the Rules and
Regulations of the Securities and Exchange Commission (hereinafter called the
"Commission") under such Act, and has been filed with the Commission (File No.
33-_______). On or prior to the effective date of such registration statement,
one or more amendments to such registration statement (including a final
prospectus), copies of which have heretofore been or will be delivered to you,
will have been so prepared and filed in the form delivered to you. Such
registration statement (including all exhibits thereto) as amended as of the
effective date thereof and each related preliminary prospectus are herein
respectively referred to as the "Registration Statement", the "Preliminary
Prospectus" and the "Prospectus".
(ii) When the Registration Statement becomes effective (the
"Effective Date") and at all times subsequent thereto up to and at the Closing
Date (as defined in Section 3 hereof) and the Additional Closing Date (as
defined in Section 3 hereof), (i) the Registration Statement and the Prospectus
and any amendments or supplements thereto will contain all statements which are
required to be stated therein by the Act and the Rules and Regulations of the
Commission thereunder and will in all respects conform to the requirements of
the Act and such Rules and Regulations, (ii) neither the Registration Statement
nor the Prospectus nor any amendment or supplement thereto will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (iii) all documents which are required to be filed as exhibits to the
Registration Statement will have been so filed; provided however, that the
Company and the Selling Stockholders make no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by you or any
Underwriter expressly for use in the preparation thereof.
(iii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with all corporate and other powers and authority necessary to carry on
its businesses, and it is qualified and in such jurisdictions in which the
nature of its business requires such qualification.
(iv) The consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or any of
its properties is bound, or of its Certificate of Incorporation, or By-laws, or
any order, rule or regulation applicable to the Company
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<PAGE>
or any of its properties, of any court or other governmental body.
(v) The Company has full power and lawful authority to
authorize, issue and sell the Shares, Warrants, Underwriters' Stock Warrants (as
defined hereinafter) and Underwriters' Warrants (as defined hereinafter) on the
terms and conditions herein set forth, and has taken all corporate action
necessary therefor; no consent, approval, authorization or other order of any
regulatory authority is required for such authorization, issue or sale, except
as may be required under the Act or state securities or blue sky laws. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and legally binding agreement of the Company enforceable in accordance
with its terms. The Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company, to be dated the Closing Date, pursuant to which the
Warrants will be issued (the "Warrant Agreement") has been duly authorized by
the Company and, when executed and delivered by the Company and Continental
Stock Transfer & Trust Company, will be a valid and legally binding obligation
of the Company, enforceable in accordance with its terms.
(vi) The Securities and the authorized capitalization of the
Company conform to the descriptions thereof contained in the Registration
Statement and Prospectus. The holders of the Warrants will, upon their exercise,
be entitled to purchase shares in accordance with the terms and conditions set
forth in the Warrant Agreement and the form of Warrant filed as exhibits to the
Registration Statement. The outstanding shares of capital stock are, and the
shares issuable pursuant to the public offering contemplated hereby and upon
exercise of any of the warrants referred to herein will upon such issuance be,
duly authorized, validly issued and fully paid and nonassessable, and the
Company has duly authorized and reserved for issuance upon exercise of warrants
such number of shares as are initially issuable upon such exercise. The
Warrants, the Underwriters' Stock Warrants, the Underwriters' Warrants and the
warrants underlying the Underwriters' Warrants will, when issued and delivered
in accordance with the provisions of the Warrant Agreement, in the case of the
Warrants and the warrants underlying the Underwriters' Warrants, and this
Agreement, in the case of the Underwriters' Stock Warrants, be valid and legally
binding obligations of the Company enforceable in accordance with their
respective terms. There are no options, warrants, rights of conversion,
indebtedness or calls on equity of the Company other than as disclosed in the
Prospectus and Registration Statement.
(vii) Except as set forth or contemplated in the Registration
Statement and Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company has not incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions, not in the ordinary
course
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of business, and there has not been any material change in the capital stock or
funded debt of the Company, or any material adverse change in the condition
(financial or other) or results of operations of the Company.
(viii) The financial statements (audited and unaudited) set
forth in the Registration Statement and Prospectus fairly present the financial
condition of the Company and the results of its operations as of the dates and
for the periods therein specified; and said financial statements (including the
related notes and schedules) have been prepared in accordance with generally
accepted accounting principles which have been consistently applied throughout
the periods covered thereby. Such financial statements and the summaries thereof
included in the Registration Statement and the Prospectus conform in all
material respects to the requirements of the Rules and Regulations of the
Commission.
(ix) The accountants whose opinion or opinions is or are
included in the Registration Statement are independent public accountants within
the meaning of the Act and the Rules and Regulations of the Commission
thereunder.
(x) Except as set forth in the Prospectus, there is not
pending any action, suit or other proceeding to which the Company is a party or
of which any property of the Company is the subject, before or by any court or
other governmental body, which might result in any material adverse change in
the condition, business or prospects of the Company, or might materially
adversely affect the assets of the Company; and except as indicated in the
Prospectus, no such proceeding is known by the Company to be threatened or
contemplated.
(xi) The Company knows of no claim for services, either in the
nature of a finder's fee, brokerage fee or otherwise, with respect to the
financing contemplated hereby, whether or not heretofore satisfied, for which it
or the Underwriters, or any of them, may be responsible, other than as expressly
disclosed in the Prospectus.
(xii) The business and operations of the Company and the
ownership thereof, except as may be disclosed in the Prospectus, comply with all
statutes, ordinances, laws, rules and regulations applicable thereto, the
non-compliance with which could reasonably be expected to have a material,
adverse effect on the Company or its condition (financial or other), business,
prospects, net worth or results of operations; the Company possesses, and is
operating in compliance with the terms, provisions and conditions of, all
certificates, licenses, permits, consents, waivers, approvals, franchises and
concessions required to conduct its business as now conducted, the
non-compliance with which could reasonably be expected to have a material
adverse effect on the Company or its
4
<PAGE>
condition (financial or other), business, prospects, net worth or results of
operations; each such certificate, license, permit, consent, waiver, approval,
franchise and concession is valid and in full force and effect and there is no
proceeding pending or threatened (or to the best of the knowledge of the Company
and the Selling Stockholders, any basis therefor) which may lead to the
revocation, termination, suspension or nonrenewal of any such certificate,
license, permit,consent, waiver, approval, franchise or concession.
(xiii) On the Effective Date of the Registration Statement and
immediately prior to the sale of the Securities, the outstanding capital stock
of the Company will consist of no more than 1,600,000 shares of Common Stock,
par value $.01 per share, and there shall be no warrants or options to purchase
shares of Stock of the Company except as set forth in the Prospectus.
(b) Each of the Selling Stockholders, severally and not jointly,
represents and warrants to each Underwriter that:
(i) Such Selling Stockholder (A) has the power and authority
to execute and deliver this Agreement and the Power of Attorney Agreement
(hereinafter defined) on the terms and conditions set forth herein and therein;
(B) is, and when the Registration Statement shall become effective and at the
Closing Time will be, the owner of the Shares to be sold by such Selling
Stockholder to the respective Underwriters pursuant to the terms hereof, in each
case free and clear of all liens, charges, encumbrances and restrictions; (C)
has paid to the Company the full purchase price required to be paid for such
Shares; and (D) has, and when the Registration Statement shall become effective
and at the Closing Time will have, the power and authority to convey good and
valid title to such Shares, in each case free and clear of all liens, charges,
encumbrances and restrictions.
(ii) Such Selling Stockholder has executed an agreement and
power of attorney (the "Power of Attorney Agreement") with ___________________
or _______________________ as attorney-in-fact, and has delivered to such
attorney-in-fact, pursuant to the Power of Attorney Agreement, certificates in
negotiable form for the Shares to be sold by such Selling Stockholder. Copies of
each Power of Attorney Agreement have been delivered to you. Such certificates
and the Shares represented thereby are subject to the rights of the Underwriters
hereunder and, to such extent, the Power of Attorney granted by such Selling
Stockholder to such attorney-in-fact is irrevocable and shall not be terminated
by law or upon the occurrence of any event. If any such event shall occur, with
or without notice to such attorney-in-fact, such attorney-in-fact shall deliver
such certificates in accordance with the terms and provisions of this Agreement
as if such event had not occurred.
(iii) The Power of Attorney Agreement has been duly
5
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authorized, executed and delivered by such Selling Stockholder, and this
Agreement has been duly authorized, executed and delivered by such Selling
Stockholder or by his or her attorney-in-fact pursuant to the Power of Attorney
Agreement. The Power of Attorney Agreement and this Agreement each constitute
valid and binding agreements of such Selling Stockholder enforceable in
accordance with their respective terms (except as rights to indemnification may
be limited by applicable law).
(iv) Neither the execution and delivery or performance of this
Agreement or the Power of Attorney Agreement or the consummation of the
transactions herein or therein contemplated nor the compliance with the terms
hereof or thereof by such Selling Stockholder will conflict with, or result in a
breach of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, guaranty, purchase agreement or other
agreement or instrument to which such Selling Stockholder or any of such Selling
Stockholder's property is bound, or under any statute or under any order, rule
or regulation applicable to such Selling Stockholder or any of such Selling
Stockholder's property of any court or other governmental agency; and no
consent, approval, authorization or order of any court or governmental agency or
body is required for the consummation by such Selling Stockholder of the
transactions on such Selling Stockholder's part herein or therein contemplated,
except such as may be required under the Act or under state securities or blue
sky laws.
(v) On the Closing Date, all stock transfer or other taxes
(other than income taxes) which are required to be paid in connection with the
sale and transfer of the Shares to be sold by the Selling Stockholders to the
several Underwriters hereunder will have been fully paid or provided for by the
Selling Stockholders and all laws imposing such taxes will have been fully
complied with.
(vi) Such Selling Stockholder has not, and at the Closing Time
will not have, taken, directly or indirectly, any action to cause or result in,
or which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of the Common Stock to
facilitate the sale or the resale of any of the Shares.
3. Purchase, Sale and Delivery of Shares. Subject to the terms and
conditions of this Agreement, and on the basis of the representations,
warranties and agreements herein contained, (A) the Company hereby agrees to
sell to the Underwriters, and the Underwriters agree to purchase from the
Company, at purchase prices of $4.50 per Share and $0.225 per Warrant, and (B)
each of the Selling Stockholders agree, severally and not jointly, to sell to
the Underwriters the number of Shares set forth opposite the name of such
Selling Stockholder on Schedule B hereof, and the Underwriters agree to purchase
from the Selling Stockholders, such
6
<PAGE>
Shares at and for a price of $______ per Share. The number of Shares to be
purchased from the Company and the number of Shares to be purchased from the
Selling Stockholders, respectively (as adjusted by the Representative to
eliminate fractions), by each of the Underwriters shall be determined by
multiplying the aggregate number of such Shares to be sold by the Company or the
Selling Stockholders, as the case may be, as set forth above and in Schedule B,
by a fraction, the numerator of which is the total number of Shares set forth
opposite the name of such Underwriter in Schedule A hereto and the denominator
of which is the aggregate number of Shares set forth in Schedule A hereto. The
obligations of the Underwriters under this Agreement are several and not joint.
The Company and the Selling Stockholders will deliver the Securities to you
at your office, or such other place as you may designate, against payment to the
Company and the Selling Stockholders for the Securities by wire transfer or by
certified or official bank check or checks payable in New York Clearing House
funds to the order of the Company and the attorney-in-fact of the Selling
Stockholders. The Securities so to be delivered will be in definitive, fully
registered form in such authorized denominations and registered in such names as
you request by notice to the Company and the Selling Stockholders given not
later than 5:00 P.M., New York City time, on the second business day next
preceding the Closing Date. The date and the time of such delivery and payment
shall be 11:00 A.M., New York City time, on _____________, 1996 (or such other
time and date as you and the Company and the Selling Stockholders may agree
upon). The time and date of such payment and delivery is herein sometimes
referred to as the "Closing Date".
The Company and the Selling Stockholders agree to make the Securities
available to you for the purpose of expediting the checking and packaging of the
Securities, at the office at which they are to be delivered, not later than 2:00
P.M., New York City time, on the business day next preceding the Closing Date.
The Company hereby grants to you the right, exercisable within 45 days from
the date hereof, to purchase from the Company up to 210,000 additional Shares of
Common Stock and 138,750 additional Common Stock Purchase Warrants (the
"Additional Securities") at a purchase price of $4.50 per Share and $0.225 per
Warrant, for the purpose of covering over-allotments in the sale by any of the
Underwriters of the Securities. You may exercise your right to purchase
Additional Securities by giving written notice of such exercise to the Company.
Such notice shall set forth the aggregate number of Additional Securities
as to which such right is being exercised, the names in which Additional
Securities are to be registered, the denominations in which Additional
Securities are to be issued and the date and time, as determined by you, when
the Additional Securities are to
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<PAGE>
be delivered (such date and time being herein sometimes referred to as the
"Additional Closing Date"); provided, however, that the Additional Closing Date
shall not be earlier than the Closing Date. The Additional Closing Date may be
on the Closing Date; if not, it shall be no earlier than the third business day
after the date on which the right shall have been exercised nor later than the
twelfth business day after the date on which the right shall have been
exercised.
The Company will deliver the Additional Securities to you at your office,
or such other place as you may designate, against payment to the Company for the
Additional Securities by wire transfer or by certified or official bank check or
checks payable in New York Clearing House funds to the order of the Company. The
Additional Securities so to be delivered will be in definitive, fully registered
form in such authorized denominations and registered in such names as you
request by notice to the Company given not later than 5:00 P.M., New York City
time, on the second business day next preceding the Additional Closing Date.
The Company agrees to make the Additional Securities available to you for
the purpose of expediting the checking and packaging of the Securities, at the
office at which they are to be delivered, not later than 2:00 P.M., New York
City time, on the business day next preceding the Additional Closing Date.
It is understood that the Underwriters propose to offer the Securities for
sale to the public upon the terms and conditions set forth in the Registration
Statement, after the Registration Statement becomes effective.
4. Covenants of the Company.
(a) The Company further covenants and agrees with you that:
(i) The Company will use its best efforts to cause the
Registration Statement to become effective and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Act, or the Rules and
Regulations of the Commission thereunder.
(ii) The Company will notify you immediately and confirm in
writing (A) when the Registration Statement and any post-effective amendment
thereto becomes effective, (B) of the issuance of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any Preliminary Prospectus or of the Prospectus or of the
initiation of any proceedings for such purposes, and (C) of the receipt of any
comments (in writing or orally) from the Commission
8
<PAGE>
in respect of the Registration Statement or requesting the amendment,
post-effective amendment or supplementation of the Registration Statement or
Prospectus or for additional information. If the Commission shall enter a stop
order or any order preventing or suspending the use of any Preliminary
Prospectus or of the Prospectus at any time, or shall initiate any proceedings
for such purposes, the Company will make every reasonable effort to prevent the
issuance of such order and, if issued, to obtain the withdrawal thereof. The
Company will provide you with copies of all written communications received by
it from the Commission and any other regulatory agency with respect to the
Registration Statement, and every amendment and post-effective amendment thereto
and copies of all replies thereto by the Company, its counsel and its
accountants.
(iii) Within the time during which a prospectus relating to
the Shares and Warrants (or the exercise of any Warrants) is required to be
delivered under the Act, the Company will comply so far as it is able with all
requirements imposed upon it by the Act, as now and hereafter amended, and by
the Rules and Regulations of the Commission thereunder, from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Shares and Warrants (or the shares of stock to be acquired upon the exercise
of the Warrants) as contemplated by the provisions hereof and the Prospectus;
and if during such period any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances then existing, not misleading, or if
during such period it is necessary to amend or supplement the Prospectus to
comply with the Act, the Company will promptly notify you and will amend or
supplement the Prospectus (in form reasonably satisfactory to your counsel and
at the expense of the Company) so as to correct such statement or omission or
effect such compliance.
(iv) The Company will cooperate with you and will take all
necessary action, and furnish to whomever you may direct such proper
information, as may be lawfully required in qualifying the Securities for
offering and sale under the securities or blue sky laws of such states as you
may designate, and in continuing such qualifications in effect so long as
required for the distribution of Securities by you; provided that the Company
shall not be obligated to qualify as a foreign corporation to do business under
the laws of any such state, consent to general service of process in such state
or otherwise to submit to any requirements which it reasonably deems unduly
burdensome.
(v) The Company will pay any and all fees, taxes and expenses
incident to the performance of its obligations under this Underwriting
Agreement, including expenses and taxes incident to the issuance and delivery to
you of the Securities and Additional Securities, if any, to be sold to the
Underwriters pursuant to
9
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Section 3 hereof; all fees and disbursements of counsel and accountants for the
Company; expenses and filing fees incident to the preparation, printing,
delivery, shipment and filing with the Commission, the National Association of
Securities Dealers, Inc., and state blue sky authorities of the Registration
Statement and all exhibits thereto and the Prospectus, and any amendments or
supplements thereto, including fees of blue sky counsel (to be designated by the
Representative and who may be counsel to the Underwriters) incident to the
qualification for sale of the Securities and Additional Securities, if any,
under blue sky laws. The Company will further pay you as Representative of the
Underwriters for your expenses incurred in connection with this offering, on a
non-accountable basis, an amount equal to 3% of the public offering price of the
Securities sold on behalf of the Company hereunder, including any Securities
sold pursuant to the overallotment option, such reimbursement and payment to be
made to you on closing, and may be deducted by you from the amount due to the
Company for purchase of the Securities pursuant to Section 3 hereof. In the
event that the offering is not consummated, the Representative will be
reimbursed only for its actual, accountable, out-of-pocket expenses.
(vi) The Company will apply the net proceeds from the sale of
the Securities substantially as set forth under the caption "Use of Proceeds" in
the Prospectus.
(vii) The Company will deliver to you as promptly as
practicable three signed copies of the Registration Statement and all amendments
thereto, including all exhibits therewith or incorporated therein by reference,
and signed consents, certificates and opinions of accountants and of any other
persons named in the Registration Statement as having prepared, certified or
reviewed any part thereof, and will deliver to you such number of unsigned
copies of the Registration Statement and exhibits, and of all amendments
thereto, as you may reasonably request. The Company will deliver to you or upon
your order, from time to time until the effective date of the Registration
Statement, as many copies of the Preliminary Prospectus as you may reasonably
request. The Company will deliver to you or upon your order, on the effective
date of the Registration Statement and thereafter, subject to the provisions of
Section 4(a)(iii) hereof, from time to time, as many copies of the Prospectus in
final form or as thereafter amended or supplemented, as you may reasonably
request. The Company will deliver to you, promptly after closing, three (3)
bound volumes of all of the documents, papers, exhibits, correspondence and
records forming the materials involved in this public offering.
(viii) The Company will make generally available to its
security holders, as soon as it is practicable to do so (but in no event later
than fifteen months after the effective date of the Registration Statement), an
earnings statement of the Company
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(which need not be audited) covering a period of at least twelve months
beginning not later than the first day of the fiscal quarter next succeeding
such effective date which shall satisfy the provisions of Section 11(a) of the
Act.
(ix) For a period of at least five years from the date hereof,
the Company will supply to the Representative, (A) as soon as practicable after
the end of each fiscal year, a balance sheet and statement of operations of the
Company and its consolidated subsidiaries (if any) as at the end of and for each
such year, all in reasonable detail and certified by independent certified
public accountants, (B) as soon as practicable after the end of each of the
first three quarters of each fiscal year, an unaudited statement of operations
of the Company and its consolidated subsidiaries (if any) for such period, (C)
copies of such financial statements and reports as the Company may, from time to
time, furnish generally to holders of any class of its stock, (D) copies of each
report which it shall be required to file with the Commission, any blue sky
authority or any securities exchange at the same time as such reports are filed
and (E) copies of the daily stock transfer sheets of the Company.
(x) Simultaneously with the purchase and payment by the
Underwriters for the Securities on the Closing Date, the Company shall sell, at
a price of $0.001 per warrant, and issue and deliver to the Representative and,
at its request, to any of the several Underwriters or to dealers in the selling
group, or to officers or partners of the Representative, the several
Underwriters or dealers in the selling group, 140,000 warrants, in form and
substance satisfactory to your counsel, to purchase 140,000 shares of Common
Stock of the Company at an exercise price of $6.00 per share ("Underwriters'
Stock Warrants") and 92,500 warrants, in form and substance satisfactory to your
counsel, to purchase 92,500 Common Stock Purchase Warrants, similar to those
being sold to the public, at a price of $0.30 per Common Stock Purchase Warrant
("Underwriters' Warrants"). The Underwriters' Stock Warrants and Underwriters'
Warrants will be exercisable for a period of four years commencing one year
after the Effective Date, and will not be transferable for a period of one year
from the Effective Date except to Underwriters and Selected Dealers and officers
and partners thereof. In the event that the Company at any time reduces the
exercise price of the Warrants sold to the public hereunder, the exercise price
of the Underwriters' Stock Warrants shall be likewise reduced. The Underwriters'
Stock Warrants and Underwriters' Warrants shall have been registered under the
Registration Statement and the holders of a majority of such Underwriters' Stock
Warrants and Underwriters' Warrants or the securities which may have been issued
thereunder shall have the right, at any one time, to require the Company to
prepare and file a post-effective amendment to the Registration Statement (or a
new registration statement, if then required under the Act) covering all or any
portion of the Underwriters' Stock Warrants and
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Underwriters' Warrants and their underlying securities to permit the public sale
thereof after twelve months from the Effective Date. In connection therewith,
the Company shall be obligated to prepare and file such post-effective amendment
(or such new registration statement) under the Act promptly upon the receipt of
the request of the holders of a majority of the Underwriters' Stock Warrants and
Underwriters' Warrants or securities issued thereunder, and the Company shall be
further obligated to use its best efforts to have such post-effective amendment
(or such new registration statement) rendered effective under the Act, as it may
from time to time be amended hereafter, and Rules and Regulations promulgated
thereunder, as soon as practicable after the filing date of any such
post-effective amendment or such new registration statement, and the Company
shall also be required to take such action as may be necessary to maintain such
post-effective amendment or such new registration statement effective under the
Act for the period, not in excess of nine months, required to sell such
Underwriters' Stock Warrants and Underwriters' Warrants and their underlying
securities in compliance with the Act and Rules and Regulations promulgated
thereunder, and the Company shall be required to provide the accounting
necessary for the filing of any such post-effective amendment or such new
registration statement, plus any amendments or supplements thereto. In addition
to, and not in lieu of, the obligations of the Company hereinabove recited in
this subsection, the Company hereby further covenants and agrees that if, the
Company shall prepare and file a post-effective amendment to the Registration
Statement or a new registration statement under the Act or notification pursuant
to Regulation A under the Act either of which is to become effective at any time
after the expiration of twelve months from the Effective Date with respect to
the public offering of any equity or debt securities of the Company now or
hereafter authorized, the Company will include in such post-effective amendment
or new registration statement or such notification such number of the
Underwriters' Stock Warrants and Underwriters' Warrants and their underlying
securities as requested by the holders of the Underwriters' Stock Warrants and
Underwriters' Warrants or securities issued thereunder, and neither you nor such
holders shall be under no obligation to bear any of the expenses or professional
fees and disbursements to be incurred by the Company in connection with the
preparation and filing of such post-effective amendment, or new registration
statement or such notification. With respect to any post-effective amendment, or
new registration statement, or notification filed by the Company pursuant to
this subsection, the selling securityholders offering any Underwriters' Stock
Warrants, Underwriters' Warrants and their underlying securities thereunder
shall be entitled to the benefits of indemnification by the Company in like
manner and to the same extent as the Company indemnifies the Underwriters
pursuant to Section 6(a) hereof.
(xi) The Company will not, without the prior written
consent of the Representative, for a period of six months after
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the effective date of the Registration Statement, sell any securities of the
Company or sell or grant options, warrants or rights with respect to any
securities of the Company, or permit or cause a public offering of any
securities of the Company except in accordance with the provisions of the
Registration Statement.
(xii) For a period of five years after the effective date of
the Registration Statement, the Representative shall have the right to designate
one person as an advisor to the Company's Board of Directors, who will receive
compensation equal to that received by any other director as well as
reimbursement of expenses for attending meetings, but who will have no power to
vote as a director. Such person shall be indemnified by the Company against any
claim arising out of his participation at meetings of the Board of Directors to
the same extent as any director. During such five year period, the Company will
hold at least four meetings per year of its Board of Directors. In the event the
Company maintains a liability insurance policy with coverage for the acts of its
officers and directors, the Company agrees, if possible, to include the
Representative, First Cambridge Securities Corporation and their designee as
insureds under the policy.
(xiii) At the Closing, the Company shall enter into a
consulting agreement ("Consulting Agreement") retaining the Representative and
First Cambridge Securities Corporation as financial consultants to the Company
for a two-year period commencing as of such closing, at a fee of $72,312.50 per
year, the total amount of which shall be paid at the Closing. The Company and
the Representative shall also enter into an agreement which will provide for a
finder's fee, ranging from 7% of the first $1,000,000 down to 2-1/2% of the
excess over $9,000,000 of the consideration involved in any transaction
(including mergers and acquisitions) consummated by the Company in which the
Representative introduced the other party to the Company during the five-year
period commencing on the Closing Date.
(xiv) The Company shall cooperate with the Underwriters in
making available to their representatives such information as they may request
in making an investigation of the Company and its affairs.
(xv) Until such time as the securities of the Company are
listed on the New York Stock Exchange or the American Stock Exchange (note
including The Emerging Growth Company List) but in no event more than three
years from the effective date, the Company shall retain Compliance Management
Company or a similar company, to prepare a post registration blue sky market
survey for the Representative for distribution to market makers. Such survey
shall be provided to the Representative annually with the first survey delivered
to it promptly after the completion of the public offering hereunder. The cost
of the first year's survey will not exceed $4,000. In lieu of the foregoing, the
Company may cause its
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legal counsel to provide the Representative with a survey to be updated at
least annually.
(xi) At all times, so long as any of the warrants referred to
herein are outstanding, the Company will have reserved authorized but unissued
shares of stock and underlying warrants, available for immediate issuance in
amounts necessary for the exercise of all warrants then outstanding. The Company
agrees to qualify its Shares for listing on the NASDAQ System Small-Cap Issues
on the Effective Date and will take all necessary and appropriate action so that
the Shares continue to be listed for trading in the NASDAQ System Small-Cap
Issues for at least five years from the Effective Date provided the Company
otherwise complies with the prevailing maintenance requirements of NASDAQ System
Small-Cap. In addition, at such time as the Company qualifies for listing its
securities on the National Market System of NASDAQ, the Company will take all
steps necessary to have the Company's Shares thereof listed on the National
Market System of NASDAQ in lieu of listing as Small-Cap Issues. The Company
shall comply with all periodic reporting and proxy solicitation requirements
imposed by the Commission pursuant to the 1934 Act, and shall promptly furnish
you with copies of all material filed with the Commission pursuant to the 1934
Act or otherwise furnished to shareholders of the Company.
(xii) The Company will register its Common Stock pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended, not later than
the Effective Date.
(xiii) The Company will pay the fees and expenses (but not
transfer taxes, if any) of the Company's stock transfer agents, warrant agents,
and registrars (if any), without charge to stockholders and warrantholders, for
not less than five years after the effective date of the Registration Statement.
(xix) The Representative shall receive a fee of 10% of the
proceeds as and when received by the Company from time to time upon the exercise
of any Warrants after one year from the Effective Date, provided that such fee
shall be paid only in accordance with the rules of the NASD and any applicable
securities laws and rules and regulations. The Representative will not be
eligible to receive the aforementioned warrant exercise fee as a result of
transactions of the following nature: (i) the exercise of Warrants when the
market price of the Company's Common Stock is lower than the exercise price;
(ii) the exercise of Warrants held in any discretionary account; (iii) the
exercise of Warrants where documents disclosing the compensation arrangements
(e.g., the Prospectus) have not been provided to the warrantholder; (iv) the
exercise of Warrants in unsolicited transactions; and (v) the exercise of any
warrants during the one year period commencing on the Effective Date, and
further provided that no broker shall be paid a fee unless such broker is
designated in writing by the
14
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customer as the soliciting broker. In addition, it will be a condition to the
receipt by the Representative of such fee that it shall not, in the ten days
immediately preceding the solicitation of the exercise or the date of such
exercise, have bid for or purchased the Common Stock of the Company (or any
securities of the Company convertible into or exchangeable for such Common
Stock, including the Warrants) or otherwise have engaged in any activity that
would be prohibited by Rule 10b-6 under the Securities Exchange Act of 1934, as
amended, by one participating in a distribution of the Company's securities
whether as underwriter or otherwise. The Company will not solicit warrant
exercises except through the Representative.
(xx) Immediately following the closing, the Company shall
exercise its best efforts to be listed in the appropriate Standard & Poor's
manual in order to comply with the requirements of the so-called "standard
manuals exemption" of various blue sky authorities.
(b) Each of Selling Stockholders, severally and not jointly, covenants
and agrees with each Underwriter that:
(i) During the 180 days commencing on the date hereof, such
Selling Stockholder will not, directly or indirectly, take any action designed
to or which will constitute or which might reasonably be expected to cause or
result in the stabilization of the price of the Shares to facilitate the sale or
the resale of any of the Shares.
(ii) If, subsequent to the date hereof, such Selling
Stockholder shall believe or have any reasonable grounds to believe that the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or that any of the
representations and warranties of the Company or such Selling Stockholder
contained herein or in any certificate or document contemplated under this
Agreement to be delivered to you are false, such Selling Stockholder will
immediately notify you, as the Representative to such effect.
(iii) Such Selling Stockholder will not, without your prior
written consent, sell, contract to sell or otherwise dispose of any shares of
Common Stock owned or held of record in its name, except the sale of Shares to
the Underwriters pursuant to this Agreement, for a period of 180 days after the
Effective Date.
(iv) Such Selling Stockholder will furnish the certificates
referred to in subsections (h) and (i) of Section 9 hereof.
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(v) Such Selling Stockholder will pay you, as Representative
of the Underwriters, for your expenses incurred in connection with the offering,
on a non-accountable basis, an amount equal to 3% of the public offering price
of the Shares sold on behalf of such Selling Stockholder.
5. Conditions of Underwriters' Obligations. The Underwriters' obligations
to purchase and pay for the Securities, as provided herein, shall be subject to
the accuracy, as of the date hereof and as of the Closing Date (as if made on
the Closing Date), of the representations and warranties of the Company and the
Selling Stockholders herein, to the accuracy of statements made in each
certificate delivered pursuant to the provisions hereof, to the performance by
the Company and the Selling Stockholders of their obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement shall have become effective not later than
5:00 P.M., New York City time, on the day following the date of this Agreement,
unless a later time and date be agreed to by you; and no stop order suspending
the effectiveness of the Registration Statement, or order preventing or
suspending the use of any Preliminary Prospectus or of the Prospectus, shall
have been issued and no proceedings for such purpose shall have been instituted
or be pending or, to the knowledge of the Company or you, shall be contemplated
by the Commission; and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the satisfaction of the Underwriters' Counsel.
(b) On the Closing Date the Underwriters shall have received an opinion of
Lester Morse, P.C., counsel for the Company, dated the Closing Date, to the
effect that:
(i) The Company has full corporate power and authority to
enter into this Agreement and this Agreement has been duly authorized, executed
and delivered by the Company and duly executed and delivered by each Selling
Stockholder or his or her duly authorized attorney-in-fact and constitutes a
valid and binding obligation of the Company and each Selling Stockholder
enforceable in accordance with its terms, subject to bankruptcy, insolvency or
similar laws governing the rights or creditors generally and to the discretion
of courts in granting equitable remedies, except insofar as rights to indemnity
or contribution hereunder may be limited by Federal securities laws. The Power
of Attorney Agreement has been duly authorized, executed and delivered by each
Selling Stockholder and constitutes a valid, binding and legally enforceable
obligation of each Selling Stockholder in accordance with its terms, subject to
bankruptcy, insolvency or similar laws governing the rights of creditors
generally and to the discretion of courts in granting
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equitable remedies and validly grants the power of attorney to
__________________ and ____________________ intended to be granted thereby.
(ii) The Warrant Agreement, the Consulting Agreement and the Mergers
and Acquisitions Agreement have been duly authorized, executed and delivered by
the Company and constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their terms (except insofar as
enforcement of the indemnification provisions thereof may be limited by
applicable federal securities laws or principles of public policy and subject to
bankruptcy, insolvency, moratorium, reorganization and similar laws affecting
creditors' rights generally and to general principles of equity). The Company
has full corporate power and authority to enter into the Warrant Agreement and
the Consulting Agreement and to sell, issue and deliver the Shares, Warrants,
Underwriters' Stock Warrants, Underwriters' Warrants and the securities
underlying all warrants;
(iii) The Company has authorized and outstanding capital stock as set
forth under "Capitalization" in the Prospectus; all of the Company's outstanding
shares have been duly authorized and validly issued, and are fully paid and
nonassessable; all of the Shares, Warrants, Underwriters' Stock Warrants and
Underwriters' Warrants sold pursuant to this Agreement have been duly
authorized, validly issued and delivered and are fully paid and nonassessable,
and conform to the descriptions thereof in the Prospectus and such descriptions
conform to the rights duly set forth in the Certificate of Incorporation of the
Company, the Warrant Agreement, the Underwriters' Stock Warrants, the
Underwriters' Warrants and this Agreement; the Warrants, the Underwriters' Stock
Warrants, and the Underwriters' Warrants are, and the warrants underlying the
Underwriters' Warrants will, when issued in accordance with the provisions of
the Warrant Agreement, the Underwriters' Stock Warrants, the Underwriters'
Warrants and this Agreement be, valid and legally binding obligations of the
Company in accordance with their respective terms (subject to bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganization and similar laws
affecting creditors' rights generally and to general principles of equity); the
securities underlying the Warrants and the Underwriters' Stock Warrants and the
Underwriters' Warrants have been validly authorized and reserved for issuance,
and any shares when issued in accordance with the terms of the Warrants or
Underwriters' Stock Warrants, as the case may be, will be validly issued and
will be fully paid and non-assessable; the holders of the Shares, Warrants and
Underwriters' Stock Warrants, the Underwriters' Warrants, and the securities
underlying the Warrants, the Underwriters' Stock Warrants, and the Underwriters'
Warrants are not, and will not be, subject to any personal liability for
liabilities of the Company by reason of being holders thereof; and none of such
securities which have been issued, have been issued in violation of the
preemptive rights or any other rights of any
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stockholder of the Company and no stockholder of the Company has any preemptive
right to subscribe for or to purchase any of such Shares, Warrants,
Underwriters' Stock Warrants, Underwriters' Warrants or securities underlying
the Warrants, Underwriters' Stock Warrants and the Underwriters' Warrants;
(iv) The Company has been duly incorporated and is validly existing and
in good standing under the laws of the State of Delaware, has full corporate
power and authority to conduct its business as presently conducted and as
described in the Prospectus and to own its properties and is duly qualified to
do business and is in good standing in each jurisdiction wherein the property
owned or leased, or the conduct of business, by it makes such qualification
necessary (except where failure to so qualify would not have a material adverse
effect on the Company);
(v) The Company is the surviving corporation resulting from
the merger of Tellurian, Inc., a South Carolina corporation (the "Predecessor"),
with and into the Company pursuant to a plan and agreement of merger dated
_______________________, 1996, which became effective ________________________,
1996. Such merger was consummated in accordance with the provisions of the plan
and agreement of merger, which has been duly authorized by the Company and the
Predecessor and their respective shareholders and complies in all respects with
applicable law;
(vi) The Registration Statement has become effective under the
Securities Act and, to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or is pending or contemplated
by the Commission;
(vii) The Registration Statement and the Prospectus, and any amendment
or supplement thereto, comply as to form in all material respects with the
requirements of the Securities Act and the Rules (except that such counsel need
express no opinion as to the financial statements and schedules and financial
data included therein or omitted therefrom);
(viii) Such counsel has assisted in the preparation of the Registration
Statement and the Prospectus and no fact has come to the attention of such
counsel which leads such counsel to believe that, either as of the Effective
Date or the date of the opinion, (A) either the Registration Statement or the
Prospectus or any amendment or supplement thereto (except for the financial
statements and schedules and financial data included therein or omitted
therefrom, as to which such counsel need express no opinion) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(B) there is any material legal, governmental or administrative proceeding
18
<PAGE>
pending, threatened or contemplated to which the Company is or may become a
party or to which any of its property is or may become subject, or any basis for
any legal, governmental or administrative proceeding, required to be described
in the Prospectus under the Act which is not described as required, or (C) there
is any contract or document of a character required to be described in the
Registration Statement or the Prospectus, or to be filed as an exhibit to the
Registration Statement, under the Act which is not described or filed as
required.
(ix) The execution, delivery and performance of this Agreement by the
Company and the Selling Stockholders and the Power of Attorney Agreement by the
Selling Stockholders, and the consummation of the transactions contemplated
therein do not and will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, the Articles
of Incorporation or By-Laws of the Company or any indenture, mortgage, deed of
trust, note agreement or other agreement or instrument known to such counsel to
which the Company or any Selling Stockholder is a party or by which they are
bound or to which any of their property is subject, or any Federal, state or
other statute, law, rule or regulation, or any judgment, order or decree of any
court or governmental agency or body known to such counsel having jurisdiction
over the Company or any Selling Stockholder or any of their property;
(x) No consent, approval, authorization or order of, or declaration or
filing with, any government, governmental instrumentality or court, is required
for the valid consummation by the Company or the Selling Stockholders of the
transactions contemplated by this Agreement, except such as may be required
under the Securities Act or any state securities or "blue sky" laws in
connection with the purchase, sale and distribution of the Shares; and
(xi) To the best of such counsel's knowledge, the Company possesses all
material permits, certificates of compliance, approvals, licenses, waivers,
consents and other rights from governmental authorities which are requisite for
the material conduct of its business as presently conducted and as described in
the Prospectus (except such as in the aggregate would not materially affect the
business or operations of the Company), for the consummation of the transactions
contemplated in this Agreement and for the offering contemplated by the
Prospectus, and each such permit, certificate of compliance, approval, license,
waiver, consent and right is valid and in full force and effect.
(xii) Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the Shares
hereunder as counsel for the Underwriters may reasonably request. In rendering
the opinions set forth above, such counsel may rely upon certificates of the
Selling
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Stockholders, officers of the Company and public officials as to matters of
fact, and may rely as to all matters of law other than the laws of the United
States or the corporate laws of the State of Delaware upon opinions of counsel
satisfactory to you, in which case the opinion shall state that they have no
reason to believe that you and they are not entitled to so rely. Additionally,
in rendering such opinion, counsel shall not be required to opine upon the
availability of equitable remedies, including but not limited to, the remedies
of specific performance and injunctive relief.
(c) At the time this Agreement is executed by the parties hereto and on the
Closing Date (and on the Additional Closing Date, if any), the Underwriters
shall have received from Miller Ellin & Co., Inc., a letter dated as of each
such date, to the effect that:
(i) They are independent accountants with respect to the Company within
the meaning of the Act and the applicable published Rules and Regulations
thereunder;
(ii) In their opinion, the financial statements (including the
schedules, if any) in the Registration Statement examined by such firm, comply
as to form in all material respects with the applicable accounting requirements
of the Act and the published Rules and Regulations thereunder with respect to
registration statements on Form SB-2;
(iii) On the basis of procedures (but not an examination in accordance
with generally accepted auditing standards) consisting of reading the minutes of
meetings of the stockholders and the Board of Directors of the Company since the
date of the latest audited balance sheet as set forth in the minute books
through a specified date not more than five business days prior to the date of
the letter, reading the unaudited interim financial statements (if any),
including the schedules (if any), of the Company included in the Registration
Statement and making inquiries of certain officials of the Company who have
responsibility for financial and accounting matters regarding the specific items
for which representations are requested below, nothing has come to their
attention as a result of the foregoing procedures that caused them to believe
that (A) the unaudited financial statements (if any), including the schedules
(if any), of the Company included in the Registration Statement do not comply as
to form in all material respects with the applicable accounting requirements of
the Act and the published Rules and Regulations thereunder; (B) said financial
statements, including the schedules (if any), are not presented fairly, in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements; (C)
during the period from the date of the latest balance sheet covered by their
report(s) included in the Registration Statement to a specific date not more
than five business days prior to the date of the letter, there has been any
change in the capital stock or long-term debt of the Company as
20
<PAGE>
compared with the amounts shown in the balance sheet included in the
Registration Statement, except as set forth in or contemplated by the
Registration Statement; or (D) for the period from the date of the last balance
sheet contained in the Prospectus to a specified date not more than five days
prior to the date of such letter, there has been any decrease, except as
described in such letter and previously discussed with you, in consolidated
gross revenues, net income, consolidated assets or total stockholders' equity as
compared with the amounts shown on such balance sheet, except for such changes
or decreases which the Registration Statement discloses have occurred or may
occur; and
(iv) In addition to the examination referred to in their report
included in the Registration Statement and the limited procedures referred to in
clause (iii) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information which are included in the Registration Statement and Prospectus and
which are specified by you, and have found such amounts, percentages and
financial information to be in agreement with the relevant accounting and
financial records of the Company and its subsidiaries identified in such letter.
(d) The Representative shall have received a certificate or certificates,
dated the Closing Date and the Additional Closing Date, executed by at least two
officers of the Company, including the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, to the effect
that:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act;
(ii) Neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading; and since the effective date of
the Registration Statement, there has occurred no event required to be set forth
in an amended or supplemented Prospectus which has not been so set forth;
(iii) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, the Company has not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transaction, not
in the ordinary course of business, and there has not been any material change
in the capital stock or funded debt of the Company, or any material adverse
change in the condition (financial or other) or
21
<PAGE>
results of operations of the Company;
(iv) There are no legal proceedings pending or threatened against the
Company of a character affecting the validity of this Agreement or required to
be disclosed in the Prospectus which are not disclosed therein; there are no
transactions or contracts which are required to be summarized therein which are
not so summarized; and there are no material contracts or documents required to
be filed as exhibits to the Registration Statement which are not so filed;
(v) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, the Company has not sustained
any material loss or damage to its properties, whether or not insured; and
(vi) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the date of the letter;
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the date of
the letter.
(e) The Selling Stockholders shall have performed all of the covenants
contained herein and in any certificate or document contemplated under this
Agreement to be delivered to you and required to be performed by the Selling
Stockholders at or prior to the Closing Date, and you shall have received at the
Closing Date a certificate of the Selling Stockholders, dated as of the Closing
Date, to the effect that the representations and warranties of the Selling
Stockholders contained in this Agreement and in each such certificate and
document are true and correct in all respects on and as of the date of such
certificate as if made on and as of such date, and each of the covenants and
conditions required to be performed or complied with by the Selling Stockholders
on or prior to the date of such certificate has been duly, timely and fully
performed or complied with.
