<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996.
FILE NO. 333-9741
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------
TELLURIAN, INC.
(Name of small business issuer in its charter)
------
<TABLE>
<CAPTION>
Delaware 3570 22-3451918
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------
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 New York, New York 10004
111 Great Neck Road (212) 483-9600
Great Neck, NY 11021
(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. |B(
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]
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>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================
Proposed Proposed
Maximum Maximum
Amount to Offering Aggregate
Title of Each Class of Securities be Price Per Offering Amount of
to be Registered Registered Unit (1) Price (1) Registration Fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par value
$.01 per share ("Common Stock") (2) 2,085,000 $5.00 $10,425,000 $3,594.83
- ------------------------------------------------------------------------------------------------
Redeemable Common Stock Purchase
Warrants ("Warrants") (3) ......... 2,127,500 $ .25 $ 531,875 -- (11)
- ------------------------------------------------------------------------------------------------
Shares of Common Stock underlying
the Warrants (4) .................. 2,127,500 $6.00 $12,765,000 $4,401.72
- ------------------------------------------------------------------------------------------------
Representative's Warrant to purchase
Common Stock (5) .................. 140,000 $.001 $ 140 -- (11)
- ------------------------------------------------------------------------------------------------
Representative's Warrant to Purchase
Warrants (6) ...................... 185,000 $.001 $ 185 -- (11)
- ------------------------------------------------------------------------------------------------
Warrants underlying Representative's
Warrants (7) ...................... 185,000 $ .30 $ 55,500 $ 19.14
- ------------------------------------------------------------------------------------------------
Shares of Common Stock underlying 140,000 $6.00 $ 840,000 $ 289.66
Representative's Warrants (8) ..... 185,000 $6.00 $ 1,110,000 $ 382.76
- ------------------------------------------------------------------------------------------------
Other Warrants (9) ................. 3,000,000 $ .25 $ 750,000 -- (11)
- ------------------------------------------------------------------------------------------------
Shares of Common Stock underlying
Other Warrants (10) ................ 3,000,000 $6.00 $18,000,000 $ 6,206.90
- ------------------------------------------------------------------------------------------------
Totals ....................................................... $44,477,700.00 $14,895.01 (12)
===================================================================================================
</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 by the Registrant to the
Underwriters, (ii) 450,000 to be sold by Selling Stockholders and (iii)
25,000 shares to be sold by Additional Selling Stockholders outside of
the Firm Commitment Offering.
(3) Includes 277,500 Warrants subject to sale upon exercise of an
over-allotment option granted by the Registrant 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.
(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.
(12) $12,493.20 previously paid and $2,401.81 paid herewith.
<PAGE>
TELLURIAN, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Form SB-2 Item Number and Caption Location of Caption in Prospectus
- ------------------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Outside Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and Outside 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 Business -- Litigation
10. Directors, Executive Officers, Promoters and Management;Principal and Selling Stockholders
Control Persons
11. Security Ownership of Certain Beneficial Owners Principal and Selling Stockholders; Certain Transactions
and Management
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 or Plan of Managements discussion and analysis of financial condition
Operation and results of operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Stockholder Cover Page; Risk Factors
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>
"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."
SUBJECT TO COMPLETION OCTOBER 1, 1996
TELLURIAN, INC.
1,850,000 SHARES OF COMMON STOCK AND
1,850,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Of the 1,850,000 shares of Common Stock and 1,850,000 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 1,850,000 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
are being offered separately and will be separately tradeable and
transferable upon issuance. 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 6 AND
"DILUTION" BEGINNING ON PAGE 14.
<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.
=============================================================================
Underwriting Proceeds Proceeds to
Price to Discounts and to the Selling
Public Commissions (1) Company (2) Stockholders
- -----------------------------------------------------------------------------
Per Share ......... $5.00 $ .50 $4.50 $4.50
- -----------------------------------------------------------------------------
Per Warrant ....... .25 .025 .225 --
- -----------------------------------------------------------------------------
Total (3) ........ $9,712,500 $971,250 $6,716,250 $2,025,000
=============================================================================
(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
<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 185,000 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 $149,250 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 $673,875 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 277,500 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 $10,831,875 the Total Underwriting Discount
will be $1,083,187.50, and the Total Proceeds to the Company will be
$7,723,687.50. 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."
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 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 such
amount, Tellurian has agreed that Voyager will pay $650,000 to two parties
3
<PAGE>
unrelated to Tellurian for their services in connection with such contract,
resulting in a net amount of $850,000 payable to Tellurian. As of July 31,
1996, Tellurian received payments totalling $416,000 of such $850,000. 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 located at 15 Industrial Avenue, Upper Saddle River, NJ
07458. It's telephone number is (201) 818-6767.
THE OFFERING
Securities Offered............. 1,850,000 shares of Common Stock and
1,850,000 Warrants. Of these Securities,
1,400,000 shares and 1,850,000 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 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, purchase of equipment, 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 Symbols (2).... Common Stock "TLRN"
Warrants "TLRNW"
Additional Offering ........... 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 1,850,000 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 185,000 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.
4
<PAGE>
(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
NASDAQSmallCap."
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 pro
forma as adjusted balance sheet as of June 30, 1996 gives effect to (i) the
sale of 1,400,000 shares of Common Stock and 1,850,000 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, 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>
Six Months Ended Year Ended Year Ended
-------------------------- ------------ ------------
June 30, June 30, Dec. 31, Dec. 31,
1996 1995 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues ............................... $542,284 311,161 $477,311 $461,832
Gross Profit ........................... 460,225 140,323 138,091 155,608
Net Loss (1) ........................... (95,010) (293,464) (699,665) (576,902)
Net Loss per Common Share .............. (.06) (.23) (.48) (.58)
Weighted Average
Number of Common Shares Outstanding (2) 1,600,000 1,300,000 1,450,000 1,000,000
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30,
June 30, 1996
1996 (Proforma)(3)(4)
-------------- ------------
<S> <C> <C>
Working Capital (Deficiency) ..... $(1,379,604) $3,792,396
Total Assets ..................... 932,932 5,204,617
Long-Term Debt ................... 895,000 -0-
Total Liabilities ................ 2,973,051 1,378,051
Stockholders' Equity (Deficiency) (2,040,119) 3,826,566
</TABLE>
- ------
(1) Although the Company's S corporation status for tax purposes terminated
effective July 2, 1996, 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) Gives effect to the sale 1,400,000 shares of common stock and 1,850,000
Warrants offered hereby and the anticipated application of the estimated
net proceeds of $6,042,000 therefrom. See "Use of Proceeds".
(4) Gives effect to the repayment of certain indebtedness from the proceeds
of the Offering and the elimination of deferred offering expenses of
$200,315.
5
<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.
Qualified Auditor's Report of Accountants. As a result of the Company's
current financial condition, the Company's independent auditors have
qualified their report on the financial statements at December 31, 1995 and
for the years ended December 31, 1995 and 1994. The Company's ability to
continue in the normal course of business is dependent upon successful
completion of its planned public offering of securities to raise capital and
the success of future operations. These uncertainties raise substantial doubt
about its ability to continue as a going concern if the subject offering is
not completed. There can be no assurance that the Company will not incur net
losses in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations, "Business," "Use of Proceeds," and
"Financial Statements and Notes."
Arrears in Payroll Taxes to IRS and New Jersey. As of June 30, 1996, the
Company owes approximately $114,000 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 $95,010 and $293,964 for the six months ended June 30, 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. As of June 30, 1996, the Company has a working capital deficit of
$1,379,604, an accumulated deficit of $2,191,384 and a Stockholders'
deficiency of $2,040,119. In the past two fiscal years and the six months
ended June 30, 1996, the Company has spent an aggregate of $996,664 for
research and product development purposes. For the six months ended June 30,
1996 and June 30, 1995 and for the years ended December 31, 1995 and 1994,
the Company had sales of $542,284, $311,161, $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."
Substantial Proceeds to be Used Toward Repayment of Liabilities/Proceeds
to be Partially Used for Insiders' Benefit. As described in the "Use of
Proceeds" Section of this Prospectus, the Company has allocated $1,570,000 to
be used toward repayment of promissory notes ($880,000), payments to the
Internal Revenue Service to eliminate certain tax liens and State of New
Jersey for payroll tax arrears ($114,000) and to reduce the Company's
accounts payable, accrued expenses, unpaid salaries of employees and officers
of the Company and unpaid consulting fees of consultants ($576,000). To the
extent that any monies from the proceeds of this Offering are paid to
officers and directors of the Company, then such insiders will benefit from
the Offering. See "Use of Proceeds."
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 organization will be able to
successfully penetrate the Company's proposed markets. See "Business--Sales
and Marketing."
6
<PAGE>
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 Upon Material Contract with a Republic of China
Corporation. The Company's material contract described in the preceding risk
factor is with Voyager, a foreign corporation formed and operating in the
Republic of China (Taiwan). The Company is receiving certain licensing fees
and anticipates receiving certain royalties based upon Voyager's sale of the
EAGLE. A number of risks are inherent in international transactions such as
limited or disrupted payment cycles, problems in collecting receivables
(including the use of foreign courts) and the imposition of government
controls, export license requirements, political uncertainties, possible
trade restrictions and changes in tariffs, all of which could materially
adversely affect the Company's results of operations.
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."
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
7
<PAGE>
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. Upon the completion of the Offering, the Company
intends to enter into employment agreements with each of Dr. Swallow and Mr.
French and 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 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.
Threat of Litigation. There are currently no legal proceedings pending
against the Company. However, Fightertown Entertainment Inc., a California
based corporation which paid a $100,000 deposit in March 1994 for Tellurian's
EAGLE Image generators, has alleged in a letter to the Company that the
Company had failed to deliver EAGLE products to Fightertown in accordance
with contract terms and that the Company has improperly used Fightertown's
proprietary software to develop the Company's "Battle of the Bulge" VR
experience. Fightertown has advised the Company that these actions put the
Company at risk of legal liability for many different claims including fraud,
breach of contract, unfair competition and infringement of Fightertown's
copyrights and trademarks. Fightertown has demanded the return of its
$100,000 deposit together with interest and that Tellurian cease the
development of its Battle of the Bulge virtual reality experience and making
representations to anyone that it is developing such a product. Although the
Company has rejected Fighterstown's claims, there can be no assurance as to
the outcome of litigation if any were instituted and an adverse decision
could materially adversely affect the Company's operations. See
"Business--Litigation."