(f) The Company and each of the Selling Stockholders shall have
furnished to you such certificates, in addition to those specifically mentioned
herein, as you may have reasonably required in a timely manner as to the
accuracy and completeness, at the Closing Date, of any statement in the
Registration Statement or the Prospectus; as to the accuracy, at the Closing
Date, of the representations and warranties of the Company and the Selling
Stockholders herein and in each certificate and document contemplated under this
Agreement to be delivered to you; as to the performance by the Company and the
Selling Stockholders of their respective obligations hereunder and under each
such certificate and document; or as to the fulfillment of the conditions
concurrent and precedent to your obligations hereunder.
(g) All corporate proceedings and related matters in
22
<PAGE>
connection with the organization of the Company and the qualification,
authorization, issuance, sale and delivery of the Securities shall be
satisfactory to Henry C. Malon, Esq., counsel for the Underwriters, and such
counsel shall have been furnished with such papers and information as he may
reasonably have requested in this connection.
(h) Certain holders of outstanding securities of the Company shall have
agreed not to sell or transfer their securities under Rule 144 under the Act or
otherwise for certain periods of time following the Effective Date of the
offering, as set forth in the Prospectus, without the prior written consent of
the Representative.
(i) All such opinions, letters, certificates and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Underwriters and to their counsel.
(j) If any condition to the Underwriters' obligations hereunder to be
satisfied at or prior to the Closing Date is not so satisfied, the Underwriters
may terminate this Agreement without liability on their part or on the part of
the Company, except for the expenses to be paid or reimbursed by the Company
pursuant to Section 4(a)(v) of this Agreement and except for any liability under
Sections 6 and 7 of this Agreement.
6. Indemnification. (a) The Company and each of the Selling Stockholders,
jointly and severally, agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls each Underwriter within the meaning of the Act
against any losses, claims, damages or liabilities, joint or several, to which
it or such controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or in any blue sky application or other document executed by the Company or a
Selling Stockholder specifically for that purpose or based upon written
information furnished by the Company or a Selling Stockholder filed in any state
or other jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will reimburse
it and each such controlling person for any legal or other expenses reasonably
incurred by it or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company and the Selling Stockholders will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue
23
<PAGE>
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus, the Prospectus or such
amendment or supplement, or in such blue sky application or such other document,
in reliance upon and in conformity with written information furnished to the
Company by an Underwriter specifically for use in the preparation thereof; and
provided, further, that the Company and the Selling Stockholders will not be
liable under this indemnity agreement, insofar as it relates to any Preliminary
Prospectus, to the extent that any such loss, claim, damage, liability or action
results from the fact that an Underwriter sold Securities to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sales, a copy of the Prospectus (or of the Prospectus as then amended or
supplemented if the Company had previously furnished copies thereof to you).
This indemnity agreement will be in addition to any liability which the Company
and the Selling Stockholders may otherwise have. The obligations of each Selling
Stockholder to indemnify the Underwriters and aforesaid controlling persons
hereunder shall be limited to the product of the number of Shares sold by such
Selling Stockholder and the initial public offering price set forth on the cover
page of the Prospectus.
(b) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of the Act,
and each of the Selling Stockholders to the same extent as the foregoing
indemnity from the Company and the Selling Stockholders to such Underwriter,
against any losses, claims, damages or liabilities, joint or several, to which
the Company or any such director, officer or controlling person or Selling
Stockholder may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or in any blue sky
application or other document executed by the Company specifically for that
purpose filed in any state or other jurisdiction in order to qualify any or all
of the Securities under the securities laws thereof, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, such Preliminary Prospectus, the Prospectus or
such amendment or supplement, or in such blue sky application or such other
document, in reliance upon and in conformity with written information furnished
to the Company by such Underwriter specifically for use in the preparation
thereof; and will reimburse any legal or other expenses reasonably incurred by
the Company or
24
<PAGE>
any such director, officer or controlling person or any such Selling Stockholder
in connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity agreement will be in addition to any
liability which an Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 6. In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 6 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall be liable for any settlement of any action effected without its
written consent.
7. Contribution. (a) In order to provide for just and equitable
contribution under the Act in any case in which (i) an Underwriter (or any
person who controls the Underwriter within the meaning of the Act) makes claim
for indemnification pursuant to Paragraph 6(a) hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Paragraph 6(a) provides for indemnification in
such case or (ii) contribution under the Act may be required on the part of an
Underwriter or any such controlling person in circumstances for which
indemnification is provided under Paragraph 6(b), then, and in each case, the
Company, the Selling Stockholders and the Underwriters shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters are
responsible for an aggregate of 10% (being the amount of the Underwriter's
commission) and the Company and the Selling Stockholders are responsible for the
remaining portion; provided, however, that, in any such case, no person guilty
of a fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
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<PAGE>
(b) Promptly after receipt by any party to this Agreement of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party (the
"contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution under the Act. In case any such action, suit or proceeding is
brought against any party, and such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified.
8. Substitution of Underwriters. (a) If one or more Underwriters shall
default in its or their obligations to purchase and pay for the Securities
hereunder and if the aggregate number of such Securities which all Underwriters
so defaulting shall have agreed to purchase does not exceed 10% of the aggregate
number of Securities to be purchased by the Underwriters, each non-defaulting
Underwriter shall have the right and is obligated, severally, to purchase and
pay for (in addition to the Securities set forth opposite its name in Schedule
A) that portion of the Securities agreed to be purchased by all such defaulting
Underwriters which the Securities set forth opposite its name in Schedule A
bears to the aggregate Securities so set forth opposite the names of all such
non-defaulting Underwriters. In such event, you as Representative, for the
accounts of the several non-defaulting Underwriters, shall take up and pay for
all or any part of such additional Securities to be purchased by each such
Underwriter under this Section 8(a), and may postpone the Closing Date to a time
not exceeding three full business days after the Closing Date determined as
provided in Section 3 hereof during which time the Company will prepare and file
any amendments to the Registration Statement and take any other action which the
Representative or its counsel shall deem necessary or appropriate to reflect
such event; or
(b) If one or more Underwriters default in its or their obligations to
purchase and pay for Securities hereunder and if the aggregate number of such
Securities which all Underwriters so defaulting shall have agreed to purchase
shall exceed 10% of the aggregate number of Securities to be purchased by the
Underwriters, or if one or more Underwriters for any reason permitted hereunder
cancel its or their obligations to purchase and pay for Securities hereunder,
the non-cancelling and non-defaulting Underwriters (hereinafter called the
"remaining Underwriters") shall have the right to purchase such Securities in
such proportion as may be agreed among them, at the Closing Date determined as
provided in Section 3 hereof. If the remaining Underwriters do not purchase and
pay for such Securities at such Closing Date, the Closing Date
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<PAGE>
shall be postponed for twenty-four hours and the remaining Underwriters shall
have the right to purchase such Securities or to substitute another person or
persons, to purchase the same, or both, at such postponed Closing Date. If by
such postponed Closing Date the remaining Underwriters have not exercised such
right to purchase or obtained a substitute purchaser or purchasers, the Closing
Date shall be postponed for a further twenty-four hours and the Company and the
Selling Stockholders shall have the right to substitute another person or
persons, satisfactory to the Representative, to purchase such Securities at such
second postponed Closing Date. If the Company and the Selling Stockholders shall
not have found such purchasers for such Securities by such second postponed
Closing Date, then this Agreement shall automatically terminate and neither the
Company, the Selling Stockholders nor the remaining Underwriters shall be under
any obligation under this Agreement except that the Company shall remain liable
for the full amount of expenses incurred as provided in Section 4(a)(v) and to
the extent provided in Sections 6(a) and 7 hereof and the Underwriters shall
remain liable to the extent provided in Sections 6(b) and 7 hereof. As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default or obligate any Underwriter to
purchase or find purchasers for any Securities in excess of those agreed to be
purchased by such Underwriter under the terms of Sections 3 and 8(a) hereof.
9. Representations and Indemnities to Survive Delivery. All representations
and warranties of the Company contained herein and in the certificate or
certificates delivered pursuant to Section 5(d) hereof, and the indemnity and
contribution agreements contained in Sections 6 and 7 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person, or by or on behalf of
the Company or any officer, director or controlling person, or of any
termination of this Agreement, and shall survive delivery of and payment for the
Shares.
10. Effective Date of this Agreement and Termination Thereof. (a) This
Agreement shall become effective at 9:00 A.M., New York City time, on the first
full business day after the Registration Statement has become effective, or at
such earlier time after the Registration Statement has become effective as you
in your discretion shall first release the Securities for sale to the public.
For the purposes of this Section 10, the Securities shall be deemed to have been
released for sale to the public upon release by you of the publication of a
newspaper advertisement relating to the Securities or upon release by you of
telegrams or facsimile transmissions offering the Securities for sale, whichever
shall first occur. You or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except as noted
below, by giving the notice hereinafter
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<PAGE>
specified at or before the time this Agreement becomes effective; provided
however, that the provisions of this Section, Section 4(a)(v), Section 6 and
Section 7 shall at all times be effective.
(b) You shall have the right to terminate this Agreement by giving the
notice hereinafter specified at any time at or prior to the Closing Date if (i)
the Company or the Selling Stockholders shall have failed, refused or been
unable, at or prior to the Closing Date, to perform any agreement on their part
to be performed hereunder, or because any other condition precedent to the
Underwriters' obligations hereunder required to be fulfilled by the Company and
the Selling Stockholders have not fulfilled, or if (ii) trading on the New York
Stock Exchange shall have been generally suspended, or minimum or maximum prices
for trading shall have been generally fixed, or maximum ranges for prices for
securities shall have been generally required, on the New York Stock Exchange,
by the New York Stock Exchange or by order of the Commission or any other
governmental authority having jurisdiction, or if there has been a substantial
adverse change in general market or economic conditions, or if a banking
moratorium shall have been declared by Federal or New York authorities, or if an
outbreak of hostilities or other national or international calamity of such
nature as to disorganize the securities markets in the United States shall have
occurred since the execution hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10, you shall notify the
Company and the Selling Stockholders promptly by telephone or telegram,
confirmed by letter. If the Company elects to prevent this Agreement from
becoming effective, the Company shall notify you promptly by telephone or
telegram, confirmed by letter.
11. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to the Underwriters shall
be mailed, delivered or telegraphed and confirmed to you as Representative at 1
Battery Park Plaza, New York, New York 10004, or if sent to the Company, shall
be mailed, delivered or telegraphed and confirmed to it at 15 Industrial Avenue,
Upper Saddle River, New Jersey 07458 marked to the attention of the President.
12. Parties. This Agreement shall inure to the benefit of and be binding
upon you and the Company and the several Underwriters and their respective
successors and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person or corporation, other than the
parties hereto and their respective successors and assigns, the Selling
Stockholders and the selling securityholders referred to in Section 4(a)(x)
hereof, and the controlling persons and the officers and directors referred to
in Section 6 hereof, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any
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provision herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of the
parties hereto and their respective successors and assigns, and said selling
securityholders and said controlling persons and said officers and directors,
and for the benefit of no other person or corporation. No purchaser of any of
the Securities from any Underwriter shall be construed a successor or assign by
reason merely of such purchase.
13. Information Furnished by Underwriters. The statements set forth in the
last paragraph on the cover page, in the stabilization legend, under the caption
"Underwriting" and the statements regarding counsel for the Underwriters under
the caption "Legal Matters" in any Preliminary Prospectus and in the Prospectus
and in blue sky reports of sales, if any, constitute the written information
furnished by or on behalf of any Underwriter referred to in Sections 2(b), 6(a)
and 6(b) hereof.
14. Miscellaneous. In all dealings hereunder, you shall act on behalf of
each of the Underwriters, and the Company and the Selling Stockholders shall be
entitled to act and rely upon any statement, request, notice or agreement on
behalf of any Underwriters made by you as the Representative. This Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, and the Company hereby consents and will submit
to the jurisdiction of the courts of the State of New York and of any federal
court sitting in the City of New York with respect to controversies arising
under this Agreement.
If the foregoing correctly sets forth the understanding between the Company
and the several Underwriters, please so indicate on behalf of the Underwriters
in the space provided below for that purpose, whereupon this letter shall
constitute a binding agreement between the Company and each of the Underwriters.
Very truly yours,
TELLURIAN, INC.
By:_________________________________
Selling Stockholders
By:_________________________________
, Attorney-in-fact for
the Selling Stockholders
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Accepted as of the date first above written:
J.W. BARCLAY & CO., INC.
Acting on behalf of the several
Underwriters named in Schedule A hereto.
By:_____________________________
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SCHEDULE A
TELLURIAN, INC.
Underwriting Agreement dated , 1996
This Schedule sets forth the name and address of each Underwriter and the
number of Shares to be purchased by each Underwriter from the Company and the
Selling Stockholders.
Number of Number of
Name Address Shares Warrants
---- ------- ------ --------
J.W. Barclay 1 Battery Park Plaza
& Co., Inc. New York, NY 10004
--------- ---------
Total...................1,850,000 925,000
--------- ---------
31
<PAGE>
SCHEDULE B
SELLING STOCKHOLDERS
Number of
Name Shares
---- ------
Dennis Giunta 200,000
Joseph DeFalco 125,000
Matthew Langdon 125,000
-------
Total 450,000
-------
32
<PAGE>
1,850,000 Shares of Common Stock
and
925,000 Common Stock Purchase Warrants
TELLURIAN, INC.
SELECTED DEALER AGREEMENT
Dated: , 1996
Dear Sirs:
The Underwriters named in the prospectus mentioned below (the
"Underwriters") have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement"), to purchase from
Tellurian, Inc. (the "Company") and certain Selling Stockholders, at the prices
set forth on the cover of said prospectus, an aggregate of 1,850,000 shares of
Common Stock (the "Shares") and 925,000 Common Stock Purchase Warrants (the
"Warrants"). The Securities are more particularly described in the enclosed
prospectus (the "Prospectus"), additional copies of which will be supplied in
reasonable quantities upon request.
Some or all of the Underwriters are severally offering a part of the
Securities for sale to selected dealers (the "Selected Dealers"), among whom
they are pleased to include you, at the public offering prices, less concessions
in the amounts set forth in the Prospectus under "Underwriting". This offering
is made subject to delivery of the Securities and their acceptance by the
Underwriters, to the approval of all legal matters by counsel, and to the terms
and conditions herein set forth and may be made on the basis of the reservation
of Securities or an allotment against subscription.
We have advised you by telegram of the method and terms of the offering.
Acceptances should be sent to J.W. Barclay & Co., Inc., 1 Battery Park Plaza,
New York, New York 10004. We reserve the right to reject any acceptances in
whole or in part.
Any of the Securities purchased by you hereunder are to be offered by you
to the public at the public offering prices, except as herein otherwise provided
and except that a reallowance from such public offering prices of not in excess
of the amount set forth in the Prospectus under "Underwriting" may be allowed to
dealers who are members in good standing of the National Association of
Securities Dealers, Inc., or foreign banks, dealers
<PAGE>
or institutions not eligible for membership in said Association who represent to
you that they will promptly reoffer such Securities to unrelated persons at the
public offering prices and will abide by the conditions with respect to foreign
banks, dealers and institutions set forth in the confirmation below.
We, acting as Representative, and, with our consent, any Underwriter may
buy Securities from, or sell Securities to, any Selected Dealer or any other
Underwriter, and any Selected Dealer may buy Securities from, or sell Securities
to, any other Selected Dealer or any Underwriter at the public offering prices
less all or any part of the concessions.
You agree to pay us on demand for the accounts of the several Underwriters
an amount equal to the concessions on any Securities purchased by you hereunder
which, prior to the termination of this Agreement, we may purchase or contract
to purchase for the account of any Underwriter or which may be delivered against
purchase contracts made prior to the termination of this Agreement.
Securities purchased by you hereunder shall be paid for on such date as we
shall determine, on one day's notice to you, by certified or official bank check
payable in New York Clearing House funds to the order of J.W. Barclay & Co.,
Inc., 1 Battery Park Plaza, New York, New York 10004, or at such other place as
instructed. Delivery to you of certificates for Securities will be made as soon
as is practicable thereafter. Unless specifically authorized by us, payment by
you may not be deferred until delivery of certificates to you.
The Underwriters have been advised by the Company that a Registration
Statement for the Securities, filed under the Securities Act of 1933, has become
effective. You agree that in selling Securities purchased pursuant hereto (which
agreement shall also be for the benefit of the Company) you will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934. No person is authorized by the Company or by the
Underwriters to give any information or make any representations not contained
in the Prospectus in connection with the sale of Securities. You are not
authorized to act as agent for the Company and of the Selling Stockholders or
any of the Underwriters in offering Securities to the public or otherwise.
Nothing contained herein shall constitute the Selected Dealers partners with any
of the Underwriters or with one another.
Upon application to us, we will inform you as to the advice we have
received from counsel concerning the jurisdictions in which Securities have been
qualified for sale or are exempt under the respective securities or blue sky
laws of such jurisdictions, but we have not assumed and will not assume any
obligation or responsibility as to the right of any Selected Dealer to sell
Securities in any such jurisdiction.
2
<PAGE>
As Representative, we shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. Neither we, acting as Representative, nor any of the
Underwriters shall be under any obligation to you except for obligations
expressly assumed by us in this Agreement.
Each of the Underwriters has authorized us to overallot in arranging for
sales of the Securities to the Selected Dealers and to purchase and sell
Securities for long or short account and has also authorized us to stabilize or
maintain the market prices of the Common Stock and the Warrants of the Company.
You agree, upon our request, at any time or times prior to the termination
of this Agreement, to report to us the number of Securities purchased by you
pursuant to the provisions hereof which then remain unsold.
Selected Dealers will be governed by the conditions herein set forth until
this Agreement is terminated. This Agreement will terminate at the close of
business on the 30th day after the date hereof but, in our discretion, may be
extended by us for a further period not exceeding 30 days and in our discretion,
whether or not extended, may be terminated at any earlier time. Notwithstanding
the termination of this Agreement, you shall remain liable for your
proportionate amount of any claim, demand or liability which may be asserted
against you alone, against you together with other dealers purchasing Securities
upon the terms hereof, or against us, based upon the claim that the Selected
Dealers, or any of them, constitute an association, an unincorporated business
or other entity.
This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, and you consent and
will submit to the jurisdiction of the courts of the State of New York and of
any federal court sitting in the City of New York with respect to controversies
arising under this Agreement.
In the event that you agree to purchase Securities in accordance with the
terms hereof, kindly confirm such agreement by completing and signing the form
provided for that purpose on the enclosed duplicate hereof and returning it to
us promptly, even though you may have previously advised us of your acceptance
by telephone or telegraph.
All communications from you should be addressed to J.W. Barclay & Co.,
Inc., 1 Battery Park Plaza, New York, New York 10004. Any notice from us to you
shall be deemed to have been fully authorized by the Underwriters and to have
been duly given if
3
<PAGE>
mailed or telegraphed to you at the address to which this letter is mailed.
Very truly yours,
J.W. BARCLAY & CO., INC.
As Representative of the several
Underwriters
By ________________________________
4
<PAGE>
J.W. Barclay & Co., Inc.
As Representative of the several Underwriters
1 Battery Park Plaza
New York, New York 10004
Dear Sirs:
We hereby confirm our agreement to purchase ___________ Shares and
_____________ Warrants of Tellurian, Inc. allotted to us subject to the terms
and conditions of the foregoing agreement and your telegram to us referred to
therein. We hereby acknowledge receipt of the Prospectus relating to the
Securities, and we confirm that in purchasing Securities we have relied upon no
statements whatsoever, written or oral, other than the statements in such
Prospectus. We have made a record of our distribution of preliminary
prospectuses and, when furnished with copies of any revised preliminary
prospectus, we have promptly forwarded copies thereof to each person to whom we
had theretofore distributed preliminary prospectuses. We hereby represent that
we are a member in good standing of the National Association of Securities
Dealers, Inc. and agree to comply with the Rules of Fair Practice of said
Association, and in particular, Sections 8, 24, 25 and 36 of Article III
thereof, or, if we are not such a member, we are a foreign bank, dealer or
institution not eligible for membership in said Association and agree to make no
sales within the United States, its territories or possessions or to persons who
are citizens thereof or residents therein, and in making any sales to comply
with said Association's Rules and Interpretations to the extent applicable to
us.
................................
Name of Selected Dealer
By .............................
(Authorized Signature)
................................
(Print name and title)
Address:
.................................
.................................
Dated as of the date
first above written.
5
<PAGE>
Exhibit 2
STATE OF SOUTH CAROLINA, SECRETARY OF STATE
ARTICLES OF MERGER OR SHARE EXCHANGE
Pursuant to Section 33-11-105 of the 1976 South Carolina Code, as
amended, the undersigned as the surviving corporation in a merger hereby submits
the following information:
1. The name of the surviving corporation is Tellurian, Inc., a Delaware
corporation.
2. Attached hereto and made a part hereof is a copy of the Agreement
and Plan of Merger pursuant to which Tellurian, Inc., a South Carolina
corporation, is merged into and with Tellurian, Inc., a Delaware corporation, in
accordance with Section 33-11-107 and/or 33-11-108 of the South Carolina
Business Corporation Act.
3. The Merger has been approved in accordance with Delaware Corporation
Law. The Delaware General Corporation Law permits a corporation organized and
existing under the laws of the State of Delaware to have a foreign corporation
merged with and into a corporation organized and existing under the laws of the
State of Delaware.
4. (A) The Plan of Merger was duly approved by the shareholders of
Tellurian, Inc., a South Carolina corporation as follows:
<TABLE>
<CAPTION>
Number of
Number of Votes
Number of Votes Represented Number of
Voting Outstanding Entitled to at the Shares Voted
Group Shares be Cast Meeting For Against
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common
Stock, $.01
par value 1,600,000 1,600,000 1,143,400 1,143,400/0
</TABLE>
(B) The Plan of Merger was duly approved by the sole
stockholder of Tellurian, Inc., a Delaware corporation, via written consent of
Tellurian, Inc., a South Carolina corporation, and holder of 100 shares of
Common Stock, $.01 par value, representing all the outstanding shares of
Tellurian, Inc., sa Delaware corporation.
5. The effective date of this document shall be the later of the date
this Article of Merger is accepted for filing by the Secretary of State of the
State of South Carolina or the date the Certificate of Ownership and Merger is
accepted for filing by the Secretary of State of the State of Delaware.
DATE: June 7, 1996 Tellurian, Inc.(a Delaware corporation)
--------------------------------------------------
(Name of the Surviving or Acquiring Corporation)
By: /s/ Stuart French
------------------------------------
Stuart French, President/Treasurer
/s/ Richard Swallow
------------------------------------
Richard Swallow, Secretary
CERTIFIED TO BE A TRUE AND CORRECT COPY
AS TAKEN FROM AND COMPARED WITH THE
ORIGINAL ON FILE IN THIS OFFICE
JULY 2, 1996
/s/
- ---------------------------------------
SECRETARY OF STATE OF SOUTH CAROLINA
<PAGE>
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP OF "TELLURIAN, INC.", FILED IN THIS OFFICE ON THE TWENTY-FOURTH DAY
OF JUNE, A.D. 1996, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
--------------------------------------
Edward J. Freel, Secretary of State
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/24/1996
960185170 - 2586025
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
TELLURIAN, INC.
(A South Carolina Corporation)
INTO
TELLURIAN, INC.
(A Delaware Corporation)
(Under Section 253 of the General Corporation Law of Delaware)
Tellurian, Inc. a corporation organized and existing under the
laws of the State of South Carolina (sometimes herein referred to
as "the South Carolina corporation") does hereby certify as
follows:
1. This corporation was incorporated on the 10th day of August, 1988
under the laws of the State of South Carolina.
2. This corporation owns all of the outstanding capital stock of each
class of Tellurian, Inc., a corporation incorporated on the 25th day of January,
1996 pursuant to the General Corporation Law of the State of Delaware (sometimes
herein referred to as "the Delaware Corporation").
3. The directors of this corporation, by the following resolutions of
its Board of Directors, duly adopted at a meeting of its members duly held
pursuant to unanimous written consent of the Board of Directors on the 16th day
of May, 1996 and filed with the minutes of the Board, determined to merge itself
into the Delaware corporation:
"RESOLVED, that Tellurian, Inc. (a South Carolina
Corporation), which is hereinafter sometimes referred to as
"the South Carolina Corporation," merge, and it hereby does
merge itself, into Tellurian, Inc. (a Delaware Corporation),
which is hereinafter sometimes referred to as "the Delaware
Corporation," which assumes all of the obligations of the
South Carolina Corporation; and it was further
RESOLVED, that the merger shall be effective upon compliance
with the laws of the State of Delaware and the State of South
Carolina, the time of such effectiveness being hereinafter
sometimes referred to as the "Effective Date"; and it was
further
RESOLVED, that the terms and conditions of the merger are as
set forth in the Agreement and Plan of Merger annexed hereto
in Exhibit A and made a part hereof as though herein set forth
in full; and it was further
RESOLVED, that the proposed merger shall be submitted to the
sole stockholder of the Delaware Corporation for its written
consent and shall be submitted to the stockholders of the
South Carolina Corporation for their
<PAGE>
approval and upon receiving such approval by the sole
stockholder of the Delaware Corporation and by the holders of
at least two-thirds of the outstanding shares of Common Stock
in accordance with the laws of the State of South Carolina,
the merger shall be approved; and it was further
RESOLVED, that each full issued and outstanding share of the
Common Stock of the South Carolina Corporation shall be
converted on a pro rata basis into and become one share of
validly issued, fully paid and non-assessable Common Stock of
the Delaware Corporation, and each certificate nominally
representing one share of issued and outstanding Common Stock
of the South Carolina Corporation shall, for all purposes, be
exchanged for one share of Common Stock of the Delaware
Corporation. The holders of such certificates shall be
required to surrender the same in exchange for certificates of
Common Stock of the Delaware Corporation; and it was further
RESOLVED, that each issued and outstanding Common Stock
Purchase Warrant of the South Carolina Corporation shall
become a Common Stock Purchase Warrant of the Delaware
Corporation on the same terms and conditions as those
contained in the original warrants; and it was further
RESOLVED, that each issued and outstanding promissory note or
other debt instrument of the South Carolina Corporation shall
become a promissory note or debt instrument of the Delaware
Corporation on the same terms and conditions as those
contained in the original promissory note or debt instrument;
and it was further
RESOLVED, that any outstanding shares of Common Stock of the
South Carolina Corporation held by stockholders who shall have
elected to dissent from the merger in accordance with the
South Carolina Business Corporation Act ("SCBCA") ("Dissenting
Stockholders") shall not be converted into shares of Common
Stock of the Delaware Corporation, but shall be entitled to
receive only such consideration as shall be provided under the
SCBCA, except that shares of Common Stock of the South
Carolina Corporation outstanding at the Effective Date and
held by a Dissenting Stockholder who shall thereafter withdraw
his election to dissent from the merger or lose his right to
dissent from the merger shall be deemed converted, as of the
Effective Date, into such number of shares of Common Stock of
the Delaware Corporation, as such holder otherwise would have
been entitled to receive as a result of the merger; and it was
further
RESOLVED, that the initially issued 100 shares of Common
2
<PAGE>
Stock of the Delaware Corporation held by the South Carolina
Corporation shall be cancelled and extinguished and restored
to the status of authorized but unissued common stock of the
Delaware Corporation; and it was further
RESOLVED, that the proper officers of the South Carolina
Corporation be and they hereby are directed to make and
execute a Certificate of Ownership and Merger setting forth a
copy of the resolutions to merge itself into the Delaware
corporation, and the date of adoption thereof, and to cause
the Articles of Merger to be filed with the Secretary of State
of South Carolina and the Certificate of Ownership and Merger
to be filed with the Secretary of State of the State of
Delaware and a certified copy recorded in the office of the
Recorder of Deeds and to take all necessary steps and execute
all necessary documents to cause this merger to become
effective under the laws of each of the States of South
Carolina and Delaware."
4. The merger has been approved by the written consent of the sole
stockholder of the Delaware Corporation and at a duly held meeting of
stockholders by the holders of at least two-thirds of the outstanding shares of
Common Stock of the South Carolina Corporation.
5. The South Carolina Business Corporation Act permits a corporation
organized and existing under the laws of the State of South Carolina to be
merged with and into a corporation organized and existing under the laws of the
State of Delaware. The merger has been approved by the stockholders of this
corporation in accordance with the South Carolina Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, being respectively the President
and the Secretary of Tellurian, Inc. (a South Carolina corporation) do make this
certificate, each for himself hereby declaring and certifying that this is his
act and deed, and accordingly each has hereunto set his hand this 7th day of
June, 1996.
/s/ Stuart French
-----------------------------------
Stuart French, President
ATTEST:
/s/ Dr. Richard Swallow
- ----------------------------------
Dr. Richard Swallow, Secretary
3
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
TELLURIAN, INC.
(A South Carolina Corporation)
AND
TELLURIAN, INC.
(a Delaware Corporation)
Whereas the Board of Directors of each of Tellurian, Inc. (a Delaware
Corporation, which is sometimes herein referred to as "the Delaware
Corporation") and Tellurian, Inc. (A South Carolina Corporation, which is
sometimes herein referred to as the "South Carolina Corporation") deems it
advisable and generally to the advantage and welfare and best interests of the
two corporations and their respective shareholders for the South Carolina
Corporation to merge with and into the Delaware Corporation; and
Whereas the South Carolina Corporation owns all of the issued
and outstanding capital stock of the Delaware Corporation;
Now, therefore the Board of Directors of each of the Delaware
Corporation (sometimes referred to hereinafter as a "Constituent Corporation")
and the South Carolina Corporation (also sometimes referred to hereinafter as a
"Constituent Corporation") do hereby adopt the following Plan of Merger pursuant
to Section 253 of the Delaware General Corporation Law and Section 33-11-107
and/or Section 33-11-108 of the South Carolina Business Corporation Act:
1. (a) The name of each Constituent Corporation is as
follows:
(i) Tellurian, Inc. (a South Carolina Corporation).
(ii) Tellurian, Inc. (a Delaware Corporation).
(b) The name of the surviving corporation is Tellurian,
Inc. (a Delaware Corporation).
2. As to each Constituent Corporation, the designation and
number of outstanding shares of each class and the voting rights
thereof are as follows:
Designation, Class
and Number of Class of Shares
Name of Corporation Shares Outstanding Entitled to Vote
- ------------------- ------------------ ----------------
Tellurian, Inc. Common Stock Common Stock
(a South Carolina $.01 Par Value $.01 Par Value
Corporation) 1,600,000 Shares
Tellurian, Inc. Common Stock Common Stock
(a Delaware $.01 Par Value $.01 Par Value
Corporation) 100 Shares
<PAGE>
3. The merger is subject to approval and adoption by the unanimous
written consent of the sole shareholder of the Delaware Corporation and by
shareholders who own an amount equal to at least two-thirds of the outstanding
shares of Common Stock of the South Carolina Corporation representing all shares
and classes entitled to vote at a meeting of shareholders; the merger is
permitted by the law of the State of Delaware, which is the jurisdiction of the
Delaware Corporation and by the laws of the State of South Carolina, which is
the jurisdiction of the South Carolina Corporation; and the merger is in
compliance with the laws of the States of Delaware and the State of South
Carolina.
4. The surviving Delaware Corporation was organized under the laws of
the State of Delaware on January 25, 1996. The surviving corporation does not
intend to file an application for authority to do business in the State of South
Carolina; and it will not do any business in the State of South Carolina unless
an application for such authority to do business shall have been filed with the
Secretary of State of the State of South Carolina.
5. The Certificate of Incorporation of the South Carolina Corporation
was filed in the office of the Secretary of State of the State of South Carolina
on August 10, 1988.
6. The Delaware Corporation may be served with process in the State of
South Carolina in any action or special proceeding for the enforcement of any
liability or obligation (including without limitation the rights of dissenting
shareholders) of the South Carolina Corporation, and for the enforcement, as
provided in the applicable provisions of the Business Corporation Act of the
State of South Carolina (the "SCBCA") of the right of dissenting shareholders of
the South Carolina Corporation, to receive payment for their shares. Subject to
the provisions of Chapters 11 and 13 of the SCBCA, the Delaware Corporation will
promptly pay to the dissenting shareholders of the South Carolina Corporation,
the amount, if any, to which they shall be entitled under the applicable
provisions of the SCBCA relating to the right of dissenting shareholders to
receive payment for their shares.
7. The Secretary of State of the State of South Carolina is hereby
irrevocably designated as the agent of the Delaware Corporation upon whom
process against it may be served in the manner set forth in Section
33-11-107(b)(i) of the SCBCA, in any action or special proceeding. The post
office address to which such Secretary of State shall mail a copy of any process
against the Delaware Corporation served upon him is: c/o Stuart French, 6
Demarest Place, Waldwick, New Jersey 07463.
8. The Certificate of Incorporation of the Delaware Corporation as it
existed prior to the merger shall continue to be the certificate of
incorporation of the Delaware Corporation, until
2
<PAGE>
changed or amended in accordance with the laws of the State of Delaware. The
By-Laws of the Delaware Corporation, as they existed prior to the merger shall
continue to be the By-Laws of the Delaware Corporation, until changed or amended
in accordance with the terms thereof. The officers and directors in office of
the Delaware Corporation prior to the merger shall continue to be the officers
and directors of the Delaware Corporation until their successors are elected or
appointed in accordance with the By-Laws of the Delaware Corporation.
9. This Agreement and Plan of Merger shall become effective immediately
upon compliance with the laws of the States of Delaware and South Carolina; the
time of such effectiveness being herein called the "Effective Date." Upon the
Effective Date, and without any action on the part of any holder thereof:
(i) Each full issued and outstanding share of the Common Stock
of the South Carolina Corporation shall be converted on a pro rata basis into
and become one share of validly issued, fully paid and non-assessable Common
Stock of the Delaware Corporation, and each certificate nominally representing
one share of issued and outstanding Common Stock of the South Carolina
Corporation shall, for all purposes, be exchanged for one share of Common Stock
of the Delaware Corporation. The holders of such certificates shall be required
to surrender the same in exchange for certificates of Common Stock of the
Delaware Corporation.
(ii) Each issued and outstanding Common Stock Purchase Warrant
of the South Carolina Corporation shall become a Common Stock Purchase Warrant
of the Delaware Corporation on the same terms and conditions as those contained
in the original warrants.
(iii) Each issued and outstanding promissory note or other
debt instrument of the South Carolina Corporation shall become a promissory note
or debt instrument of the Delaware Corporation on the same terms and conditions
as those contained in the original promissory note or debt instrument.
(iv) Any outstanding shares of Common Stock of the South
Carolina Corporation held by stockholders who shall have elected to dissent from
the merger in accordance with the SCBCA ("Dissenting Stockholders") shall not be
converted into shares of Common Stock of the Delaware Corporation, but shall be
entitled to receive only such consideration as shall be provided under the
SCBCA, except that shares of Common Stock of the South Carolina Corporation
outstanding at the Effective Date and held by a Dissenting Stockholder who shall
thereafter withdraw his election to dissent from the merger or lose his right to
dissent from the merger shall be deemed converted, as of the Effective Date,
into such number of shares of Common Stock of the Delaware Corporation, as such
holder otherwise would have been entitled to receive as a result of the merger.
3
<PAGE>
(v) The initially issued 100 shares of Common Stock of the
Delaware Corporation held by the South Carolina Corporation shall be cancelled
and extinguished and restored to the status of authorized but unissued common
stock of the Delaware Corporation.
10. Upon the Effective Date, each employee benefit plan and stock
option plan, if any, to which the South Carolina Corporation is then a party
shall be assumed by, and, without any further action upon the part of the
Delaware Corporation, shall continue to be the plan of the Delaware Corporation.
Each such stock option plan, if any, shall be deemed to provide for the issuance
of, or otherwise relate to, Common Stock of the Delaware Corporation.
11. Upon the Effective Date, the Delaware Corporation shall succeed to
and possess, without further act or deed, all of the estate, rights (contractual
and otherwise), privileges, powers, and franchises, both public and private, and
all of the property, real, personal and mixed, of each of the Constituent
Corporations; all debts due to either of the Constituent Corporations on
whatever account shall be vested in the Delaware Corporation; all claims,
demands, property, rights (contractual or otherwise), privileges, power, and
franchises and every other interest of either of the Constituent Corporations
shall be as effectively the property of the Delaware Corporation as they were of
the respective Constituent Corporations; the title to any real estate vested by
deed or otherwise in either of the Constituent Corporations shall not revert or
be in any way impaired by reason of the merger, but shall be vested in the
Delaware Corporation; all rights of creditors and all liens upon any property of
either of the Constituent Corporations shall be preserved unimpaired, limited in
lien to the property affected by such lien at the effective time of the merger;
all debts, liabilities, obligations and duties of the respective Constituent
Corporations shall thenceforth attach to the Delaware Corporation and may be
enforced against it to the same extent as if such debts, liabilities, and duties
had been incurred or contracted by it; and the Delaware Corporation shall
indemnify and hold harmless the officers and directors of each of the
Constituent Corporations against all such debts, liabilities, and duties and
against all claims and demands arising out of the merger.
12. As and when requested by the Delaware Corporation or by its
successors or assigns, the South Carolina Corporation will execute and deliver
or cause to be executed and delivered all such deeds and instruments and will
take or cause to be taken all such further action as the Delaware Corporation
may deem necessary or desirable in order to vest in and confirm to the Delaware
Corporation title to and possession of any property of either of the Constituent
Corporations acquired or held by the Delaware Corporation by reason or as a
result of the merger herein provided for and otherwise to carry out the intent
and purposes hereof, and the officers and directors of the Delaware Corporation
are fully
4
<PAGE>
authorized in the name of the South Carolina Corporation, or otherwise, to take
any and all such action.
13. This Agreement and Plan of Merger may be terminated and abandoned
by action of the Board of Directors of the South Carolina Corporation at any
time prior to the Effective Date, whether before or after approval by the
shareholders of the two corporate parties hereto.
14. This Agreement and Plan of Merger may be amended at any time prior
to the Effective Date with the mutual consent of the Boards of Directors of the
South Carolina Corporation and the Delaware Corporation; provided, however, that
it may not be amended after it has been adopted by the stockholders of the South
Carolina Corporation in any manner which, in the judgment of the Board of
Directors of the South Carolina Corporation, would materially adversely affect
the rights of such stockholders nor may it be amended in any manner not
permitted by applicable law.
15. This Agreement and Plan of Merger shall be governed by and
construed in accordance with the laws of each of the States of South Carolina
and Delaware. It may be executed in two or more counterparts, each of which
shall constitute an original, and all of which, when taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement and Plan of Merger has been approved
by the Board of Directors of Tellurian, Inc. (a South Carolina corporation) and
by the Board of Directors of Tellurian, Inc. (a Delaware corporation) and has
been executed by the appropriate officers thereof pursuant to authority duly
granted, on the 16th day of May, 1996.
Tellurian, Inc. Tellurian, Inc.
(A South Carolina Corporation) (A Delaware Corporation)
By: By:
/s/ Stuart French /s/ Stuart French
- ------------------------ ---------------------------
Stuart French, President Stuart French, President
/s/ Dr. Richard Swallow /s/ Dr. Richard Swallow
- ---------------------------- ------------------------
Dr. Richard Swallow, Secretary Dr. Richard Swallow,
Secretary
5
<PAGE>
Exhibit 3(a)
State of Delaware
Office of the Secretary of State
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "TELLURIAN, INC.", FILED IN THIS OFFICE ON THE TWENTY-FIFTH
DAY OF JANUARY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7806854
DATE: 01-29-96
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STATE OF DELAWARE
JAN 26 '96
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/25/1996
CERTIFICATE OF INCORPORATION
OF
TELLURIAN, INC.
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FIRST: The name of this corporation shall be:
TELLURIAN, INC.
SECOND: Its registered office in the State of Delaware is to
be located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent, and its registered agent at such address is XL CORPORATE SERVICES, INC.
THIRD: The nature of the business and the objects and purposes
proposed to be transacted, promoted and carried on are to do any or all things
herein mentioned, as fully and to the same extent as natural persons might or
could do, and in any part of the world, viz:
The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares which this corporation is
authorized to issue is:
10,000,000 Shares At A Par Value of $.01 Per Share
FIFTH: The name and address of the incorporator is as follows:
XL Corporate Services, Inc.
32 Loockerman Square, Suite L-100
Dover, DE 19901
SIXTH: The Directors shall have power to make and to alter or
amend the By-Laws; to fix the amount to be reserved as working capital, and to
authorize and cause to be executed, mortgages and liens without limit as to the
amount, upon the property and franchise of this Corporation.
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With the consent in writing, and pursuant to a majority vote of the holders of
the capital stock issued and outstanding, the Directors shall have authority to
dispose, in any manner, of the whole property of this corporation.
The By-Laws shall determine whether and to what extent the account and books of
this corporation, or any of them, shall be open to the inspection of the
stockholders; no stockholder shall have any right of inspecting any account, or
book, or document of this Corporation except as conferred by the law or the
By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings and keep
the books, documents and papers of the corporation outside of the State of
Delaware, at such places as may be, from time to time, designated by the By-Laws
or by resolution of the stockholders or directors, except as otherwise required
by the laws of Delaware.
It is the intention that the objects, purposes and powers specified in the THIRD
paragraph hereof shall, except where otherwise specified in said paragraph, be
nowise limited or restricted by reference to or inference from the terms of any
other clause or paragraph in this certificate of incorporation, but that the
objects, purposes and powers specified in the THIRD paragraph and in each of the
clauses or paragraphs of this charter shall be regarded as independent objects,
purposes and powers.
SEVENTH: No director of this Corporation shall be liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the General Corporation Law, or
(iv) for any transaction from which the director derived an improper personal
benefit.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
twenty-fifth day of January, A.D., 1996.
XL CORPORATE SERVICES, INC.
Nancy S. Truax
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Nancy S. Truax
Assistant Secretary
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Exhibit 3(b)
TELLURIAN, INC.
BY-LAWS
ARTICLE I
OFFICES
Section 1. The registered office shall be at such place within the
State of Delaware as the board of directors may, from time to time, determine.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the State of New Jersey, at such place as may be
fixed, from time to time by the board of directors, or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the board of directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on the
fifteenth day of the fifth month following the end of each fiscal year or as
soon thereafter as practicable, as shall be designated from time to time by the
board of directors and stated in the notice of the meeting, at which they shall
elect by a plurality vote a board of directors, and transact such other business
as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so
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specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the chairman or president and shall be called by
the president or secretary at the request in writing of a majority of the board
of directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, of
the certificate of incorporation or other provisions of the by-laws, a different
vote is required in which case such express provision shall govern and control
the decision of such question.