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."
Management's Broad Discretion in Use of Proceeds. While the Company
presently intends to use the net proceeds of the Offering, as described in
the "Use of Proceeds" Section of this Prospectus, Management of the Company
has broad discretion to adjust the application and allocation of the net
proceeds of the Offering as well as any proceeds received upon exercise of
the Warrants in order to address changed circumstances and opportunities. As
a result of the foregoing, the success of the Company will be substantially
dependent upon the discretion and judgment of the Management of the Company
with respect to the application and allocation of the net proceeds hereof.
Pending use of such proceeds, the net proceeds of this Offering will be
invested by the Company in short-term, low risk marketable securities. See
"Use of Proceeds."
8
<PAGE>
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 $(1.27) per share as compared to the
initial public offering price of $5.00 per share, representing a dilution to
new investors of $3.73 per share, or approximately 75%. 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 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 1,850,000 Warrants outstanding (2,127,500 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, 140,000
Underwriters' Stock Warrants and 185,000 Underwriters' Warrants outstanding
held by the Underwriters. Of these shares of Common Stock and warrants,
1,875,000 shares of Common Stock (2,085,000 if the Underwriters'
over-allotment options are exercised in full), 1,850,000 Warrants (2,127,500
Warrants if the Underwriter's over-allotment options are exercised in full),
3,000,000 warrants held by the Warrant Holders, 140,000 Underwriters' Stock
Warrants and 185,000 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 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,
9
<PAGE>
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
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. The
Company intends to utilize its best efforts to maintain a current prospectus
relating to the Common Stock issuable upon exercise of the Warrants under an
effective Registration Statement filed with the Commission. Although the
Company has agreed to use its best efforts to meet such regulatory
requirements, 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
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<PAGE>
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 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.
Limitation on Director Liability. As permitted by Delaware corporation
law, the Company's Certificate of Incorporation limits the liability of
Directors to the Company or its stockholders to monetary damages for breach
of a Director's fiduciary duty except for liability in certain instances. As
a result of the Company's charter provision and Delaware law, stockholders
may have a more limited right to recover against Directors for breach of
their fiduciary duty other than as existed prior to the enactment of the law.
See "Management -- Limitation of Directors' Liability; Indemnification."
Absence of Independent Directors. The Company has three directors, each of
whom is an officer and two of whom are principal stockholders of the Company.
The absence of outside or disinterested directors may result in less
objectivity and an increased risk for conflicts of interest with respect to
decisions made by the Board of Directors. See "Principal and Selling
Stockholders" and "Management."
Potential Adverse Effect of Warrants on Market for Common Stock. Upon the
completion of the Offering, there will be outstanding 4,850,000 warrants to
purchase Common Stock which will be able to be sold by the holders thereof.
Such outstanding warrants may have an adverse effect on the market for the
Company's Common Stock. See "Description of Securities -- Warrants."
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<PAGE>
Company Will Not Receive Proceeds from Sales by Selling Stockholders,
Additional Selling Stockholders and Warrant Holders. This Prospectus includes
securities to be offered on behalf of the Company and certain Selling
Stockholders, Additional Selling Stockholders and Warrant Holders as
described herein. The Company will not receive any proceeds from the sale of
securities by Selling Stockholders, Additional Selling Stockholders and
Warrant Holders. See "Principal and Selling Stockholders", "Additional
Selling Stockholders" and "Warrant Holders."
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 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 1,850,000 Warrants offered hereby, after deducting
underwriting discounts and commissions and other expenses of the Offering
payable by the Company, will be approximately $6,042,000 (approximately
$7,016,000 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:
<TABLE>
<CAPTION>
Amount Percentage
------------ ------------
<S> <C> <C>
Locations Based Entertainment Centers (1) .......... $1,650,000 27%
Repayment of Promissory Notes and Payment of Certain
Current Liabilities (2) ........................... 1,570,000 26
Research and Product Development (3) ............... 900,000 15
Purchase of Equipment (4) .......................... 250,000 4
Sales and Marketing (5) ............................ 820,000 14
General and Administrative ......................... 350,000 6
Working Capital (6) ................................ 502,000 8
------------ ------------
Total ............................................ $6,042,000 100%
============ ============
</TABLE>
- ------
(1) See "Business-Location Based Entertainment Centers."
(2) Tellurian intends to utilize $1,570,000 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) $114,000 to the Internal Revenue
Service and State of New Jersey for payroll tax arrears; and (iii)
$576,000 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."
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<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) Approximately $60,000 will be used to purchase production tooling
necessary to produce the EAGLE products in higher volume. The balance
will be utilized to purchase computers, a trailer and equipment for the
Company's facilities.
(5) See "Business -- Sales and Marketing."
(6) If the Underwriters' over-allotment options are exercised in full, the
working capital amount will be increased to approximately $1,476,000. 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."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (a) as of
June 30, 1996 and (b) pro forma as of June 30, 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 1,850,000 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) 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>
June 30, 1996
----------------------------
Actual Pro Forma
------------- -----------
<S> <C> <C>
Long-term debt ................................................. $ 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 30,250
Additional paid-in capital ..................................... 135,265 3,796,316
Accumulated deficit(2) ......................................... (2,191,384) -0-
------------- -----------
Stockholders' equity (deficiency) .............................. (2,040,119) 3,826,566
------------- -----------
Total capitalization ........................................... (1,145,119) 3,826,566
------------- -----------
</TABLE>
- ------
(1) Does not include the following: (i) up to 1,850,000 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 185,000 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.