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Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
Section 12. At each meeting of the stockholders, the chairman of the
board or, in his absence or inability to act, any person chosen by the majority
of those stockholders present in person or represented by proxy shall act as
chairman of the meeting. The secretary or, in his absence or inability to act,
any person appointed by the chairman of the meeting shall act as secretary of
the meeting and keep the minutes thereof.
Section 13. The board may, in advance of any meeting of stockholders,
appoint one or more inspectors to act at such meeting or any adjournment
thereof. If the inspectors shall not be so appointed or if any of them shall
fail to appear or act, the chairman of the meeting shall appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
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ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than two nor more than nine. The initial board of
directors shall consist of three members. Thereafter, the number of directors
shall be determined by resolution of the board of directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held immediately following the annual meeting of stockholders at the
place of such annual meeting of stockholders and no notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held immediately following the annual meeting of stockholders
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at the place of such annual meeting of stockholders, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on one day's notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two directors (one
director in the event that there be a single director in office).
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 11. No contract or other transaction between this corporation
and any other corporation shall be impaired, affected or invalidated, nor shall
any director be liable in any way by reason of the fact that any one or more of
the directors of this corporation is or are interested in, or is a director or
officer, or are directors of such other corporation, provided that such
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facts are disclosed or made known to the board of directors. Any director,
personally and individually, may be a party to or may be interested in any
contract or transaction of this corporation, and no director shall be liable in
any way by reason of such interest, provided that the fact of such interest be
disclosed or made known to the board of directors, and provided that the board
of directors shall authorize, approve or ratify such contract or transaction by
the vote (not counting the vote of any such director) of a majority of a quorum,
notwithstanding the presence of any such director at the meeting at which such
action is taken. Such director or directors may be counted in determining the
presence of a quorum at such meeting. This Section shall not be construed to
impair or invalidate or in any way affect any contract or other transaction
which would otherwise be valid under the law (common, statutory or otherwise)
applicable thereto.
COMMITTEES OF DIRECTORS
Section 12. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at a meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
by-laws of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate
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of incorporation or these by-laws, the board of directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
or a stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by-laws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a president, a secretary and a treasurer. The
board of directors may also choose a chairman, one or more vice-presidents, and
one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting
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after each annual meeting of stockholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE PRESIDENT
Section 6. In the event that the corporation elects a Chairman of the
board of directors, he shall, if present, preside at each meeting of the
stockholders and of the board and shall be an ex officio member of all
committees of the board. He shall perform all duties incident to the office of
chairman of the board and such other duties as may from time to time be assigned
to him by the board. The chairman shall be the chief executive officer of the
Corporation and shall have general and active supervision and direction over the
business operations and affairs of the Corporation and over its several
officers, agents and employees, subject, however, to the direction and the
control of the board of directors.
Section 7. The president shall by the chief operating officer of the
Corporation and shall perform all duties incident to the office of president and
such other duties as made from time to time assigned to him by the board or
chairman. The president shall have the day to day general and active supervision
and direction over the business operations and affairs of the Corporation and
over its several officers, agents and employees, subject, however, to the
direction and the control of the board of directors and the chairman of the
board, if any. The chairman or president shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 8. In the absence of the president or in the event
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of his inability or refusal to act, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
the authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by his signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 10. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of
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directors so requires, an account of all his transactions as treasurer and of
the financial condition of the corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the board of directors or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation. If the corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Any of or all the the signatures on the
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certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
sole discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or give, the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record
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date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
12
<PAGE>
FISCAL YEAR
Section 5. The fiscal year of the corporation shall end on December
31st of each year.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, at any
meeting of the stockholders or of the board of directors if notice of such
alteration, amendment, repeal or adoption of new by-laws be contained in the
notice of such special meeting. The by-laws may also be amended by the
stockholders pursuant to Section 11 of Article II without prior notice of
alteration, amendment, repeal or adoption of new by-laws. The power to adopt,
amend or repeal by-laws by the board of directors shall not divest or limit the
power of the stockholders to adopt, amend or repeal by-laws.
ARTICLE IX
INDEMNIFICATION
The officers and directors of the corporation shall be entitled to
indemnification to the maximum extent permitted by Delaware law.
13
<PAGE>
Exhibit 10(a)
STATE OF SOUTH CAROLINA )
) INDEMNIFICATION AGREEMENT
COUNTY OF FLORENCE )
THIS INDEMNIFICATION AGREEMENT is executed as of October 10, 1996 by
Tellurian, Inc. ("Tellurian"), Stuart French, Ronald Swallow, Richard Swallow,
and Charles H. Powers.
STATEMENT OF PURPOSE
Powers is a minority shareholder and a creditor of Tellurian. Certain
shareholders of J.W. Barclay & Co., Inc. subscribed in March, 1995 to purchase
shares of stock in Tellurian. Tellurian proposes to enter into arrangements with
Barclay to raise additional capital through a private placement of 30 units
consisting of Promissory Notes and Stock Warrants and through a subsequent
public offering. Powers has voiced to Tellurian his strenuous objection to these
arrangements. Tellurian through its stockholders, Ronald Swallow and Stuart
French, have represented to Powers that these arrangements are essential to
Tellurian's continued existence. Tellurian acknowledges that as of April 1,
1995, Tellurian was and remains indebted to Powers in an amount no less than
$797,318.00, from which date that sum continues to accrue interest at the rate
of ten (10%) percent per annum. Tellurian acknowledges that as security for the
repayment of this sum, Tellurian and Ronald Swallow executed and delivered to
Powers UCC-1 Financing Statements describing, among other things, technology
developed by Tellurian and Ronald Swallow and proceeds thereof.
Tellurian is currently unable to repay its indebtedness to Powers.
Tellurian, Stuart French, Richard Swallow, and Ronald
<PAGE>
Swallow desire to induce Powers to forebear for an agreed upon period of time
from making demand for repayment of the sums owed to Powers by Tellurian.
In consideration of the mutual promises contained herein and other
valuable consideration, the sufficiency of which is acknowledged by all parties,
the parties make the following agreement:
AGREEMENT
1. Tellurian represents to Powers that all of Tellurian's material
financial matters have been accurately disclosed to Powers through the
Tellurian, Inc. Report on Review of Financial Statements Year Ended December 31,
1994, prepared by Miller, Ellin & Company, Certified Public Accountants and the
accompanying Tellurian, Inc. Balance Sheet dated December 31, 1994; Tellurian,
Inc. Statement of Operations and Deficit Year Ended December 31, 1994;
Tellurian, Inc. Statement of Cashflows Year Ended December 31, 1994; Tellurian,
Inc. Notes to Financial Statements Year Ended December 31, 1994; and in the
Tellurian, Inc. Balance Sheets June 30, 1995; Tellurian, Inc. Income Statements
for the Six Months Ended June 30, 1995; Tellurian, Inc. Supporting Schedule of
Cost of Sales for the Six Months Ended June 30, 1995; Tellurian, Inc. Supporting
Schedule of Research and Development for the Six Months Ended June 30, 1995;
Tellurian, Inc. Supporting Schedule of Selling Expenses for the Six Months Ended
June 30, 1995; and Tellurian, Inc. Supporting Schedule of General &
Administrative for the Six Months Ended June 30, 1995.
2
<PAGE>
2. Tellurian warrants that no omissions of material information or
false representations have or will be made by Tellurian or any of its
shareholders, officers, or directors to Barclay or any other persons or entities
including, but not limited to brokers, attorneys, accountants, lenders, and
investors whether involved in a private placement, public offering, or any other
matter whatsoever.
3. Tellurian, Ronald Swallow, Richard Swallow, and French shall
indemnify and hold Powers, his heirs, assigns, and personal representatives,
harmless from any and all claims, actions, suits, penalties, proceedings, costs,
expenses, damages, and liabilities, including attorneys' fees which Powers, his
heirs, assigns, and personal representatives may hereafter suffer, incur or pay
or become obligated to pay to any person, entity , or governmental unit or
agency arising out of, connected with, or resulting from any arrangements
associated with the planning and execution of a private placement, public
offering, or either of them of debt, equity, or either of them in Tellurian and
will defend him in any suit, action, claim or proceeding arising therefrom.
4. Tellurian is authorized to enter into this Agreement by Ronald
Swallow, French, and Richard Swallow, who together constitute a majority of its
shareholders and the undersigned officers of Tellurian are authorized to execute
this Agreement on behalf of Tellurian.
5. The parties acknowledge that the proposed private placement
described in the Confidential Private Placement Memorandum
3
<PAGE>
Dated September 5, 1995 is predicated upon a $150,000.00 minimum - $750,000.00
maximum basis. The parties further agree that the first $150,000.00 of proceeds
from the private placement shall not be paid to Powers but that the next
$100,000.00 raised after the $150,000.00 minimum shall be paid to Powers as a
partial payment on the indebtedness owed to Powers. Powers' agreement set forth
in paragraph 7 shall be void at Powers' sole option if the entire $100,000.00 is
not paid to Powers at the time and in the manner described herein. In addition
to the payment of $100,000.00 to Powers, Tellurian shall pay to Powers the
additional sum of $121,200.00 from corporate receipts from other than the
private placement and shall assign to Powers the right to receive all payments
up to $221,200.00 from that certain contract described as Technology Transfer
Agreement By and Between Tellurian, Inc. And Institute for Information Industry
dated May 26, 1995 (the "Contract") which assignment shall be canceled by Powers
upon his receipt of $221,200.00 from Tellurian after the date of this Agreement.
A default under that Assignment shall constitute a default under this
Indemnification Agreement. Tellurian shall instruct Chemical Bank of N.J. to
have Powers make a co-owner/signatory on Account No. 6057-011848 (The III
Account) and shall instruct its banker to have Powers make a signatory/owner on
any other account into which the Institute for Information Industry or its
successor or assign deposits its payments under the Contract. Powers agrees to
relinquish this status upon completion of the $221,200.00 payment. Proof of such
instruction and agreement
4
<PAGE>
to such instruction shall be furnished by Tellurian to Powers. At Powers'
request, Tellurian shall execute UCC-1 Financing Statements in the form and
number required by Powers in favor of Powers describing that Contract and income
and proceeds therefrom. Tellurian, Ronald Swallow, Richard Swallow, and French,
warrant to Powers that there has been no prior assignment of the Contract or any
portion thereof.
6. As long as the Assignment of Contract is not in default, Powers
agrees to forebear from making demand for repayment of the indebtedness
described above, or any portion thereof other than for the sum of $221,200.00
for the following period of time:
(a) During the private placement described in the
Confidential Private Placement Memorandum of
Tellurian, Inc., a South Carolina Corporation, dated
September 5, 1995, provided that the private
placement is ongoing and generating sufficient money
to pay the obligations set forth in paragraph 6 but
in no event beyond December 31, 1995; or
(b) If on or before December 31, 1995, the private
placement has raised $750,000.00 and Tellurian has
notified Powers of its intent to proceed with a
public offering of shares of stock Tellurian then for
twelve (12) months from the date of the initial
public offering provided it begins on or about
February 1, 1996.
7. Ronald Swallow shall sell and deliver to powers 1,015 additional
shares of stock in Tellurian on the date this Agreement is executed.
8. Powers shall sell and deliver to Richard Swallow shares of stock in
Tellurian in accordance with a Stock Sale Agreement of approximately even date
with this Agreement. Tellurian authorizes and Richard Swallow accepts a
restriction to be placed on the face
5
<PAGE>
of the certificate or certificates representing those shares and preventing the
sale and delivery of those shares to anyone other than Powers for 54 months from
the date of the transfer from Powers to Swallow.
9. Tellurian, Inc., French, Richard Swallow and Ronald Swallow will
take all necessary steps to add to the Private Placement Memorandum an addendum
deleting biographical information on Powers and concerning shares of stock owned
by Powers once the stock transfer from Powers to Richard Swallow is complete.
Tellurian, French, Richard Swallow or Ronald Swallow shall immediately
distribute this Addendum to all who have been issued the Private Placement
Memorandum.
10. Tellurian, Richard Swallow, Ronald Swallow, and French acknowledge
that Powers has not been director of Tellurian since April, 1995, and is not an
officer or employee of Tellurian nor does Powers conduct any business on behalf
of Tellurian.
11. A copy of this Agreement shall be placed in the corporate records
of Tellurian.
12. This Indemnification Agreement shall be construed in accordance
with the internal laws and judicial decisions of the state of South Carolina.
13. All parties agree that any dispute arising out of this
Indemnification Agreement shall be subject to the jurisdiction of both the state
and federal courts of South Carolina. For that purpose, all parties submit to
the jurisdiction of the state and federal courts of South Carolina. All parties
agree to accept
6
<PAGE>
service of process out of any of the before mentioned courts in such dispute by,
in addition to any other lawful means, registered or certified mail, return
receipt requested, addressed to the party at the address set forth below or any
new address given to each of the parties in writing.
14. The liability of Tellurian, Ronald Swallow, Stuart French, and
Richard Swallow under this Agreement is joint and several. Powers may seek
repayment from any one source without contemporaneous or prior resort to other
sources of repayment.
15. Release by Powers of one or more parties' obligations under this
agreement shall not constitute a release of the remaining parties' obligations
under this agreement.
16. This Agreement together with that certain Stock Sale Agreement
between Powers and Richard Swallow and that Assignment of Contract Rights
between Tellurian and Powers of approximately even date with this Agreement
constitute the entire agreement among the parties and may not be changed except
in writing signed by all parties to the Agreement being changed at the time of
the change.
17. This Agreement shall enure to the benefit of each parties, heirs,
successors, assigns, and personal representatives.
18. Time is of the essence in the performance required of Tellurian,
Ronald Swallow, Richard Swallow, and French under this Agreement.
7
<PAGE>
IN WITNESS WHEREOF the undersigned sets its hand and seal the date
first mentioned.
WITNESS: TELLURIAN, INC. (SEAL)
/s/ Marc Acito BY: Stuart French
- -------------------------- ----------------------------
Marc Acito ITS: President
- ------------------------- ATTEST:
BY: Ronald Swallow
----------------------------
ITS: Vice President
ADDRESS:
6 Demarest Pl.
Waldwick, NJ 07463
8
<PAGE>
IN WITNESS WHEREOF the undersigned sets its hand and seal the date
first mentioned. WITNESS:
/s/ Marc Acito Stuart P. French
- -------------------------- --------------------------------(SEAL)
Marc Acito STUART FRENCH
- -------------------------
ADDRESS:
565 Popular Ct.
Wyckoff, N.J. 07481
9
<PAGE>
IN WITNESS WHEREOF the undersigned sets its hand and seal the date
first mentioned. WITNESS:
Julie Bergler Ronald Swallow
- -------------------------- ------------------------------(SEAL)
RONALD SWALLOW
Amy Marie Lewis
- --------------------------
ADDRESS:
64 Manor Dr.
Ramsey, N.J. 07446
10
<PAGE>
IN WITNESS WHEREOF the undersigned sets its hand and seal the date
first mentioned. WITNESS:
Julie Bergler Ronald Swallow
- -------------------------- ------------------------------(SEAL)
RONALD SWALLOW
Amy Marie Lewis
- --------------------------
ADDRESS:
316 W. College
Hartsville, SC 29550
11
<PAGE>
IN WITNESS WHEREOF the undersigned sets its hand and seal the date
first mentioned. WITNESS:
xxxxxxxxxxxxx Charles H. Powers
- -------------------------- ------------------------------(SEAL)
CHARLES H. POWERS
John C. Horton
- --------------------------
ADDRESS:
714 Arlington Circle
Florence, SC 29502
12
<PAGE>
AMENDMENT TO INDEMNIFICATION AGREEMENT
DATED AS OF OCTOBER 10, 1995
AGREEMENT made as of this 17th day of June, 1996 by and between
Tellurian, Inc. (a South Carolina corporation) with an office address at 15
Industrial Avenue, Upper Saddle River, NJ 07458 ("Tellurian"), Stuart French,
Ronald Swallow and Richard Swallow, each with an office address the same as
Tellurian, and Charles H. Powers ("Powers") with a mailing address of P.O. Box
6525, Florence, SC 29502.
WHEREAS, effective as of October 10, 1995, Tellurian, Stuart French,
Ronald Swallow, Richard Swallow and Powers executed an agreement entitled
Indemnification Agreement which covers various agreements among the parties
including, without limitation, (i) indemnification of Powers, (ii) provisions
for payments to Powers under Tellurian's indebtedness to him, (iii) reference to
the execution of a Stock Sale Agreement of approximately the same date pursuant
to which Powers was to sell and deliver to Richard Swallow shares of Common
Stock owned by him, (iv) provisions for Powers to forebear from making demand
for payment under indebtedness owed to him and (v) the sale and delivery to
powers of 1,015 additional shares of Tellurian stock owned by Ronald Swallow;
and
WHEREAS, the parties acknowledge that Tellurian's Board of Directors
declared a stock split of 98.52216749 for one effective March 15, 1995; and
WHEREAS, Tellurian owes Powers $752,198 in principal (inclusive of
accrued interest) as of May 31, 1996; and
WHEREAS, the parties to the Indemnification Agreement desire
to amend certain paragraphs of the Indemnification Agreement; and
WHEREAS, contemporaneously Tellurian and Powers are pursuant to a
separate agreement effective June 17, 1996 amending an Assignment of Contract
Rights dated October 9, 1995 (the "October 1995 Agreement") which is referenced
in several places of the Indemnification Agreement.
NOW, THEREFORE, it is agreed as follows (with all cross references to
paragraph numbers referring to paragraph numbers in the Indemnification
Agreement unless indicated otherwise):
A. The statement of purpose in the Indemnification Agreement and
paragraph numbers 1, 2, 3, 4, 9, 11, 12, 13, 14, 15 and 17 shall remain
unchanged.
B. In reference to paragraph 5, the parties hereto acknowledge (i) that
Powers received $100,000 from the private placement referred to therein and (ii)
the October 1995 Agreement,
<PAGE>
as amended by agreement effective June 17, 1996. Powers agrees that as of the
date hereof, Tellurian shall not be considered in default under either the
Indemnification Agreement, as amended by this Agreement or the October 1995
Agreement, as amended by agreement effective June 17, 1996.
C. Paragraph 6 is no longer applicable in light of paragraph 3 of the
Amendment effective June 17, 1996 to the October 1995 Agreement.
D. Effective October 10, 1995, Ronald Swallow and Richard Swallow sold
and transferred to Powers 1,015 pre-split shares equivalent to 100,000
post-split shares of Tellurian's Common Stock. Powers acknowledges that as of
October 10, 1995, he owned 430,049 shares of Tellurian Common Stock (including
100,000 received from Ronald Swallow and Richard Swallow) and that he
subsequently transferred his 430,049 shares to the Mary Elizabeth Huggins Trust
with Jane P. Huggins as Trustee and that Tellurian should recognize this
transfer effective October 10, 1995 on its books and records. Accordingly,
paragraph 7 is amended to read as follows:
"Ronald Swallow and Richard Swallow shall sell and deliver to
Powers an aggregate of 100,000 shares of Tellurian's Common Stock
(post-split due to Tellurian's stock split of March 15, 1995). Of the
100,000 shares, 73,173 shares shall come from Ronald Swallow's personal
holdings and 26,867 shares shall come from Richard Swallow's personal
holdings."
E. Powers and Richard Swallow did not execute an agreement pursuant to
which Powers was obligated to sell and deliver shares to Richard Swallow and no
such agreement is required to be executed by Powers and Richard Swallow.
Accordingly, paragraph 8 is hereby deleted in its entirety.
F. Paragraph 10 is amended to read as follows:
"Tellurian, Richard Swallow, Ronald Swallow and Stuart French
acknowledge that Powers has not been a director of Tellurian since
March 2, 1995 and is not an officer or employee of Tellurian nor does
Powers conduct any business on behalf of Tellurian."
G. Paragraph 16 is amended to read as follows:
"This Agreement, as amended effective June 17, 1996, together
with the October 1995 Agreement, as amended by agreement effective June
17, 1996, between Tellurian and Powers constitute the entire agreement
between the parties and may not be amended, except in writing signed by
all parties to the agreement being changed at the time of the change.
2
<PAGE>
H. The parties agree that paragraph 18 with respect to "time is of the
essence in the performance required by Tellurian, Ronald Swallow, Richard
Swallow and Stuart French shall only be applicable to Tellurian's obligation to
make payments to Powers on a timely basis when the loan comes due on August 1,
1997, as described in paragraph 3 of the October 1995 Agreement.
I. The parties acknowledge that Tellurian, Inc. (a South Carolina
corporation) will be merged into Tellurian, Inc. (a Delaware corporation)
shortly after the execution of this Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and the heirs, successors,
assigns or personal representatives of all such parties or persons.
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
effective as of June 17, 1996.
TELLURIAN, INC.
/S/ Stuart French /S/ Stuart French
By: ------------------------------------ --------------------------
Stuart French, President Stuart French
/S/ Ronald Swallow /S/ Charles H. Powers
- ---------------------------------------- --------------------------
Ronald Swallow Charles H. Powers
/S/ Richard Swallow
- ----------------------------------------
Richard Swallow
3
<PAGE>
Exhibit 10(b)
STATE OF SOUTH CAROLINA )
) ASSIGNMENT OF CONTRACT RIGHTS
COUNTY OF FLORENCE )
This Assignment of that certain Technology Transfer Agreement By and
Between Tellurian, Inc. and Institute for Information Industry dated May 26,
1995, (the "Contract") is entered into as of October 9, 1995, by Tellurian, Inc.
in favor of Charles H. Powers.
In consideration of the forbearance of Powers to demand payment in full
of the sum of $797,318.00 acknowledged by Tellurian on April 1, 1995 as owed by
Tellurian to Powers which sum bears interest at the rate of ten (10%) percent
per annum and as security for partial repayment of that sum, which promises are
deemed sufficient consideration by the parties hereto, Tellurian assigns to
Powers the right to receive all payment from the income stream of this Contract
up to the sum of $221,200.00. Tellurian shall execute all such UCC-1 Financing
Statements describing the Contract and income and proceeds therefrom as required
by Powers. Tellurian shall deliver to Powers contemporaneously with the
execution of this Assignment proof that Powers has been made a co-
owner/signatory of the account into which the Contract funds are deposited and
that Tellurian cannot withdraw or transfer from that account any Contract funds
without Powers' consent (the "Account"). Tellurian covenants that it shall not
permit or direct the Institute of Information Industry, its agents, employees,
successors or assigns to make payment under the Contract in any manner except
into the Account as provided herein. Failure to keep
1
<PAGE>
this covenant shall constitute a default by Tellurian. Upon receipt by Powers of
the sum of $221,200.00 paid by or on behalf of Tellurian to Powers after the
date of this Assignment from whatever source, Powers shall cancel this
Assignment in writing and deliver the same to Tellurian. Receipt by Tellurian of
any sums under this Contract after the date of this Assignment before payment of
$221,200.00 to Powers shall constitute a default by Tellurian of this
Assignment. Any default by Tellurian under this Assignment shall constitute a
cross default under the Indemnification Agreement executed by and among
Tellurian, Ronald Swallow, Richard Swallow, and Stuart French dated October 10,
1995. Upon default, Powers shall have all rights available to him at law or in
equity.
All parties agree that any dispute arising out of this Assignment shall
be subject to the jurisdiction of both the state and federal courts of South
Carolina. For that purpose, all parties submit to the jurisdiction of the state
and federal courts of South Carolina. All parties to agree to accept service of
process out of any of the before mentioned courts in such dispute by, in
addition to any other lawful means, registered or certified mail, return receipt
requested, addressed to the party at the address set forth below or any new
address given to each of the parties in writing.
This Assignment together with that certain Indemnification Agreement
dated October 10, 1995, constitutes the entire agreement between the parties.
This Assignment may not be changed except in writing signed by all parties
thereto. This Assignment shall inure
2
<PAGE>
to the benefit of each parties' heirs, successors, assigns, and personal
representatives.
IN WITNESS WHEREOF the undersigned sets its hand and seal the date
first mentioned.
WITNESS: TELLURIAN, INC. (SEAL)
/s/ Marc Acito BY: Stuart P. French
- ---------------------------- -------------------------------
Marc Acito ITS: President
- ---------------------------- ------------------------------
ATTEST:
BY: /s/ Ronald Swallow
--------------------------------
ITS: Vice President
------------------------------
3
<PAGE>
AMENDMENT TO ASSIGNMENT OF CONTRACT RIGHTS
DATED AS OF OCTOBER 9, 1995
AGREEMENT made as of this 17th day of June, 1996 by and between
Tellurian, Inc. (a South Carolina corporation) with an office address at 15
Industrial Avenue, Upper Saddle River, NJ 07458 ("Tellurian") and Charles H.
Powers ("Powers") with a mailing address of P.O. Box 6525, Florence, SC 29502.
WHEREAS, as of October 9, 1995, Tellurian executed an Assignment of
Contract Rights and security interest in favor of Powers (the "October 1995
Agreement") regarding the Technology Transfer Agreement by and between Tellurian
and Institute for Information Industry (the "Institute") dated May 26, 1995 (the
"Contract"); and
WHEREAS, in January 1996, Tellurian and the Institute agreed to cancel
the Contract and to have Tellurian and Voyager Graphics, Inc. ("Voyager")
execute a similar contract which was in fact executed and made effective as of
January 1, 1996 (the "Voyager Contract"); and
WHEREAS, Tellurian owes Powers $752,198 in principal (inclusive of
accrued interest) as of May 31, 1996; and
WHEREAS, Tellurian wishes to assign its contract right relating to
payments of up to the next $121,200 in the Voyager Contract to Powers in
substitution of the contractual rights previously assigned under the Contract;
and
WHEREAS, upon Powers receipt of $121,200 from Tellurian, Tellurian
shall reduce the amount of its indebtedness to Powers by $121,200 (by first
applying such sums to accrued interest) and the assignment to Powers of any
contractual rights under the Voyager Contract shall become null and void and of
no further force and effect with all rights to the Voyager Contract being
retained by Tellurian and any security interest held by Powers relating to the
Voyager Contract shall be terminated.
NOW, THEREFORE, it is agreed as follows:
1. Tellurian hereby assigns to Powers its contractual right to receive
the next payment or payments of up to $121,200 due under the Voyager Contract in
substitution of the Assignment of the Contract. Upon Powers receipt of $121,200
of such funds or other funds from Tellurian or any combination thereof, Powers
shall apply such funds to reduce Tellurian's indebtedness to Powers by $121,200
(by first applying such sums to accrued interest) and execute an appropriate
release of security interest in the Voyager Contract (and the Contract) and all
contractual rights in the Voyager
1
<PAGE>
Contract shall be deemed owned by Tellurian and Powers shall have no rights in
the Voyager Contract.
2. Tellurian and Powers acknowledge that Tellurian has established an
account with Chemical Bank of New Jersey in Paramus, New Jersey, in which
certain officers of Tellurian and Powers are co-signatories. Tellurian agrees
that the next payment or payments of up to $121,200 that are received by
Tellurian under the Voyager Contract shall be deposited into the account at
Chemical Bank of New Jersey and shall be remitted to Powers, but in no event
will Tellurian be required to escrow and pay to Powers more than $121,200 under
the provisions of this paragraph and paragraph 1. Accordingly to the extent
Powers is paid any money directly from Tellurian, this shall reduce the amount
of money that is needed to be escrowed and paid to Powers pursuant to the above
provisions. Contemporaneously with payment to Powers of $121,200, Powers shall
release the security interest in the Voyager Contract (and the Contract).
3. Upon Powers receipt of $121,200 in accordance with paragraphs 1 and
2 herein, Powers agrees not to demand payment of the remaining sums of money
owed to Powers by Tellurian until on or after August 1, 1997, notwithstanding
any alleged defaults that he may assert under the October 1995 Agreement or the
separately executed Indemnification Agreement dated October 10, 1995, each as
amended by agreements effective June 17, 1996.
4. All parties agree that any dispute arising out of this Assignment
shall be subject to the jurisdiction of both the state and federal courts of
South Carolina. For that purpose, all parties submit to the jurisdiction of the
sate and federal courts of South Carolina. All parties to agree to accept
service of process out of any of the before mentioned courts in such dispute by,
in addition to any other lawful means, registered or certified mail, return
receipt requested, addressed to the party at the address set forth above or any
new address given to each of the parties in writing.
5. This Agreement hereby amends the October 1995 Agreement. In the
event of any inconsistency between the October 1995 Agreement and this
Agreement, this Agreement shall control. Powers acknowledges that Tellurian
shall not be considered to be in default under the October 1995 Agreement as of
the date hereof.
6. The October 1995 Agreement, as amended herein, together with the
Indemnification Agreement dated as of October 10, 1995, as amended by agreement
effective June 17, 1996, by and among Ronald Swallow, Richard Swallow, Stuart
French, Tellurian and Powers shall constitute the entire agreement between the
parties and may not be amended except in writing signed by all parties to the
agreement being changed at the time of the change.
2
<PAGE>
7. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the heirs, successors, assigns or personal representatives of
all such parties or persons.
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
effective as of June 17, 1996.
TELLURIAN, INC.
By: Stuart French
---------------------------------
Stuart French, President
Charles H. Powers
---------------------------------
Charles H. Powers
3
<PAGE>
Exhibit 10(e)
Lease Agreement
This Lease Agreement is made and entered into this May 14, 1996 by and between
the following persons, parties, and/or entities:
S.D. Lewis, Owner, having offices at Industrial Ave.
Upper Saddle River, N.J., 07458
who will be referred to as the "Landlord", and
Tellurian, Inc., having offices at #6 Demarest Pl.
Waldwick, N.J.,
who will be referred to as the "Tenant".
State of Incorporation: South Carolina
Registered Agent: Stuart French
Agents address: will be at 15 Industrial Ave., Upper
Saddle River; formerly at 6 Demarest
Place, Waldwick, N.J.
Witnesseth
That the Landlord has agreed to lease to the tenant the following
described real estate and the improvements found upon it within
the limits and restrictions set forth in this agreement:
Lot 9 Block 1016 on the tax atlas of Upper Saddle River, N.J.
Street Address: 15 Industrial Ave. - South portion of Bldg.
approx. 7500 sq. ft.
Town: Upper Saddle River, N.J. 07458
Initials-Landlord Tenant
<PAGE>
2.
Terms of this Agreement
The term of this lease shall begin and\or commence and have its inception on
June 1, 1996 and end on May 31 1998
Rental Amount
The Tenant covenants and agrees to pay to the Landlord the rent of $52,500.00
per annum in equal monthly installments of $4,375.00 plus escrows, fees, and
other charges described in the appropriate sections of this lease, said rent and
other charges to be paid on the first day of each month, it being the
responsibility of the Tenant to see to prompt and accurate delivery to the
address noted above.
As of the date of this lease, (May 14, 1996) the tenants portion of the taxes
and insurance is $750.00 per month, making the total rent $5,125.00 per month.
This is based on the final 1995 and the preliminary 1996 tax bills.
TENANT
INITIALS - LANDLORD
<PAGE>
3.
RENEWAL OPTIONS
Tenant shall have the right to renew this lease for two one year periods at fair
market value. Tenant must inform landlord in writing as to the intention to
renew at least 120 days prior to the termination of this lease. (Feb. 1, 1998)
DEFAULT IN PAYMENT
The tenant shall make all payments of rent, etc. to the landlord without any
prior demand from the landlord, or its agent, in the manner described above, on
or before the first day of the month. If payment has not been made by the tenth
day of the month, this Agreement shall be considered in default and the landlord
may proceed according to the terms of the Agreement.
Should the landlord have to resort to attorney and/or Court methods and remedies
for payment from the tenant of the rent and other charges, the tenant agrees to
pay all such costs and these charges may be immediately deducted from the
security deposit placed by the tenant, in which case the landlord will notify
the tenant in writing of the costs and the tenant shall make up the deficit in
the security deposit within seven days or be consideration default under the
terms of this Agreement.
DELAY IN GIVING POSSESSION
This section shall only apply if (a) the landlord cannot give possession of the
demised premises to the tenant on the beginning date, and (b) the reason(s) for
the delay is (are) not due to the landlord's lack of diligence. The landlord
shall not be held liable for delays beyond its control.
The landlord shall have 30 days in which to give possession. If possession is
given within that time, the tenant shall accept possession and pay the rent and
other charges from the date of possession. The ending date of the term shall not
be changed.
Should possession not be given during that 30-day period, this lease Agreement
may be canceled by either the landlord or the tenant upon written notice to the
party and any money paid by the tenant to the landlord shall be refunded in full
forthwith.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
4.
ATTORNEY FEES FOR ENFORCEMENT PAID BY TENANT
The tenant further agrees to pay as additional rent all reasonable attorney's
fees and other expenses incurred by the landlord in enforcing any of the
covenants and/or obligations of this Agreement.
LATE PAYMENT CHARGES
Should rent and other charges not be in the hands of the landlord on the first
of the month as required under this Agreement and remain unpaid on the 10th day
of the month, the tenant agrees to be obligated to pay the landlord a "late
charge" of five percent (5%) of the total amount due that month.
Should such rents and other charges remain unpaid on the tenth day of that
month, in addition to the late charge will carry interest of 1/25 per month
(18%) per year from the first of the month when the amount was due until paid,
compounded monthly on the last day of the month.
None of the above shall serve to limit or alter any other rights of termination
or collection available to the landlord under this Agreement or in Law.
TAX, INSURANCE & OTHER PRO-RATA PAYMENTS
The monthly rent paid to the landlord shall include 1/12 of the estimated real
estate taxes and 1/12 of the Landlords Multi-Peril insurance coverage on the
subject property.
OCCUPANCY AND USE OF DEMISED PREMISES
The landlord covenants that the tenant, upon paying the stated rent and fees and
performing the covenants and conditions stated in this Agreement, shall and may
quietly and peaceably have, hold, and enjoy the demised premises for the rental
term or any extensions that may be agreed upon.
The tenant covenants and agrees to use the demised premises in the following
manner, only, provided that use is within the legal use/occupancy of the Zone in
which the premises are located:
General Offices, Light Mfg. , Lab. and Warehousing facility
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
5.
The tenant agrees not to use or permit the demised premises to be used for any
other purpose without the prior written consent of the landlord and the
governmental agencies having control over such matters, it being the obligation
of the tenant to obtain all required approvals from such agencies. No outside
storage of materials is permitted. Trash, etc. shall be stored and disposed of
in a safe and sanitary manner as directed by the landlord and/or governmental
agencies. Parking of tenant owned or controlled, employee and visitors vehicles
shall be in designated areas.
NJ-Ecra Requirements
The tenant represents to the landlord that the use to which it puts the premises
shall at all times be such that the so called "ECRA" or similar Federal acts or
regulations shall not be applicable to the premises. The tenant represents that
its intended operation at the premises shall not involve "hazardous substances"
or "hazardous wastes" as defined by NJ-ECRA or Federal Standards. If future
operations require the use of such materials, the tenant represents that they
will be handled and disposed of in an approved manner. The tenant shall hold the
landlord harmless from any problems arising from such use. The tenant shall
obtain, at its own cost, at least 60 days prior to the expiration of the term, a
written statement from the DEP that the termination of the tenants operation at
the premises would not cause ECRA to become applicable; and tenant shall provide
landlord with a copy of such written statement.
In the event that DEP determines that tenants use of the premises and its
subsequent termination of its operations would bring the requirements of ECRA to
bear, or in the event tenant is unable to obtain such written statement at least
60 days prior to the expiration of the term of this lease agreement, then tenant
shall promptly comply with ECRA; and shall be responsible for all costs of such
compliance. The tenant shall be responsible for obtaining a negative declaration
or effecting an approved clean-up prior to the expiration or extensions of this
lease agreement in accordance with ECRA.
The landlord does hereby indemnify and hold harmless the tenant from any damages
or liability arising out of or related to any ECRA or environmental law
violations which existed or arose as a result of the use of the premises prior
to the commencement of this lease.
35 CERTIFICATE OF OCCUPANCY
Should a Certificate of Occupancy, Permit, or governmental approval be required
for the use/occupancy of the demised premises, it shall be the obligation of the
tenant to obtain such approval(s) at its own effort and expense.The landlord
agrees to aid in such applications, within reason, and at no cost or expense to
the landlord.
INITIALS: LANDLORD TENANT
<PAGE>
6.
If the tenant has not completed the required clean-up by the end of the expiring
term, rent and other charges shall continue as a "holdover" tenant until DEP
approval and clearance has been received and conveyed to the landlord,
notwithstanding the fact that the tenant may have already vacated the demised
premises.
Should the landlord be required by the DEP to perform any act in order to obtain
a negative declaration or effect a clean-up plan, the landlord shall comply with
the same, but the tenant shall reimburse the landlord for any and all costs
incurred by the landlord relating to complying with the same, including, but
without limitation, attorney's and engineer's fees, if any.
TENANT'S COMPLIANCE WITH "ISRA"
(a) Tenant shall, at tenant's own expense, comply with the Industrial Site
Recovery Act, N.J.S.A. 13:1K-6 et seq., the regulations promulgated thereunder
and any amending or successor legislation and regulations ("ISRA") in the event
of closing of tenant's operations, a transfer of tenant's operations, or a
change in the ownership of tenant. In no event shall tenant be responsible for
any remediation at the premises unless resulting directly or indirectly from
tenant's use and occupancy of the premises.
(b) Tenant shall provide all information within tenant's control reasonably
requested by the landlord or the Industrial Site Evaluation Element ("Element")
or its successor of the New Jersey Department of Environmental Protection and
Energy ("NJDEPE"),or its successor, for preparation of a non-applicability
affidavit or any other type of submission, should landlord or NJDEPE so request;
and, tenant shall promptly execute such affidavit or submission should the
information contained in the affidavit of submission be found by tenant to be
complete and accurate and tenant's execution of such affidavit or submission be
required by the landlord and/or NJDEPE.
This paragraph shall survive the expiration or earlier termination of this lease
agreement.
SECURITY DEPOSIT
Together with the signing of this lease agreement, the tenant shall deposit with
the landlord security deposit in the amount of $10,250.00 as security (equal to
two months gross rent) for the full performance by the tenant of all the terms,
covenants and conditions of this agreement. The security shall not be construed
as the rental payments to be applied to the end of the term, but shall be
returned to the tenant within 60 days of the termination of the agreement,
vacating of the premises by the tenant, and completion of all tenant obligations
contained in this agreement, provided that the tenant has carried out all of
Initials -- Landlord Tenant
<PAGE>
7.
the terms, etc. of the Agreement. The landlord is entitled to make deductions
from the security deposit to fulfill the tenant's obligations under this
Agreement at the landlord's option, and to account fully to the tenant for such
deductions.
In the event of a sale of the premises, the landlord shall have the right to
transfer by cash or credit against the purchase price the amount of the
remaining security held by the landlord, in such event the landlord shall notify
the tenant of the transfer and the landlord shall be released from any further
obligation to the tenant, with the tenant agreeing to look solely to the new
owner/landlord for the return of such security.
Security placed with the landlord by the tenant shall not be mortgaged or
assigned by the tenant without the written consent of the landlord.
The security deposit shall be maintained to an amount equal to two months rent
of the amount for the ensuing months.
Should charges and deductions exceed the amount of security on deposit, the
tenant shall be liable for the immediate payment of the shortage.
No interest shall be paid to the tenant on the security deposit.
SUB-LET AND ASSIGNMENT OF LEASE
The tenant shall not have the right to sublet or sublease the demised premises
without the written consent of the landlord, such consent not to be unreasonably
withheld. Should the landlord agree to such a sub-let of the demised premises or
an assignment of the lease agreement, the rent amount received above the rental
amount then in effect under this Agreement shall be divided equally between the
landlord and the tenant.
ABANDONMENT OF PREMISES -- RE-ENTRY BY LANDLORD
Should the tenant fail to make the payments and shall be delinquent on the tenth
day of the month, or if the tenant is dispossessed for non-payment of the rent,
or if the tenant shall desert or vacate the demised premises, the landlord
and/or its agents shall have the right to and may enter the demised premises as
the agent of the tenant, by force if necessary, without being held liable or
accountable for any prosecution for trespass, damages or other acts.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
8.
RE-LEASE OR RELET BY LANDLORD
Following re-entry, the landlord may re-lease or re-let the demised premises and
the landlord shall receive the rent upon terms suitable and diligently pursued
as those most compatible to the present lease agreement terms under the
conditions and time constraints of a forced re-lease or re-let situation. At
that time, all rights of the tenant to repossess the demised premises shall
cease and be forfeited.
TENANT LIABLE FOR DEFICIENCY OR SHORTAGE
The re-entry of the landlord shall not release the tenant from the obligation to
pay rent or other fees, escrows or charges or covenants during the full term of
the lease agreement, less any rental received from the subsequent tenant. The
landlord may charge the tenant a re-rental fee equal to six percent (6%) of the
gross rental (rent, tax, insurance) remaining to be paid for the lease term.
REPAIR, ALTERATION COST OF TENANT
If the landlord is required to make necessary repairs and/or alterations in
order to make the dismissed premises in good condition and order for the
re-letting, the cost of such repairs, etc., shall be the obligation of the
tenant.
Should the costs to clean, remove and store tenant's contents, repair, alter,
advertise, pay brokerage or otherwise, added to the obligation of the tenant
under the lease, not be equal to or exceed the gross return from the re-lease or
re-let tenant, the tenant under this agreement shall be liable for the
difference, to be paid to the landlord in equal monthly installments on the
first of the month, concurrent with the payment within 10 days of being notified
in writing by the landlord, at the sole option and discretion of the landlord.
LANDLORD SOLE RECIPIENT OF EXCESS RE-LET RENTS
The tenant shall not be entitled to any surplus derived from the rents paid by
the re-let tenant.
SEIZURE AND SALE OF PERSONALTY FOR DEFICIENCY
Upon default, and after exhausting other reasonable remedies, the landlord shall
have the right to take possession, as agent for the tenant, of all furniture,
fixtures, personalty, product, etc. owned by the tenant found in or around the
premises; and to sell the same at public or private sale (landlords discretion)
and to apply the proceeds of such sale to the deficiency owed under this
agreement, the tenant having hereby waived the right of all laws exempting
property from execution, levy and sale on distress or judgement.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
9.
CONDITION OF DEMISED PREMISES/REPAIRS
The tenant has inspected and examined the demised premises and accepts them in
their present condition, except as noted below, and without any representation
on the part of the landlord or its agents as to the present condition or future
condition of the said premises. The tenant shall keep the demised premises in
good repair and condition, and shall redecorate, paint and/or renovate the
demised premises as may be necessary to keep them in repair and good appearance.
Repainting shall be of professional quality and performed with paint brands and
colors previously approved by the landlord in writing.
MAINTAINING CONDITION OF PREMISES
The landlord will have all mechanical systems operable at the time of the lease
inception, and will provide a letter from a competent HVAC contractor, (such as
Gilson and Sons, Wyckoff, NJ) stating that all HVAC systems are operable and
serviced.