(2) The pro forma balance sheet reflects the netting of an accumulated
deficit of $2,191,384 against additional paid in capital in light of the
Company's conversion to a "C" status for income tax purposes and the
elimination of deferred offering costs of $200,315.
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
June 30, 1996, the Company had a net tangible book value (deficit) of
approximately $(2,240,000) or $(1.40) 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
1,850,000 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 $6,042,000, the pro forma
net tangible book value of the Company at June 30, 1996 would have been
approximately $3,827,000 or 1.27 per share. This represents an immediate
increase in net tangible book value of $2.67 per share to the existing
stockholders and an immediate dilution in net tangible book value of $3.73
per share (74.6%) to purchasers of Common Stock in this Offering. The
following table illustrates the dilution in net tangible book value per share
to new investors:
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Price to public (1) ............................................... $5.00
Net tangible book value before Offering ......................... $(1.40)
Increase per share attributable to sale of Securities ........... 2.67
---------
Pro forma net tangible book value per share of Common Stock,
after the Offering ........................................... 1.27
-------
Net tangible book value dilution per share of Common Stock to
public investors (2) ............................................ $3.73
=======
</TABLE>
- ------
(1) Does not include the following: (i) up to 1,850,000 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 185,000 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 $4,800,000 or
$1.48 per share and the dilution to public investors in the Offering
would be $3.52 per share (70.4%).
The following table sets forth the percentage of equity to be purchased by
public investors in the Offering from the Company compared to the percentage
of equity to be owned by the present stockholders, and the comparative
amounts of cash paid for the shares by the public investors as compared to
the total cash consideration paid by the present stockholders of the Company.
See "Certain Transactions" and "Financial Statements".
<TABLE>
<CAPTION>
Approximate Approximate Average
Percent age of Percentage Price
Shares Total Total Cash of Total Per
Purchased Shares Consideration Consideration Share
----------- -------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Public Stockholders ..... 1,400,000 46.2% $7,000,000 98.1% $5.00
Present Stockholders (1) 1,625,000 53.8 135,000 1.9 0.08
----------- -------------- --------------- --------------- ---------
Total ................... 3,025,000 100.0% $7,135,000 100.0%
=========== ============== =============== ===============
</TABLE>
- ------
(1) Upon the completion of the Offering, promissory notes in the principal
amount of an aggregate of $25,000 will automatically convert into 25,000
shares of the Company's Common Stock. These shares are included as owned
by present stockholders.
Does not give effect to the following: (i) up to 1,850,000 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 185,000 shares of Common Stock
issuable upon exercise of the Warrants underlying the Representative's
Warrants; (v) 400,000 shares of Common Stock issuable upon exercise of stock
options granted under Tellurian's Stock Option Plan; (vi) the value of
services rendered in the amount of $15,000 for stock purchased by existing
stockholders; (vii) 450,000 shares purchased by investors in the Offering
from existing stockholders; and (viii) $462,500 in gross proceeds received
from the sale of 1,850,000 Warrants in the Offering.
15
<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 pro
forma as adjusted balance sheet as of June 30, 1996 gives effect to (i) the
sale of 1,400,000 shares of Common Stock and 1,850,000 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 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>
Six Months Ended Year Ended Year Ended
-------------------------- ------------ ------------
June 30, June 30, Dec. 31, Dec. 31
1996 1995 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues ........................ $ 542,284 $ 311,161 $ 477,311 $ 461,832
Gross Profit .................... 460,225 140,323 138,091 155,608
Net Loss (1) .................... (95,010) (293,464) (699,605) (576,902)
Net Loss per Common Share ....... (.06) (.23) (.48) (.58)
Weighted Average Number of Common
Shares Outstanding (2) ......... 1,600,000 1,300,000 1,450,000 1,000,000
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30, 1996
(Pro
June 30, 1996 forma)(3)(4) Dec. 31, 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Working Capital (Deficiency) ..... $(1,379,604) $3,792,396 $(1,865,510)
Total Assets ..................... 932,932 5,204,617 223,560
Long-Term Debt ................... 895,000 -0- 192,000
Total Liabilities ................ 2,973,051 1,378,051 2,196,669
Stockholders' Equity (Deficiency) (2,040,119) 3,826,566 (1,973,109)
</TABLE>
- ------
(1) Although the Company's S corporation status for tax purposes terminated
effective July 2, 1996, 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) Gives effect to the sale 1,400,000 shares of common stock and 1,850,000
Warrants offered hereby and the anticipated application of the estimated
net proceeds of $6,042,000 therefrom. See "Use of Proceeds".
(4) Gives effect to the repayment of certain indebtedness from the proceeds
of the Offering and the elimination of deferred offering expenses of
$200,315.
16
<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 a backlog of orders of approximately $248,000 to
purchase 41 Units of the EAGLE as of September 15, 1996. The foregoing does
not reflect an order of 32 units for $160,000 from Fightertown which is the
subject of a threat of litigation by Fightertown. See "Business --
Litigation."
In January 1996, Tellurian signed a Technology Transfer Agreement with
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 such amount, Tellurian has agreed that
Voyager will pay $650,000 to two parties unrelated to Tellurian for their
services in connection with such contract, resulting in a net amount of
$850,000 payable to Tellurian. As of July 31, 1996, Tellurian received
payments totalling $416,000 of such $850,000. 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."
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.
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 sold in July and August 1996 twenty
units of the EAGLE for $200,000; (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 $50,000 as of September 15, 1996 not including deposits
received from Fighter-town as discussed under "Business -- Litigation." 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.
17
<PAGE>
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 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
SIX MONTHS ENDED JUNE 30, 1996 VS. JUNE 30, 1995
Tellurian's net sales for the six months ended June 30, 1996 were
$542,284, an increase of $231,123 or approximately 74% over the comparable
period of the prior year. For the six months ended June 30, 1996, $395,000 or
approximately 73% of revenues were derived from the license agreement with
Voyager as compared to no revenues for the comparable period of the prior
year. For the six months ended June 30, 1996, the Company's gross profit was
$460,225 as compared to $140,323 for the comparable period of the prior year.
Such increase in gross profit is primarily due to revenues received from
Voyager. Revenues derived from sale of image generators and ancillary
software decreased to $32,610 for the six months ended June 30, 1996 from
$225,578 for the comparable period of the prior year. Such decrease was due
to the delay in completing the production of the Company's EAGLE. As a result
of this delay, Tellurian filled purchase orders for EAGLE with delivery of
the AT-200 at prices which are substantially lower than the normally quoted
sales prices for the Company's AT-200.
For the six months ended June 30, 1996, the Company sold nine AT-200's at
a price of $7,500 per unit. No EAGLES were sold during this time period.
While the normal quoted price was $10,000 per AT-200 unit, the Company agreed
to deliver AT-200's at $7,500 per unit since the EAGLES were not available to
be delivered at the time requested. The Company has agreed to deliver EAGLES
in replacement of these AT-200's at no extra cost if the customers want to
replace them. The Company has notified these customers that the EAGLES will
be available in the fourth quarter of 1996 and is awaiting the customers'
response as to whether they will elect to replace the AT-200's with EAGLES.
During the six months ended June 30, 1995, the Company sold 14 AT-200's at an
average price of $9,929.
18
<PAGE>
Tellurian's research and development activities for the six months ended
June 30, 1996 was $275,030, an increase of $38,903 or approximately 16% over
the comparable period of the prior year. The 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 six months ended June
30, 1996 were $233,028, an increase of $67,068 or approximately 40% 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 43% for the six months
ended June 30, 1996, a decrease of approximately 10% from the comparable
period of the prior year. This percentage decrease was due to the sharp
increase in revenues derived from Voyager. 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 six months ended June 30, 1996, interest expense was $55,888 as
compared to $32,700 for the comparable period of the prior year. The increase
of $23,188 was due to Tellurian's long- term indebtedness of $895,000,
$192,000 of which was issued on December 27, 1995, $528,000 was issued on
January 22, 1996 and $175,000 issued on June 27, 1996.
Tellurian's net loss for the six months ended June 30, 1996 was $95,010 as
compared to $293,964 for the comparable period of the prior year. The
decrease in the net loss was primarily due to increases in revenues derived
from Voyager.
YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994
Tellurian's net revenues 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 revenues 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.
For the years ended December 31, 1995 and 1994, the Company sold 23 and 30
AT-200's, respectively, at an average price of approximately $9,950 each. Not
included in the above figures were one AT-200 sold in 1995 at $7,500 and
eight AT-200's sold in 1994 at $5,000 each which were delivered in place of
EAGLES with the promise to deliver EAGLES at no extra cost to the customer in
replacement of AT-200's should customers desire to replace them. The Company
has notified these customers that the EAGLES will be available in the fourth
quarter of 1996 and is awaiting the customers' response as to whether they
will elect to replace the AT-200's with EAGLES.
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.
19
<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, 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. The Company has capital commitments for the balance of 1996 of
approximately $250,000 to purchase the tooling equipment necessary to produce
the EAGLE in higher volume and for computers, a trailer and office equipment.
As of June 30, 1996, the Company had a working capital deficit of $1,379,604.
The Company intends to satisfy its cash resources and liquidity needs for
capital commitments and other operational requirements 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 six months ended June 30, 1996, net cash of $216,534 was used
in operating activities as compared to net cash used in operating activities
of $88,709 for the six months ended June 30, 1995. During the six months
ended June 30, 1996 and 1995, net cash was used in investing activities to
purchase property and equipment of $7,209 and $1,033, respectively. During
the six months ended June 30, 1996 and 1995, net cash was provided by
financing activities totaling $467,985 and $104,125, respectively. During the
six months ended June 30, 1996, the Company received $703,000 in proceeds
from long-term debt and retired $100,000 of notes payable to related parties.
During the six months ended June 30, 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.
20
<PAGE>
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 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.
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
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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 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 six months ended June 30, 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 six months ended June 30, 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
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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 Glen 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 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.
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
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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. 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 six months ended June 30, 1996, two principal
customers, namely, Voyager and Ship Analytics Corp. accounted for 73% and 9%,
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.