It shall be the responsibility of the tenant to maintain in functional order all
doors, windows, HVAC, plumbing, electrical and roof systems within the demised
premises during the term or extensions of this lease Agreement.
The landlord, upon notice of problems from the tenant, will cause at it sole
cost and expense, to repair (or patch, pending repairs) all roof leaks during
the term of the agreement or extensions thereof. Any damage or inconvenience
caused by roof leakage shall not be the responsibility of the landlord. Landlord
shall be given adequate reasonable time to make needed patches and/or repairs,
depending upon weather conditions, material supplies, and labor. It is
understood that the roof is presently under maintenance bond with Hackensack
Roofing Company.
At the termination of this Agreement, the tenant will have all systems serviced
and checked by professionals and given over to the landlord in serviced,
operable condition, certified in writing by such professionals.
The tenant shall maintain the good appearance of the exterior, including
periodic trimming of trees (if any), cleaning of gutters, maintenance of leaders
and drains, weed control and/or removal, shrub trimming at least twice per year,
and feeding of plantings. General cleanup of litter and debris shall be
performed on an "as needed" basis to maintain a neat appearance.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
10.
ACCEPTANCE OF RENTAL SPACE
The tenant has inspected the demised premises and acknowledges that the demised
premises are in satisfactory condition except as noted in this Agreement. The
tenant accepts the demised premises "as is", except as noted herein, without
relying on any representations or warranties given by the landlord or its
agents.
If additional sheetrocking, fire-proofing, safety features, etc., are required
by any governmental agency, the tenant shall provide it at its own cost and
expense.
CONDITION DURING THE LEASE TERM
The tenant shall return the premises to the landlord at the end of the term (or
any extensions thereof) in as good condition as the demised premises were in at
the inception of the Agreement, reasonable wear and tear excepted.
Any alterations, additions or improvements made by the tenant whether approved
or not by the landlord as required herein, shall become the property of the
landlord and left with the demised premises OR removed and returned to the
previous condition found at the inception of the lease at the sole discretion of
the landlord. Should the tenant fail to perform the needed removals or repairs,
the landlord may do so after vacating at the expense of the tenant, such costs
may be deducted from the security deposit paid hereunder, if sufficient.
REPAIRS AND MAINTENANCE
Except as otherwise noted and provided in this agreement, the tenant shall take
good care of the demised premises and shall at its own effort and expense make
all repairs, upkeep and maintenance, except for major structural repairs to
roofs, exterior walls and foundations. The tenant shall deliver at the end of
the term, or any extension thereof, the demised premises in good order and
condition as it was received at the inception of the lease, reasonable wear and
tear excepted.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
11.
The landlord shall, at the inception of this Agreement, provide the demised
premises with a weathertight roof and warrants the roof for a period of 60 days
after the inception of the lease agreement, after which the tenant shall be
responsible for all maintenance and repairs to the roof section over the demised
premises.
All plumbing shall be delivered to the tenant in working order, but repairs to
the system or fixtures within the demised premises are the responsibility of the
tenant during the term of this Agreement or any extensions thereof.
RIGHT TO INSPECT AND EXHIBIT DEMISED PREMISES
The landlord reserves the right and is granted the right to enter the demised
premises during reasonable business hours to inspect the premises, to make
repairs, alterations or for any other reasonable need as it may deem necessary
to the safety, improvement, restoration, or preservation of the demises
premises; there being, however, no obligation on the part of the landlord to
make any such repairs, alterations, adjustments, etc. Entry rights are also
reserved and granted to the landlord or its agents to show the demised premises
to subsequent prospective tenants within 120 days of the termination of this
Agreement or any of its extensions, and to affix suitable "For Lease" or "For
Sale" signs.
ALTERATIONS AND IMPROVEMENTS
Any alterations, improvements, removals, re-decoration, erections of a temporary
or permanent nature MUST be approved in advance in writing by the landlord and
must be in compliance with the Code and regulations of all governing bodies. It
is the responsibility of the tenant to obtain all such approvals, permits and
applicable insurance or insurance certificates for contractors and/or
sub-contractors to protect and hold harmless the landlord from violations,
costs, fines, or liability.
Any such alterations, improvements or erections so approved (except furniture
and easily removable trade fixtures and equipment) shall become the property of
the landlord at the termination of this lease. It is at the sole discretion of
the landlord whether those items shall remain or be removed at the tenant's cost
and effort.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
12.
MECHANICS LIENS
Should any mechanic's liens be filed against the premises or demised premises as
a result of obligations incurred or to be incurred by the tenant for approved
(Or unknown to landlord) improvements, alterations, etc., the landlord, at its
sole option, after 15 days notice to tenant, may terminate this lease and may
pay the said lien from the security deposit and its own funds, if the deposit is
insufficient, if the tenant has not satisfied the lien. The landlord shall not
be under any obligation to determine the validity of the lien, but shall only be
interested in clearing the title to the property. Should there be a shortage in
the amount paid to the lienholder over an above the security deposit balance
held by the landlord, the tenant shall pay that difference to the landlord upon
demand or be considered in default under this Agreement, leaving the landlord to
the remedies contained herein or statutory.
GLASS REPAIRS AND MAINTENANCE
The tenant shall repair all cracked or broken glass within 24- hours of noting
the breakage. Caulking shall be kept in good repair at all times, and glass
shall be kept reasonably clean.
LIABILITY OF LANDLORD
The landlord shall not be held responsible for any loss of property or bodily
injury occurring in the demised premises or on the premises resulting from any
present or future condition, except for specific acts of the landlord, its
employees or agents.
The tenant agrees to indemnify and hold harmless the landlord for all acts or
occurrences resulting in damage to property or injury to individuals occurring
in or about the premises.
To protect the landlord from payment for liability, etc., the landlord shall
maintain an insurance policy covering the entire premises, insuring against
losses insured by a fire, multi-peril, liability, and/or Comprehensive Business
Insurance policy of the landlord's selection, which shall be paid for, pro rata,
by the tenant, as provided in this Agreement.
The policy and coverages are available for inspection by the tenant and/or his
agent(s) at the office of the landlord.
The tenant shall insure his own goods, fixtures, etc., and provide its own
liability insurance with appropriate tenant insurance policies.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
13.
SERVICES PROVIDED--LANDLORD'S RESPONSIBILITY
The demised premises are provided with only one service from the landlord, that
being domestic well water.
The landlord shall not be responsible for any interruption or delay in any of
the above service FOR ANY REASON excepting gross negligence on its part, nor
shall the landlord by responsible for any consequent damages, loss or injury
caused by an interruption of these services . All other services shall be
provided or maintained by the tenant, which are, but not limited to:
***
heat
heating of domestic water
trash removal
snow removal at and about the premises
light bulbs in and out of the demised premises
emergency lighting
providing fire extinguishers and maintenance thereof
electric service
domestic water service within the building
gas service and heating equipment service
air conditioning systems
maintenance service contracts
sewer charges
extermination services
monitoring that may be required by any agency or authority
The landlord reserves the right to stop service of potable water at such time as
may be necessary to repair by reason of accident, repairs, alterations,
improvements, or whatever. The landlord shall give as much notice as possible to
the tenant in timing the shutdown, if possible, in non-emergency situations.
The landlord shall not be responsible for any interruption of services or
repairs after exerting ordinary diligence, inspection and maintenance, or is
unable to supply such services as a result of occurrences beyond landlord's
control, such as, but not limited to, strike, riot, civil commotion, military
acts or decrees, civil/federal government authority, or failure of the
suppliers.
The terms of this lease Agreement and the obligation of the tenant to pay rent
and other charges shall be in no way affected or excused due to the inability of
the landlord to supply, or is delayed in supplying, any service, expressed or
implied, to be supplied; or is delayed in making or is unable to make repairs,
alterations, decorations, etc.,if the landlord shows diligence in attempting to
do so but is hindered by governmental act, war, National emergency, strikes,
riots, civil commotion, delay in the issuance of permits or inspections, or any
other act beyond the control of the landlord.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
14.
DAMAGE BY FIRE, EXPLOSION, THE ELEMENTS, ETC.
Should the demised premises be partially or fully damaged by fire, explosion,
the elements, burst pipes or consequent damages from these events during the
term of this Agreement or any extensions, which shall render the demised
premises wholly or partially untenantable, and such damage will reasonably take
a repair time in excess of 90 days from the date of the event, the landlord, at
its sole option, shall have the right to terminate this Agreement as of the date
of the event and to prorate the rent and charges to the date of vacating by the
tenant. Upon receiving such notification, the tenant shall surrender the
premises to the landlord at the earliest possible date, but not more than 15
days from the date of receipt of such notification, and the landlord may then
re-enter and possess the premises and this Agreement shall be considered
terminated and the landlord shall have no obligation to the tenant under the
lease agreement or for any damages or hardship resulting from the abbreviated
lease term.
Should the demised premises be damaged but be considered repairable and
returnable to service within a period of 90 days from the date of the event, the
landlord may re-enter the demised premises and proceed with the needed work.
During this period, the rent shall not accrue, but shall re-start upon the
completion of the needed repairs.
In the event that the premises are damaged but not rendered untenantable during
the repair period, the landlord agrees to proceed with promptness to make
repairs with no abatement or cessation of rent or charges.
The tenant agrees to immediately notify the landlord of damage by fire or
otherwise that effects the demised premises.
RULES, REGULATIONS, ORDINANCES, AND LAWS
The tenant agrees to comply with and observe all laws, ordinances, rules and
regulations of the Federal, State, County and Municipal authorities applicable
to the business operations of the tenant. The tenant will not permit operation
or action to be taken, nor materials to be stored or processed which will
increase the fire hazards of the building without proper consultation with the
insurance carrier's loss prevention inspector and to comply with the rules set
down by that inspector or any governmental authority having jurisdiction over
such materials or operations. Any additional insurance premium added to the
landlord's policy as a result of such operations or materials stored by the
tenant will be paid entirely by the tenant.
No operation or process shall become a nuisance or interfere with other tenants
of the premises or neighbors. Any fines or abatement notices shall be the
responsibility of the tenant.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
15.
The rules and regulations regarding the demised premises, if any, shall be
affixed to this lease Agreement, as well as any other or further reasonable
rules and regulations which the landlord may deem necessary to the orderly
running of the premises shall be observed by the tenant and its employees,
agents, invitees, or customers. The landlord reserves the right to rescind any
existing rules and to replace them with new rules that are deemed then necessary
in the judgment of the landlord to maintain the safety, care, cleanliness and
good order of the premises and those who occupy and use them. Any such changed
or added rules and regulations made in writing by the landlord shall be
"reasonable" and shall be observed and enforced by the tenant as if originally
written in this lease. No such subsequent rules or regulations shall by
inconsistent with the proper and rightful enjoyment by the tenant of the demises
premises.
SIGNS, ADVERTISEMENTS ON BUILDINGS, ETC.
No sign, advertisement or notice shall be affixed or displayed on any part of
the demised premises, including windows, without the expressed written consent
of the landlord. It is the responsibility of the tenant to obtain all
governmental approvals for such signs previously approved by the landlord.
LEASE SUBORDINATE TO MORTGAGE (S)
This lease Agreement is subordinate to all present or future mortgages or
encumbrances the landlord may elect to place upon the premises of which the
demised premises are a part. The tenant agrees to execute, at no expense to the
landlord, any instrument which may be deemed necessary by the landlord to
perfect the subordination of this lease to such encumbrances to the title to the
premises. Landlord will defend the tenant's rights to peaceful possession of the
premises and non-disturbance by Mortgagees.
TENANT VIOLATIONS, FORFEITURE OF LEASE, RE-ENTRY BY LANDLORD
Should the tenant violate any of the terms and/or conditions of this lease that
have been agreed to or rules reasonably enacted by the landlord, the landlord
shall give the tenant in writing notice to discontinue and/or correct the
violation within ten days from the date of receipt of the notice (or immediately
in the case of emergency or potentially dangerous violations). Failure on the
part of the tenant to comply with the notice shall constitute a material breach
of this Agreement, and at the option of the landlord, this lease may be
terminated forthwith, whereupon the landlord may re-enter and take possession.
All rents and other charges shall be apportioned to the date of such re-entry
and repossession by the landlord.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
16.
No waiver of any violation by the landlord shall be construed as a waiver of any
other violation, nor shall any lapse of time before landlord makes notice or
takes action upon the expiration of such notice operate to defeat the rights of
the landlord to terminate this lease Agreement and to re-enter after such
violation.
SALE OF THE PREMISES
Should the landlord decide to sell the premises of which the demised premises
are a part during the term of this lease Agreement, the landlord warrants that
it will make such sale subject to this lease and its initial or then running
extended term.
SERVICE OF NOTICES
All notices or demands, legal or otherwise, shall be made in writing to either
party, delivered by receipted public or private delivery, and shall be made to
the landlord at the address listed on the first page of this Agreement for the
payment of rent, or as amended in writing. Notices to the tenant shall be made
to the demised premises.
BANKRUPTCY, INSOLVENCY OR ASSIGNMENT FOR BENEFIT OF CREDITORS
If at any time during the term of this Agreement, or any extensions, the tenant
shall make any assignment for the benefit of creditors, file for protection
under the Federal Bankruptcy Act, be decreed insolvent, or a receiver appointed
for the tenant, the landlord may, at its option, terminate this lease by notice
to the assignee, receiver, trustee, or any other person in charge of the
liquidation of the property of the tenant or the tenant's estate. Such
termination shall not release or discharge by tenant or tenant's legal
representatives.
TENANT HOLDOVER AFTER TERMINATION OF LEASE
Should the tenant remain in the premises after the termination of the term then
running, without having executed a new agreement, such holdover shall not
constitute a renewal of this Agreement. The landlord may, at its option,
consider the tenant a "holdover" and may resort to all the legal remedies
accorded to a landlord in these cases, OR, the landlord may continue the tenancy
on a month-to-month bases, subject to all the terms of this Agreement, except
for the duration stated, in which case the tenant shall pay the rent and charges
in advance of each month.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
17.
EMINENT DOMAIN AND/OR CONDEMNATION
If the property or any portion in which the demised premises are located shall
be taken by a public or quasi-public entity under the powers of eminent domain
or condemnation, this lease Agreement shall terminate at the option of the
landlord and the tenant shall have no interest in any award for damages or
compensation for the taking. The landlord represents that at the time of
execution of this agreement, it has not received notice of, or become aware of
any contemplated actions for eminent domain that would effect the demised
premises.
ARBITRATION OF DISPUTES
Any dispute arising under the operation of this lease shall be settled by
arbitration, with one arbitrator selected by the landlord and one by the tenant.
The two chosen arbitrators shall then themselves chose a third arbitrator.
Payment of the arbitrators shall be in proportion to the settlement agreement
decided upon by the arbitrators as it effects both parties and stated in the
findings of the arbitrators. The findings of the arbitrators shall be binding
upon the landlord and tenant.
Nothing contained in this section shall limit the right of the landlord to seek
eviction of the tenant under the terms of this Agreement for non-payment of
rents and charges through the Court system. All other matters are to be referred
to arbitration.
DELIVERY OF LEASE AGREEMENT
No rights under this lease Agreement shall be vested in the tenant unless and
until the full security deposit is paid to the landlord and the landlord and
tenant have signed this Agreement and fully executed copies have been delivered
to both the landlord and the tenant.
NON-EXCLUSIVE RIGHTS AND SEVERABILITY OF TERMS OF AGREEMENT
The rights and remedies listed in this Agreement are not intended to be
exclusive, but are in addition to all rights and remedies the landlord would
have under the law. Should any portion of this Agreement be declared null and
void by a Court of Law or Equity, or by arbitration, the remaining portions
shall not be likewise invalid but shall be severed from the invalid portion and
remain in full force and effect.
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
18.
AGREEMENT BINDING UPON HEIRS, SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon all heirs, successors in interest or
assigns of the landlord and/or tenant. In the event the tenant is an individual,
the landlord, at its option, may terminate this Agreement with any executor or
administrator of the tenant.
FIRE INSURANCE CANCELLATION
Should the landlord and/or tenant be unable to obtain adequate fire and extended
multi-peril coverage or a Comprehensive Business insurance policy on the
premises in an amount or with a reputable carrier approved by the landlord
during the term of the lease Agreement or any extensions thereof, the landlord
may, at its option, cancel this Agreement by giving the tenant notice of
termination which shall take effect on the day prior to the expiration of the
then in force policy of insurance, at which time this lease Agreement shall
terminate and cone to an end with the distributions and obligations stated in
other sections of this lease Agreement.
SURVIVAL OF TERMS AND CONDITIONS
Any and all terms, conditions, obligations or otherwise of the lease Agreement
that are not fully executed, complied with, or disposed of on or before the
final termination of this lease Agreement or any extensions thereof, shall
survive the expiration and termination of this Agreement.
***** ***** *****
ATTACHMENTS TO THIS LEASE AGREEMENT
1. Survey plot of the premises, showing the demised premises
2. Areas of common drives
3. Floor plan of premises at inception of lease
4. CORPORATE RESOLUTION of tenant, if tenant is a corporation
INITIALS -- Landlord ______________; Tenant __________.
<PAGE>
19.
IN WITNESS WHEREOF, the landlord and tenant have set their respective hands and
seals to this Agreement on the day and year first above written.
LANDLORD
CORPORATE TENANT
The corporate SEAL must be affixed and a fully executed CORPORATE RESOLUTION
must be attached authorizing the officers to sign this lease Agreement.
Attest: *****************************
Corporate ID #_______________
by: /S/ Stuart French
- ------------------------------ -----------------------------
Secretary SEAL President
Name Printed: Richard Swallow Name Printed:Stuart French
- ----------------------------- -----------------------------
<PAGE>
DIAGRAM
ALL DIMENSIONS APPROXIMATE
<PAGE>
MAP OF LOTS
<PAGE>
Exhibit 10(f)
TECHNOLOGY TRANSFER AGREEMENT
This TECHNOLOGY AGREEMENT, entered into the 1st day of January, 1996 by and
between:
Tellurian, Inc., a USA corporation with its principal place of business
at 6 Demarest Place, Waldwick, N.J. 17463, United States of America
(hereinafter referred to as "Tellurian"),
and
Voyager Graphics, Inc., a Republic of China corporation with its
principal place of business at #2, Tze Chiang 3rd Road, Chungli
Industrial Park, Chungli, Taoyuan, Taiwan, Republic of China
(hereinafter referred to as "Voyager").
1. Definitions
1.1 In this Agreement unless the context otherwise requires the
following terms shall have the following meanings:
"Commencement Date" shall mean the date, after signing of this
Agreement, of the first payment (4% of total price) has been
received by Tellurian.
"Completion Date" shall mean the date of the completion of the
project described in the Schedule A of this Agreement.
"Copyright Matter" shall mean all the drawings, designs,
plans, manuals and other information whether written or in
magnetically recorded form listed in Part II of the Schedule
B.
"Derivative Products" shall mean computer image generators
that are manufactured based on and by utilizing partly the
Intellectual Property of Tellurian.
"Intellectual Property" shall mean the Know How, the Patent
Rights, the Copyright Matter and the Inventions as defined in
this Agreement.
"Inventions" shall mean all such inventions as may from time
to time be claimed by the Patent Rights or by any one or more
of them.
"Know-how" shall mean the various techniques, skills, data and
all technical information and other knowledge of a secret and
confidential nature in the possession of Tellurian and
relating to the manufacturer and construction of the Products
(as hereinafter defined) in particular but without limiting
the foregoing generality, information and test
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<PAGE>
reports, testing procedures, specifications of materials or
components and data and technology concerning the manufacture,
operation and use of the Products.
"License" shall mean the license granted in terms of Clause
3.1 of this Agreement which shall be deemed to include the
three separate and independent licenses specified in the said
clause.
"Licensed Territory" shall mean those Countries in
Asia/Australia listed in Part III of the Schedule B.
"Patent Rights" shall mean the patent applications and/or
patents specified in Part I of the Schedule B, together with
any divisional, continuation, continuation in part,
substitution or other applications based thereon made in any
Country (including but not limited to any Country in the
Licensed Territory) and any further patent application made by
Tellurian relating to the Products, any patent issuing on any
of said application and any re-issue or extension or
reexamination based upon any such patent.
"Person" means any individual, corporation, partnership, joint
venture, organization, governmental agency or instrumentality,
or state or other entity.
"Products" shall mean computer image generators designed by
Tellurian incorporating its Intellectual Property.
"Net Sales Value" shall mean actual billing by the License for
sale of a Product less the following deductions where they are
factually applicable: (i) sales and/or use taxes and duties
imposed upon and with specific reference to particular sales;
(ii) outbound transportation prepaid or allowed; and (iii)
reasonable insurance. No allowance or deduction shall be made
for commissions or collections by whatever name known.
"O.E.M.s" shall mean original equipment manufactures.
1.2 Headings used in this Agreement are for the purpose of
ease of reference only and should not affect its
interpretation.
1.3 Any terms used in this Agreement which are defined terms in
any of the Collateral Agreements shall bear the meaning
ascribed to them in such agreement.
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<PAGE>
2. Purpose and Objective of Project
2.1 The purpose of this Agreement is to set forth the
understandings of the parties hereto with respect to the
undertakings of Tellurian of the project described below, and
with respect to the payment of price and performance of other
obligations by Voyager relating to the project.
2.2 The project, which is further described in Tellurian's
proposal annexed hereto Schedule A being part of this
Agreement, consists of the transfer of the Know-how and
provisions by Tellurian of training, advice and consultation
to Voyager's designated engineers/staff members in relation to
computer image generator technology including the delivery by
Tellurian of certain reports and other deliverable items.
2.3 The objective of the project is to enable Voyager's designated
engineers/staff members participating therein to acquire, on
the completion of the project, sufficient expertise in
computer image generator technology so that they can
independently carry out, conduct, develop, design and
manufacture, produce or reproduce the hardware, software and
system thereof, and to sell the Products.
3. Grant
3.1 Tellurian hereby grants to Voyager and Voyager hereby accepts
from tellurian upon the terms and conditions herein specified
the following License which shall comprise the following
separate and independent licenses:
a) Subject as aftermentioned an irrevocable, exclusive,
assignable fully paid-up license under the Patent Rights
to the Products in the Licensed Territory, to be an
exclusive supplier of the Products within the Licensed
Territory and to sell the Products worldwide; and
b) Subject as aftermentioned an irrevocable, exclusive,
assignable fully paid-up license to use the Know-how to
the Products in the Licensed Territory, to be an exclusive
supplier of the Products within the Licensed Territory and
to sell the Products worldwide; and
c) Subject as aftermentioned an irrevocable, exclusive,
assignable fully paid-up license to use the Copyright
Matter to the Products in the Licensed Territory, to be an
exclusive supplier of the Products within the Licensed
Territory and to sell the Products worldwide.
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<PAGE>
3.2 Tellurian acknowledges and accepts that Voyager by virtue of
the License granted under Clause 3.1 herein shall be entitled
to grant sub-licenses, on terms and conditions as Voyager
deems fit, to third parties in respect of the License without
obtaining the consent of Tellurian provided that the sale of
Products and/or Derivative Products by such third parties
shall be taken into account in deciding the royalty payment by
Voyager to Tellurian under Clause 8.
3.3 Tellurian acknowledges and accepts that as from the
Commencement Date, it will not:
3.3.1 grant any third party in the Licensed Territory in
respect of the Intellectual Property and license or
use thereof; and
3.3.2 sell or cause to be sold into the Licensed Territory
any Products or Derivative Products.
It is Tellurian's obligation to inform its customers that
Tellurian's products may not enter the Licensed Territory,
Tellurian should obtain a written agreement from its
customers, acknowledging those restrictions and Tellurian will
cooperate to aid Voyager to force this resale restriction.
3.4 Voyager acknowledges and accepts that Tellurian shall be
entitled to grant licenses of the Intellectual Property to
third parties outside the Licensed Territory, for
manufacturing the Products outside the Licensed Territory and
to sell the Products and/or the Derivative Products outside
the Licensed Territory.
3.5 Tellurian will on request execute formal licenses or agreement
in terms acceptable to Voyager for the purpose of legislation
for registration purposes on being provided by Voyager with an
appropriate document in standard form as required for such
formal registration in each jurisdiction in the Licensed
Territory in respect of the License. In addition Tellurian
agrees to sign all necessary documents which Tellurian accepts
as being reasonably required by Voyager to ensure that the
rights and interests of both parties in terms of this
Agreement are protected.
3.6 Tellurian agrees to assist Voyager in obtaining patent and
other protection under Voyager's title for the Products in the
Licensed Territory which patent or other protection shall be
obtained at the cost of Voyager.
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<PAGE>
4. Training Program
As soon as practicable after the Commencement Date, on a date or dates
as Voyager shall appoint, Tellurian shall commence the training program
as provided in Part IV of the Schedule B.
5. Deliverables
5.1 Tellurian shall deliver to Voyager all those deliverables
including hardware, hardware design for the Products, the
interface board, software and all related documentation as
listed in Part V of the Schedule B.
5.2 Unless the deliver date or dates shall have been expressly
provided otherwise in this Agreement, Tellurian shall have:
5.2.1 on the Completion Date, communicated the Know-how to
Voyager for its use within the Licensed Territory as
provided herein in accordance with the terms of the
License granted hereunder; and
5.2.2 on the Completion Date, delivered to Voyager the
Copyright Matter for its use within the Licensed
Territory as provided herein to enable Voyager to use
the Copyright Matter pursuant to the License granted
hereunder.
5.3 If Tellurian fails to deliver the deliverables as specified in
part V of the Schedule B at the time stipulated for the
delivery of such deliverables, Tellurian shall be liable to
pay to Voyager at the rate of 0.1% of fee for deliverable of
Section 3.2 of Part VII and 0.2% of fee for each other
deliverable in Section 3.3 through 3.5 of Park VII for each
calendar day of delay from the date of delay until the date of
delivery.
6. Acceptance Testing
6.1 Tellurian shall test the system in accordance with the test
specifications set out in Part VI of the Schedule B.
6.2 Tellurian shall comply with a request by Voyager that it or an
authorized representative be provided with a reasonable
opportunity to observe the system being subjected to the tests
referred to in clauses 6.1.
6.3 If the system fails to satisfy the test specifications
referred to in clauses 6.1, the relevant tests shall be
repeated by Tellurian at reasonable intervals until the system
satisfied those specifications. Any modifications or
improvements to the system which are required to enable those
test specifications to be satisfied shall be made at
Tellurian's expense.
6.4 If the system fails to satisfy the test specifications
referred to in clauses 6.1 within 30 days after testing is
commenced, Voyager may either extend the test period or treat
the failure to satisfy the test specifications as a failure to
deliver the system. In the latter case, Voyager may pursue the
remedies applicable to such failure under this Agreement or at
law.
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<PAGE>
6.5 Tellurian shall give Voyager, on request, certification that
the system has been tested as required by this Agreement
following installation and has satisfied the test
specifications applicable to such testing under this
Agreement.
7. Payment Terms
7.1 The total price payable by Voyager under this Agreement is
provided in Part VII of the Schedule B.
7.2 The price payable by Voyager reflects license fee under this
Agreement, but excludes royalty payable by Voyager under
Clause 8.
7.3 The price payable by Voyager shall be made in United States
dollars.
7.4 The total price payable by Voyager as provided in Clause 7.1
is a fixed and maximum amount payable and is not subject to
fluctuation or adjustment.
8. Royalty
8.1 For a period of five years from the Commencement Date, Voyager
shall be liable to make royalty payment to Tellurian for the
use of the License granted hereunder.
8.2 The amount of royalty payable in respect of each Product or
each Derivative Product sold shall be:
8.2.1 in the case of the Product, at the rate equivalent to
two percent (2%) of the Net Sale Value of such
Product; and
8.2.2 in the case of the Derivative Product, at the rate
equivalent to two percent (2%) of the Derivative
Product multiplied by the ratio of the material cost
of components common to the Product to the total cost
of the Derivative Product.
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<PAGE>
8.3 Royalty shall be payable annually for Products and Derivative
Products sold with a particular fiscal year of Voyager and
shall be payable within ninety days following the end of the
fiscal relevant year. For the avoidance of doubt, the "fiscal
year" of Voyager means the year starting January 1, and ending
on December 31.
8.4 For the purpose of determining the total royalty payable,
Voyager shall as soon as the completion of annual financial
reports, deliver to Tellurian a report setting out the total
number of sales of Products and Derivative Products, and
Voyager's calculation of the total royalty payment due for the
relevant fiscal year. Royalty payable by Voyager pursuant to
Clause 8 hereof shall be calculated in the currency adopted by
Voyager in the presentation of its financial statements in
accordance with the generally accepted accounting principles
in Taiwan, consistently applied provided that payments shall
be made in the United States dollars.
9. Taxes
9.1 All sums of money payable hereunder whether with regard to the
price, the royalty or otherwise shall be deemed to be
exclusive of any tax, duty, charge, assessment or levy imposed
by the Taiwan government upon Voyager or Tellurian in
connection with this Agreement.
10. Intellectual Property Rights
10.1 Tellurian warrants that the use, sale or other disposal of the
products will be free from infringement of patent or other
intellectual or industrial property rights of third parties
and that no component of the products infringes the industrial
or intellectual property rights of any Person.
10.2 Tellurian shall fully indemnify and hold harmless Voyager
against any loss, costs, expenses, demand or liability,
whether direct or indirect, arising out of a claim by a third
party that a component of the Products infringes any
intellectual or industrial property right of that third party.
10.3 The indemnity referred to in Clause 10.2 shall be granted
whether or not legal proceedings are instituted and, if such
proceedings are instituted, irrespective of the means, manner
or nature of any settlement, compromise or determination.
10.4 Voyager shall notify Tellurian as soon as practicable of any
infringement, suspected infringement or alleged infringement
by a component of the Products of the intellectual or
industrial property rights of any Person.
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<PAGE>
10.5 Without prejudice to Voyager's right to defend a claim
alleging such infringement, Tellurian shall if requested by
Voyager but at Tellurian's own expense, conduct the defense of
a claim alleging such infringement. Tellurian shall observe
Voyager's directions relating in any way to that defense or to
negotiations for settlement of the claim.
10.6 Voyager shall if requested but at Tellurian's expense provide
Tellurian with reasonable assistance in conducting the defense
of such a claim.
10.7 Without limiting the generality of Clauses 10.1 to 10.3, if it
is determined by an independent tribunal of fact or law or if
it is agreed between the parties to the dispute that an
infringement of any industrial or intellectual property rights
of any Person has occurred on grounds in any way related to a
component of the Products, Tellurian shall at its own expense:
10.7.1 modify or replace the component so that such
infringement, defect or inadequacy is removed;
10.7.2 procure for Voyager the right to continue enjoying
the benefit of this Agreement; or
10.7.3 if the solutions in Clause 10.7.1 or 10.7.2 cannot be
achieved, recall the component, in which case this
Agreement is immediately terminated and Voyager may
pursue all remedies available to it under this
Agreement or at law for Tellurian's breach of
agreement.
11. Voyager's Intellectual Property
11.1 Tellurian acknowledges that any changes to, modifications on,
improvements or enhancements of the Intellectual Property of
Tellurian made by Voyager, if capable of becoming the subject
matter of intellectual property, shall become the property of
and shall vest in Voyager. There is no obligation on Voyager
to make known to or to assign any right to all and any such
changes, modifications, improvements or enhancements to
Tellurian.
12. Voyager's Undertakings
12.1 Voyager shall use all reasonable endeavor to promote and sell
the Products to achieve maximum benefit to the parties hereto.
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12.2 Notwithstanding any provisions of this Agreement expressly or
impliedly to the contrary effect, by commencing commercial
production and the sale of Products Voyager shall be deemed to
have satisfied itself in every respect as to the suitability
and fitness of the Products, the uses to which they will be
put by purchasers and the technical characteristics of same
and accordingly Tellurian shall not under any circumstances be
responsible or liable for any death, injury (physical or
financial), loss, damage, costs or other liability whatsoever
which Voyager or any third party may incur as a result of the
use of the Products.
13. Sales and Marketing of Products
13.1 Under this Agreement:
a) Tellurian shall only market and sell the Product or
Derivative Products outside the Licensed Territory as
specified in Part III of the Schedule B; and
b) Voyager may market and sell the Product and the Derivative
Products within and outside the Licensed Territory.
13.2 In the event that Tellurian has made sales of the Products or
the Derivative Products for use within the Licensed Territory
contrary to the restriction provided in Clause 13.1, then
Voyager shall be entitled to receive from Tellurian, without
prejudice to any other remedy which Voyager may have either at
law or under this Agreement, a payment in respect of each
Produce or Derivative Product so sold for use within the
Licensed Territory of a sum equivalent to one hundred times of
the Net Sales Value of each Product so sold.
13.3 In the event that Tellurian, in breach of the grant of License
to Voyager, has allowed the use of its Intellectual Property
by a third part in the Licensed Territory, Tellurian shall be
liable to compensate Voyager in the amount equivalent to five
times the price payable hereunder, such being the genuine
pre-estimated damages of Voyager as a result of Tellurian's
breach of agreement.
14. Trademarks
14.1 Except as specifically provided in any trademark licenses,
Voyager shall not be entitled to use any trademark, trade name
or service mark of Tellurian nor shall Voyager be entitled to
refer to or name Tellurian in any sales literature or
technical manuals or other publications literature or
technical manuals or other publications without the prior
written consent of Tellurian.
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14.2 Except as specifically provided in any trademark licenses,
Tellurian shall not be entitled to use any trademark, trade
name or service mark of Voyager nor shall Tellurian be
entitled to refer to or name Voyager in any sales literature
or technical manuals or other publications literature or
technical manuals or other publications without the prior
written consent of Voyager.
15. Dispute Resolution
15.1 Both parties recognize that their mutual commercial interests
are dependent upon the successful implementation of this
Agreement and the importance to their commercial interests of
resolving all disputes and difference between them as quickly
and as amicably as possible. For the purposes of this
Agreement any such dispute shall include any alleged breach by
either part of the terms of this Agreement any such dispute
shall include any alleged breach by either part of the terms
of this Agreement.
15.2 In the event that a solution cannot be found, then the matter
may be referred to the decision of the arbitration tribunal in
accordance with the Commercial Arbitration Law of the Republic
of China. The place of arbitration shall be in Taipei and the
decision of such tribunal, including any decision which may be
made as to expenses shall be final and binding on the parties
hereto.
16. Third Party Obligation
16.1 Voyager acknowledges that it has been informed by Tellurian
that it has a collaboration agreement with TTY Graphics, Inc.
and under a separate agreement between Tellurian and the third
party certain payment received from Voyager under this
Agreement will be transferred to the said third party.
16.2 Tellurian represents that the third party has consented to the
entering into this Agreement by Tellurian and is fully aware
of the License to be granted to Voyager hereunder; Tellurian
represents and warrants that Tellurian has obtained and shall,
at the request of Voyager, produce to Voyager such written
evidence confirmed by such third party that Tellurian has
obtained all rights, titles, and interests in all and any
intellectual property from the said third party as may be
necessary for Tellurian to perform its obligations under this
Agreement.
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17. Termination and Cancellation
17.1 The parties shall endeavor where possible to resolve all
disputes and differences between them in terms of Clause 16
but in the event that a resolution to the dispute or
difference cannot be found in terms of Clause 16 this
Agreement may be terminated by either party in giving not less
than one month's written notice to the other in any of the
following events:
(i) by either party in the event of the liquidation or
receivership of the other or the appointment of an
administrator of either party or by either party ceasing
or threatening to cease trading; or
(ii) by either party in the event of the material breach by
the other of any of its obligations hereunder which cannot
be remedied or if it can be remedied, remains unremedied
on the expiry of twenty eight days (or such other period
as shall be reasonable having regard to the nature and
extent of the breach) after the receipt by the party in
breach of written notice from the other specifying the
breach and the action required to remedy same. For the
purposes of this Clause material breach shall be
determined by the Arbitration Tribunal in terms of Clause
16 hereof.
17.2 Termination of this Agreement shall not affect the rights of
either party against the other in respect of the period up to
date of termination.
17.3 Subject to the promise of sub-clause 17.4 below on termination
of this Agreement for any reason whatsoever Voyager shall
cease to have any rights, use or sell the products and shall
forthwith deliver up to Tellurian all items, documents,
designs, software and drawing of whatever nature belonging to
Tellurian and then in the possession of Voyager.
17.4 In the event of termination of this Agreement by Voyager due
to the material breach of this Agreement by Tellurian then
Voyager shall be entitled to continue to use the Intellectual
property then existing royalty free but observing the other
provisions of this Agreement relating to Intellectual Property
so far as necessary to protect the parties' interests in terms
of this Agreement.
17.5 It is understood that the time extended by the penalty period
for completion of project is of essence of this Agreement and,
notwithstanding anything provided to the contrary, this
Agreement is deemed to be automatically canceled if the
project shall not have been completed on the Completion Date
unless Voyager agrees to the extension thereof in writing.
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17.6 On the cancellation of this Agreement, Tellurian shall
forthwith without demand return all money received by
Tellurian with annual interest rate of 8%.
17.7 On the cancellation of this Agreement, Voyager shall forthwith
return without demand all deliverables received from Tellurian
under this Agreement or dispose of such deliverables in such
manner as Tellurian may direct.
18. Approval of Authorities
18.1 Voyager shall at its own expense (but with the assistance of
Tellurian) procure registration of this Agreement with any
appropriate authorities in the Licensed Territory if such
registration is either legally required or in the interests of
either party.
18.2 If it is a legal requirement of any country in the Licensed
Territory that this Agreement be formally approved or
registered prior to its taking effect then the rights of
Voyager conferred under this Agreement shall be conditional on
the prior receipt in writing by Tellurian of such registration
or approval either unconditionally or subject only to
condition which are in the opinion of Tellurian acceptable.
18.3 Tellurian shall at its own expense procure all approvals and
permits required under the law of the United States relating
to this Agreement for this Agreement to be effective and for
Tellurian to perform its obligations hereunder.
19. General
19.1 No understanding, representation or warranty (whenever made)
relating to the subject matter of this Agreement shall bind
the parties hereto unless incorporated herein.
19.2 An omission by any party to exercise any right or remedy
available to that party under the terms of this Agreement
shall not be taken to signify acceptance of the event giving
rise to exercise such right or remedy and shall be without
prejudice to the rights of either party which may arise in the
future.
19.3 No variation to the terms of this Agreement shall be effected
unless agreed in writing by duly authorized officers of the
parties.
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19.4 This Agreement together with the Schedules referred to herein
shall constitute the entire agreement between the parties
regarding the subject matter hereof and supersedes all prior
oral or written agreements.
19.5 In the event any provision of this Agreement is declared or
found to be prohibited by law then that provision shall be
deemed to be a separate and distinct provision which shall not
affect the validity and enforceability of the remaining
provisions hereof and such provisions shall be deemed to have
been inapplicable to this Agreement from the date hereof and
the parties hereto shall negotiate an acceptable alternative
to such provisions failing which this Agreement shall be
deemed to have been terminated by the parties hereto in
accordance with the provisions hereof but such termination
shall be without prejudice to the provisions herein contained
relating to accuracy and indemnification of Tellurian by
Voyager.
20. Notices
20.1 All Notices to be given under the terms of this Agreement may
be given personally or by courier or by registered airmail in
all cases to the address of the party in question as specified
in paragraph 20.2 of this Clause.
20.2 Notices to Tellurian shall be addressed to its principal place
of business as specified in the preamble hereto marked for the
attention of Mr. Stu French and Notices to Voyager shall be
addressed to its principal place of business as specified in
the preamble hereto marked for the attention of Mr. Tsan Rong
Lin.
21. Assignment
21.1 Tellurian agrees that Voyager may assign all its rights,
titles and interests in this Agreement and/or transfer its
obligations under this Agreement to a third party provided
that Voyager shall not effect such assignment or transfer
without first informing Tellurian in writing and then such
assignment and transfer by Voyager shall not release its
obligations to make payment of the price or the royalty
hereunder.
22. Proper Law
This Agreement shall be governed in all respects in accordance with the
laws of the Republic of China.
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23. Precedence
23.1 The documents comprising this Agreement shall be read in the
order of precedence of the clauses of this Agreement, Schedule
B, and Schedule A.
23.2 Where any conflict occurs between the provisions contained in
two or more of the documents forming this Agreement, the
documents lower in the order of precedence shall where
possible be read down to resolve such conflict. If the
conflict remains incapable of resolution by reading down, the
conflicting provisions shall be severed from the document
lower in the order of precedence without otherwise diminishing
the enforceability of the remaining provisions of that
document.
IN WITNESS WHEREOF the parties hereto have caused their duly authorized
representative to have this Agreement together with the schedules
annexed hereto executed on the day and year first above written.
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SIGNED BY:
FOR Tellurian, Inc.
Ronald J. Swallow, CEO
Ronald J. Swallow
---------------------------
For Voyager Graphics, Inc.
Tsan Rong Lin, President
Tsan Rong Lin
---------------------------
WITNESSED BY:
For TTY Graphics, Inc.
Ching-Yuan Tung, President
Ching-Yuan Tung
---------------------------
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Schedule A
PROPOSAL FOR TECHNOLOGY TRANSFER
TELLURIAN, INC.'s
EAGLE IMAGE GENERATOR
TO
VOYAGER GRAPHICS, INC.
Tellurian, Inc.
6 Demarest Pl.
Waldwick, N.J.
07463
<PAGE>
1.0 CIG Hardware
The following is a brief description of Tellurian's latest offering,
EAGLE, in the low cost, high performance category of image generators.
The basis for this product is the AT-200, which began production in
early 1992 as a six board set. To date, over 225 sets of boards have
been produced and sold. The new product utilizes a new CPU chip set,
doubles performance, and is a small stand-alone unit which uses an
interface card to communicate with the host. The interface card is a
single board capable of being inserted directly onto a PC mother
boards. EAGLE is a product for serious virtual reality environments as
well as for training and simulation applications. A PC computer is
sufficient as a host for the simulation, the design of the EAGLE is
such that it performs all intensive floating point computations as well
as handling the complete data base to final image solution at a minimum
of 30 frames per second of display update speed. The model EAGLE board
provides real-time image generation with high resolution, multiple
channel operation, and true 24 bit color, at the best price/performance
ratio ever offered in the industry.
1.1 An Interface To Host Computer
The EAGLE, like the AT-200, has an interface board which is mounted
directly onto a standard PC BUS. The software and database are stored
on the hard disk of the host PC, and is downloaded onto memory
resident on EAGLE. Once downloaded, the host must then only supply
updated eye positioning data to EAGLE, and is therefore free to
accomplish many other tasks associated with a particular application.
Downloading to EAGLE and transferring data to EAGLE during operations
is via command and data cables from the interface card to the image
generator.
1.2 Geometry Engine
The basic AT-200 architecture has been redesigned into a much lower
cost, higher performing device as follows:
1.2.1 The Weitek chip set (consisting of 3 chips) costs approximately $900.
These chips operate on a 100 nsec cycle, and can be replaced by a
single Analog Devices chip costing $160 while operating on a 40 nsec
cycle. The majority of the special purpose address, clipping, memory
control and other circuits can be replaced by two FPGAs (Field
Programmable Gate Array). The result is that the new "front-end" will
outperform the current AT-200 and by a performance factor of 6, will
provide 50,000 polygons at 30Hz. This configuration also permits
elimination of the Daughter board entirely.
-1-
<PAGE>
1.3 Pixel Processor
The addition of one FPGA, a small block of 4 x 10 bit memory chips and
a few fast PALS, and the rear end reduces from (4) 9"x9" boards to 1/2
of a normal PC add-on board.
1.4 Video Outputs
a. 1,000 line video, 2:1 interlace, 31.5 Khz. line rate, 60 Hz. field
rate.
b. 500 line video, 2:1 interlace, 15.7 Khz. line rate, 60 Hz. field
rate (1,000 line image averaged vertically over pairs of lines).
2.0 Requirements
2.1 Technical Capabilities
2.1.1 Polygon Transformation and Rendering Performance
Up to 50,000 three-sided polygons or 35,000 four-sided polygons at 30
frames per second displayed in the view able pyramid of view or up to
1,500,000 polys per sec. Automatically optimized 4 plane pyramid of
view object polygon clipping, flat shading, and infinite, point and
ambient light sources.
Entity Coloring - All polygons may be independently given any 24 bit
color.
Geometry Data Format - All x, y, z data in 32 bit IEEE floating point
format.
Transformations - All matrix operations to locate or position and
scale objects are in 32 bit IEEE floating point format.
Matrix Tree Depth - Real-time matrix tree decoding of unlimited depth.
Database Swapping - Blocking structures are available to both swap in
and out database sections and qualify a group of objects as
potentially visible in the view pyramid.
Levels of Detail (LOD) - LOD structures switched in by range and
optional performance monitoring are available to maintain maximum
scene detail at real-time performance (30 frames per second minimum).
Pixel Fill - For large perspective triangles a rate of fill of 3.5
nanoseconds per pixel.
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<PAGE>
Frame Buffer - Two 1,010 x 960 x 24 bit pixel buffers standard.
Transport Delay - 3 field times or 50 milliseconds for 30 Hz frame
update or solution rate and 2 field times or 33 milliseconds for 60 Hz
frame update rate.
Hidden Surface - Priority sort hidden surfaces algorithm requiring a
pre-simulation BSP planes hierarchy generation for all "sub objects."
Dynamic Objects - Standard machine allows a large number of dynamic
objects that may cross the BSP planes at any time. An almost unlimited
number of dynamic objects can be supported if their motion does not
cause them to cross the BSP planes.
Motion Primitives - High level motion primitives such as "turn around
a point" and "fly or move along a path" with or without bank angle
will be supported.
Special Effects - True translucent fog layers with arbitrarily
oriented fog layer planes are supported.
Super Atom - Software tools to allow more efficient structuring and
decoding of databases.
Host Loading - the host PC AT is not used at all to generate images -
only to transfer state variables and database pointer references to
and from the CIG.
Therefore, only 6 viewer parameters are needed to drive the Visual
System.
Main Memory - From two to sixteen megabytes of main image generator
memory is provided. It is list optimized so that a 32 bit word
transfers to consecutive addresses occurs at 30 nanoseconds per 32 bit
word.
Custom Micro Code - Special functions required for specific
applications can be developed on a cost per function basis.
Realtime Illumination - Dynamic sun shading of objects based on sun
position and movement.
Realtime Fade - Dynamic fading of an object into the background color
s a method of visual acuity based on range to the object.
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<PAGE>
2.1.2 Interface & Software Tools
In addition to the hardware design for the CIG, Tellurian will provide
complete documentation of the interface board to the host computer
(PC). The software and its source code shall also be provided as part
of the design disclosure.
2.1.3 Deliveries
The deliverable materials shall include all the items listed below,
and will be delivered in both hard copy and on 3.5" disks.
-Circuit schematics
-Gerber plot files
-Technical reference documents
-Software and source code
-Programs for all programmable ICs and/or FPGAs
2.2 Utilization
2.2.1 Scope
Voyager may use, copy, modify, reproduce, sublicense the CIGTech, and
make and sell derivative products, Voyager may sell products and
derivative products worldwide.
2.2.2 Sublicensing
Voyager, after completing the Technology Transfer, has the right to
sublicense the technology to other companies in Asia.
2.3 Time Requirement
The Technology Transfer plan will be implemented within one week of
the contract signing.
2.4 Training Requirement
2.4.1 Overseas Training (In US)
Tellurian will implement its Training Program for up to 10 engineers
who shall be selected by Voyager. The training program will be
conducted in the US. It is a 12 week program geared to provide each
engineer with a sound, working knowledge of every aspect of the EAGLE
design. At the conclusion of the training program, the engineers will
be capable of making modifications to the hardware and software
designs, and also will be capable of building units in the US as a
culmination of the "Overseas Training" portion of the program.
-4-
<PAGE>
2.4.2 Presentation of Training
Tellurian will utilize its facilities in Waldwick, N.J. for both
classroom training and production training. In the classroom,
Tellurian will provide each student with a PC computer, a shared
printer, and a copier. In addition, notebooks, paper, pens, etc. will
be supplied by Tellurian.
It is planned that each day will consist of a minimum of 8 hours
student work, broken up as follows:
-4 hours of lecture
-2 hours of self study
-2 hours of question and answers to conclude each day
Tellurian will use a combination of hard copy handouts and viewgraphs.
2.4.3 System Documentation for Training
Tellurian will provide the following documents for the training
program. Please note that most of these items are the substance of the
delivery data package.
- Schematics (to the gate level)
- Register Level Diagrams
- Logic Equations
- Simulations for both MACH's and FPGA's
- Memory maps
- Source Code
-Micro code and Algorithm
-Database Compiler
-PC System Interface
- Mnemonic Signal Definition
- Software Engineering Tools
- Parts Specifications
- Bill of Materials
For the hardware design students, the following tools will be
available:
- ORCAD - Schematic capture & Simulation
- PALASM - MACH design & Simulation
- ACTEL - FPGA design & Simulation
- PADS - PC Board Routing
For the software design students, the following tools will be
available:
- C++ Compiler
- EAGLE Compiler
- Tellurian Author Language
-5-
<PAGE>
2.5 Price Requirement
The Project Fee amount is equal to $1,500,000.
The Project Fee is a fixed and maximum amount paid for the Project,
which excludes all taxes imposed by the Taiwan government for the
performance of the Project.
Payment Schedule:
4% upon signing the Agreement
16% upon the completion of the first prototype of the computer image
generator
10% upon delivery o the design data package
40% upon completion of training program
20% 90 days after completion of training program
10% 180 days after completion of training program
This schedule includes the building of (10) EAGLEs for training. Any
additional production will be paid for at the time of production.
2.5.1 Royalty
As a compensation of license granted to Voyager, Voyager shall pay
royalty Tellurian at the rate of two percent (2%) of the Sale Value of
the derivative products.
Tellurian agrees that Voyager make royalty payments for five (5) years
from the date of the Agreement.
-6-
<PAGE>
Schedule B
OF
TECHNOLOGY TRANSFER AGREEMENT
BY AND BETWEEN
TELLURIAN, INC.
AND
VOYAGER GRAPHICS, INC.
<PAGE>
PART I
Patent Rights
NONE
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<PAGE>
PART II
Copyright Matters
Refer to 2.1.3 (Deliveries) of Schedule A.
-2-
<PAGE>
PART III
Licensed Territory
Afghanistan, Australia, Bahrain, Bangladesh, Bhutan, Burma, China (including
Taiwan, Hong Kong and Mainland China), Cyprus, India, Indonesia, Iran, Iraq,
Japan, Jordan, Kampuchea (Cambodia), Korea (North), Korea (South), Kuwait, Laos,
Lebanon, Malaysia, Maldives, Marshall, Mongolia, Nepal, New Zealand, Oman,
Pakistan, Philippines, Qatar, Saudi Arabia, Singapore, Sri Lanka (Ceylon),
Syria, Thailand, Turkey, United Arab Emirates, Vietnam, Yemen (Aden and Sana).
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<PAGE>
PART IV
Training Program
1. The training program consists of a total of twelve weeks of
instructions as below. The training program is geared to provide each
engineer with a sound, working knowledge of every aspect of the
computer image generator designed and built by Tellurian. At the
conclusion of the training program, the engineers will be capable of
making modifications to the hardware and software designs, and also
will be capable of building the Tellurian's computer image generators.
2. Training shall begin within one month from the date of signing of the
Agreement on a date to be agreed upon.
2.1 Presentation of Training
Tellurian will utilize its facilities in Waldwick, N.J. for
both classroom training and production training. In the
classroom, Tellurian will provide each student with a PC
computer, a shared printer, and a copier. In addition,
notebooks, paper, pens, etc. will be supplied by Tellurian.
It is planned that each day will consist of a minimum of 8
hours of student work, broken up as follows:
. 4 hours of lecture
. 2 hours of self study
. 2 hours of questions and answers to conclude each day.
Tellurian will use a combination of hard copy handouts and
viewgraphs.
2.2 System Documentation for Training
2.2.1 . Tellurian will provide the following documents for
the training program:
. Schematics (to the gate level)
. Register Level Diagrams
. Logic Equations
. Simulations for both MACH's and FPGA's
. Memory Maps
. Source Code: Micro code & Algorithm, Database
Compiler and PC
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<PAGE>
. System Interface
. Pneumonic Signal Definition
. Software Engineering Tools
. Parts Specifications
. Bills of Materials
2.2.2 For the hardware design students, the following tools
will be available:
. ORCAD - Schematic capture & Simulation
. PALASM - MACH design & Simulation
. ACTEL - FPGA design & Simulation
. PADS - PC Board Routing
2.2.3 For the software design students, the following tools
will be available: C++ Compiler EAGLE Compiler
Tellurian Author Language
3. Upon the completion of the training program, the trainees shall have
built ten fully working units of Tellurian's computer image generators
passing the test specifications.
4. Training shall be provided by at least three duly qualified instructors
who are experienced in the technology of computer image generators. The
nomination of the instructors shall be subject to the approval of
Voyager.
5. Voyager shall nominate and Tellurian shall accept up to twelve
engineers to the training under this Agreement.
-5-
<PAGE>
PART V
Deliverables
1. Within sixty (60) days from the date of this Agreement, Tellurian shall
have built the first prototype of the computer image generator form the
Intellectual Property of Tellurian and shall have demonstrated to the
satisfaction of Voyager that the prototype achieves the technical
capabilities provided in Paragraph 2.1 of Schedule A, the Proposal of
Tellurian.
2. Within one hundred and eighty (180) days from the date of this
Agreement, Tellurian shall have completed training program for Voyager
designated engineers/staff members and shall have built and
successfully tested ten units of computer image generators.
3. In addition to the deliverables mentioned above, Tellurian shall, at
the commencement of the training program, deliver to Voyager all those
items listed in paragraph 2.4.1.1 of the Proposal together with all
associated documentation relating to the design, production and
manufacturing of Tellurian's computer image generators, and such
Know-how (as defined) relating to the technology of computer image
generators.
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<PAGE>
PART VI
Test Specifications
1. The contents of Paragraph 2.1 of the Proposal of Tellurian are repeated
in this Part VI as if set forth verbatim.
2. The computer image generator system shall be tested against the
technical capabilities set out in Paragraph 1 of this Part VI.
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<PAGE>
PART VII
Price
1. The total price payable by Voyager to Tellurian under this Agreement
shall be US $1,500,000.00 (one million five hundred thousand United
States dollars) only inclusive of all costs, expenses, taxes and fees,
but exclusive of taxes imposed by the Taiwan Government.
2. The price stated herein shall be fixed and shall not be subject to
fluctuation or adjustment whatsoever and howsoever.
3. Payment shall be made by Voyager to Tellurian as follows:
3.1 4% upon signing of this Agreement;
3.2 16% upon the completion of the first prototype of the computer
image generator;
3.3 10% upon delivery of design data package;
3.4 40% upon completion of training program;
3.5 20% in ninety days after completion of training program; and
3.6 10% in one hundred and eighty days after completion of
training program.
4. All payments shall be made in United States dollars by telegraphic
transfer to the account of Tellurian (particulars of account and bank
in United States).
5. Tellurian shall ensure that all accounts for payment are rendered in
accordance with the provisions of this Agreement and any instructions
(which shall not be inconsistent with the provisions of this Agreement)
given by Voyager.
6. Tellurian shall only be entitled to render an account for payment of an
amount that is due for payment under this Agreement and an account for
payment shall be taken to be correctly rendered if:
(a) the amount claimed in the account is correctly calculated in
accordance with this Agreement and a commercial invoice is
rendered;
(b) the account is accompanied where required, by documentation
that provides evidence that amount specified in the account is
in accordance with the Agreement;
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<PAGE>
(c) where the first account for payment is rendered, and where it
is relevant, either the Certificate of Acceptance is attached,
or the account is accompanied by, or contains, evidence that
the relevant Certificate of Acceptance has been issued;
(d) the account which is addressed to the officer designated by
Voyager receive accounts for payments; and
(e) the amount claimed in the account is due for payment.
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<PAGE>
EX-10(g)
Tellurian, Inc.
6 DEMAREST Pl.
Waldwick, New Jersey 07463
(201) 251-7770
(201) 251-7788 fax
14 NOVEMBER 1994
AGREEMENT BETWEEN
VOYAGER SIMULATION COMPANY., LTD. TTY GRAPHICS, INC.
TELLURIAN, INC.
The purpose of this agreement is to provide written verification of a
verbal arrangement between Voyager Simulation Co., Ltd., TTY Graphics, Inc.; and
Tellurian, Inc. relative to the purchase of EAGLE technology to the Institute of
Information Industry (III) of ROC. The parties agree that Voyager Simulation has
been granted the exclusive right to negotiate for the sale of the EAGLE
technology with III. It is further agreed that TTY/Tellurian is to receive the
sum of $1,000,000 for this assignment. Finally, it is agreed, that the balance,
beyond $1,000,000, of the money negotiated for this transfer will be forwarded
to Voyager for expenses associated with the sale.
Tellurian certifies to all concerned that:
a. It has full legal authority to enter into this agreement,
b. That any US obligations relative to this technology
transfer shall be the responsibility of Tellurian.
/s/ Dr. R. Swallow /s/ Dr. C. Tung
- ---------------------- -------------------------
Dr. R. Swallow, Dr. C. Tung, TTY Graphics,
Tellurian - Chairman Inc. - Pres.
/s/ Stu French /s/ Dr. K. Yang
- ---------------------- -------------------------
Stu French, Dr. K. Yang, Voyager
Tellurian - Pres. Simulation Co. - Pres.
<PAGE>
Exhibit 10(h)
May 26, 1995
From: Tellurian, Inc.
To : TTY
Regarding: Technology Transfer License Fee Split
Tellurian, Inc. will pay TTY 15 percent of the monies received from the
sale of its image generator technologies to the Institute for Information
Industry (III). It will be the responsibilities of both TTY and Tellurian, Inc.
to pay their own expenses in the execution of the technology transfer.
Tellurian, Inc. will pay TTY immediately upon receipt of wired funds from III.
For Tellurian, Inc.
Ronald J. Swallow, CEO
/s/ Ronald J. Swallow
- -------------------------
For TTY
Ching-yuan Tung, President
<PAGE>
Tellurian, Inc.
15 Industrial Avenue
Upper Saddle River, New Jersey 07458
July 17, 1996
Ching-yuan Tung, President
TTY Graphics, Inc.
501 West 123rd Street
Apt. 5E
New York, NY 10027
Dear Mr. Tung:
As you know Voyager Graphics, Inc. and Tellurian, Inc. have entered
into a Technology Transfer Agreement dated January 1, 1996 pursuant to which
Tallurian is to receive a project fee of $1,500,000 and royalties of 2% of the
products and derivative products sold. Pursuant to an agreement dated November
14, 1994, $500,000 of the $1,500,000, is to be paid to Voyager Simulation
Company, Ltd. Of the remaining $1,000,000, $150,000 is to be paid to TTY
Graphics Inc. ("TTY") pursuant to our agreement of May 26, 1995 with TTY to
receive 15% of any portion of the $1,000,000 paid to Tallurian until it receives
a maximum of $150,000. In the event royalties are paid to Tellurian, none of
these royalties will be paid to TTY. This letter shall serve to confirm our
previous agreement under which fees are being paid.
If you are in accord with the forgoing, please sign in the space
indicated below and return same to our office.
TELLURIAN, INC.
By: /s/ Stuart P. French
-----------------------------
Stuart French, President
Agreed to and accepted by:
TTY Graphics, Inc.
By: /s/ Ching-yung Tung
- ------------------------------
Ching-yung Tung, President
<PAGE>
Exhibit 10(i)
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") is entered into as
of this 5th day of November, 1991 by and between (i) TTY Graphics, Inc., a New
York corporation ("Buyer"), (ii) Pat Lowe, a trustee (the "Trustee") for the
estate of Quantum Graphics Corporation, a Texas corporation ("Quantum") and
(iii) Greg Gustin, an individual residing in Orlando, Florida ("Gustin").
W I T N E S S E T H:
WHEREAS, Quantum is the debtor in a proceeding filed under
Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq.
(the "Code), in the United States Bankruptcy Court for the Western District of
Texas, Austin Division (the "Court"), Case No. 88-11532-7 (the "Proceeding");
WHEREAS, Quantum owns an undivided one-third interest in and
to certain computer graphics technology referred to in the Proceeding as the
"flat shaded" technology (any and all existing copies, modifications and
improvements to such "flat shaded" technology and such "flat shaded" technology
described on Exhibit A attached hereto and incorporated herein by this reference
being referred to herein as the "Technology").
WHEREAS, Gustin also owns an undivided one-third interest in
and to the Technology (the interests of Quantum and Gustin in and to the
Technology being collectively referred to herein as the "Purchased Technology");
WHEREAS, Buyer also owns an undivided one-third interest in
and to the Technology and desires to purchase the Purchased Technology;
WHEREAS, the Court has ordered, pursuant to Section 363(h) of
the Code, that (i) the Technology be sold to Buyer for $225,000 and a royalty
equal to four percent 4%) of the gross revenues from sales and licensing of the
Technology up to a maximum royalty of $1,500,000 and (ii) the Purchased
Technology be sold to Buyer on the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants hereinafter set forth and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, Buyer, Gustin and the
Trustee hereby agree as follows:
<PAGE>
ARTICLE 1. SALE AND PURCHASE OF TECHNOLOGY.
1.1 Purchase and Sale of Technology. The Trustee and Gustin
shall sell assign, transfer and deliver to Buyer, and Buyer shall purchase from
the Trustee and Gustin, at the Closing, all of the right, title and interest of
the Trustee, Gustin and Quantum in and to the Purchased Technology.
1.2 Purchase Price. The aggregate purchase price for the
Purchased Technology shall be $150,000 (the "Cash Purchase Price") plus the
Royalty (as defined below) (the Cash Purchase Price and the Royalty being
collectively referred to herein as the "Purchase Price").
1.3 Royalty. As part of the Purchase Price, Buyer shall pay,
in the manner set forth in Section 2.4 hereof, to the Trustee and Gustin an
aggregate royalty (the "Royalty") equal to two-thirds of four percent (2/3 x 4%)
of the Technology Revenues (as defined below) and one percent (1%) of the Other
Revenues (as defined below). The term "Technology Revenues" means the (i) money
and the monetary value of other consideration received after September 30, 1991,
by Buyer or Tellurian Corporation, a South Carolina corporation ("Tellurian), or
an Affiliate (as defined herein) of either of them from licensing the Technology
or any part thereof and (ii) money and the monetary value of other consideration
received by Buyer, Tellurian or an Affiliate of either of them from the sale of
products that incorporate the Technology or any part thereof. "Other Revenues"
means the gross revenues received by Buyer, Tellurian or an Affiliate of either
of them, accounted for on a cash basis, from licensing computer graphics imaging
technology (other than the Technology). Except in the case where Buyer,
Tellurian or an Affiliate of Buyer or Tellurian is the ultimate "end user,"
Technology Revenues and Other Revenues do not include any amounts received (i)
by Buyer from Tellurian or an Affiliate of Buyer or Tellurian or (ii) by
Tellurian from Buyer or an Affiliate of Buyer or Tellurian or (iii) by an
Affiliate of Buyer or Tellurian from Tellurian, Buyer or an Affiliate of
Tellurian or Buyer. Notwithstanding the foregoing, (i) in no event shall the
total Royalty exceed two-thirds of $1,500,000 (i.e., $1,000,000) and (ii) Buyer
shall not be required to pay a Royalty on any nonmonetary consideration received
in the form of a note or similar instrument unless and until collections are
made thereon.
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<PAGE>
ARTICLE 2. THE CLOSING.
2.1 Definition. The "Closing shall mean the time at which the
Trustee and Gustin consummate the sale of the Purchased Technology to Buyer in
the manner contemplated by Section 2.2 hereof against payment of the Cash
Purchase Price by Buyer in the manner contemplated by Section 2.3 hereof. The
Closing shall take place at 301 Congress Avenue, Suite 1200, Austin, Texas 78701
at 10:00 a.m., Austin, Texas time, on November 5, 1991 (the "Closing Date"), or
on such other date or time on or prior to December 31, 1991, as may be ordered
by the Court or as the parties to this Agreement may agree.
2.2 Delivery of Technology. At the Closing, the Trustee and
Gustin shall transfer the Purchased Technology to Buyer pursuant to a Bill of
Sale in substantially the form of Exhibit B hereto. As soon as is reasonably
possible after the Closing Date, the Trustee and Gustin, at their cost, shall
deliver the Technology to Buyer at the officers of Jones, Day, Reavis & Pogue,
301 Congress Avenue, Suite 1200, Austin, Texas 78701; provided, however, that
the Trustee need only deliver to Buyer that portion of the Technology consisting
of computer hardware (from which any software that is a trade secret and that
constitutes a part of the Technology has been deleted) and computer software
that is available from third parties, and the Trustee may retain (subject to
Section 5.9 hereof) possession of that portion of the Technology that
constitutes charts, diagrams and the like. Risk of loss shall pass to Buyer upon
delivery. Buyer shall not assume, or be responsible or liable with respect to,
any liabilities, debts or obligations of the Trustee, Quantum or Gustin, whether
fixed, contingent or otherwise, and whether known or unknown.
2.3 Payment of the Cash Purchase Price. At the Closing, Buyer
shall pay one half of the Cash Purchase Price (plus any interest that has
accrued on such half in the bank account in which such funds are being held) to
the Trustee and one half of the Cash Purchase Price (plus any interest that has
accrued on such half in the bank account in which such funds are being held) to
Gustin. Such payment shall be made by certified check, cashier's check, check of
the law firm of Jones, Day, Reavis & Pogue, Austin, Texas, or wire transfer to
an account or accounts designated by the Trustee and Gustin.
2.4 Payment of the Royalty and Audit Rights. Within fifteen
(15 days after the end of each calendar quarter, Buyer shall pay to the Trustee,
in the manner described in Section 2.3 hereof, the other half of the Royalty due
for such calendar quarter. Such Royalty payment shall be
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<PAGE>
accompanied by a report in the form of Exhibit C hereto, which shall set forth
the basis for the Royalty computation. Buyer shall permit the Trustee and its
accountants, at the Trustee's sole expense, to audit annually the books and
records of Buyer to confirm Buyer's computation of the Royalty. In the event
that Gustin requests that the Trustee undertake such an audit and the Trustee
shall fail to do so within twenty (20) days of such request, then Gustin shall
be permitted to cause an unaffiliated third party independent certified public
accountant to undertake such audit. In any audit, the persons or entities
undertaking the audit shall agree not to disclose to any person or entity, or
use, any information reviewed or received in connection with such audit, except
that (i) the auditor may inform the Trustee and Gustin whether Buyer's
computation of the Royalty was correct and (ii) if such Royalty computation was
incorrect, the auditor may disclose to the Trustee and Gustin such information,
but only such information, as is necessary for Gustin or the Trustee to seek
payment of a correct Royalty. In no event shall the auditor disclose the names
of, or any other information relating to, the identity of customers of Buyer,
Tellurian or any of their Affiliates unless absolutely necessary to perform a
thorough audit. Notwithstanding anything in this Agreement, including but not
limited to Section 1.3 hereof, or the Security Agreement (as hereinafter
defined) to the contrary, the obligation of Buyer to pay a Royalty shall cease
at such time as the Technology becomes part of the public domain unless such
loss of status is caused by or results from a breach by Buyer of its obligations
contained in Section 3.08 of the Security Agreement (as defined below).
2.5 Minimum Royalty. If by the end of the fifteenth (15th)
month after the Closing Buyer shall have paid to the Trustee and Gustin an
aggregate Royalty of less than two-thirds of $25,000 (i.e., $16,666.67), then
Buyer shall, within 30 days of the end of such fifteenth (15th) month, pay to
each of Gustin and the Trustee, in the manner described in Section 2.3 hereof,
one half of the difference between (i) $16,666.67 and (ii) the aggregate Royalty
previously paid to the Trustee and Gustin (such payment being referred to herein
as the "Minimum Royalty").
2.6 Security. The obligation to pay the Royalty shall be
secured by a pledge of the Technology and the Technology Revenues pursuant to a
security agreement in substantially the form attached hereto as Exhibit D (the
"Security Agreement").
2.7 Back Royalties, Paragon Products and Release. Buyer shall,
at the Closing, pay to the Trustee and Gustin, as part of the Royalty, an
aggregate amount equal to two-thirds of four percent (2/3 x 4%) of the
Technology Revenues received
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<PAGE>
prior to October 1, 1991. Although Buyer does not understand any products of
Gustin, High-Tech Marketing Company, Paragon Computer Corporation or Paragon
Graphics Incorporated to contain the Technology (such understanding being based
in part of Gustin's oral representation that the product known as "Micro
Paragon," although formerly referring to the Technology, no longer refers to the
Technology), in the event that such products do contain the Technology, Buyer
shall permit Gustin, Hi-Tech Marketing Company, a New Jersey corporation, and
Paragon Graphics Incorporated, a Florida corporation to make use of, without any
payment whatsoever to Buyer, such Technology in those products of High-Tech
Marketing Company and Paragon graphics Incorporated that are known as "Mini
Paragon," "Micro Paragon," "Paragon T-S," "Paragon .5," "Paragon I," Paragon
I.5," Paragon II," "Paragon III," and "Paragon IV," as well as in any
improvements on such products ("Paragon Products"). In exchange for such
agreements of Buyer, the settlement fee set forth in Section 6.2.5 hereof, and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Gustin and the Trustee hereby release, acquit and
forever discharge Buyer and Tellurian and their predecessors, successors, legal
representatives and Affiliates from any and all claims, debts, causes of action
or suits of any kind whatsoever arising prior to the date of this Agreement from
any violation of any order of the Court in the Proceeding or related proceedings
or from the licensing or use of the Technology (or any part thereof) or from the
sale of products incorporating the Technology (or any part thereof).
Notwithstanding the aforesaid, Gustin and the Trustee do not waive any claims,
debts, causes of action or suits arising out of any misrepresentations,
falsehoods or other misstatements of any type whatsoever contained within
Schedule 3.2.7 hereto.
2.8 Exculpation. Notwithstanding the provisions of any other
section of this Agreement or the Security Agreement, the remedies of Gustin and
the Trustee against Buyer in the event of a default shall be limited to: (i) the
preservation, enforcement and foreclosure of the security interests now or at
any time hereafter securing the payment of the Royalty; and (ii) the prosecution
and enforcement of an injunction against unauthorized use of the Technology In
the event of foreclosure or such security interests securing the payment of the
Royalty, by private power of sale or otherwise, no judgment for any deficiency
thereon shall be sought or obtained against Buyer or its shareholders or
-5-
<PAGE>
affiliates. Notwithstanding the foregoing, Buyer shall have full personal and
corporate liability to Gustin and the Trustee to the same extent Buyer would be
liable absent the foregoing provisions of this section for: (i) fraud committed
by Buyer, its shareholders or affiliates; (ii) damage willfully inflicted upon
the Pledged Technology by Buyer, its shareholders or affiliates; and (iii)
violation of the provisions of any injunction against unauthorized use of the
Technology.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of Gustin. Gustin
represents and warrants to Buyer as follows:
3.1.1 Capacity and Authority. Gustin has the full
capacity to enter into and perform this Agreement. This Agreement
constitutes the valid and binding obligation of Gustin and is
enforceable against him in accordance with its terms.
3.1.2 Changes in Condition. Gustin will not cause any
change to occur between the date of the Inspection (as defined in
Section 5.1 hereof) and the Closing which may adversely affect the
condition of the Technology. Gustin knows of no events which have
occurred nor does Gustin know of any circumstances which might
reasonably be expected to result in any such change, either before or
after the Closing Date.
3.1.3 Contracts and Commitments. Except for this
Agreement and the documents to be executed in connection with the
transaction contemplated hereby, Gustin is aware of no contracts or
agreements ("Relevant Contracts") that in any way affect, restrict,
encumber or otherwise relate to the Technology.
3.1.4 No Liens. Gustin has no alienated or sold the
Technology and has not created or participated in the creation of any
liens, security interests, pledges, adverse claims, encumbrances,
charges, equities or other restrictions (collectively "Liens") on the
Purchased Technology except for the security interest created by the
Security Agreement. Gustin is not aware of any other Liens on the
Purchased Technology.
3.1.5 No Conflicts. Gustin knows of no reason why the
execution and delivery of this Agreement by Gustin nor the performance
by Gustin of the transactions contemplated by this Agreement will (i)
result in the creation or imposition of any Liens of any kind
whatsoever upon the Technology, (ii) result in the violation or breach
of or conflict with any law, statute, rule, regulation, ordinance,
order, arbitration award, judgment, decree or other legal requirement
of any governmental entity or municipality or subdivision thereof or
any authority,
-6-
<PAGE>
department, commission, board, bureau, agency, court or
instrumentality thereof (hereafter collectively, "Laws") applicable to
Gustin or the Technology or (iii) constitute an event which, after the
giving of notice or lapse of time or both, would result in any such
violation, conflict, default, or the creation or imposition of any
Liens.
3.1.6 Consents. Gustin knows of no consent, waiver,
approval, order or authorization of, or registration, declaration or
filing with or notice to, any governmental entity, court (including the
Court) or any other person or entity ("Required Consent") which is
required to be obtained, satisfied or made in connection with the
execution and delivery by Gustin of this Agreement or the consummation
of the transactions contemplated by this Agreement.
3.1.7 Disclosure. Gustin knows of no information
contained in the schedules (other than Schedule 3.2.7) attached to this
Agreement, any other written information furnished to Buyer by Gustin
pursuant to the request of Buyer or the representations and warranties
of Gustin contained in this Agreement which contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which
they were or are made, not false or misleading.
3.1.8 Accuracy of Representations and Warranties.
Each of the representations and warranties of Gustin contained in
Section 3.1 of this Agreement will be true and correct on the Closing
Date as if made anew on and as of such date.
3.2 Representations and Warranties of Buyer. Buyer represents
and warrants to the Trustee and Gustin as follows:
3.2.1 Corporate Existence of Buyer. Buyer is a
corporation duly organized, validly existing and in good standing under
the laws of the State of New York, and has all requisite corporate
power and authority to own or lease its properties and to conduct its
business as and where presently conducted. The undersigned
representative of Buyer has the full authority to enter into this
Agreement on behalf of Buyer.
3.2.2 No Conflicts. Neither the execution and
delivery by Buyer of this Agreement nor the performances of its
obligations under this Agreement will conflict with or constitute a
default under any of the terms of its certificate or articles of
incorporation or bylaws.
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3.2.3 No Other Conflicts. Except as contemplated by
the Security Agreement contemplated by Section 6.2.4(c) hereof, Buyer
knows of no reason why the execution and delivery of this Agreement by
Buyer or the performance by Buyer of the transactions contemplated by
this Agreement will (i) result in the creation or imposition of any
Liens of any kind whatsoever upon the Technology, (ii) result in the
violation or breach of or conflict with any Laws applicable to Buyer or
the Technology or (iii) constitute an event that, after the giving of
notice or lapse of time or both, would result in any such violation,
conflict, default, or the creation or imposition of any Liens.
3.2.4 Consents. Buyers knows of no consent, waiver,
approval, order or authorization of, or registration, declaration or
filing with or notice to, any governmental entity, court (including the
Court) or any other person or entity which is required to be obtained,
satisfied or made in connection with the execution and delivery by
Buyer of this Agreement or the consummation of the transactions
contemplated by this Agreement.
3.2.5 Delivery of Agreement by Buyer. The execution
and delivery by Buyer of this Agreement and the performance by Buyer of
the transactions contemplated by this Agreement have been duly and
validly authorized by the Board of Directors of Buyer. This Agreement,
when executed and delivered, will constitute the valid and binding
obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting rights of creditors
generally and to the exercise of a court's equitable powers.
3.2.6 Public Domain. To the best of the knowledge of
Buyer, Tellurian, Ronald Swallow, Richard Swallow, Chin-yuan Tung,
Lie-ching W. Tsang and Koahsiung Yang, the Technology is not in the
public domain and the obligation to pay Royalties has not been
terminated as a result of the last sentence of Section 2.4 hereof.
3.2.7 Prior Revenues. Schedule 3.2.7 hereto
accurately reflects the Technology Revenues received by Buyer or any
Affiliate on or prior to July 22, 1991.
3.2.8 Accuracy of Representations and Warranties.
Each of the representations and warranties of Buyer contained in
Section 3.2 of this Agreement will be true and correct on the Closing
Date as if made anew on and as of such date.
-8-
<PAGE>
3.3 Representations and Warranties of Trustee.
3.3.1 Capacity of the Trustee. Trustee has been duly
appointed by the United States Trustee for the Western District of
Texas to serve as the Trustee in the case of Quantum Graphics
Corporation, pending at Case No. 88-11532-7, and has accepted such
appointment.
3.3.2 Changes in Condition. Trustee will not cause
any change to occur between the date of Inspection (as defined in
Section 5.1 hereof) and the date of Closing which may adversely affect
the condition of the Technology.
3.4 Exclusion of Warranties. The sale of the Technology is AS
IS, WHERE IS, WITH ALL FAULTS, AND THERE ARE NO WARRANTIES EXPRESS OR IMPLIED
WITH RESPECT TO THE TECHNOLOGY, ITS MERCHANTIBILITY OR FITNESS FOR A PARTICULAR
PURPOSE, OR AS TO ANY OTHER MATTER WHATSOEVER unless expressly stated in this
Agreement.
ARTICLE 4. INDEMNIFICATION
Except as expressly provided for in this Agreement, the sole
and exclusive remedy of the Buyer for any breach of a representation or warranty
shall be the ability to offset any actual damage or loss incurred by the Buyer
against future Royalties attributable to the interest of the person who is in
breach of such representation or warranty.
ARTICLE 5. COVENANTS OF THE TRUSTEE, GUSTIN AND BUYER.
5.1 Inspection. The Buyer shall have access to the Technology
prior to Closing for the purpose of determining whether the tangible items shown
on Exhibit "A" are present, and whether the hardware and publicly available
software shown on Exhibit "A" is operable (the "Inspection"). The Inspection
shall occur only during normal business hours and upon reasonable notice to the
Trustee and Gustin. The Trustee is permitted to take such steps as he may
reasonably deem appropriate to ensure the security and the confidentiality of
the Technology including the right to limit the number of identity of
representatives of the Buyer who attend the Inspection. Gustin shall have the
right to be present during the Inspection.
5.2 Preservation of Accuracy of Representations and
Warranties. Prior to the Closing, the parties to this Agreement shall not
voluntarily undertake any action which would cause any representation or
warranty in this Agreement to be untrue on or as of the Closing Date.
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5.3 Maintenance of Technology. During the period from the date
of this Agreement through and as of the Closing Date, neither Gustin, Buyer nor
the Trustee shall damage the Technology.
5.4 Satisfaction of Conditions. Each of the parties hereto
agrees to use its best efforts to satisfy promptly all conditions precedent
contained in Article 6 of this agreement to the obligations of the parties
hereto in order to expedite the consummation of the transactions contemplated
hereby.
5.5 Taxes and Charges. The Trustee, Gustin and Buyer each
shall pay all sales or transfer taxes attributable to the transfer of their
respective interests in the Technology to Buyer.
5.6 Other Costs. Subject to Section 5.5 hereof, Buyer, Gustin
and the Trustee shall each pay their own costs and expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement, including all legal and accounting fees.
5.7 Further Assurances. From time to time after the Closing
Date, upon request and at Buyer's expense, Buyer, Tellurian, the Trustee and
Gustin shall execute, acknowledge and deliver all such other instruments of
sale, assignment, conveyance and transfer, in form and substance satisfactory to
the requesting party, and shall take all such other action as may be required,
for the consummation of the transactions contemplated hereby and to more
effectively accomplish the transactions contemplated by this Agreement.
5.8 Reasonable Efforts to License or Sell. For a period of
three years from the date of this Agreement, Buyer shall use its commercially
reasonable efforts to maximize the Technology Revenues giving due concern for
the profitability of Buyer, Tellurian and their Affiliates. In the event that
any party to this Agreement brings an action against Buyer for breach of this
Section 5.8 and such party is unable to prove that Buyer breached this Section
5.8, then if Buyer can prove that it did not breach this Section 5.8 the party
who brought such action shall pay to Buyer all of Buyer's attorneys fees and
expenses relating to such action.
5.9 Nonuse and Nondisclosure. The Trustee and Gustin, except
to the extent permitted under Section 2.7 of this Agreement, shall not use or
disclose the Technology to any person or entity without the prior written
consent of Buyer (which consent may be withheld in the absolute discretion of
the Buyer), except as may be necessary to enforce the terms and
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conditions of this Agreement and the transaction contemplated hereby.
Anything in this Agreement to the contrary notwithstanding Buyer agrees that:
5.9.1 With respect to those items of the Technology
remaining with the Trustee subsequent to closing hereunder, the Trustee
may destroy or store such items away from the Trustee's offices in a
warehouse or public storage facility of his choosing; and,
5.9.2 In the event that the obligations of Buyer,
Tellurian, or an Affiliate to pay Royalty cease pursuant to the
provisions of the last sentence of Section 2.4 of this Agreement,
Trustee and Gustin shall have the ability to use, disclose, alienate,
license or otherwise profit from the Technology.
ARTICLE 6. CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to Obligations of Buyer. The
obligations of Buyer to consummate the transactions contemplated by this
Agreement are subject to the satisfaction on or before the Closing Date of the
following conditions, any one or more of which may be waived in writing by Buyer
at its option in accordance with Section 8.7 hereof:
6.1.1 Accuracy of Representations and Warranties. The
representations and warranties of Gustin and the Trustee contained in
this Agreement shall be true and correct in all material respects both
on and as of the date of this Agreement and on and as of the Closing
Date (with the same force and effect as if made anew on and as of the
Closing Date).
6.1.2 Compliance with Agreement. All terms, covenants
and conditions of this Agreement to be performed and complied with by
Gustin and the Trustee on or before the Closing Date shall have been
fully complied with and performed in all material respects.
6.1.3 No Litigation; No Moratoriums. No
investigation, suite, action or other proceeding shall be threatened or
pending before any court or governmental entity which is likely to
result in a restraint or prohibition on, or an award of damages or
other relief in connection with, this Agreement or the consummation of
the transactions contemplated by this Agreement. No moratorium,
statute, regulation, ordinance or federal, state, county or local
legislation, or order, judgment,
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<PAGE>
ruling or decree of any governmental entity or court (including the
Court) shall have been enacted, adopted, issued, entered or be pending
which would, in the opinion of Buyer or its counsel, materially and
adversely affect Buyer's use of the Technology. Notwithstanding this or
any other section of this Agreement, any right that Gustin, Hi-Tech
Marketing Company or paragon Graphics Corporation may otherwise have to
appeal any judgment or other matter rendered by the Court in the
Proceeding shall not be forfeited.
6.1.4 No Adverse Changes. Since the date of this
Agreement, there shall have been no material adverse change in the
condition of the Technology.
6.1.5 Approval by the Court. The Court shall have
entered an order approving this Agreement and the transactions
contemplated hereby and Buyer shall have received a copy thereof.
6.1.6 Delivery of Documents by or on behalf of the
Trustee. At or prior to the Closing, the Trustee and Gustin shall
deliver to Buyer:
(a) Certificates of Sellers. A certificate, dated as
of the Closing Date, signed by the Trustee and Gustin and
certifying that the conditions set forth in Sections 6.1.1
(provided that the certification of the Trustee shall apply
only with respect to the representations and warranties of
Gustin) and 6.1.2 (provided that the certification of the
Trustee shall apply only to the terms, covenants and
conditions applicable to the Trustee and the certification of
Gustin shall apply only to the terms, covenants and conditions
of Gustin) have been satisfied and that they have no knowledge
that the conditions set forth in Sections 6.1.3 and 6.1.4 have
not been satisfied.
(b) Bill of Sale. A Bill of Sale in substantially the
form of Exhibit B hereto, duly executed by the Trustee and
Gustin.
6.1.7 Consents. All Required Consents shall have been
obtained.
6.1.8 Inspection. Buyer shall have completed the
Inspection and shall not have reasonably objected to any of the matters
disclosed thereby.
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6.2 Conditions Precedent to Obligations of the Trustee and
Gustin. The obligations of the Trustee and Gustin to consummate the transactions
contemplated by this Agreement are subject to the following conditions, any one
or more of which may be waived by the Trustee and Gustin at their option in
accordance with Section 8.7 hereof:
6.2.1 Accuracy of Representations and Warranties. The
representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as if made anew on and as
of the Closing Date, and since the date of this Agreement there shall
have been no material adverse change in the condition of the
Technology.
6.2.2 Compliance with Agreements. All terms,
covenants and conditions of the Agreements to be performed and complied
with by Buyer on or before the Closing Date shall have been complied
with and performed in all material respects.
6.2.3 Litigation. Except as may be instigated by
Gustin or the Trustee, no investigation, suit, action or other
proceeding shall be threatened or pending before any court or
governmental entity that is likely to result in a restraint or
prohibition on, or an award of damages or other relief in connection
with, this Agreement or the consummation of the transactions
contemplated by this Agreement.
6.2.4 Delivery of Documents by or on behalf of Buyer.
At or prior to the Closing, Buyer shall deliver to the Trustee:
(a) Certificate of Buyer. A certificate of Buyer,
dated the Closing Date and signed by an officer of Buyer, to
the effect that the conditions set forth in Sections 6.2.1 and
6.2.2 have been satisfied and that Buyer has no knowledge that
the condition set forth in Section 6.2.3 has not been
satisfied.