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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 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, Saudi 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 has agreed, pursuant to separate agreements, that Voyager will pay
$500,000 to its parent corporation, Voyager Simulation Company Ltd., in
consideration of Voyager Simulation's services and expenses in negotiating
the transaction and establishing Voyager and $150,000 to TTY Graphics, Inc.
("TTY") in consideration of TTY's contribution to the development of the
EAGLE's software, resulting in a net amount of $850,000 payable to Tellurian.
The License Agreement provides that in addition to the foregoing payment,
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 from Voyager totalling
$416,000 of such $850,000.
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.
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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 September 15, 1996, the Company had a backlog of orders of $248,000
for 41 EAGLE units, $50,000 of which are anticipated to be delivered by
December 31, 1996 and $198,000 to be delivered in the first quarter of 1997.
As of September 15, 1995 the Company had a backlog of orders of $50,000 for
five EAGLE units, all of which are included in the Company's backlog as of
September 15, 1996. The foregoing backlog amounts do not include an order for
32 EAGLE units for $160,000 from Fightertown, which is the subject of a
threat of litigation by Fightertown. See "Business -- Litigation." Since the
Company did not finish the development of the EAGLE until July 1996, the
Company was unable to deliver in 1995 any EAGLES which were ordered.
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.
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
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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 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 7,500 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.
LITIGATION
There are currently no legal proceedings pending against the Company.
However, Fightertown Entertainment Inc., a California based corporation which
paid a $100,000 deposit in March 1994 for Tellurian's EAGLE Image generators,
has alleged in a letter to the Company that the Company had failed to deliver
EAGLE products to Fightertown in accordance with contract terms and that the
Company has improperly used Fightertown's proprietary software to develop the
Company's "Battle of the Bulge" VR experience. Fightertown has advised the
Company that these actions put the Company at risk of legal liability for
many different claims including fraud, breach of contract, unfair competition
and infringement of Fightertown's copyrights and trademarks. Fightertown has
demanded the return of its $100,000 deposit together with interest and that
Tellurian cease the development of its Battle of the Bulge virtual reality
experience and making representations to anyone that it is developing such a
product. Although the Company has rejected Fightertown's claims, there can be
no assurance as to the outcome of litigation if any were instituted and an
adverse decision could materially adversely affect the Company's operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names of the executive officers and directors of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
--------------------- ----- -----------------------------
<S> <C> <C>
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
</TABLE>
- ------
* 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.
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."
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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 four years and a continuation of their current
compensation arrangements with salary increases based upon profitability of
the Company's operations to be determined at the discretion of disinterested
board members. Commencing in 1997 and each year thereafter, the Company will
after the completion of its year end audit, establish a bonus pool for
executive officers and will make annual cash contributions to such pool of an
amount equal to 10% of pre-tax profits for the prior year. The board of
directors will have the sole discretion to allocate bonuses among such
officers. The employment agreements will provide for covenants not to compete
during the term of the agreements and for a period of one year thereafter
(including continuation of half salary during the post-employment one year
period covered by the covenant not to compete) 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
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.
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,
1994 and 1993 to Tellurian's Chief Executive Officer, Dr. Ronald Swallow and
Stuart French, President.
29
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
----------------------------------------- ------------------------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Annual Restricted Number Other
and Compen- Stock of LTIP Compen-
Principal Salary Bonus sation Award(s) Options Payouts sation
Position Year ($) ($) ($) ($) (1) ($) ($)(2)
--------------------------- ------ --------- ------- --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Ronald Swallow, 1995 108,000 -0- -0- -0- -0- -0- 4,200
Chief Executive Officer (3) 1994 108,000 -0- -0- -0- -0- -0- 4,200
1993 90,000 -0- -0- -0- -0- -0- -0-
Stuart French 1995 84,000 -0- 13,814 -0- -0- -0- 4,200
President (4) 1994 84,000 -0- 13,420 -0- -0- -0- 4,200
1993 80,000 -0- 25,343 -0- -0- -0- -0-
</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 1993, 1994 and 1995, the Company accrued salaries for Dr. Swallow
of $19,205, $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 1993, 1994 and
1995, the Company accrued salaries and commissions of $39,138, $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.
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 incentive Stock 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 incentive Stock 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 incentive Stock options granted to the optionee will immediately
30
<PAGE>
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 incentive Stock 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 incentive Stock
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). Any termination provisions
of non-statutory Stock options will be fixed by the board of directors or a
Committee thereof.
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 2006. 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. 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 security interest in its contract with Voyager (such
security interest being limited to the right to receive all payments under
the contract up to $121,100) 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 together with interest at the rate of 10% per annum. 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.
31
<PAGE>
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 cash 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."
Management believes that all transactions with officers, directors and
shareholders of the Company (and affiliated companies) were made in terms no
less favorable to the Company than those available from unaffiliated parties.
It is intended that any future transactions with officers, directors and
affiliates of the Company will be made on terms no less favorable to the
Company than those available from unaffiliated parties.
32
<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>
Dr. Ronald Swallow
15 Industrial Avenue
Upper Saddle River, NJ
07458 (3) ................. 297,908 -- 297,908 18.6 9.8
Dr. Richard Swallow
15 Industrial Avenue
Upper Saddle River, NJ
07458 (4) ................. 109,481 -- 109,481 6.8 3.6
Stuart French
15 Industrial Avenue
Upper Saddle River, NJ
07458 (5) ................. 49,261 -- 49,261 3.1 1.6
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.