(b) Payment of Cash Purchase Price. Evidence of the
payment of the Cash Purchase Price (and any interest thereon
as described in Section 2.3) in the manner and the amount set
forth in Section 2.3 hereof.
(c) Security Agreement. A Security Agreement in
substantially the form of Exhibit D hereto, duly executed by
Buyer, together with such financing statements as the Trustee
and Gustin may reasonably request in connection with the
Security Agreement.
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6.2.5 Settlement Fee. Tellurian shall have delivered
$5,000 to the Trustee and $50,000 to Gustin in exchange for the release
described in the last sentence of Section 2.7 hereof.
ARTICLE 7. SURVIVAL OF WARRANTIES.
7.1 General. The representations and warranties contained in
this Agreement shall survive the Closing and shall not be merged into any deed,
or other instrument of sale, assignment, conveyance or other transfer delivered
pursuant to, or in connection with the consummation of the transactions
contemplated by, this Agreement.
ARTICLE 8. MISCELLANEOUS PROVISIONS.
8.1 Governing Law. This Agreement shall be construed and
interpreted in accordance with the internal substantive laws of the State of
Texas, without reference to any principles of conflicts of laws.
8.2 Notices. All notices, requests, demands and other
communications under this Agreement shall be deemed to have been duly given if
delivered by hand or mailed by certified mail, return receipt requested, with
postage prepaid:
if to the Trustee, to:
Pat Lowe
W. Patrick Dodson & Associates
318 East Napal
P.O. Box 1830
Uvalde, Texas 78801
with a copy to:
Matthews & Branscomb
One Alamo Center
106 South St. Mary's Street
San Antonio, Texas 78205
Attention: Patrick H. Autry
and, if to Gustin, to:
Greg Gustin
5460 Hoffner Avenue
Orlando, Florida 32812
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<PAGE>
with a copy to:
Griggs & Harrison
1301 McKinney, Suite 3200
Houston, Texas 77010
Attention: Edward D. Burbach
and, if to Buyer, to:
TTY Graphics, Inc.
517 West 113th Street, #54
New York, New York 10025
with a copy to:
Jones, Day, Reavis & Pogue
301 Congress Avenue, Suite 1200
Austin, Texas, 78701
Attention: Mina A. Clark, Esquire
Any change of the notice address of any party to this
Agreement may be made by giving notice of such change in the manner provided in
this Agreement for the giving of notice generally and shall be effective when
such notice is given.
8.3 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties to this Agreement and their respective successors,
assigns, heirs and legal representatives.
8.4 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed to an
original, but all of which together shall constitute one and the same
instrument.
8.5 Headings. The article and section headings contained in
this Agreement have been inserted for convenience of reference only and shall
not constitute a part, or be given any effect in the construction or
interpretation, of this Agreement.
8.6 Termination. If the conditions set forth in Article 6
hereof to a party's obligation to consummate the transactions contemplated by
this Agreement shall not have been satisfied by or on November 30, 1991 by
written notice to the other parties hereto. In such event, this Agreement shall
be null and void and there shall be no liability on the part of any of the
parties hereto to the
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<PAGE>
others, except for liability arising out of a material breach of this Agreement
occurring prior to the termination of this Agreement.
8.7 Amendment and Waiver. This Agreement may not be amended
except by a written instrument duly authorized and executed by all of the
parties to this Agreement. No waiver of any of the provisions of this Agreement
shall be effective, unless expressly made in a written instrument referring to
this Section 8.7 and signed by the party entitled to the benefit of the
provisions being waived. Any waiver by any party hereto of any violation of,
breach of or default under any provision of any of the Agreements by another
party hereto shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of any of the Agreements or any other agreements provided
for herein.
8.8 Definition of Affiliate. As used in this Agreement, the
term "Affiliate" shall have the meaning set forth in Section 101(2) of the
Bankruptcy Code of 1978, as amended through the date of this Agreement, and
Buyer, Tellurian, Ronald Swallow, Richard Swallow, Chin-yuan Tung, Lie-ching
Tsang and Koahsiung Yang and any other current shareholder of Tellurian shall be
considered to be "Affiliates" for purposes of this Agreement.
8.9 Power of Attorney. Gustin hereby irrevocably designates
the Trustee as his attorney-in-fact for the purpose of executing the Bill of
Sale on behalf of Gustin. This power is coupled with an interest.
8.10 Entire Agreement. This Agreement and the Schedules and
Exhibits referred to in this Agreement (and the oral representation referred to
in Section 2.7 hereof) set forth the entire understanding (including all
representation, warranties, agreements, conditions and other provisions) among
the parties in relation to the subject matter of this Agreement and supersede
all prior contracts, agreements, communications, discussions, representations
and warranties, whether oral or written between the parties hereto.
8.11 Severability. If any provision of any of this Agreement
is declared by a court to be void or unenforceable, such provision shall be
severed from this agreement without affecting the validity and enforceability of
any of the other provisions of this Agreement, and the parties hereto or thereto
shall negotiate in good faith to replace the unenforceable or void provision
with a similar clause to achieve, to the extent permitted under law, the purpose
and intent of the provision declared void or unenforceable.
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8.12 Parties in Interest. Nothing contained in this Agreement,
either express or implied, is intended or shall be construed to confer upon or
give any person or entity other than the parties to this Agreement and their
respective successors and permitted assigns any rights or remedies under, or by
reason of, this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
BUYER:
TTY GRAPHICS, INC.
By: _______________________________
Its: _______________________________
TRUSTEE:
Pat Lowe
-------------------------------------
Pat Lowe, as Trustee for the
Estate of Quantum Graphics Corporation
GUSTIN:
Greg Gustin
-------------------------------------
Greg Gustin
<PAGE>
EXHIBIT A
"FLAT-SHADED" TECHNOLOGY
I. RM-5000 Prototype CIG System
A. RM5000 CIG Unit (Machine)
B. IBM PC-AT Computer with keyboard and B/W Monitor
C. 5 Gravis Joysticks
D. 2 1000 line Mitsubishi color monitors; Serial Nos. 6097790
and 8603311
E. 1 Cart
II. Other Computers
A. 1 unknown manufacturer and unregistered BO3B6 Computer with
keyboard. Main Board Serial No. SNBXA00874 (Hard disk
separate; Monitor Missing)
B. 3 80 Data 286 PCs with keyboards; Serial Nos. 22820, 21015 and
23445
C. 1 EGA high resolution monitor; Serial No. 720050B (Rental)
D. 1 Cart
III. Off-the-Shelf Software
A. Future Net
B. The Auto-Board System 2.1
C. Auto Cad
D. Miscellaneous Diskettes
IV. Quantum Graphics Developed Software
A. CAD generated software describing PC Board Layouts
B. Prototype microcode in software form
V. Drawings & Technical Data Index Code
----------
Circuit Design FPP1 x 4 - 5 #1
1 x 3 - 5 #2
Socket Diagram - Unnamed #3
Board Layouts #4 - #9
Circuit Design Schematic FPCPU-1-5
CPU-2-5
CPU-3-5
CPU-4-5 #10 - #14
Circuit Design Chip Schematic FPCBD1-5
BD2-5
BD3-5
BD4-5 #15 - #18
Circuit Design Schematics FPP1 x 2 - 5
FPP1 x 2 - 5 #19 - #20
Parts List #21
Board Masks of Boards #22 - #25
Board Masks #26 - #30
Display List Commands and Formats #31 - #33
Scratch Notes - Display List Command #34 - #37
#35 Missing
EXHIBIT "A" (4 of 4)
<PAGE>
Index Code
VI. EPROM CODE LISTINGS ----------
XYZ Location Printout #42
Printout - Signal List #38 - #41
Data I/O Prom (Program Listing?) #43 - #50
Socket Layout - 11 Sheets #51
CPU Socket Layout #52 - #54
#53, #54 Missing
VII. TIMING DIAGRAMS
Pixel Fill Controller Timing Group 1 #55
Timing Group 2 #56
Transfer Cycle Made Timing Group 3 #57
I/O Timing Group 4 #58A
List Memory Timing Group 5 #58B
Pixel Fill ControllerTiming Group 6 #59
CPU Timing Group 7 #60 Missing
Main Memory Controller Timing Group 8 #61
PAL Listing # 1 - 8 Pages - CPU 5 #62
PAL Listing # 2 - CBD 4 #63
PAL Listing # 3 - CPU 4 #64 Missing
PAL Listing # 4 - CPU 5 #65
PAL Listing # 5 - 4 Pages - PIX 3 #66
PAL Listing # 6 - 5 Pages - PIX 2 #67
PAL Listing # 7 - 4 Pages - PIX 1 #68
PAL Listing # 8 - 6 Pages - PIX 1 #69
PAL Listing # 9 - 5 Pages - CPU 4 #70 Missing
PAL Listing #10 - 8 Pages - PIX 3 #71
PAL Listing #11 - 11 Pages - PIX 2 #72
PAL Listing #12 - 2 Pages - PCAT #73
PAL Listing #13 - 2 Pages - PIX 3 #74
PAL Listing #14 - 3 Pages - CPU 5 #75
PAL Listing #15 - 3 Pages - PIX 3 #76
PAL Listing #16 - 3 Pages - CPU 5 #77
PAL Listing #17 - 10 Pages - PIX 3 #78
PAL Listing #18 - 8 Pages - PIX 3 #79
Bound Program Listing #80
PAL Listing # 1 - 5 Pages - CPU 3 #81
PAL Listing # 2 - 4 Pages - CPU 4 #82
PAL Listing # 3 - 2 Pages - PIX 1 #83
PAL Listing # 4 - 3 Pages - PIX 1 #84
PAL Listing # 5 - 2 Pages - PIX 2 #85
PAL Listing # 6 - 2 Pages - PIX 2 #86
PAL Listing # 7 - 2 Pages - PIX 2 #87
PAL Listing # 8 - 3 Pages - PIX 2 #88
PAL Listing # 9 - 3 Pages - PIX 2 #89
PAL Listing #10 - 6 Pages - PIX 2 #90
PAL Listing #11 - 3 Pages - PIX 3 #91
PAL Listing #12 - 3 Pages - PIX 3 #92
PAL Listing #13 - 3 Pages - PIX 3 #93
PAL Listing #14 - 4 Pages - PIX 2 #94
PAL Listing #15 - 3 Pages - PIX 2 #95
PAL Listing #16 - 2 Pages - PIX 2 #96
PAL Listing #17 - 2 Pages - PIX 2 #97
PAL Listing #18 - 3 Pages - CPU 5 #98
Signal Changes - 2 Pages #99
EXHIBIT "A" (2 of 3)
<PAGE>
Weitek Floating Point - Data Path #100
Sketch by T. Dillman - 5 Pages #101
Bound Copy - 30 Pages - CBD PALS #102
PAL Listing - 2 Pages #103
Bocaram Listing #104
Net Listing #105
Net Listing #106
Layout Menu #107
RAT.BAT Program Listing #108
Test of Game Adapter #109A
Board Layout Program DW5-SCR #109B
File Cabinet with Documents
VIII. All source (on diskettes with listings) and object technical information,
documentation and devices related to the "flat shade" technology,
including but not limited to, computer software systems, schematic
drawings, diagrams, image generating algorithms, designs architectures,
microcode listings, languages, programs, compilers, interpreters,
documents, data, data bases and environments, engineering drawings, plans
specifications, manuals, instructions, reports, models, and other general
and specific knowledge, experience, technics and information, whether in
written form or not, necessary to reproduce all of the operating programs,
including human readable form for intermediate programs, world compilers,
microcode, world data bases, and existing documentary recipes on how to
build the software systems and subsystems used by the RM 5000 necessary
for the development of product extensions, manufacture, use and sale of
the "flat shade" technology.
IX. All technology, parts, equipment, products, diskettes and related items,
whether tangible or intangible, claimed by TTY Graphics, Inc. Which may be
in the possession of Quantum Graphics.
X. Also any equipment, diskettes or other tangible items related to the
technology in the possession, custody or control of Quantum Graphics, its
agents, servants, employees, or custodians.
XI. The "flat shaded" technology sold includes all modifications and
improvements designed, manufactured, marketed, licensed or sold by
Tellurian Corporation, Dr. Ronald Swallow, Dr. Richard Swallow, Dr.
Lie-ching W. Tsang, Dr. Chin-yuan Tung, or Dr. Koahsiung Yang.
EXHIBIT "A" (3 of 3)
<PAGE>
EXHIBIT B
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that Pat Lowe, as trustee (the
"Trustee") for the estate of Quantum Graphics Corporation, a Texas corporation
("Quantum"), and Greg Gustin, an individual residing in Orlando, Florida
("Gustin"), for good and valuable consideration paid to it by TTY Graphics,
Inc., a New York corporation ("Buyer"), do, pursuant to the terms of the
Purchase Agreement (as defined below), hereby sell, convey, assign, transfer,
and deliver to Buyer, its successors and assigns, all of the right, title and
interest of the Trustee, Quantum and Gustin in and to the "flat shaded" computer
graphics technology described in that certain Purchase Agreement (the "Purchase
Agreement"), dated November ____, 1991, by and between the Trustee, Gustin and
Buyer, including but not limited to those items described on Exhibit A hereto
(the "Purchased Technology"), to have and to hold the same unto Buyer, its
successors and assigns, forever.
The Trustee and Gustin will take all steps necessary to put
Buyer, its successors and assigns in actual possession of the Purchased
Technology. This conveyance is made subject to the terms of the Security
Agreement (as defined in the Purchase Agreement).
<PAGE>
IN WITNESS WHEREOF, the Trustee has executed this Bill of Sale this
5th day of November, 1991.
TRUSTEE:
Pat Lowe
-------------------------------------
Pat Lowe, as Trustee for the
Estate of Quantum Graphics Corporation
GUSTIN:
-------------------------------------
Greg Gustin
STATE OF Texas ss.
ss.
COUNTY OF Uvalde ss.
The foregoing instrument was acknowledged before me this 30th day of
October, 1991 by Pat Lowe, as trustee for Quantum Graphics Corporation, a
Texas corporation.
WITNESS MY HAND AND OFFICIAL SEAL.
My commission expires: February 26, 1994.
[SEAL]
/s/ Mary Holly Dodson
-----------------------------
Notary Public
MARY HOLLY DODSON
Notary Public, State of Texas
My Commission Expires 2/26/94
<PAGE>
IN WITNESS WHEREOF, the Trustee has executed this Bill of Sale this
5th day of November, 1991.
TRUSTEE:
-------------------------------------
Pat Lowe, as Trustee for the
Estate of Quantum Graphics Corporation
GUSTIN:
/s/ Greg Gustin
-------------------------------------
Greg Gustin
STATE OF ______________ ss.
ss.
COUNTY OF _____________ ss.
The foregoing instrument was acknowledged before me this ____ day of
__________, 1991 by Pat Lowe, as trustee for Quantum Graphics Corporation, a
Texas corporation.
WITNESS MY HAND AND OFFICIAL SEAL.
My commission expires: _________________.
[SEAL]
-----------------------------
Notary Public
<PAGE>
STATE OF Florida ss.
ss.
COUNTY OF Orange ss.
The foregoing instrument was acknowledged before me this 1st day of
November, 1991 by Pat Lowe, as trustee for Quantum Graphics Corporation, a
Texas corporation.
WITNESS MY HAND AND OFFICIAL SEAL. NOTARY PUBLIC; STATE OF FLORIDA AT LARGE
MY COMMISSION EXPIRES JANUARY 29, 1994
My commission expires: BONDED THRU MUCKLEBERRY & ASSOCIATES
--------------------------------------------- .
[SEAL]
Elizabeth A XXXXXXXX
-----------------------------
Notary Public
<PAGE>
EXHIBIT C
ROYALTY COMPUTATION*
1. Gross Receipts of TTY Graphics
for the Calendar Quarter Ending
----------------- $_______
2. Amount in Row 1 not Relating to
"Flat Shaded Technology" $_______
3. Amount in Row 1 Received from
Tellurian Corporation $_______
4. Amount of TTY Graphics "Technology
Revenues" Subject to Royalty
(Row 1 less Row 2 and Row 3) $_______
5. Gross Cash Receipts of Tellurian
Corporation for the Calendar
Quarter Ending _____________ $_______
6. Amount in Row 5 not Relating to
"Flat Shaded Technology" $_______
7. Amount in Row 5 Received from
TTY Graphics $_______
8. Amount of Tellurian Corporation
"Technology Revenues" Subject
to Royalty (Row 5 less Row 6
and Row 7) $_______
9. Total "Technology Revenues"
Subject to Royalty (Row 4
plus Row 8) $_______
10. Royalty on "TECHNOLOGY REVENUES"
(Row 9 x 2/3 x 4%) $_______
* Terms in quotes are defined in the Purchase Agreement dated November ___,
1991 by TTY Graphics, Inc. Relating to Case No. 88-11532-7 in the United
States Bankruptcy Court for the Western District of Texas, Austin Division.
References to Tellurian Corporation and TTY Graphics shall be deemed to
include, without duplication, "Affiliates" where required by the Purchase
Agreement.
<PAGE>
11. Amount in Row 2 Relating to
"Other Revenues" $_______
12. Amount in Row 11 Received from
Tellurian Corporation $_______
13. Amount of TTY Graphics
"Other Revenues" Subject to
Royalty (Row 11 less Row 12) $__________
14. Amount in Row 6 Relating to
"Other Revenues" $_______
15. Amount in Row 14 Received from
TTY Graphics $_______
16. Amount of Tellurian Corporation
"Other Revenues" Subject to
Royalty (Row 14 less Row 15) $__________
17. Total "Other Revenues" Subject
to Royalty (Row 13 plus Row 16) $_________
18. Royalty on "Other Revenues"
(Row 17 x 1%) $_________
19. Royalty on Total Receipts
(Row 10 plus Row 18) $_________
- --------------------------------------------------------------------------------
A. Royalty Cap (2/3 x 1,500,000) $1,000,000
B. Less Royalty Previously Paid $__________
C. Amount of Unused Cap
(Row A minus Row B) $__________
AMOUNT PAYABLE (Lesser of Row 19 or Row C) $__________
Note: If Dr. Ronald Swallow, Dr. Richard Swallow, Ching-yuan Tung, Lee-ching W.
Tsang, Koahsiung Yang or any other current shareholder of Tellurian
Corporation directly or indirectly license the "Technology" or any part
thereof or sell products that incorporate the "Technology" and such
licensing or selling is not made by TTY Graphics, Tellurian Corporation or
an "Affiliate" of TTY Graphic or Tellurian Corporation, a written
description of such transaction, including the revenues therefrom, must be
attached to this report.
<PAGE>
EXHIBIT D
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is made this ___ day of
November, 1991, by TTY Graphics, Inc., ("Debtor"), a New York corporation, for
the benefit of Pat Lowe ("Secured Party"), as trustee for the estate of Quantum
Graphics Corporation, a Texas corporation and the debtor in that certain
proceeding filed under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C.
ss. 101 et seq., in the United States Bankruptcy Court for the Western District
of Texas, Austin Division, Case No. 88-11532-7 and Greg Gustin, an individual
residing in Orlando, Florida ("Gustin").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Purchase Agreement (the "Purchase
Agreement"), dated as of November ___, 1991, by and between Debtor, Gustin and
Secured Party, Secured Party and Gustin have agreed to sell, transfer and assign
unto Debtor, and Debtor has agreed to purchase from Secured Party and Gustin,
the Purchased Technology (as defined in the Purchase Agreement);
WHEREAS, pursuant to the Purchase Agreement, a portion of the purchase
price for the Purchased Technology is payable in the form of a Royalty (as
defined in the Purchase Agreement) on, among other things, products sold by
Debtor embodying the Technology (as defined in the Purchase Agreement);
WHEREAS, the granting by Debtor to Secured Party of the security
interest in the Technology provided for herein to secure the payment by Debtor
to Secured Party of the Royalty payable under the Purchase Agreement is a
condition precedent to Secured Party's obligation to consummate the transactions
contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, Debtor agrees for the benefit of Secured Party as follows:
I. DEFINITIONS.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Purchase Agreement. In addition, when used herein, the
following terms shall have the following meanings:
"Event of Default" means the occurrence of an event described in
Section 5.01 hereof.
<PAGE>
"Obligations" means (1) the obligations of Debtor under the Purchase
Agreement and (2) the obligation of Debtor to reimburse Secured Party for all
expenditures made by Secured Party pursuant to Article IV of this Agreement for
taxes, insurance and repairs to and maintenance of the Technology.
II. GRANT OF SECURITY INTEREST.
To secure the performance by Debtor of the Obligations, Debtor hereby
grants to Secured Party a lien on and security interest in the Technology and
Technology Revenues whether now in existence or hereafter arising, and all
accounts, accounts receivable, contract rights and general intangibles arising
from or related to the Technology whether now in existence or hereafter arising.
III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
3.01. The Technology will be used primarily for business purposes other than
farming operations.
3.02. Debtor's principal place of business initially will be at 165 Chestnut
Road, Allendale, New Jersey 17401.
3.03. At Secured Party's request, Debtor will execute all financing statements
and other instruments and will take all other actions, including the filing of
such financing statements and other instruments, as are reasonably necessary to
perfect the security interest in the Technology granted to Secured Party
pursuant to this Agreement.
3.04. Without the prior written consent of Secured Party, Debtor will not sell,
contract to sell, encumber or otherwise dispose of the Technology until the
Obligations have been fully satisfied; provided, however, nothing contained in
this Agreement shall prevent Debtor, without the prior written consent of
Secured Party, from (i) granting non-exclusive licenses to use the Technology on
such terms and conditions as it deems appropriate (in its sole discretion) or
(ii) selling products that incorporate the Technology.
3.05. Except as otherwise provided in the Purchase Agreement, Debtor will pay
all taxes and assessments on the Technology promptly when due.
3.0.6. Debtor will keep that portion of the Technology consisting of goods and
other tangible property at the location identified in Section 3.02 hereof, and
will not remove that portion of the Technology consisting of goods and other
tangible property therefrom without the prior written consent of one of the
Secured Party or Gustin, which consent shall not be unreasonably withheld;
provided, however, that Debtor may remove such goods and tangible property if
such removal would
-2-
<PAGE>
not materially and adversely affect the perfection of Secured Party's security
interest in the Technology as a whole. In the event that Debtor sends a written
notice by certified mail, return receipt requested, to the Trustee of Debtor's
desire to move such Technology and the Trustee does not object thereto in a like
manner within thirty (30) days after trustee's receipt of such notice, then the
Trustee shall be deemed to have consented thereto.
3.07. Debtor will promptly notify Secured Party of any change in the address of
its principal place of business or the place where its records concerning that
portion of the Technology consisting of general intangibles are kept.
3.08. Debtor shall take commercially reasonable steps necessary to preserve,
protect, and defend the intellectual property nature of, and intellectual
property rights related to, the Technology. Debtor further specifically agrees
that, with respect to any and all trade secrets in or related to the Technology,
Debtor shall:
(a) Obtain confidentiality agreements from any and all
officers, agents and employees of Debtor and all licensees, contractors
and other third parties who have access to trade secrets used in the
Technology restricting the use and disclosure of the Technology so as
to maximize the revenues derived by Debtor from the Technology;
(b) Maintain the Technology (other than products that are sold
or licensed) in a secure location;
(c) Prior to delivery by Debtor of the Technology to any third
party, remove or obliterate part and serial numbers as well as any
other identifying marks from the critical components of the Technology;
(d) Provide to any third party manufacturer of components of
the Technology only those specifications and schematics as are
essential to the task of the manufacturer; and
(e) To the extent reasonably feasible, stamp all designs,
programs, or other documents related to the Technology "Confidential
and Proprietary."
IV. REIMBURSEMENT OF EXPENSES
At the option of Secured Party, Secured Party may perform or cause to
be performed for and on behalf of Debtor any actions and conditions, obligations
or covenants of Debtor hereunder that Debtor has failed or refused to perform,
and may pay for the repair, maintenance, and preservation of the Technology. All
sums expended by Secured Party in connection therewith, including, but not
limited to, attorney's fees,
-3-
<PAGE>
court costs, insurance premiums, agent's fees, commissions or any other costs or
expenses, shall be payable by Debtor to secured Party upon written demand
therefor.
V. DEFAULTS.
5.01. Debtor shall be in default under this Agreement if any of the following
events or conditions occurs:
(a) Debtor fails to perform any Obligation within ten days
after receipt by Debtor or written notice from Secured Party stating
that Debtor has failed to perform such Obligation, specifying the
Obligation to be performed and requesting that the Obligation be
performed within ten days;
(b) Debtor fails to cure any breach by Debtor of any warranty,
representation or covenant of Debtor contained in this Agreement (other
than the Obligations) within thirty days after receipt by Debtor of
written notice from Secured Party stating that a breach has occurred,
specifying the breach that has occurred and requesting that the breach
be cured within thirty days;
(c) Any levy, seizure or attachment is made on or in respect
of the Technology; or
(d) Debtor is dissolved, a receiver is appointed for any part
of the Technology, debtor makes an assignment for the benefit of its
creditors, or a proceeding under any bankruptcy or insolvency law is
commenced by or against Debtor.
5.02. On or at any time after the occurrence of any Event of Default, Secured
Party may declare all Obligations immediately due and payable and may proceed to
enforce payment of the same and exercise any and all of the rights and remedies
provided by the Uniform Commercial Code as in effect in the State of Texas as
well as other rights and remedies, either at law or in equity, possessed by
Secured Party.
Secured Party may required Debtor to assemble the Technology and make
them available to Secured Party at any place to be designated by Secured Party
that is reasonably convenient to both Debtor and Secured Party. Secured Party
will give Debtor reasonable notice of the time and place of any public sale of
the Technology, or of the time after which any private sale or any other
intended disposition of the Technology is to be made. Expenses of retaking,
holding, preparing for sale, selling, or the like shall include Secured Party's
reasonable attorney's fees and legal expenses.
VI. TERMINATION
This Agreement and the security interest in the Technology created
hereunder shall terminate upon the cessation of Buyer's obligation to pay the
Royalty payable to Secured Party pursuant
-4-
<PAGE>
to the Purchase Agreement. Upon termination of this Agreement and the security
interest created hereby, Secured Party shall, at Debtor's sole cost and expense,
file such termination statements as are necessary to terminate any financing
statements filed pursuant to Section 3.03 hereof.
VII. MISCELLANEOUS PROVISIONS.
7.01. This Agreement shall be governed by and construed under and in accordance
with the Uniform Commercial Code and other applicable laws of the State of
Texas.
7.02. This Agreement shall be binding on and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, legal
representatives, successors, and assigns.
7.03. In case any one or more of the provisions contained in this Agreement
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision of this Agreement and this Agreement shall be construed as if
such invalid, illegal, or unenforceable provision had never been contained in
it.
7.04. This Agreement and the Purchase Agreement constitute the sole and only
agreement of the parties hereto and supersede any prior understandings or
written or oral agreements between the parties respecting the subject matter of
this Agreement.
7.05. All notices and other communications under this Agreement shall be given
in the manner set forth in the Purchase Agreement unless otherwise expressly set
forth herein.
7.06. If Debtor materially defaults in its obligation in the first sentence of
Section 2.4 of the Purchase Agreement to make quarterly reports or fails to
make, in accordance with its obligations under the Purchase agreement, any
payment shown on such report to be due, then Gustin may request in writing that
Secured Party exercise its rights under this Agreement. If Secured Party fails
to take such action within twenty (20) days of its receipt of Gustin's written
notice, then Gustin may exercise the rights of Secured Party under Article V
hereof. In the case of any other Event of Default, Gustin may request in writing
that Secured Party exercise its rights under this Agreement. If Secured Party
does not take such action within twenty (20) days of its receipt of Gustin's
written notice, then Gustin may exercise the rights of Secured Party under
Article V hereof. In the case of any other Event of Default, Gustin may request
in writing that Secured Party exercise its rights under this Agreement. If
Secured Party does not take such action within twenty (20) days after its
receipt of Gustin's written notice, then Gustin may bring an action to attempt
to (i) replace Secured Party as the trustee in the Proceeding or (ii) obtain
authorization for Gustin to act in the place of Secured Party in exercising
rights under Article V hereof. Secured Party, Gustin and Debtor hereby agree
that venue in any such action shall be proper in the Court.
-5-
<PAGE>
IN WITNESS WHEREOF, Debtor has hereunto caused the undersigned duly
authorized officer to set his hand for and on behalf of Debtor as of the date
first above written.
TTY GRAPHICS, INC.
By: ___________________________
Name: ___________________________
Title: ___________________________
Accepted as of the date first above written:
Pat Lowe
- ---------------------------------
Pat Lowe, as trustee for the
Estate of Quantum Graphics Corporation
Greg Gustin
- ---------------------------------
Greg Gustin
-6-
<PAGE>
Schedule 3.2.7
Tellurian, Inc.
Technology Revenues by Year
Number of Price per
Year Transactions Machine Total
- ---- ------------ ------- ------
1988 1* $ 19,000 $ 19,000
1989 1 $ 27,500 $ 27,500
4 $ 20,000 $ 80,000**
4 -0- -0-
1990 2 $ 20,000 $ 40,000
1 $ 20,000 $ 20,000
17*** $ 6,000 $ 102,000
1991**** 5 $ 15,000 $ 75,000
1 $ 20,000 $ 20,000
12** $ 6,000 $ 72,000
---------
Total $ 455,500
---------
* This machine was sold for parts valued at $19,000.
** $9,200 of this amount was paid in 1990.
*** This was a royalty transaction.
**** Reflects sales from January 1, 1991 through July 22, 1991.
<PAGE>
EX-10(j)
ASSIGNMENT OF PURCHASE AGREEMENT
THIS ASSIGNMENT OF PURCHASE AGREEMENT is made as of November 5, 1991 by
and between TTY Graphics, Inc., a New York corporation, ("TTY") and Tellurian,
Inc., a South Carolina corporation, ("Tellurian").
W I T N E S S E T H:
WHEREAS, TTY has entered into an agreement dated November 5, 1991 (the
"Agreement") by and among TTY, Pat Lowe, as trustee for the estate of Quantum
Graphics Corporation (the "Trustee") and Greg Gustin ("Gustin"), providing for
the purchase of certain rights to "flat shaded" technology from the Trustee and
Gustin; and
WHEREAS, TTY desires to assign the Agreement to Tellurian in
consideration of the financing that Tellurian provided to TTY for such purchase
and the payment of royalties to TTY.
NOW, THEREFORE, it is agreed as follows:
1. TTY hereby assigns all rights and obligations under the Agreement
and the Security Agreement entered into pursuant thereto to Tellurian. In
respect to TTY's one-third ownership in the "flat shaded" technology which was
not owned by the Trustee or Gustin, TTY hereby transfers such ownership interest
in the "flat shaded" technology so that upon the execution hereof, Tellurian
will own all rights to such technology.
2. Tellurian hereby accepts the assignment of all rights and
obligations under the Agreement and Security Agreement and agrees to faithfully
perform all obligations under the Agreement and Security Agreement.
3. In consideration for such assignment and transfer, Tellurian hereby
forgives any obligations owed to it by TTY for the financing that Tellurian
provided to TTY for such purchase and agrees to pay to TTY a royalty of
one-third of 4% of the Technology Revenues as defined in the Agreement, not to
exceed $500,000. The parties agree that the term Technology Revenues only
relates to the sale of AT-100 and AT-200 units and not to any other revenues of
Tellurian.
4. This Agreement supersedes any and all prior agreements and
understandings between the parties and shall constitute the entire agreement
between them and may not be amended except in writing signed by both parties.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed on June 17, 1996 and to be made effective as of the day and year first
above written.
TTY GRAPHICS, INC. TELLURIAN, INC.
By: Ching-yuan Tung By: Ronald Swallow
--------------------- -------------------------
President Chairman of the Board
<PAGE>
Exhibit 10(k)
TELLURIAN, INC.
15 Industrial Avenue
Upper Saddle River, N.J. 07458
voice (201) 818-6767 fax (201) 818-2290
1 AUGUST 1996
TO: Greg Gustin
FAX: (407) 855-8202
FROM: Ron Swallow
This will confirm our agreement to terminate Tellurian's and TTY's
obligations to you under the Purchase Agreement of November 5, 1991 between TYY
Graphics, Inc., Pat Lowe, Trustee for Quantum Graphics Corporation, and you,
which agreement was assigned to Tellurian by TTY.
You have agreed to release Tellurian from all obligations to you under
the Purchase Agreement, and in consideration therefor, Tellurian has agreed to
pay you the sum of $80,000. Such $80,000 is to be paid as follows: $42,500 will
be paid within ten business days from the closing of Tellurian's initial public
offering of securities but not later than March 31, 1997, and $37,500 will be
due and payable one year after the first payment.
Please signify your agreement by signing the copy of this letter
and returning it to us. This letter supersedes our letter to you
dated 7/31/96.
Sincerely,
Tellurian, Inc.
/s/ Ronald J. Swallow
----------------------------
Ronald J. Swallow, Chairman
/s/ Greg Gustin
- -------------------------
Greg Gustin
<PAGE>
Tellurian, Inc.
6 Demarest Pl
Waldwick, New Jersey 07463
(201) 251-7770
(201) 251-7788 fax
2 AUGUST 1995
TO: Greg Gustin
V-REC Int.
FAX: (407) 281-1005
FROM: Stu French
President
Greg,
Tellurian, Inc. has begun a project to extend the performance of the
EAGLE product to include:
(1) colored and semi-translucent texture, anti-aliased by means of
fading as a function of range between pairs of texture patterns selected for
that range and perspective corrected as the patterns are laid over polygons.
(2) smooth-shaded brightness over the polygons, where the texture
patterns can be used to obtain smooth shading of the color over the polygons
(3) smooth-shaded semi-translucency over the polygons
(4) smooth-shaded fog over the polygons (which texture added in the
rear-end, fog can no longer be applied to the polygon by the front end,
requiring these computations to be done after the texture is looked up and
applied to the polygon)
(5) 4 by 4 sub-pixel anti-aliasing of polygon data.
<PAGE>
Tellurian has done a feasibility study to derive the rear-end algorithm
and pipeline architecture hardware required to perform to the above
specifications. The proposed architecture for a 5nsec pixel average fill rate is
intimately based and dependent upon the use of between 40 and 50 Actel 1280-XL
FPGAs which shall eventually be converted to custom ASICs when chip production
volumes reach 500 or more for each chip type. Although these chips, in small
quantities, cost over $100 apiece, their ASIC counter parts are expected to cost
under $20 apiece so that the dominant costs of the rear-end will eventually be
the costs of the double buffer image buffer (dynamic memory), and the subpixel
image mask buffer, the translucency image buffer, and the 1/4 frame image work
buffer (all static memory with 20 nsec cycle times). As an alternative, for a
10nsec fill rate, the number of FPGAs reduces to 20 to 30 chips if on the
average, there are 3 or less visible forward polygons per pixel.
For an up-front payment of $50,000, Tellurian will make available the
results of this study with an option to secure a manufacturing license on the
completed rear-end design for an additional $150,000. This license will include
schematics and theory of operation plus a complete manufacturing package. See
Appendix A, for an additional details. All parties are free to use the results
of the study as they see fit without regard to the other.
Tellurian remains free to manufacture, sell, or modify any of its
products or future designs resulting from this work as it sees fit without
compensation to V-REC Int.
The proposed rear-end design is preliminary in nature and a "best
effort" project will be conducted to carry it to success. Acceptance of these
funds by Tellurian is not an implied guarantee of either performance or even
limited success.
Tellurian agrees to manufacture its EAGLE, and the EAGLE front-end
(which will have been modified to interface to the new rear-end) under contract
from V-REC. The manufacturing fee shall be 33% of the cost to manufacture either
unit.
Tellurian agrees to license the manufacturing rights for its EAGLE, and
the EAGLE front-end (which will have been modified to interface to the new
rear-end). The royalty fee shall be 33% of the cost to manufacture either unit.
Royalty payment is to be made to Tellurian, 60 days following the delivery of
the blank printed circuit boards from a board manufacturer who shall be required
to report to Tellurian all sales of those boards. Cost to manufacture shall
include only those costs associated with the manufacturing process, and do not
include R&D, marketing, sales costs, or profits, but shall include facility and
production equipment usage costs, purchasing, stuffing, soldering, and testing.
<PAGE>
With Tellurian's manufacturing license, V-REC agrees to only build
EAGLEs and/or textured EAGLEs for use in its own units, and agrees not to sell
these image generators as individual units. In addition, V-REC agrees not to
sell or transfer the rights which are granted by this agreement.
Tellurian agrees to manufacture the new rear-end for V-REC at
its cost to produce plus 25%.
/s/ Ronald Swallow August 3, 1995
- -------------------------- ---------------------
Ronald Swallow, CEO DATE
Tellurian, Inc.
/s/ Greg Gustin August 3, 1995
- -------------------------- ----------------------
Greg Gustin DATE
V-REC Int.
<PAGE>
EX-10(l)
AGREEMENT
THIS AGREEMENT is made as of July 23, 1996 by and between TTY
Graphics, Inc., a New York corporation, ("TTY") and Tellurian,
Inc., a Delaware corporation, ("Tellurian").
W I T N E S S E T H:
WHEREAS, TTY has entered into an agreement dated November 5, 1991 (the
"Agreement") by and among TTY, Pat Lowe, as trustee for the estate of Quantum
Graphics Corporation (the "Trustee") and Greg Gustin ("Gustin"), providing for
the purchase of certain rights to "flat shaded" technology from the Trustee and
Gustin; and
WHEREAS, Tellurian and TTY have entered into an agreement dated as of
November 5, 1991 (the "Assignment of Purchase Agreement") providing for the
assignment of the Agreement to Tellurian; and
WHEREAS, Tellurian and TTY desire to cancel Tellurian's obligation to
make any further royalty payments to TTY pursuant to the Assignment of Purchase
Agreement, except as provided below.
NOW, THEREFORE, it is agreed as follows:
1. TTY hereby agrees to cancel all of Tellurian's obligations to make
royalty payments to it under the Assignment of Purchase Agreement except for
accrued and unpaid royalties of $10,529.50 (the "Unpaid Royalties"). In
consideration for such cancellation, Tellurian agrees to make payment of the
Unpaid Royalties and an additional $70,000 as follows: $45,529.50 (the "Initial
Payment") will be due and payable within ten business days of the completion of
Tellurian's initial public offering or March31, 1997, whichever first occurs,
and the balance of $35,000 will be due and payable one year after the payment of
the Initial Payment.
2. This Agreement supersedes any and all prior agreements and
understandings between the parties and shall constitute the entire agreement
between them and may not be amended except in writing signed by both parties.
IN WITNESS WHEREOF, the parties hereto executed this agreement as of
the day and year first above written.
TTY GRAPHICS, INC. TELLURIAN, INC.
By: /s/ Ching-yuan Tung By: /s/ Ronald Swallow
-------------------- -------------------
Ching-yuan Tung Ronald Swallow
President Chairman of the Board
<PAGE>
Exhibit-10(m)
TELLURIAN, INC.
1996 INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN
1. Purpose of Plan and Effective Date.
(a) The purpose of this 1996 Incentive and Non-Statutory Stock Option
Plan (hereinafter called the "Plan") is to further the success of Tellurian,
Inc., a Delaware corporation, (hereinafter called the "Company" or "Employer
Corporation"), and any subsidiaries by making available Common Stock of the
Company for purchase by eligible directors, officers, consultants and key
employees of the Company and any subsidiaries and thus to provide an additional
incentive to such personnel to continue to serve the Company and any
subsidiaries and to give them a greater interest as stockholders in the success
of the Company. It is intended that this Plan be considered an "Employee Benefit
Plan" within the meaning of Regulation 405 of the Securities Act of 1933, as
amended (the "1934 Act").
(b) The Company intends this Plan to enable the Company to issue,
pursuant hereto, incentive stock options as such term is defined in Section 422
of the Internal Revenue Code of 1986, as amended from time to time (the "Code").
The Company also intends this Plan to enable it to issue similar options which
will not, however, be qualified as incentive stock options (also known as
"Non-Statutory" stock options).
(c) The Plan shall become effective on the date of approval by the
Board of Directors of the Company, which date is June 1, 1996; provided,
however, that the Plan shall be subject to approval and ratification by
stockholders of the Company holding a majority of its voting stock, voting in
person or by proxy, at a meeting of stockholders to be held within twelve months
from June 1, 1996.
2. Definitions.
As used in this Plan, the following terms have the following respective
meanings:
"Board" means the Board of Directors of the Company.
"Common Stock" means common stock, $.01 par value of the
Company.
"Disability" means permanent total disability as defined in
the Code.
"Fair Market Value of the Option Stock" means fair market value of the
Option Stock determined as of the date of grant of the option, in accordance
with Section 422(c)(7) of the Code and the Regulations applicable thereto. In
this regard, unless the Code states otherwise, "Fair Market Value" shall mean,
with respect to Shares of Common Stock underlying the Option Stock (the
"Shares") (i) the closing price per Share of the Shares on the principal
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exchange on which the Shares are then trading, if any, on such date, or, if the
Shares were not traded on such date, then on the next preceding trading day
during which a sale occurred; or (ii) if the Shares are not traded on an
exchange but are quoted on NASDAQ or a successor quotation system, the last
sales price or if the last sales price is not available, the mean between the
closing representative bid and asked prices for the Shares on such date as
reported by NASDAQ or such successor quotation system; or (iii) if the Shares
are not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for the
Shares on such date as determined in good faith by the Board or Committee
thereof; or (iv) if the Shares are not publicly traded, the fair market value
established by the Board or Committee thereof acting in good faith."
"Grant" means the action of the Board or the appropriate
committee at the time of grant of an option.
"Incentive Stock Option" means any incentive stock option as defined in
Section 422(b) of the Code granted to an individual for any reason connected
with his employment by the Employer Corporation at the time of the granting of a
given option under the Plan.
"Incentive Stock Option Under this Plan" means any Incentive
Stock Option granted pursuant to this Plan.
"Modification" means any change in the terms of an option which would
constitute a "modification" as defined in Section 424(h)(3) of the Code,
including, without limitation, such a modification to an option as effected by a
change in the Plan and any other change in the Plan which would increase the
number of shares reserved for options under the Plan, materially change the
administration of the Plan (except as permitted in paragraphs 4(c) hereof) or
that would otherwise materially increase the benefits accruing to, or available
for, participants in the Plan; provided, however, that registration of Option
shares under the Securities Act of 1933, as amended, shall not be deemed a
Modification.
"Non-Statutory Stock Option" means any option granted under this Plan
other than an Incentive Stock Option under this Plan.
"Option Stock" means stock subject to an option granted under this
Plan.
"Options" means any Incentive Stock Option or Non-Statutory Stock
Option, unless otherwise indicated or required by context.