(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 become
exercisable at $5.00 per share commencing July 1, 1997.
(5) Does not include options to purchase 150,000 shares, which options become
exercisable at $5.00 per share commencing July 1, 1997.
33
<PAGE>
(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 become
exercisable at $5.00 per share commencing July 1, 1997.
None of the Selling Security Holders have had any position, office or
other material relationship with the Company or any of its predecessors or
affiliates during the past three years except for their stock ownership in
the Company.
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. 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."
34
<PAGE>
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.
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 $9.25.
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 1,850,000 Warrants
outstanding (2,127,500 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, 140,000 Underwriters' Stock Warrants
and 185,000 Underwriters' Warrants outstanding held by the Underwriters. Of
these shares of Common Stock and warrants, 1,875,000 shares of Common Stock
(2,085,000 if the Underwriters' over-allotment options are exercised in
full), 1,850,000 Warrants (2,127,500 if the Underwriter's over-allotment
options are exercised in full), 3,000,000 warrants held by the Warrant
Holders, 140,000 Underwriters' Stock Warrants and 185,000 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
35
<PAGE>
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."
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.
<TABLE>
<CAPTION>
Number of Number of
Underwriter Shares Warrants
------------------------- ----------- -----------
<S> <C> <C>
J.W. Barclay & Co., Inc.
----------- -----------
TOTAL .............. 1,850,000 1,850,000
=========== ===========
</TABLE>
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 277,500 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 and the Selling Stockholders have 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 $50,000 has been paid.
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 $74,625 per year payable in full at the closing of the Offering. The
Company has agreed with
36
<PAGE>
the Representative to pay 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.
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 185,000 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.
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
37
<PAGE>
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 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 position, office or other material
relationship with the Company or any of its predecessors or affiliates during
the past three years, 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.
38
<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
% of Class Approximate
Number of Number of Number of Owned Prior to % of Class
Name and Address of Warrants Warrants Warrants Offering Owned After the
Security Holders Held Offered Retained (1)(3) Offering (2)(3)
-------------------------- ----------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Jericho Limited .......... 2,200,000 2,000,000 -0- 73.3 45.4
c/o Intertrust Management
S.A. P.O. Box 3292 16 rue
de la Pelisserie 1211
Geneva 3 SWITZERLAND (4)
Imafina S.A. ............. 800,000 800,000 -0- 27.7 16.5
c/o Hubert Hendrick 21 Rue
de Camps 75116 Paris
FRANCE (5)
</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
4,850,000 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."
(4) The beneficial owner of Jericho Limited is Louis Carlos SantaMaria.
(5) The beneficial owner of Imafina S.A. is Hubert Hendrix.
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.
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 material relationship with the
Company or any of its predecessors or affiliates.
39
<PAGE>
<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.
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 statements, 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, File No. 333-9741 (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.
40
<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
NOTES TO FINANCIAL STATEMENTS ......................... F-8 - F-16
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, the Company'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>
JUNE 30, DECEMBER 31,
1996 1995
----------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash ................................ $283,372 $ 39,130
Restricted cash (Note 2) ............ 112,023 --
Accounts receivable ................. 168,602 5,000
Inventories (Note 3) ................ 134,450 87,218
Prepaid expenses and other current
assets ............................ -- 7,811
----------- --------------
Total current assets ...... 698,447 139,159
----------- --------------
PROPERTY AND EQUIPMENT -- at cost
less accumulated depreciation (Note 4) . 34,170 32,711
----------- --------------
OTHER ASSETS:
Deferred offering costs ............. 200,315 50,765
Security deposits ................... -- 925
----------- --------------
200,315 51,690
----------- --------------
$932,932 $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>
JUNE 30, DECEMBER 31,
1996 1995
------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ...................... $ 94,115 $ 29,321
Accrued expenses (Note 7) ............. 124,399 144,131
Payroll payable ....................... 283,197 212,302
Payroll taxes payable (Note 6) ........ 114,071 241,749
Consulting fees payable ............... 279,468 255,693
Notes payable -- related parties (Note
5) .................................. 596,415 670,921
Interest payable -- related parties
(Note 5) ............................ 322,982 293,604
Note payable -- other ................. 351 500
Deferred revenue (Note 8) ............. 263,053 156,448
------------- --------------
Total current liabilities ... 2,078,051 2,004,669
------------- --------------
LONG-TERM DEBT (Note 9) .................... 895,000 192,000
------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' DEFICIENCY:
Common stock -- $.01 par value (Note
13)
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 ................... (2,191,384) (2,096,374)
------------- --------------
Total stockholders'
deficiency ................ (2,040,119) (1,973,109)
------------ --------------
$ 932,932 $ 223,560
============ ==============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
TELLURIAN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX
MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
----------------------------- ------------------------------
1996 1995 1995 1994
------------ ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES (Note 12) ......................... $ 542,284 $ 311,161 $ 477,311 $ 461,832
COST OF GOODS SOLD ......................... 82,059 170,838 339,220 306,224
------------ ------------- ------------- -------------