"Subsidiary" means any corporation which is a "subsidiary corporation"
as defined in Section 424(f) of the Code, and the regulations thereto.
"10% Stockholder" means a person who owns stock possessing more than
10% of the total combined voting power of all classes of
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stock of Company or of any parent or subsidiary of the Company after giving
effect to the attribution of stock ownership provisions of Section 424(d) of the
Code.
References in these definitions to provisions of the Code shall, when
appropriate to effectuate the purposed of this Plan, be deemed to be references
to such provisions of the Code and regulations promulgated thereunder as the
same may be from time to time amended or to successor provisions to such
provisions. Terms defined elsewhere in this Plan shall have the meanings set
forth in such respective definitions. The term "Subsidiary" or "Subsidiaries"
shall be deemed to include any parent corporation (if any) as defined in Section
425(e) of the Code.
3. Stock Subject to Plan.
Subject to the provisions of paragraph 12 hereof, there shall be
reserved for issuance or transfer upon the exercise of Options to be granted
from time to time Under the Plan an aggregate of 400,000 shares of Common Stock,
which shares may be in whole or in part, as the Board of Directors of the
Company shall from time to time determine, authorized and unissued shares of
Common Stock or issued shares of Stock which shall have been reacquired by the
Company. If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan.
4. Administration.
(a) The Board of Directors of the Company (the "Board") shall
administer the Plan. Members of the Board shall be entitled to receive Incentive
Stock Options Under this Plan if they are employees of the Company and/or its
subsidiaries, subject to the provisions of paragraph 5 hereof. Members of the
Board who are not such employees shall be eligible to receive Non-Statutory
Stock Options, subject to paragraphs 5 and 18 hereof.
(b) The Board shall have plenary authority in its discretion, but
subject to the express provisions of the Plan: to determine the purchase price
of the Common Stock covered by each Option, the persons to whom, and the time or
times when, Options shall be granted, and the number of shares to be subject to
each Option; to determine the time or times during which Options may or must be
exercised and the conditions for exercise; to determine the time or times and
conditions under which Option rights will vest and terminate; to interpret the
Plan; to prescribe, amend, and rescind rules and regulations relating to it; to
determine the terms and provisions (and amendments thereof) of the respective
Option agreements (which need not be identical), including such terms and
provisions (and amendments thereof) as shall be required in the judgment of the
Board to conform to any change in any law or regulation applicable thereto; and
to make all other determinations deemed necessary or advisable for the
administration of the Plan. The Board's determination on the foregoing matters
shall be
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conclusive and binding on the Company and on all Optionees and their legal
representatives, except that any act constituting a modification of a plan or of
an Option must receive stockholder approval in accordance with paragraph 14
herein.
(c) To the extent permitted by the By-Laws of the Company, the Board,
by resolution, may delegate administration of the Plan to a committee composed
of not less than three (3) members of the Board. If administration is delegated
to a committee, the committee shall have the powers to administer the Plan
theretofore possessed by the Board. The committee's powers shall be subject,
however, to such resolutions as may from time to time be adopted by the Board in
exercise of the Board's final power to determine questions of policy and
expediency which arise in connection with the Plan. The Board at any time by
resolution may abolish the committee, revest the administration of the Plan in
the Board or grant options during the existence of the Committee.
5. Eligibility.
Incentive Stock Options Under this Plan may be granted under this Plan
only to officers (who are employees) and to other key employees of (a) the
Company and (b) subsidiary corporations (hereinafter called "subsidiaries") of
the Company. A director of the Company or any subsidiaries may receive an
Incentive Stock Option under this Plan if such person is otherwise an employee
of the Company and/or any subsidiaries. An employee, director or officer of the
Company (or any subsidiaries), may receive a Non- Statutory Stock Option. In
addition, consultants and advisors who the Board determines is providing bona
fide services to the Company or any subsidiaries, whether or not otherwise
compensated, may receive a Non-Statutory Stock Option so long as the Plan would
continue to qualify as an Employee Benefit Plan under the 1934 Act. In
determining the persons to whom Options shall be granted and the number of
shares to be covered by each Option, the Board may take into account the nature
of the services rendered by, and the responsibilities borne by, such respective
persons, their present and potential contributions to the Company's success and
such other factors as the Board in its discretion shall deem relevant. Subject
to the provisions of paragraph 7 hereof, Options may be granted to persons who
hold or have held options under previous plans, and a person who has been
granted an Option under the Plan may be granted an additional Option or Options
under the Plan or under any future option plan if the Board shall so determine.
6. Option Prices.
The purchase price of the Common Stock under each Option shall be
determined by the Board. The purchase price may not be less than the fair market
value of the Common Stock at the time of granting, except that in the case of a
10% Stockholder who receives an Incentive Stock Option, the purchase price may
not be less than 110% of such fair market value. In no event shall the purchase
price be less than par value of the Common Stock.
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7. Certain Limitations on Granting and Exercise of Options.
Any other provisions of this Plan to the contrary notwithstanding, the
granting and exercise of Options hereunder shall be subject to the following
limitations (which shall be in addition to the limitations, provisions and
conditions contained elsewhere in this Plan):
(a) The aggregate fair market value (determined at the time the option
is granted) of the Optioned Stock for which Incentive Stock Options are
exercisable for the first time by any employee during any calendar year (under
all such Plans of the individual's Employer Corporation and its parent and
subsidiary corporation) shall not exceed $100,000.
(b) Options may be granted as soon as practicable after the date of the
adoption of the Plan by the Board and instruments evidencing such grant(s) may
similarly be so issued, but in each case, such Options and such instruments
shall be subject to the approval and ratification of the Plan by the
stockholders of the Company as in paragraph 1 provided, and notwithstanding
anything in the Plan that may be deemed to be to the contrary, no Option may be
exercised unless and until such approval and ratification is obtained. In the
event such approval and ratification shall not be obtained, the Plan and all
Options that may have been granted pursuant thereto shall be null and void. The
shares of Common Stock underlying an Incentive Stock Option may be sold in a
disqualifying disposition under Section 421(b) of the Code.
(c) The exercise of any Option will be contingent upon receipt from the
Option holder of a representation that, at the time of such exercise, it is his
then present intention to acquire the shares being purchased for investment and
not with a view to the resale or distribution of any part thereof, unless, in
the opinion of counsel for the Company, such investment representation is not
required or unless such shares shall have been registered under the Securities
Act of 1933, as amended. The legend indicated below shall be placed on the
certificate or certificates for the shares to be delivered the Option holder
(unless such shares shall have been registered under the Securities Act of 1933,
as amended), reading as follows:
"No sale, offer to sell or transfer of the securities represented by
the certificate shall be made unless a registration statement under the Federal
Securities Act of 1933, as amended, with respect to such securities is then in
effect or an exemption from the registration requirement of such Act is then in
fact applicable to such transfer."
Similarly and in conformity to the above the Option holder understands
that necessary stop transfer orders shall be placed upon the subject
certificates in accordance with the Securities Act of 1933, as amended.
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<PAGE>
8. Duration of Options.
The term of Options granted under the Plan shall be as fixed by the
Board at the time of grant; provided, however, that (a) in the case of persons
other than 10% Stockholders, the term of an Option shall not exceed 10 years
from the date of grant, and (b) in the case of 10% Stockholders, the term of an
Option shall not exceed 5 years from the date of grant. The terms of Incentive
Stock Options may, however, be foreshortened as provided in paragraph 11 hereof.
No Option may be exercised after expiration of such Option's term.
9. Exercise of Options.
(a) An Option granted under the Plan shall be exercisable at such time
or times, whether or not in installments, as the Board shall prescribe at the
time the Option is granted. An Option which has become exercisable may be
exercised in accordance with its terms as to any or all full shares purchasable
under the provisions of the Option, but not at any time as to less than 100
shares unless the remaining shares which have become so purchasable are less
than 100 shares. The purchase price of the shares shall be paid as provided
herein and in paragraph 13 hereof, upon the exercise of the Option.
(b) Except as provided in paragraph 11, an Incentive Stock Option may
not be exercised at any time unless the holder thereof is then an employee of
the Company or any subsidiaries and shall have been continuously employed by the
Company or any subsidiaries since the date of grant (As used in this Plan, the
terms "employ" and "employment" shall be deemed to refer to employment as an
employee in any such capacity, and "termination of employment" shall be deemed
to mean termination of employment as an employee in all of such capacities and
continuation of employment as an employee in none of such capacities.)
(c) An exercisable option, or any exercisable portion thereof, may be
exercised solely by delivery to the Chief Accounting Officer of the Company or
his office of all of the following prior to the time when such option or such
portion becomes unexercisable under the Plan:
(i) Notice in writing signed by the optionee or other person
then entitled to exercise such option or portion, stating that such option or
portion is exercised, such notice complying with all applicable rules
established by the Board or Committee thereof.
(ii) (A) Full payment (in cash or by check) for the shares
with respect to which such option or portion is hereby exercised.
(B) With the consent by resolution of the Board
or Committee thereof, which consent may contain additional
restrictions to implement the provisions contained herein, shares
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<PAGE>
of any class of the Company's stock owned by the optionee duly endorsed for
transfer to the Company with a fair market value (as determinable under
paragraph 2) on the date of delivery equal to the aggregate option price of the
Shares with respect to which such option or portion is thereby exercised (which
shares shall be owned by the optionee for more than six months at the time they
are delivered);
(C) With the consent of the Board or Committee
thereof, any other form of cashless exercise permitted under
paragraph 9(d) hereof; or
(D) Any combination of the consideration provided
in the foregoing subsections (A), (B) and (C);
(iii) Such representations and documents as the Board or
Committee thereof, in its absolute discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities Act of 1933,
as amended, and any other federal or state securities laws or regulations. The
Board or Committee thereof may, in its absolute discretion, also take whatever
additional actions it deems appropriate to effect such compliance including,
without limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and
(iv) In the event that the option or portion thereof shall be
exercised by any person or persons other than the optionee, appropriate proof of
the right of such person or persons to exercise the option or portion thereof.
(d) The Board or a Committee thereof, in its sole discretion, may
establish procedures whereby an optionee, to the extent permitted by and subject
to the requirements of Rule 16B-3 under the Securities Exchange Act of 1934 (the
"Act"), Regulation T issued by the Board of Governors of the Federal Reserve
System pursuant to the Act, federal income tax laws, and other federal, state
and local tax and securities laws, can exercise an option or a portion thereof
without making a direct payment of the option price to the Company. If the
Company so elects to establish a cashless exercise program, the Company shall
determine, in its sole discretion and from time to time, such administrative
procedures and policies as it deems appropriate provided such procedures and
policies are consistent with those of any other cashless exercise program
established pursuant to any other plan established by the Company. Such
procedures and policies shall be binding on any optionee wishing to utilize the
cashless exercise program."
10. Nontransferability of Options.
No Option granted under this Plan shall be transferable other than in
the case of individuals by will or the laws of descent and distribution and an
option granted to an individual may be exercised during the lifetime of the
holder thereof, only by the holder.
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11. Termination of Employment.
Except in the case of Optionee's death as provided below, in the event
of termination of employment of a person to whom an Incentive Stock Option has
been granted under the Plan, notwithstanding the reason for termination (such as
termination for cause, without cause, voluntary on the part of the optionee, or
by reason of death or disability), any Incentive Stock Option held by him under
the Plan, to the extent not theretofore exercised, shall immediately upon
termination of employment terminate. Incentive Stock Options granted under the
Plan shall not be affected by any change of employment so long as the holder
continues in the employ of the Company or any subsidiaries. Nothing in the Plan
or in any Option granted pursuant to the Plan shall confer on any individual any
right to continue in the employ of the Company or any subsidiaries or affiliates
or interfere in any way with the right of the Company or any subsidiaries or
affiliates to terminate his employment or occupancy of any corporate office at
any time.
In the event of the death of an Optionee to whom an Incentive Stock
Option has been granted under the Plan while he is in the employ of the Company
or a subsidiary, such Incentive Stock Option may be exercised (to the extent of
the number of shares covered by the Incentive Stock Option which were
purchasable by the Optionee at the date of his death) by the estate of the
Optionee, or by a person who acquired the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the Optionee, at
any time within a period of six months after his death, but in no event after
the day in which the Incentive Stock Option would otherwise terminate under
paragraph 8.
In the event of termination of employment of a person to whom an
Incentive Stock Option has been granted under the Plan by reason of the
disability of such person, the optionee may exercise his Incentive Stock Option
at any time within one year after such termination of employment but in no event
after the day in which the Incentive Stock Option would otherwise terminate, to
the extent of the number of shares covered by his Incentive Stock Option which
were purchasable by him at the date of the termination of employment.
In the case of Non-Statutory Stock Options, the disability or death of
optionee shall not terminate the options granted to an officer, director or
employee so long as such officer, director or employee was continuously
performing services for the Company up to the date of his disability or death,
as the case may be. In the case of Non-Statutory Options, the Board of Directors
shall determine other applicable termination provisions of these Options, if
any, in accordance with paragraph 4.
12. Adjustment upon Changes in Capitalization.
Subject to compliance with the requirements for qualification of the
Plan and of the Options issued or to be issued thereunder as "Incentive Stock
Options" under applicable provisions of federal
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laws and regulations, the aggregate number and class of shares as to which
Options may be granted under the Plan, the number and class of shares covered by
each outstanding Option and the price per share thereof (but not the total
price), and each such Option, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock of the
Company resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any stock dividends, or any other increase or
decrease in the number of issued shares of Common Stock of the Company without
receipt of consideration by the Company.
Subject to any required action by the stockholders, if the Company
shall be the surviving corporation in any merger or consolidation, any Option
granted hereunder shall be adjusted so as to pertain and apply to the securities
to which the holder of the number of shares of Common Stock of the Company
subject to the Option would have been entitled.
Upon (i) the dissolution or liquidation of the Company, (ii) a merger
or consolidation of the Company with one or more corporations as a result of
which the Company is not the surviving corporation, or (iii) a sale or other
disposition of all or substantially all of the assets of the Company, any Option
granted hereunder at the discretion of the Board of Directors by Resolution
shall terminate, but the Option holder shall have the right, prior to any such
event, to exercise his Option in whole or in part, but in no event after the day
in which the Option would otherwise terminate under paragraph 8. Notwithstanding
anything contained herein to the contrary, if the Company is merged into a
corporation which will be substantially (i.e. 70% or more) owned after the
merger by the same shareholders of the Company, then any Option granted
hereunder shall be adjusted so as to pertain and apply to the securities to
which the holder of the number of shares of Common Stock of the Company subject
to the Option would have been entitled.
Adjustments under this Paragraph 12 shall be made by the Board, whose
determination as to what adjustment shall be made, and the extent thereof, shall
be final, binding and conclusive.
13. Payment of Purchase Price, Federal Income Tax or Other
Withholding Amount.
(a) The shares to be purchased upon exercise of any Option shall be
paid for in accordance with the provisions of paragraph 9. In respect to
Non-Statutory Stock Options or any Incentive Stock Options which fail to qualify
as such for any reason, any required federal income tax or other withholding
amount shall be paid (in full) by the Option Holder to the Company. The Company
shall not be required to deliver or transfer certificates for such shares until
all such payments have been made, and until the Company has had an opportunity
(at its sole option) to obtain verification from the Option Holder that all
federal income tax or other withholding amounts have been properly calculated
and paid.
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(b) The Board of Directors is authorized, in its sole discretion, to
establish a program, if any, in which option holders may deliver shares of the
Company or have the Company withhold shares otherwise issuable upon exercise of
an option in order to satisfy federal and state withholding tax liability with
respect to the grant of an option, its exercise or any payment or transfer under
such option.
14. Termination and Amendment.
(a) Unless the Plan shall theretofore have been terminated as
hereinafter provided, it shall terminate on, and no Options shall be granted
thereunder after June 1, 2006 (i.e., 10 years from the adoption of this Plan).
The Plan may be terminated earlier by the stockholders of the Company or by the
Board.
(b) Modifications or other amendments to the Plan may be made by the
stockholders of the Company. The Plan may also be amended by the Board;
provided, however, that no amendment which shall constitute a Modification shall
be effective unless approved by the stockholders of the Company within 12 months
before or after the adoption of the Modification.
(c) No termination, Modification, or amendment of the Plan, may,
without the consent of the optionee to whom any Option shall theretofore have
been granted, adversely affect the rights of such optionee under such Option;
nor shall any such Modification or amendment be deemed to effect a Modification,
extension or renewal of any such Option previously granted except pursuant to an
express written agreement to such effect, executed by the Company and the
optionee.
15. Time of Granting Options.
Nothing contained in the Plan shall constitute the granting of any
Option hereunder. The granting of an Option pursuant to the Plan shall take
place only upon approval by the Board (or its delegate under paragraph 4
hereunder) of a resolution granting an Option under this Plan. Notice of the
determination shall be given to each person to whom an Option is so granted
within a reasonable time after the date of such grant. After the granting of an
Option under this Plan, a written Option agreement shall be duly executed by or
on behalf of the Company.
16. Form and Terms of Option Agreement.
Option agreements evidencing Options granted pursuant to the Plan
shall be in such form and shall contain such terms not inconsistent with the
Plan as the Board may approve. Option agreements may contain such restrictions
upon the exercise of Options and upon the transfer of Common Stock acquired upon
exercise of Options (and such provisions for the enforcement of such
restrictions) as the Board may consider necessary to insure compliance with the
Securities Act of 1933, as amended, and/or with state "Blue Sky" laws.
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17. Partial Invalidity.
The invalidity or unenforceability of any particular provision of
this Plan shall not affect the other provisions of this Plan nor affect the
validity or enforceability of the other provisions of Options granted under this
Plan, and this Plan and the Options granted hereunder shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
18. Special Provisions with Respect to Incentive Stock Options
under this Plan and Non-Statutory Stock Options.
Paragraph 5 provides for the persons eligible to receive Options
granted under this Plan. The Board in granting any Option shall indicate whether
it intends the Option to be an Incentive Stock Option Under this Plan or a
Non-Statutory Stock Option and shall cause the Option agreement with respect
thereto to indicate such intention. Should a person hold both one or more
Incentive Stock Options Under this Plan and one or more Non-Statutory Stock
Options, all of such Options shall be exercisable in accordance with their
respective terms and limitations, and nothing in this Plan shall be construed as
causing the exercise of any such Option to preclude the exercise of any such
other Option in accordance with its terms.
19. Miscellaneous
Shares of Common Stock of the Company which are subject to Option but
which have not yet been purchased or paid for shall have no subscription rights
and no Option holder shall be deemed to be a stockholder of the Corporation for
any purpose.
Plan Adopted by the Board of Directors on June 1, 1996 and by the stockholders
on June 1, 1996.
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Exhibit-10(n)
Note No. 1
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), NOR APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("THE COMMISSION"), OR BY THE SECURITIES REGULATORY
AUTHORITY OF ANY STATE, NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY OF ANY
STATE PASSED UPON THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE
MEMORANDUM. THE MEMORANDUM HAS NOT BEEN FILED WITH, OR REVIEWED BY, ANY FEDERAL,
STATE OR OTHER REGULATORY AUTHORITY. THESE SECURITIES MAY NOT BE SOLD IN THE
ABSENCE OF A REGISTRATION STATEMENT OR AN EXEMPTION FROM REGISTRATION. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
8% SUBORDINATED PROMISSORY NOTE DUE DECEMBER 27, 1997
$192,000 December 27, 1995
TELLURIAN, INC., a South Carolina corporation (the "Company"), for
value received, promises to pay to the order of IMAFINA S.A. Att: Hubert
Hendrickx at 21 Rue de Camps, 75116 Paris France or at the offices of the
Company, the sum of $192,000 on December 27, 1997 with interest from the date
hereof on the unpaid principal hereof until maturity (whether as stated or by
acceleration), according to the tenor hereof (hereinafter, the "Note", intending
to be one of one or more similar "Notes"), at a rate of 8% per annum (and after
such maturity or demand at a rate per annum equal to 8%) until such principal is
paid in full. Interest shall be payable annually in arrears commencing September
1, 1996 cumulative if not timely paid, with a final payment of interest upon
maturity. Interest shall be calculated on the basis of a 360-day year for actual
days elapsed (all of the foregoing are hereinafter collectively called the
"Obligations").
This Note was issued pursuant to the Confidential Private Placement
Memorandum dated October 23, 1995 and delivered to the Lender (the
"Memorandum"). This Note is one of a series of notes that have been delivered to
investors in the Private Placement.
The Company for itself, its successors and assigns, covenants and
agrees, and each holder of this Note, by his acceptance hereof, likewise
covenants and agrees, that the payment of the principal of, premium (if any) and
interest on, this Note is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, in right of payment to the prior payment in
full of all "Senior Indebtedness," as that term is herein defined.
In case of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company:
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payment thereof in full, including all
<PAGE>
principal, premium, if any, and interest, or provision shall be made for such
payment before the holder of this Note receives any payment upon the principal
of, premium, if any, or interest on, indebtedness evidenced by this Note;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holder of this
Note would be entitled except for the subordination provisions hereof shall be
paid and/or delivered by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each to the extent necessary to make payment
in full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution (or provision therefor) to the holders of
such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the holder of this Note before all
Senior Indebtedness is paid in full or provision is made for such payment, such
payment or distribution shall be held in trust for the benefit of and promptly
paid over to the holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the holder of this
Note shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until the unpaid principal of, premium, if any, and interest
on this Note shall be paid in full. No such payments or distributions applicable
to the Senior Indebtedness shall, as between the Company, its creditors other
than the holders of Senior Indebtedness, and the holder of this Note, be deemed
to be a payment by the Company to or on account of this Note. The subordination
provisions of this Note are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the holder of
the Senior Indebtedness, on the other hand.
2
<PAGE>
Nothing contained herein is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holder of this Note, the obligation of the Company, which is unconditional and
absolute, to pay to the holder of this Note the principal of (and premium, if
any) and interest on this Note as and when the same shall become due and payable
in accordance with its terms, or to affect the relative rights of the holder of
this Note and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the holder of this
Note from exercising all remedies otherwise permitted by applicable law upon
default under this Note, subject to the rights, if any, under the subordination
provisions of this Note of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy.
Upon any payment or distribution of assets of the Company referred to
in the subordination provisions of this Note, the holder of this Note shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of this
Note for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to the
subordination provisions of this Note.
No payments on account of principal, premium, if any, or interest on
this Note, shall be made unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for in money or money's worth. No payments on account of
principal, premium, if any, or interest on this Note, shall be made if: (i) at
the time of such payment or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness is issued, any default or any condition, event or act, which
with notice or lapse of time, or both, would constitute a default, or (ii) the
Company shall have received from any holder of Senior Indebtedness or the
representative of a holder of Senior Indebtedness written notice of the
existence of any default or any condition, event or act, which, with notice or
lapse of time, or both, would constitute a default, or which would preclude the
making of any payment by the Company with respect to the principal, premium, if
any, or interest on this Note; in any such case unless and until such default
shall have been cured or waived or shall have ceased to exist.
Nothing contained in the subordination provisions of this Note, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except during the pendency of any such insolvency,
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings,
and except during
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<PAGE>
the continuance of any default specified in the immediately preceding paragraph
(not cured or waived), payments at any time of principal of, and premium or
interest on, this Note.
The term "Senior Indebtedness" shall mean the principal of, and premium
(if any) on, and interest on all indebtedness of the Company (other than the
Notes), whether outstanding on the date of this Note or hereafter created for
money borrowed by the Company or other monetary obligations of the Company
(whether the same be evidenced by debentures or notes (other than the Notes) or
evidenced by a letter of credit, loan agreement or an indenture or similar
instrument) from, owing to, or guaranteed to, banks, trust companies, leasing
companies, insurance companies or other institutional lenders and any renewal,
extension refunding, amendment or modifications of any such Senior Indebtedness,
including without limitation of the foregoing, purchase money mortgages,
mortgages made or given or guaranteed by the Company as mortgagor or guarantor,
and assumed or guaranteed mortgages, upon property, but excluding any
indebtedness to trade creditors or suppliers on open account for work, labor,
services and materials and excluding any indebtedness which by the terms of the
instrument creating or evidencing the same is stated to be not superior in right
of payment to the Notes. During the continuation of any default in the payment
of principal or interest on any Senior Indebtedness, no payment of principal or
interest may be made by the Company on the Notes. This Note contains no
limitation on the amount of additional Senior Indebtedness or other indebtedness
that may be issued or incurred. However, the Company will not incur indebtedness
that is senior to this Note other than Senior Indebtedness.
The transferability of the Notes is restricted under the Federal and
State Securities Laws.
No sale, offer to sell or transfer of this Note shall be made unless a
registration statement under the Federal Securities Act of 1933, as amended,
with respect to such securities is then in effect or an exemption from the
registration requirement of such Act is then in fact applicable to such
transfer.
THIS NOTE IS NOT CONVERTIBLE INTO OTHER SECURITIES OF THE COMPANY.
4
<PAGE>
ARTICLE I
Redemption
1.1 Subject to the subordination provisions of the Notes, the Company
may, at its option, redeem (the "Prepayment Date") this Note in whole and not in
part, at 100% of the face value of this Note by giving written notice to the
holders of this Note to that effect at least 30 calendar days prior to the
redemption date.
Notice of redemption to the holders of the Notes to be redeemed shall
be mailed by the Company by first class mail, postage prepaid, at least 30 and
not more than 60 days prior to the redemption date, to the holders of Notes,
which are to be redeemed, at their last addresses as they shall appear in the
books of Registration, but failure of a Noteholder to receive such notice shall
not affect the validity of the proceedings for the redemption of any of the
Notes.
1.2 Upon the giving of notice of redemption as above provided, the
Notes to be redeemed shall become due and payable on the date and at the place
stated in such notice at the applicable redemption price, together with interest
accrued to the date fixed for redemption, and on and after such date fixed for
redemption (unless the Company shall make default in the payment of such Notes
at the redemption, interest on the Notes so called for redemption shall cease to
accrue and such Notes shall be deemed not to be outstanding.
1.3 Upon the completion of the public offering, the Company will
promptly notify its noteholders that it will redeem the Notes at 100% of the
face amount of the Note plus accrued and unpaid interest. Such notice will
provide for the redemption of the Notes within 30 days of the closing of such
offering.
5
<PAGE>
ARTICLE II
Voting Rights
2.1 The holders of shares of the Common Stock issued and outstanding,
except as otherwise provided by law or by the Company's Certificate of
Incorporation, have and possess the exclusive right to notice of stockholders'
meetings, and the exclusive voting rights and powers, and the holder of this
Note shall not be entitled to notice of any stockholders' meetings or possess
any right to vote upon the election of directors or upon any other matter.
ARTICLE III
Default
3.1 The Company waives protest, demand for payment, notice of default
or non-payment to the Lender and to any party liable upon or any guarantor,
surety or indemnitor for the Obligation. The Company consents that the
Obligation of any party for or upon any liability may, from time to time, in
whole or in part, be renewed, extended, modified, accelerated, compromised,
settled or released by Lender, without affecting the liability of the Company
upon Obligation. Lender shall not be liable for failure to collect or realize
upon any Obligation, or for any delay in so doing, nor shall Lender be under any
obligation to take any action with regard thereto.
3.2. The holders of not less than 50% by amount of all Notes issued by
the Company in connection with the Private Placement, may consent to change any
terms covering the Notes except those terms relating to interest rate, payment
dates and maturity date which may be changed only by unanimous consent of the
Note holders.
The holders of not less than fifty (50%) percent of the principal
amount of the Notes then outstanding by notice in writing sent by registered
mail to the Company may declare the principal amount of all the Notes
outstanding to be forthwith due and payable, and upon any such declaration the
same shall become immediately due and payable, in the following events:
(a) If default shall be made in the payment of any installment
of interest on any of the Notes when and as the same shall become due and
payable, as herein provided, after allowance for a grace period of fifteen (15)
days and such default shall continue for a period of an additional fifteen (15)
days after written notice is received by the Company from the Note holders; or
(b) If default shall be made in the payment of the
principal of any of the Notes when and as the same shall become due
and payable; or
(c) If the Company shall institute proceedings for voluntary
bankruptcy, or shall apply for or consent to the appointment of a receiver for
itself or any of its property, or shall make an assignment for the benefit of
its creditors, or shall
6
<PAGE>
go into voluntary liquidation or be dissolved, or shall admit in writing its
inability to pay its debts generally as they mature, or shall institute
proceedings for reorganization, readjustment, arrangement, composition or
similar relief under any bankruptcy, insolvency or other applicable law, or
shall file an answer in any such proceedings against it joining in seeking such
relief or not objecting thereto; or
(d) If an order, judgment or decree shall have been made for
the appointment of a receiver of the Company or of a substantial part of its
property, or approving a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for the Company under any bankruptcy,
insolvency or other applicable law, or adjudging the Company to be bankrupt or
insolvent, and such order, judgment or decree shall remain in force for sixty
(60) days without any stay thereof.
(e) If one or more judgments, decrees or orders for the
payment of money in excess of $100,000 in the aggregate shall be rendered
against the Company and/or its subsidiaries, and such judgments, decrees, or
orders shall continue unsatisfied and in effect for a period of 30 consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal.
3.3 Lender shall not, by any act, delay, omission or otherwise, be
deemed to have waived any rights or remedies hereunder. No waiver shall be valid
unless signed by Lender. Any waiver by Lender on any occasion shall not bar any
right or remedy which Lender would otherwise have had on any future occasion. No
executory agreement, unless signed by Lender, and no course of dealing between
the Company and Lender, shall be effective to modify or discharge, in whole or
in part, this Note. All rights and remedies of Lender shall be cumulative and
may be exercised singly or concurrently.
3.4 Any notice to Lender shall be deemed effective when received by the
Lender at the address of the Lender set forth above. Lender and the Company, in
any litigation relating to any Obligation waive trial by jury and the Company,
in addition, waives the right to interpose any set-off or counterclaim of any
nature or description.
3.5 Except as set forth under 3.2(b),(c),(d) and (e), notwithstanding
anything herein to the contrary, the Company shall not be deemed in default
under this Note unless it has received notice of the default from one or more of
the Note holders and such default shall continue for a period of an additional
fifteen (15) days after written notice is received by the Company from the Note
holders.
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<PAGE>
ARTICLE IV
Miscellaneous
4.1 Time for payment extended by law shall be included in computation
of interest.
4.2 This Note shall be governed by and construed in accordance with
laws of the State of New Jersey.
4.3 No recourse shall be had for the payment of the principal of, or
interest on, this Note, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
4.4 Notwithstanding anything contained herein to the contrary, the Note
(hereinafter referred to as the "Notes") may not be disposed of except in
compliance with all applicable federal and state securities laws. In this
respect, before selling or otherwise disposing of the Notes, the holder shall
give five business days prior written notice to the Company of his intention to
do so. The notice by the holder shall specify the Notes proposed to be sold or
otherwise disposed of and describe in reasonable detail the amount of the
proposed sale or other disposition and shall be accompanied by an opinion (in
form and substance reasonably satisfactory to the Company's counsel) of the
holder's securities counsel addressed to the Company as to whether the proposed
sale or other disposition may be effected without the filing of a Registration
Statement under the Securities Act of 1933, as amended (the "Act"), covering the
Notes proposed to be sold or otherwise disposed of. If in the opinion of such
counsel, and of counsel for the Company, no such registration action is
necessary, the holder, may sell or otherwise of dispose of such Notes in the
manner described by him in the notice given to the Company. (Copies of any
documents which the holder or his counsel files with the Securities and Exchange
Commission regarding the sale or other disposition will immediately be provided
by him or his counsel to the Company.) If, in the opinion of counsel for the
Company registration of such Notes under the Act is necessary, no such sale or
other disposition may be effected by him other than as contemplated by a
Registration Statement filed under the Act which has become effective under such
Act.
TELLURIAN, INC.
By: /s/ Stuart French
---------------------------------------
STUART FRENCH, President
8
<PAGE>
Exhibit 10(o)
Note No. 2
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), NOR APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("THE COMMISSION"), OR BY THE SECURITIES REGULATORY
AUTHORITY OF ANY STATE, NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY OF ANY
STATE PASSED UPON THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE
MEMORANDUM. THE MEMORANDUM HAS NOT BEEN FILED WITH, OR REVIEWED BY, ANY FEDERAL,
STATE OR OTHER REGULATORY AUTHORITY. THESE SECURITIES MAY NOT BE SOLD IN THE
ABSENCE OF A REGISTRATION STATEMENT OR AN EXEMPTION FROM REGISTRATION. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
8% SUBORDINATED PROMISSORY NOTE DUE JANUARY 22, 1998
$528,000 January 22, 1996
TELLURIAN, INC., a South Carolina corporation (the "Company"), for
value received, promises to pay to the order of JERICHO LIMITED, C/O INTERTRUST
MANAGEMENT S.A., P.O. BOX 3292, 16 rue de la Pelisserie, 1211 Geneva 3,
Switzerland or at the offices of the Company, the sum of $528,000 on January 22,
1998 with interest from the date hereof on the unpaid principal hereof until
maturity (whether as stated or by acceleration), according to the tenor hereof
(hereinafter, the "Note", intending to be one of one or more similar "Notes"),
at a rate of 8% per annum (and after such maturity or demand at a rate per annum
equal to 8%) until such principal is paid in full. Interest shall be payable
annually in arrears commencing September 1, 1996 cumulative if not timely paid,
with a final payment of interest upon maturity. Interest shall be calculated on
the basis of a 360-day year for actual days elapsed (all of the foregoing are
hereinafter collectively called the "Obligations").
This Note was issued pursuant to the Confidential Private Placement
Memorandum dated October 23, 1995 and delivered to the Lender (the
"Memorandum"). This Note is one of a series of notes that have been delivered to
investors in the Private Placement.
The Company for itself, its successors and assigns, covenants and
agrees, and each holder of this Note, by his acceptance hereof, likewise
covenants and agrees, that the payment of the principal of, premium (if any) and
interest on, this Note is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, in right of payment to the prior payment in
full of all "Senior Indebtedness," as that term is herein defined.
In case of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company:
<PAGE>
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment thereof in full, including all principal, premium, if any, and
interest, or provision shall be made for such payment before the holder of this
Note receives any payment upon the principal of, premium, if any, or interest
on, indebtedness evidenced by this Note;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holder of this
Note would be entitled except for the subordination provisions hereof shall be
paid and/or delivered by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each to the extent necessary to make payment
in full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution (or provision therefor) to the holders of
such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the holder of this Note before all
Senior Indebtedness is paid in full or provision is made for such payment, such
payment or distribution shall be held in trust for the benefit of and promptly
paid over to the holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the holder of this
Note shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until the unpaid principal of, premium, if any, and interest
on this Note shall be paid in full. No such payments or distributions applicable
to the Senior Indebtedness shall, as between the Company, its creditors other
than the holders of Senior Indebtedness, and the holder of this Note, be deemed
to be a payment by the Company to or on account of this Note. The subordination
provisions of this Note are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the holder of
the Senior Indebtedness, on the other hand.
2
<PAGE>
Nothing contained herein is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holder of this Note, the obligation of the Company, which is unconditional and
absolute, to pay to the holder of this Note the principal of (and premium, if
any) and interest on this Note as and when the same shall become due and payable
in accordance with its terms, or to affect the relative rights of the holder of
this Note and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the holder of this
Note from exercising all remedies otherwise permitted by applicable law upon
default under this Note, subject to the rights, if any, under the subordination
provisions of this Note of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy.
Upon any payment or distribution of assets of the Company referred to
in the subordination provisions of this Note, the holder of this Note shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of this
Note for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to the
subordination provisions of this Note.
No payments on account of principal, premium, if any, or interest on
this Note, shall be made unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for in money or money's worth. No payments on account of
principal, premium, if any, or interest on this Note, shall be made if: (i) at
the time of such payment or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness is issued, any default or any condition, event or act, which
with notice or lapse of time, or both, would constitute a default, or (ii) the
Company shall have received from any holder of Senior Indebtedness or the
representative of a holder of Senior Indebtedness written notice of the
existence of any default or any condition, event or act, which, with notice or
lapse of time, or both, would constitute a default, or which would preclude the
making of any payment by the Company with respect to the principal, premium, if
any, or interest on this Note; in any such case unless and until such default
shall have been cured or waived or shall have ceased to exist.
Nothing contained in the subordination provisions of this Note, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except during the pendency of any such insolvency,
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings,
and except during
3
<PAGE>
the continuance of any default specified in the immediately preceding paragraph
(not cured or waived), payments at any time of principal of, and premium or
interest on, this Note.
The term "Senior Indebtedness" shall mean the principal of, and premium
(if any) on, and interest on all indebtedness of the Company (other than the
Notes), whether outstanding on the date of this Note or hereafter created for
money borrowed by the Company or other monetary obligations of the Company
(whether the same be evidenced by debentures or notes (other than the Notes) or
evidenced by a letter of credit, loan agreement or an indenture or similar
instrument) from, owing to, or guaranteed to, banks, trust companies, leasing
companies, insurance companies or other institutional lenders and any renewal,
extension refunding, amendment or modifications of any such Senior Indebtedness,
including without limitation of the foregoing, purchase money mortgages,
mortgages made or given or guaranteed by the Company as mortgagor or guarantor,
and assumed or guaranteed mortgages, upon property, but excluding any
indebtedness to trade creditors or suppliers on open account for work, labor,
services and materials and excluding any indebtedness which by the terms of the
instrument creating or evidencing the same is stated to be not superior in right
of payment to the Notes. During the continuation of any default in the payment
of principal or interest on any Senior Indebtedness, no payment of principal or
interest may be made by the Company on the Notes. This Note contains no
limitation on the amount of additional Senior Indebtedness or other indebtedness
that may be issued or incurred. However, the Company will not incur indebtedness
that is senior to this Note other than Senior Indebtedness.
The transferability of the Notes is restricted under the Federal and
State Securities Laws.
No sale, offer to sell or transfer of this Note shall be made unless a
registration statement under the Federal Securities Act of 1933, as amended,
with respect to such securities is then in effect or an exemption from the
registration requirement of such Act is then in fact applicable to such
transfer.
THIS NOTE IS NOT CONVERTIBLE INTO OTHER SECURITIES OF THE COMPANY.
4
<PAGE>
ARTICLE I
Redemption
1.1 Subject to the subordination provisions of the Notes, the Company
may, at its option, redeem (the "Prepayment Date") this Note in whole and not in
part, at 100% of the face value of this Note by giving written notice to the
holders of this Note to that effect at least 30 calendar days prior to the
redemption date.
Notice of redemption to the holders of the Notes to be redeemed shall
be mailed by the Company by first class mail, postage prepaid, at least 30 and
not more than 60 days prior to the redemption date, to the holders of Notes,
which are to be redeemed, at their last addresses as they shall appear in the
books of Registration, but failure of a Noteholder to receive such notice shall
not affect the validity of the proceedings for the redemption of any of the
Notes.
1.2 Upon the giving of notice of redemption as above provided, the
Notes to be redeemed shall become due and payable on the date and at the place
stated in such notice at the applicable redemption price, together with interest
accrued to the date fixed for redemption, and on and after such date fixed for
redemption (unless the Company shall make default in the payment of such Notes
at the redemption, interest on the Notes so called for redemption shall cease to
accrue and such Notes shall be deemed not to be outstanding.
1.3 Upon the completion of the public offering, the Company will
promptly notify its noteholders that it will redeem the Notes at 100% of the
face amount of the Note plus accrued and unpaid interest. Such notice will
provide for the redemption of the Notes within 30 days of the closing of such
offering.
5
<PAGE>
ARTICLE II
Voting Rights
2.1 The holders of shares of the Common Stock issued and outstanding,
except as otherwise provided by law or by the Company's Certificate of
Incorporation, have and possess the exclusive right to notice of stockholders'
meetings, and the exclusive voting rights and powers, and the holder of this
Note shall not be entitled to notice of any stockholders' meetings or possess
any right to vote upon the election of directors or upon any other matter.
ARTICLE III
Default
3.1 The Company waives protest, demand for payment, notice of default
or non-payment to the Lender and to any party liable upon or any guarantor,
surety or indemnitor for the Obligation. The Company consents that the
Obligation of any party for or upon any liability may, from time to time, in
whole or in part, be renewed, extended, modified, accelerated, compromised,
settled or released by Lender, without affecting the liability of the Company
upon Obligation. Lender shall not be liable for failure to collect or realize
upon any Obligation, or for any delay in so doing, nor shall Lender be under any
obligation to take any action with regard thereto.
3.2. The holders of not less than 50% by amount of all Notes issued by
the Company in connection with the Private Placement, may consent to change any
terms covering the Notes except those terms relating to interest rate, payment
dates and maturity date which may be changed only by unanimous consent of the
Note holders.
The holders of not less than fifty (50%) percent of the principal
amount of the Notes then outstanding by notice in writing sent by registered
mail to the Company may declare the principal amount of all the Notes
outstanding to be forthwith due and payable, and upon any such declaration the
same shall become immediately due and payable, in the following events:
(a) If default shall be made in the payment of any installment
of interest on any of the Notes when and as the same shall become due and
payable, as herein provided, after allowance for a grace period of fifteen (15)
days and such default shall continue for a period of an additional fifteen (15)
days after written notice is received by the Company from the Note holders; or
(b) If default shall be made in the payment of the principal
of any of the Notes when and as the same shall become due and payable; or
(c) If the Company shall institute proceedings for voluntary
bankruptcy, or shall apply for or consent to the appointment of a receiver for
itself or any of its property, or shall make an assignment for the benefit of
its creditors, or shall
6
<PAGE>
go into voluntary liquidation or be dissolved, or shall admit in writing its
inability to pay its debts generally as they mature, or shall institute
proceedings for reorganization, readjustment, arrangement, composition or
similar relief under any bankruptcy, insolvency or other applicable law, or
shall file an answer in any such proceedings against it joining in seeking such
relief or not objecting thereto; or
(d) If an order, judgment or decree shall have been made for
the appointment of a receiver of the Company or of a substantial part of its
property, or approving a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for the Company under any bankruptcy,
insolvency or other applicable law, or adjudging the Company to be bankrupt or
insolvent, and such order, judgment or decree shall remain in force for sixty
(60) days without any stay thereof.
(e) If one or more judgments, decrees or orders for the
payment of money in excess of $100,000 in the aggregate shall be rendered
against the Company and/or its subsidiaries, and such judgments, decrees, or
orders shall continue unsatisfied and in effect for a period of 30 consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal.
3.3 Lender shall not, by any act, delay, omission or otherwise, be
deemed to have waived any rights or remedies hereunder. No waiver shall be valid
unless signed by Lender. Any waiver by Lender on any occasion shall not bar any
right or remedy which Lender would otherwise have had on any future occasion. No
executory agreement, unless signed by Lender, and no course of dealing between
the Company and Lender, shall be effective to modify or discharge, in whole or
in part, this Note. All rights and remedies of Lender shall be cumulative and
may be exercised singly or concurrently.
3.4 Any notice to Lender shall be deemed effective when received by the
Lender at the address of the Lender set forth above. Lender and the Company, in
any litigation relating to any Obligation waive trial by jury and the Company,
in addition, waives the right to interpose any set-off or counterclaim of any
nature or description.
3.5 Except as set forth under 3.2(b),(c),(d) and (e), notwithstanding
anything herein to the contrary, the Company shall not be deemed in default
under this Note unless it has received notice of the default from one or more of
the Note holders and such default shall continue for a period of an additional
fifteen (15) days after written notice is received by the Company from the Note
holders.
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<PAGE>
ARTICLE IV
Miscellaneous
4.1 Time for payment extended by law shall be included in computation
of interest.
4.2 This Note shall be governed by and construed in accordance with
laws of the State of New Jersey.
4.3 No recourse shall be had for the payment of the principal of, or
interest on, this Note, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
4.4 Notwithstanding anything contained herein to the contrary, the Note
(hereinafter referred to as the "Notes") may not be disposed of except in
compliance with all applicable federal and state securities laws. In this
respect, before selling or otherwise disposing of the Notes, the holder shall
give five business days prior written notice to the Company of his intention to
do so. The notice by the holder shall specify the Notes proposed to be sold or
otherwise disposed of and describe in reasonable detail the amount of the
proposed sale or other disposition and shall be accompanied by an opinion (in
form and substance reasonably satisfactory to the Company's counsel) of the
holder's securities counsel addressed to the Company as to whether the proposed
sale or other disposition may be effected without the filing of a Registration
Statement under the Securities Act of 1933, as amended (the "Act"), covering the
Notes proposed to be sold or otherwise disposed of. If in the opinion of such
counsel, and of counsel for the Company, no such registration action is
necessary, the holder, may sell or otherwise of dispose of such Notes in the
manner described by him in the notice given to the Company. (Copies of any
documents which the holder or his counsel files with the Securities and Exchange
Commission regarding the sale or other disposition will immediately be provided
by him or his counsel to the Company.) If, in the opinion of counsel for the
Company registration of such Notes under the Act is necessary, no such sale or
other disposition may be effected by him other than as contemplated by a
Registration Statement filed under the Act which has become effective under such
Act.
TELLURIAN, INC.
By: /s/ Stuart French
-----------------------------
STUART FRENCH, President
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<PAGE>
Exhibit-10(p)
Note No. 3
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), NOR APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("THE COMMISSION"), OR BY THE SECURITIES REGULATORY
AUTHORITY OF ANY STATE, NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY OF ANY
STATE PASSED UPON THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE
SUBSCRIPTION AGREEMENT AND EXHIBITS THERETO. SUCH OFFERING DOCUMENTS HAVE NOT
BEEN FILED WITH, OR REVIEWED BY, ANY FEDERAL, STATE OR OTHER REGULATORY
AUTHORITY. THESE SECURITIES MAY NOT BE SOLD IN THE ABSENCE OF A REGISTRATION
STATEMENT OR AN EXEMPTION FROM REGISTRATION. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
8% SUBORDINATED CONVERTIBLE PROMISSORY NOTE DUE JUNE 27, 1998
$______________ U.S. June 27, 1996
TELLURIAN, INC., a South Caroloina corporation (the "Company"), for
value received, promises to pay to the order of ______________________________,
or at the offices of the Company, the sum of $____________ U.S. on June 27, 1998
with interest from the date hereof on the unpaid principal hereof until maturity
(whether as stated or by acceleration), according to the tenor hereof
(hereinafter, the "Note", intending to be one of one or more similar "Notes"),
at a rate of 8% per annum (and after such maturity or demand at a rate per annum
equal to 8%) until such principal is paid in full. Interest shall be payable
annually in arrears commencing 12 months from the date hereof cumulative if not
timely paid, with a final payment of interest upon maturity. Interest shall be
calculated on the basis of a 360-day year for actual days elapsed (all of the
foregoing are hereinafter collectively called the "Obligations").
This Note is one of a series of notes that have been delivered to
investors in the Private Placement by the Company.
The Company for itself, its successors and assigns, covenants and
agrees, and each holder of this Note, by his acceptance hereof, likewise
covenants and agrees, that the payment of the principal of, premium (if any) and
interest on, this Note is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, in right of payment to the prior payment in
full of all "Senior Indebtedness," as that term is herein defined.
In case of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company:
<PAGE>
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment thereof in full, including all principal, premium, if any, and
interest, or provision shall be made for such payment before the holder of this
Note receives any payment upon the principal of, premium, if any, or interest
on, indebtedness evidenced by this Note;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holder of this
Note would be entitled except for the subordination provisions hereof shall be
paid and/or delivered by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each to the extent necessary to make payment
in full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution (or provision therefor) to the holders of
such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the holder of this Note before all
Senior Indebtedness is paid in full or provision is made for such payment, such
payment or distribution shall be held in trust for the benefit of and promptly
paid over to the holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the holder of this
Note shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until the unpaid principal of, premium, if any, and interest
on this Note shall be paid in full. No such payments or distributions applicable
to the Senior Indebtedness shall, as between the Company, its creditors other
than the holders of Senior Indebtedness, and the holder of this Note, be deemed
to be a payment by the Company to or on account of this Note. The subordination
provisions of this Note are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the holder of
the Senior Indebtedness, on the other hand.
2
<PAGE>
Nothing contained herein is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holder of this Note, the obligation of the Company, which is unconditional and
absolute, to pay to the holder of this Note the principal of (and premium, if
any) and interest on this Note as and when the same shall become due and payable
in accordance with its terms, or to affect the relative rights of the holder of
this Note and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the holder of this
Note from exercising all remedies otherwise permitted by applicable law upon
default under this Note, subject to the rights, if any, under the subordination
provisions of this Note of the holders of Senior Indebtedness in respect of
cash, property or securities of the Company received upon the exercise of any
such remedy.
Upon any payment or distribution of assets of the Company referred to
in the subordination provisions of this Note, the holder of this Note shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of this
Note for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to the
subordination provisions of this Note.
No payments on account of principal, premium, if any, or interest on
this Note, shall be made unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for in money or money's worth. No payments on account of
principal, premium, if any, or interest on this Note, shall be made if: (i) at
the time of such payment or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness is issued, any default or any condition, event or act, which
with notice or lapse of time, or both, would constitute a default, or (ii) the
Company shall have received from any holder of Senior Indebtedness or the
representative of a holder of Senior Indebtedness written notice of the
existence of any default or any condition, event or act, which, with notice or
lapse of time, or both, would constitute a default, or which would preclude the
making of any payment by the Company with respect to the principal, premium, if
any, or interest on this Note; in any such case unless and until such default
shall have been cured or waived or shall have ceased to exist.
Nothing contained in the subordination provisions of this Note, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except during the pendency of any such insolvency,
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings,
and except during
3
<PAGE>
the continuance of any default specified in the immediately preceding paragraph
(not cured or waived), payments at any time of principal of, and premium or
interest on, this Note.
The term "Senior Indebtedness" shall mean the principal of, and premium
(if any) on, and interest on all indebtedness of the Company (other than the
Notes), whether outstanding on the date of this Note or hereafter created for
money borrowed by the Company or other monetary obligations of the Company
(whether the same be evidenced by debentures or notes (other than the Notes) or
evidenced by a letter of credit, loan agreement or an indenture or similar
instrument) from, owing to, or guaranteed to, banks, trust companies, leasing
companies, insurance companies or other institutional lenders and any renewal,
extension refunding, amendment or modifications of any such Senior Indebtedness,
including without limitation of the foregoing, purchase money mortgages,
mortgages made or given or guaranteed by the Company as mortgagor or guarantor,
and assumed or guaranteed mortgages, upon property, but excluding any
indebtedness to trade creditors or suppliers on open account for work, labor,
services and materials and excluding any indebtedness which by the terms of the
instrument creating or evidencing the same is stated to be not superior in right
of payment to the Notes. During the continuation of any default in the payment
of principal or interest on any Senior Indebtedness, no payment of principal or
interest may be made by the Company on the Notes. This Note contains no
limitation on the amount of additional Senior Indebtedness or other indebtedness
that may be issued or incurred. However, the Company will not in the future
until this Note is paid in full or converted into Common Stock incur
indebtedness that is senior to this Note other than Senior Indebtedness.
The transferability of the Notes is restricted under the Federal and
State Securities Laws.
No sale, offer to sell or transfer of this Note shall be made unless a
registration statement under the Federal Securities Act of 1933, as amended,
with respect to such securities is then in effect or an exemption from the
registration requirement of such Act is then in fact applicable to such
transfer.
ARTICLE I
Conversion of Promissory Note
Section 1.1 Upon completion of an initial public offering by the
Company the principal of this Note shall automatically convert into shares of
the Company's Common Stock at the conversion rate of one share of Common Stock
for each $1.00 U.S. of principal of this Note. In that event the holder shall be
entitled to receive accrued but unpaid interest through the closing date of the
Registration Statement pertaining to the initial public offering.
For the purpose of this Article, the term "Common Stock" shall mean the
capital stock of the Company of the class authorized and
4
<PAGE>
designated as Common Stock at the date hereof or as such stock may, by change or
reclassification, be constituted from time to time.
Section 1.2. The Company shall not be required to issue fractions of
shares of Common Stock upon conversions of the Notes. If more than one Note
shall be surrendered for conversion at one time by the same holder, the number
of shares of Common Stock which shall be issuable upon conversion thereof shall
be computed on the basis of the aggregate principal amount of the Notes so
surrendered. If any fractional interest in a shares of Common Stock would
otherwise be deliverable upon the conversion of any Note or Notes, the Company
shall make adjustment therefor by rounding to the nearest whole share.
Section 1.3 The issue of Common Stock certificates on conversions of
Notes shall be made without charge to the holder for such certificates or any
tax in respect of the issue thereof. The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of any certificate in any name other than that of the holder
of the Note being converted, and the Company shall not be required to issue or
deliver any such shares unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Company shall at all times reserve and keep available out of its
authorized but unissued stock for the purpose of effecting conversions of this
Note such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect such exercises and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect such exercises at the exercise price then in effect the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
Section 4.04. The conversion rate of this Note as defined in Section
4.01 shall be adjusted from time to time as follows: in the event that the
Company shall, at any time prior to the conversion of this Note: (i) declare or
pay to the holders of the Common Stock a dividend payable in any kind of shares
of stock of the Company; or (ii) change or divide or otherwise reclassify its
Common Stock into the same or a different number of shares with or without par
value, or into shares of any class or classes; or (iii) consolidate or merge
with, or transfer its property as an entirety or substantially as an entirety
to, any other corporation; or (iv) make any distribution of its assets to
holders of its Common Stock as a liquidation or partial liquidation dividend or
by way of return of capital; then, upon the subsequent conversion of this Note,
the Holder thereof shall receive for the conversion price, in addition to or in
substitution for the share of Common Stock to which it would otherwise be
entitled upon such exercise, such additional shares of stock or scrip of the
Company, or such
5
<PAGE>
reclassified shares of stock of the Company, or such shares of the securities or
property of the Company resulting from such consolidation or merger or transfer,
or such assets of the Company, which it would have been entitled to receive had
it converted this Note prior to the happening of any of the foregoing events.
ARTICLE II
Voting Rights
2.1 The holders of shares of the Common Stock issued and outstanding,
except as otherwise provided by law or by the Company's Certificate of
Incorporation, have and possess the exclusive right to notice of stockholders'
meetings, and the exclusive voting rights and powers, and the holder of this
Note shall not be entitled to notice of any stockholders' meetings or possess
any right to vote upon the election of directors or upon any other matter.
ARTICLE III
Default
3.1 The Company waives protest, demand for payment, notice of default
or non-payment to the Lender and to any party liable upon or any guarantor,
surety or indemnitor for the Obligation. The Company consents that the
Obligation of any party for or upon any liability may, from time to time, in
whole or in part, be renewed, extended, modified, accelerated, compromised,
settled or released by Lender, without affecting the liability of the Company
upon Obligation. Lender shall not be liable for failure to collect or realize
upon any Obligation, or for any delay in so doing, nor shall Lender be under any
obligation to take any action with regard thereto.
3.2. The holders of not less than 50% by amount of all Notes issued by
the Company in connection with the Private Placement, may consent to change any
terms covering the Notes except those terms relating to interest rate, payment
dates and maturity date which may be changed only by unanimous consent of the
Note holders.
The holders of not less than fifty (50%) percent of the principal
amount of the Notes then outstanding by notice in writing sent by registered
mail to the Company may declare the principal amount of all the Notes
outstanding to be forthwith due and payable, and upon any such declaration the
same shall become immediately due and payable, in the following events:
(a) If default shall be made in the payment of any installment
of interest on any of the Notes when and as the same shall become due and
payable, as herein provided, after allowance for a grace period of fifteen (15)
days and such default shall continue for a period of an additional fifteen (15)
days after written notice is received by the Company from the Note holders; or
6
<PAGE>
(b) If default shall be made in the payment of the principal
of any of the Notes when and as the same shall become due and payable; or
(c) If the Company shall institute proceedings for voluntary
bankruptcy, or shall apply for or consent to the appointment of a receiver for
itself or any of its property, or shall make an assignment for the benefit of
its creditors, or shall go into voluntary liquidation or be dissolved, or shall
admit in writing its inability to pay its debts generally as they mature, or
shall institute proceedings for reorganization, readjustment, arrangement,
composition or similar relief under any bankruptcy, insolvency or other
applicable law, or shall file an answer in any such proceedings against it
joining in seeking such relief or not objecting thereto; or
(d) If an order, judgment or decree shall have been made for
the appointment of a receiver of the Company or of a substantial part of its
property, or approving a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for the Company under any bankruptcy,
insolvency or other applicable law, or adjudging the Company to be bankrupt or
insolvent, and such order, judgment or decree shall remain in force for sixty
(60) days without any stay thereof.
(e) If one or more judgments, decrees or orders for the
payment of money in excess of $100,000 U.S. in the aggregate shall be rendered
against the Company and/or its subsidiaries, and such judgments, decrees, or
orders shall continue unsatisfied and in effect for a period of 30 consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal.
3.3 Lender shall not, by any act, delay, omission or otherwise, be
deemed to have waived any rights or remedies hereunder. No waiver shall be valid
unless signed by Lender. Any waiver by Lender on any occasion shall not bar any
right or remedy which Lender would otherwise have had on any future occasion. No
executory agreement, unless signed by Lender, and no course of dealing between
the Company and Lender, shall be effective to modify or discharge, in whole or
in part, this Note. All rights and remedies of Lender shall be cumulative and
may be exercised singly or concurrently.
3.4 Any notice to Lender shall be deemed effective when received by the
Lender at the address of the Lender set forth above. Lender and the Company, in
any litigation relating to any Obligation waive trial by jury and the Company,
in addition, waives the right to interpose any set-off or counterclaim of any
nature or description.
3.5 Except as set forth under 3.2(b),(c),(d) and (e), notwithstanding
anything herein to the contrary, the Company shall not be deemed in default
under this Note unless it has received notice of the default from one or more of
the Note holders and such default shall continue for a period of an additional
fifteen (15)
7
<PAGE>
days after written notice is received by the Company from the Note
holders.
ARTICLE IV
Miscellaneous
4.1 Time for payment extended by law shall be included in computation
of interest.
4.2 This Note shall be governed by and construed in accordance with
laws of the State of New York.
4.3 No recourse shall be had for the payment of the principal of, or
interest on, this Note, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
4.4 Notwithstanding anything contained herein to the contrary, the Note
(hereinafter referred to as the "Notes") may not be disposed of except in
compliance with all applicable federal and state securities laws and the prior
written consent of both Barclay and Tellurian.
4.5 In the event the Company completes an initial public offering as
referred to in ARTICLE I, Section 1.1, the Company hereby undertakes to register
with the Securities and Exchange Commission the resale of the shares of Common
Stock to be issued to the holder upon the completion of such offering. However,
the resale of the shares of Common Stock by the holder may not take place for a
period of six months from the effective date of the registration statement
without the consent of J.W. Barclay & Co., Inc.
TELLURIAN, INC.
By:____________________________
STUART FRENCH, President
8
<PAGE>
EXHIBIT-10(q)
Note No. 3
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), NOR APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("THE COMMISSION"), OR BY THE SECURITIES REGULATORY
AUTHORITY OF ANY STATE, NOR HAS THE COMMISSION OR ANY SUCH AUTHORITY OF ANY
STATE PASSED UPON THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE
SUBSCRIPTION AGREEMENT AND EXHIBITS THERETO. SUCH OFFERING DOCUMENTS HAVE NOT
BEEN FILED WITH, OR REVIEWED BY, ANY FEDERAL, STATE OR OTHER REGULATORY
AUTHORITY. THESE SECURITIES MAY NOT BE SOLD IN THE ABSENCE OF A REGISTRATION
STATEMENT OR AN EXEMPTION FROM REGISTRATION. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
8% SUBORDINATED NON-CONVERTIBLE PROMISSORY NOTE DUE JUNE 27, 1998
$__________________ June 27, 1996
TELLURIAN, INC., a South Dakota corporation (the "Company"), for value
received, promises to pay to the order of _________________ or at the offices of
the Company, the sum of $______________ on June 27, 1998 with interest from the
date hereof on the unpaid principal hereof until maturity (whether as stated or
by acceleration), according to the tenor hereof (hereinafter, the "Note",
intending to be one of one or more similar "Notes"), at a rate of 8% per annum
(and after such maturity or demand at a rate per annum equal to 8%) until such
principal is paid in full. Interest shall be payable annually in arrears
commencing one year from the date hereof cumulative if not timely paid, with a
final payment of interest upon maturity. Interest shall be calculated on the
basis of a 360-day year for actual days elapsed (all of the foregoing are
hereinafter collectively called the "Obligations"). This Note is one of a series
of notes that have been delivered to investors in a Private Placement by the
Company.
The Company for itself, its successors and assigns, covenants and
agrees, and each holder of this Note, by his acceptance hereof, likewise
covenants and agrees, that the payment of the principal of, premium (if any) and
interest on, this Note is hereby expressly subordinated, to the extent and in
the manner hereinafter set forth, in right of payment to the prior payment in
full of all "Senior Indebtedness," as that term is herein defined.
In case of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company:
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment thereof in full, including all
<PAGE>
principal, premium, if any, and interest, or provision shall be made for such
payment before the holder of this Note receives anypayment upon the principal
of, premium, if any, or interest on, indebtedness evidenced by this Note;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the holder of this
Note would be entitled except for the subordination provisions hereof shall be
paid and/or delivered by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of amounts remaining unpaid on account of the Senior
Indebtedness held or represented by each to the extent necessary to make payment
in full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution (or provision therefor) to the holders of
such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, shall be received by the holder of this Note before all
Senior Indebtedness is paid in full or provision is made for such payment, such
payment or distribution shall be held in trust for the benefit of and promptly
paid over to the holders of such Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instruments evidencing any of such Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of all
Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Indebtedness.
Upon the payment in full of all Senior Indebtedness, the holder of this
Note shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until the unpaid principal of, premium, if any, and interest
on this Note shall be paid in full. No such payments or distributions applicable
to the Senior Indebtedness shall, as between the Company, its creditors other
than the holders of Senior Indebtedness, and the holder of this Note, be deemed
to be a payment by the Company to or on account of this Note. The subordination
provisions of this Note are intended solely for the purpose of defining the
relative rights of the holder of this Note, on the one hand, and the holder of
the Senior Indebtedness, on the other hand.
Nothing contained herein is intended to or shall impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holder of this Note, the obligation of the
2
<PAGE>
Company, which is unconditional and absolute, to pay to the holder of this Note
the principal of (and premium, if any) and interest on this Note as and when the
same shall become due and payable in accordance with its terms, or to affect the
relative rights of the holder of this Note and creditors of the Company other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the holder of this Note from exercising all remedies otherwise
permitted by applicable law upon default under this Note, subject to the rights,
if any, under the subordination provisions of this Note of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to
in the subordination provisions of this Note, the holder of this Note shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending or upon a certificate of the liquidating
trustee or agent or other person making any distribution to the holder of this
Note for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to the
subordination provisions of this Note.
No payments on account of principal, premium, if any, or interest on
this Note, shall be made unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for in money or money's worth. No payments on account of
principal, premium, if any, or interest on this Note, shall be made if: (i) at
the time of such payment or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness is issued, any default or any condition, event or act, which
with notice or lapse of time, or both, would constitute a default, or (ii) the
Company shall have received from any holder of Senior Indebtedness or the
representative of a holder of Senior Indebtedness written notice of the
existence of any default or any condition, event or act, which, with notice or
lapse of time, or both, would constitute a default, or which would preclude the
making of any payment by the Company with respect to the principal, premium, if
any, or interest on this Note; in any such case unless and until such default
shall have been cured or waived or shall have ceased to exist.
Nothing contained in the subordination provisions of this Note, shall
affect the obligation of the Company to make, or prevent the Company from
making, at any time except during the pendency of any such insolvency,
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings,
and except during the continuance of any default specified in the immediately
preceding paragraph (not cured or waived), payments at any time of principal of,
and premium or interest on, this Note.
3
<PAGE>
The term "Senior Indebtedness" shall mean the principal of, and premium
(if any) on, and interest on all indebtedness of the Company (other than the
Notes), whether outstanding on the date of this Note or hereafter created for
money borrowed by the Company or other monetary obligations of the Company
(whether the same be evidenced by debentures or notes (other than the Notes) or
evidenced by a letter of credit, loan agreement or an indenture or similar
instrument) from, owing to, or guaranteed to, banks, trust companies, leasing
companies, insurance companies or other institutional lenders and any renewal,
extension refunding, amendment or modifications of any such Senior Indebtedness,
including without limitation of the foregoing, purchase money mortgages,
mortgages made or given or guaranteed by the Company as mortgagor or guarantor,
and assumed or guaranteed mortgages, upon property, but excluding any
indebtedness to trade creditors or suppliers on open account for work, labor,
services and materials and excluding any indebtedness which by the terms of the
instrument creating or evidencing the same is stated to be not superior in right
of payment to the Notes. During the continuation of any default in the payment
of principal or interest on any Senior Indebtedness, no payment of principal or
interest may be made by the Company on the Notes. This Note contains no
limitation on the amount of additional Senior Indebtedness or other indebtedness
that may be issued or incurred. However, the Company will not in the future
until this sNote has been repaid in full incur indebtedness that is senior to
this Note other than Senior Indebtedness.
The transferability of the Notes is restricted under the Federal and
State Securities Laws.
No sale, offer to sell or transfer of this Note shall be made unless a
registration statement under the Federal Securities Act of 1933, as amended,
with respect to such securities is then in effect or an exemption from the
registration requirement of such Act is then in fact applicable to such
transfer.
THIS NOTE IS NOT CONVERTIBLE INTO OTHER SECURITIES OF THE COMPANY.
4
<PAGE>
ARTICLE I
Redemption
1.1 Subject to the subordination provisions of the Notes, the Company
may, at its option, redeem (the "Prepayment Date") this Note in whole and not in
part, at 100% of the face value of this Note by giving written notice to the
holders of this Note to that effect at least 30 calendar days prior to the
redemption date.
Notice of redemption to the holders of the Notes to be redeemed shall
be mailed by the Company by first class mail, postage prepaid, at least 30 and
not more than 60 days prior to the redemption date, to the holders of Notes,
which are to be redeemed, at their last addresses as they shall appear in the
books of Registration, but failure of a Noteholder to receive such notice shall
not affect the validity of the proceedings for the redemption of any of the
Notes.
1.2 Upon the giving of notice of redemption as above provided, the
Notes to be redeemed shall become due and payable on the date and at the place
stated in such notice at the applicable redemption price, together with interest
accrued to the date fixed for redemption, and on and after such date fixed for
redemption (unless the Company shall make default in the payment of such Notes
at the redemption), interest on the Notes so called for redemption shall cease
to accrue and such Notes shall be deemed not to be outstanding.
1.3 Upon the completion by the Company of a public offering of one or
more private placements wherein the Company receives gross proceeds of at least
$5,000,000 U.S., the Company will promptly notify its noteholders that it will
redeem the Notes at 100% of the face amount of the Note plus accrued and unpaid
interest. Such notice will provide for the redemption of the Notes within 30
days of the closing of such offering.
ARTICLE II
Voting Rights
2.1 The holders of shares of the Common Stock issued and outstanding,
except as otherwise provided by law or by the Company's Certificate of
Incorporation, have and possess the exclusive right to notice of stockholders'
meetings, and the exclusive voting rights and powers, and the holder of this
Note shall not be entitled to notice of any stockholders' meetings or possess
any right to vote upon the election of directors or upon any other matter.
ARTICLE III
Default
3.1 The Company waives protest, demand for payment, notice of default
or non-payment to the Lender and to any party liable upon or any guarantor,
surety or indemnitor for the Obligation. The
5
<PAGE>
Company consents that the Obligation of any party for or upon any liability may,
from time to time, in whole or in part, be renewed, extended, modified,
accelerated, compromised, settled or released by Lender, without affecting the
liability of the Company upon Obligation. Lender shall not be liable for failure
to collect or realize upon any Obligation, or for any delay in so doing, nor
shall Lender be under any obligation to take any action with regard thereto.
3.2. The holders of not less than 50% by amount of all Notes issued by
the Company in connection with the Private Placement, may consent to change any
terms covering the Notes except those terms relating to interest rate, payment
dates and maturity date which may be changed only by unanimous consent of the
Note holders.
The holders of not less than fifty (50%) percent of the principal
amount of the Notes then outstanding by notice in writing sent by registered
mail to the Company may declare the principal amount of all the Notes
outstanding to be forthwith due and payable, and upon any such declaration the
same shall become immediately due and payable, in the following events:
(a) If default shall be made in the payment of any installment
of interest on any of the Notes when and as the same shall become due and
payable, as herein provided, after allowance for a grace period of fifteen (15)
days and such default shall continue for a period of an additional fifteen (15)
days after written notice is received by the Company from the Note holders; or
(b) If default shall be made in the payment of the principal
of any of the Notes when and as the same shall become due and payable; or
(c) If the Company shall institute proceedings for voluntary
bankruptcy, or shall apply for or consent to the appointment of a receiver for
itself or any of its property, or shall make an assignment for the benefit of
its creditors, or shall go into voluntary liquidation or be dissolved, or shall
admit in writing its inability to pay its debts generally as they mature, or
shall institute proceedings for reorganization, readjustment, arrangement,
composition or similar relief under any bankruptcy, insolvency or other
applicable law, or shall file an answer in any such proceedings against it
joining in seeking such relief or not objecting thereto; or
(d) If an order, judgment or decree shall have been made for
the appointment of a receiver of the Company or of a substantial part of its
property, or approving a petition seeking reorganization, readjustment,
arrangement, composition or similar relief for the Company under any bankruptcy,
insolvency or other applicable law, or adjudging the Company to be bankrupt or
insolvent, and such order, judgment or decree shall remain in force for sixty
(60) days without any stay thereof; or
6
<PAGE>
(e) If one or more judgments, decrees or orders for the
payment of money in excess of $100,000 U.S. in the aggregate shall be rendered
against the Company and/or its subsidiaries, and such judgments, decrees, or
orders shall continue unsatisfied and in effect for a period of 30 consecutive
days without being vacated, discharged, satisfied or stayed or bonded pending
appeal.
3.3 Lender shall not, by any act, delay, omission or otherwise, be
deemed to have waived any rights or remedies hereunder. No waiver shall be valid
unless signed by Lender. Any waiver by Lender on any occasion shall not bar any
right or remedy which Lender would otherwise have had on any future occasion. No
executory agreement, unless signed by Lender, and no course of dealing between
the Company and Lender, shall be effective to modify or discharge, in whole or
in part, this Note. All rights and remedies of Lender shall be cumulative and
may be exercised singly or concurrently.
3.4 Any notice to Lender shall be deemed effective when received by the
Lender at the address of the Lender set forth above. Lender and the Company, in
any litigation relating to any Obligation waive trial by jury and the Company,
in addition, waives the right to interpose any set-off or counterclaim of any
nature or description.
3.5 Except as set forth under 3.2(b),(c),(d) and (e), notwithstanding
anything herein to the contrary, the Company shall not be deemed in default
under this Note unless it has received notice of the default from one or more of
the Note holders and such default shall continue for a period of an additional
fifteen (15) days after written notice is received by the Company from the Note
holders.
ARTICLE IV
Miscellaneous
4.1 Time for payment extended by law shall be included in computation
of interest.
4.2 This Note shall be governed by and construed in accordance with
laws of the State of New York.
4.3 No recourse shall be had for the payment of the principal of, or
interest on, this Note, or for any claim based hereon, or otherwise in respect
hereof, against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
4.4 Notwithstanding anything contained herein to the contrary, the Note
(hereinafter referred to as the "Notes") may not be disposed of except in
compliance with all applicable federal and state securities laws. In this
respect, before selling or
7
<PAGE>
otherwise disposing of the Notes, the holder shall give five business days prior
written notice to the Company of his intention to do so. The notice by the
holder shall specify the Notes proposed to be sold or otherwise disposed of and
describe in reasonable detail the amount of the proposed sale or other
disposition and shall be accompanied by an opinion (in form and substance
reasonably satisfactory to the Company's counsel) of the holder's securities
counsel addressed to the Company as to whether the proposed sale or other
disposition may be effected without the filing of a Registration Statement under
the Securities Act of 1933, as amended (the "Act"), covering the Notes proposed
to be sold or otherwise disposed of. If in the opinion of such counsel, and of
counsel for the Company, no such registration action is necessary, the holder,
may sell or otherwise of dispose of such Notes in the manner described by him in
the notice given to the Company. (Copies of any documents which the holder or
his counsel files with the Securities and Exchange Commission regarding the sale
or other disposition will immediately be provided by him or his counsel to the
Company.) If, in the opinion of counsel for the Company registration of such
Notes under the Act is necessary, no such sale or other disposition may be
effected by him other than as contemplated by a Registration Statement filed
under the Act which has become effective under such Act.
TELLURIAN, INC.
By:____________________________
STUART FRENCH, President
8
<PAGE>
Exhibit 10(r)
Warrant No. 1
800,000 WARRANTS
TELLURIAN INC.
COMMON STOCK PURCHASE WARRANT
(ONE WARRANT IS REQUIRED FOR THE PURCHASE OF ONE
SHARE OF COMMON STOCK, SUBJECT TO ADJUSTMENT
AS PROVIDED BELOW)
TELLURIAN INC. (hereinafter referred to as the "Corporation"), hereby
sells to IMAFINA S.A. with a mailing address at Att: Hubert Hendrickx, 21 Rue de
Camps, 75116 Paris France hereinafter referred to as the "Holder"), the right
and option to purchase, upon the terms and conditions hereinafter set forth,
800,000 shares of the presently authorized but unissued restricted Common Stock
of the Corporation at an exercise price of $6.00 per share. The right and option
to purchase such shares of stock hereby granted may be exercised in whole or in
part (except as limited below) and at any time and from time to time during the
period commencing from December 31, 1995 until 5:00 P.M., New York City time, on
December 31, 2000. No fractional shares will be issued upon the exercise of this
Warrant.
This Warrant, or any part thereof, shall be exercised by properly
executing the annexed Subscription Form and by mailing the Warrant and the
executed Subscription Form to the Secretary of the Corporation at the principal
office of the Corporation, at 6 Demarest Place, Waldwick, New Jersey 07401
specifying the number of whole shares to be purchased and accompanied by payment
in full of the aggregate option price of the number of shares purchased. No
shares shall be issued until full payment therefor shall have been made by cash
or certified check and the Holder shall have none of the rights of a shareholder
of the Corporation until shares are issued as herein provided. If, in the
opinion of counsel to the Corporation, any law or any regulation of the
Securities and Exchange Commission or any other body having jurisdiction shall
require the Corporation or the Holder to take any action in connection with the
shares being purchased hereunder, then the shares shall not be delivered until
the completion of the necessary action.
This Warrant, and the rights and privileges conferred hereby, shall be
exercisable only by the Holder and shall not be assignable or transferable
except pursuant to the provisions of the Securities Act of 1933, as amended, and
the Rules and Regulations thereunder. This Warrant shall be binding and inure to
the benefit of the Corporation and any successor to the Corporation and to the
Holder's successors and assigns.
1
<PAGE>
The Holder, by acceptance hereof, acknowledges and agrees that:
(a) The Warrant represented by this certificate has not been registered
under the Securities Act of 1933. This Warrant has been purchased for investment
and not with a view to distribution or resale, and may not be made subject to a
security interest, pledged, hypothecated, or otherwise transferred without an
effective registration statement for such Warrant under the Securities Act of
1933 or an opinion of counsel for the Corporation that registration is not
required under such Act. Any shares issued upon the exercise of this Warrant
shall bear the following legend:
"No sale, offer to sell or transfer of the securities represented by
the certificate shall be made unless a registration statement under the
Federal Securities Act of 1933, as amended, with respect to such
securities is then in effect or an exemption from the registration
requirement of such Act is then in fact applicable to such transfer."
(b) Each notice of exercise of any portion of this Warrant must be
accompanied by a representation in writing signed by the Holder or Holder's
legal representatives, as the case may be, that the shares of Common Stock are
being acquired in good faith for investment and not with a view to or for sale
in connection with, any resale or distribution thereof.
(c) In the event that the Corporation shall, at any time prior to the
expiration date of this Warrant and prior to the exercise thereof: (i) declare
or pay to the holders of the Common Stock a dividend payable in any kind of
shares of stock of the Corporation; or (ii) change or divide or otherwise
reclassify its Common Stock into the same or a different number of shares with
or without par value, or into shares of any class or classes; or (iii)
consolidate or merge with, or transfer its property as an entirety or
substantially as an entirety to, any other corporation; or (iv) make any
distribution of its assets to holders of its Common Stock as a liquidation or
partial liquidation dividend or by way of return of capital; then, upon the
subsequent exercise of this Warrant, the Holder thereof shall receive for the
exercise price, in addition to or in substitution for the share of Common Stock
to which it would otherwise be entitled upon such exercise, such additional
shares of stock or scrip of the Corporation, or such reclassified shares of
stock of the Corporation, or such shares of the securities or property of the
Corporation resulting from such consolidation or merger or transfer, or such
assets of the Corporation, which it would have been entitled to receive had it
exercised this Warrant prior to the happening of any of the foregoing events.
(d) This Warrant does not confer upon the Holder thereof any right
whatsoever as a stockholder of the Corporation. Upon the exercise of this
Warrant the subscription form on the back hereof
2
<PAGE>
must be duly executed and the accompanying instructions for recording of stock
filled in.
(e) In the event that the Company completes a public offering of its
securities which includes Common Stock purchase warrants prior to the expiration
of the Warrants sold pursuant hereto, this Warrant shall be automatically
exchanged for Common Stock purchase warrants identical to those sold to the
public provided that the latter contain terms no less favorable than those
contained in this Warrant. In such event, the registration of the Warrants shall
be prepared and filed at the sole expense of the Corporation, including, but not
limited to, legal, accounting, printing and filing fees and blue sky fees.
Dated: December 27, 1995 TELLURIAN INC.
By /S/ Stuart French
-----------------------------
Stuart French, President
3
<PAGE>
SUBSCRIPTION FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _____ of the shares of Common Stock of said
Corporation called for thereby and hereby makes payment of $_____ in payment of
the purchase price thereof. Please issue the shares of stock so purchased in
accordance with the instructions given below.
Signature___________________________
INSTRUCTIONS FOR RECORDING OF STOCK ON THE BOOKS OF THE COMPANY.
Name_____________________________________________________________
(Please print in block letters your name as it appears on
the front of the Warrant.)
Address__________________________________________________________
4
<PAGE>
Exhibit 10(s)
Warrant No. 2
2,200,000 WARRANTS
TELLURIAN INC.
COMMON STOCK PURCHASE WARRANT
(ONE WARRANT IS REQUIRED FOR THE PURCHASE OF ONE
SHARE OF COMMON STOCK, SUBJECT TO ADJUSTMENT
AS PROVIDED BELOW)
TELLURIAN INC. (hereinafter referred to as the "Corporation"), hereby
sells to JERICHO LIMITED, C/O INTERTRUST MANAGEMENT S.A., with a mailing address
at P.O. BOX 3292, 16 rue de la Pelisserie, 1211 Geneva 3, Switzerland
hereinafter referred to as the "Holder"), the right and option to purchase, upon
the terms and conditions hereinafter set forth, 2,200,000 shares of the
presently authorized but unissued restricted Common Stock of the Corporation at
an exercise price of $6.00 per share. The right and option to purchase such
shares of stock hereby granted may be exercised in whole or in part (except as
limited below) and at any time and from time to time during the period
commencing from January 22, 1996 until 5:00 P.M., New York City time, on January
22, 2001. No fractional shares will be issued upon the exercise of this Warrant.
This Warrant, or any part thereof, shall be exercised by properly
executing the annexed Subscription Form and by mailing the Warrant and the
executed Subscription Form to the Secretary of the Corporation at the principal
office of the Corporation, at 6 Demarest Place, Waldwick, New Jersey 07401
specifying the number of whole shares to be purchased and accompanied by payment
in full of the aggregate option price of the number of shares purchased. No
shares shall be issued until full payment therefor shall have been made by cash
or certified check and the Holder shall have none of the rights of a shareholder
of the Corporation until shares are issued as herein provided. If, in the
opinion of counsel to the Corporation, any law or any regulation of the
Securities and Exchange Commission or any other body having jurisdiction shall
require the Corporation or the Holder to take any action in connection with the
shares being purchased hereunder, then the shares shall not be delivered until
the completion of the necessary action.
This Warrant, and the rights and privileges conferred hereby, shall be
exercisable only by the Holder and shall not be assignable or transferable
except pursuant to the provisions of the Securities Act of 1933, as amended, and
the Rules and Regulations thereunder. This Warrant shall be binding and inure to
the benefit of the Corporation and any successor to the Corporation and to the
Holder's successors and assigns.
<PAGE>
The Holder, by acceptance hereof, acknowledges and agrees that:
(a) The Warrant represented by this certificate has not been registered
under the Securities Act of 1933. This Warrant has been purchased for investment
and not with a view to distribution or resale, and may not be made subject to a
security interest, pledged, hypothecated, or otherwise transferred without an
effective registration statement for such Warrant under the Securities Act of
1933 or an opinion of counsel for the Corporation that registration is not
required under such Act. Any shares issued upon the exercise of this Warrant
shall bear the following legend:
"No sale, offer to sell or transfer of the securities represented by
the certificate shall be made unless a registration statement under
the Federal Securities Act of 1933, as amended, with respect to such
securities is then in effect or an exemption from the registration
requirement of such Act is then in fact applicable to such
transfer."
(b) Each notice of exercise of any portion of this Warrant must be
accompanied by a representation in writing signed by the Holder or Holder's
legal representatives, as the case may be, that the shares of Common Stock are
being acquired in good faith for investment and not with a view to or for sale
in connection with, any resale or distribution thereof.
(c) In the event that the Corporation shall, at any time prior to the
expiration date of this Warrant and prior to the exercise thereof: (i) declare
or pay to the holders of the Common Stock a dividend payable in any kind of
shares of stock of the Corporation; or (ii) change or divide or otherwise
reclassify its Common Stock into the same or a different number of shares with
or without par value, or into shares of any class or classes; or (iii)
consolidate or merge with, or transfer its property as an entirety or
substantially as an entirety to, any other corporation; or (iv) make any
distribution of its assets to holders of its Common Stock as a liquidation or
partial liquidation dividend or by way of return of capital; then, upon the
subsequent exercise of this Warrant, the Holder thereof shall receive for the
exercise price, in addition to or in substitution for the share of Common Stock
to which it would otherwise be entitled upon such exercise, such additional
shares of stock or scrip of the Corporation, or such reclassified shares of
stock of the Corporation, or such shares of the securities or property of the
Corporation resulting from such consolidation or merger or transfer, or such
assets of the Corporation, which it would have been entitled to receive had it
exercised this Warrant prior to the happening of any of the foregoing events.
(d) This Warrant does not confer upon the Holder thereof any right
whatsoever as a stockholder of the Corporation. Upon the exercise of this
Warrant the subscription form on the back hereof
2
<PAGE>
must be duly executed and the accompanying instructions for recording of stock
filled in.
(e) In the event that the Company completes a public offering of its
securities which includes Common Stock purchase warrants prior to the expiration
of the Warrants sold pursuant hereto, this Warrant shall be automatically
exchanged for Common Stock purchase warrants identical to those sold to the
public provided that the latter contain terms no less favorable than those
contained in this Warrant. In such event, the registration of the Warrants shall
be prepared and filed at the sole expense of the Corporation, including, but not
limited to, legal, accounting, printing and filing fees and blue sky fees.
Dated: January 22, 1996 TELLURIAN INC.
By /s/ Stuart French
----------------------------------
Stuart French, President
3
<PAGE>
SUBSCRIPTION FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _____ of the shares of Common Stock of said
Corporation called for thereby and hereby makes payment of $ _____ in payment of
the purchase price thereof. Please issue the shares of stock so purchased in
accordance with the instructions given below.
Signature__________________________
INSTRUCTIONS FOR RECORDING OF STOCK ON THE BOOKS OF THE COMPANY.
Name_____________________________________________________________
(Please print in block letters your name as it appears on
the front of the Warrant.)
Address__________________________________________________________
4
<PAGE>
Exhibit 23
[CONSENT TO COME]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEETS AS OF DECEMBER 31, 1995 AND MARCH 31, 1996
(UNAUDITED) AND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001018039
<NAME> TELLURAIN, INC.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 DEC-31-1995
<CASH> (31,080) 39,130
<SECURITIES> 0 0
<RECEIVABLES> 5,000 5,000
<ALLOWANCES> 0 0
<INVENTORY> 119,101 87,218
<CURRENT-ASSETS> 124,101 139,159
<PP&E> 91,125 84,446
<DEPRECIATION> 54,577 51,735
<TOTAL-ASSETS> 320,928 223,560
<CURRENT-LIABILITIES> 1,890,220 2,004,669
<BONDS> 0 0
0 0
0 0
<COMMON> 16,000 16,000
<OTHER-SE> (2,305,292) (1,989,109)
<TOTAL-LIABILITY-AND-EQUITY> 320,928 223,560
<SALES> 54,898 477,311
<TOTAL-REVENUES> 54,898 477,311
<CGS> 57,704 339,220
<TOTAL-COSTS> 57,704 339,220
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 26,621 64,356
<INCOME-PRETAX> (344,183) (699,655)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (344,183) (669,665)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (344,183) (699,655)
<EPS-PRIMARY> (.22) (.48)
<EPS-DILUTED> (.22) (.48)
</TABLE>