GROSS PROFIT ............................... 460,225 140,323 138,091 155,608
------------ ------------- ------------- -------------
OPERATING EXPENSES:
Research and development .............. 275,030 236,127 423,770 297,864
Selling ............................... 53,131 68,890 92,505 73,758
General and administrative ............ 179,897 97,070 257,125 298,501
------------ ------------- ------------- -------------
508,058 402,087 773,400 670,123
------------ ------------- ------------- -------------
LOSS FROM OPERATIONS ....................... (47,833) (261,764) (635,309) (514,515)
------------ ------------- ------------- -------------
OTHER INCOME AND EXPENSES:
Other income .......................... 8,711 500 -- --
Interest expense ...................... (26,342) -- -- --
Interest expense -- related parties
(Note 4) ............................ (29,546) (32,700) (64,356) (62,387)
------------ ------------- ------------- -------------
(47,177) (32,200) (64,356) (62,387)
------------ ------------- ------------- -------------
NET LOSS ................................... $ (95,010) $ (293,964) $ (699,665) $ (576,902)
============ ============= ============= =============
NET LOSS PER COMMON SHARE .................. $ (.06) $ (.23) $ (.48) $ (.58)
============ ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ................ 1,600,000 1,300,000 1,450,000 1,000,000
============ ============= ============= =============
PRO FORMA INFORMATION (Note 18):
Net loss as presented ................. $ (95,010) $ (293,464) $ (699,665) $ (576,902)
Provision for income tax benefits
reflecting
C corporation status ................ -- -- -- --
------------ ------------- ------------- -------------
Pro forma net loss .................... $ (95,010) $ (293,464) $ (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 13) .... 1,000,000 $10,000 $ 20,000 $ (824,807) $ (794,807)
Prior period adjustment (Note 17) .... -- -- (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 13) ........................... 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 13 and 14) ................... -- -- 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 13 and 14) ................... -- -- 28,000 -- 28,000
Net loss for the six months ended June
30, 1996 (Unaudited) ................ -- -- -- (95,010) (95,010)
----------- ---------- ------------ --------------- ---------------
BALANCE AT June 30, 1996
(Unaudited) ......................... 1,600,000 $16,000 $135,265 $(2,191,384) $ (2,040,119)
=========== ========== ============ =============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
TELLURIAN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX
MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
----------------------------- -----------------------------
1996 1995 1995 1994
------------ ------------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................... $ (95,010) $ (293,964) $(699,665) $ (576,902)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ........... 44,560 36,387 41,611 70,245
Changes in assets and liabilities:
Restricted cash ...................... (112,023) -- -- --
Accounts receivable .................. (163,602) (7,078) (5,000) 8,500
Inventories .......................... (47,232) 14,621 75,981 108,889
Prepaid expenses and other current
assets ............................. 7,811 -- (7,811) --
Security deposits .................... 925 (925) (925) --
Accounts payable ..................... 64,794 (41,431) (55,801) (22,476)
Accrued expenses ..................... (19,732) 53,227 99,898 30,472
Payroll payable ...................... 70,895 40,220 79,864 34,025
Payroll taxes payable ................ (127,678) 39,281 89,520 103,581
Consulting fees payable .............. 23,775 33,303 79,231 27,922
Interest payable -- related parties .. 29,378 31,650 63,306 74,376
Deferred revenue ..................... 106,605 6,000 6,000 150,448
------------ ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ......................... (216,534) (88,709) (233,791) 9,080
------------ ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .......... (7,209) (1,033) (11,214) (7,791)
------------ ------------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES .......... (7,209) (1,033) (11,214) (7,791)
------------ ------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ....... -- 100,000 90,266 --
Proceeds from issuance of warrants in
connection with private placement ......... 28,000 -- 8,000 --
Proceeds from notes payable -- related parties 25,494 23,159 53,190 8,790
Repayments of notes payable -- related parties (100,000) (9,300) (8,635) (10,000)
Proceeds from notes payable -- other ......... -- -- 7,000 --
Repayments of notes payable -- other ......... (149) -- (7,000) --
Proceeds from long-term debt ................. 703,000 -- 192,000 --
Payments of deferred offering costs .......... (188,360) (9,734) (50,765) --
------------ ------------- ------------ -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ......................... 467,985 104,125 284,056 (1,210)
------------ ------------- ------------ -------------
NET CHANGE IN CASH ............................. 244,242 14,383 39,051 79
CASH -- beginning .............................. 39,130 79 79 --
------------ ------------- ------------ -------------
CASH -- ending ................................. $ 283,372 $ 14,462 $ 39,130 $ 79
============ ============= ============ =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest ....................... $ 9,000 $ -- $ -- $ 2,000
Cash paid for income taxes ................... -- -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements
F-7
<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 June 30, 1996 and the
consolidated statements of operations, stockholders' deficiency and cash
flows for the six months ended June 30, 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.
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 16) 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.
F-8
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 - (Continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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.
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-, $31,163, $31,163 and $62,326 for
the six months ended June 30, 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 9).
Amortization expense amounted to $38,810 and $-0- for the six months ended
June 30, 1996 and the year ended December 31, 1995, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense in the period
incurred. For the six months ended June 30, 1996 and 1995 (unaudited) and for
the years ended December 31, 1995 and 1994, research and development costs
amounted to $274,730, $236,127, $423,770 and $297,864, respectively.
F-9
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 - (Continued)
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 -- RESTRICTED CASH
Restricted cash represents funds held by the Company's attorney from the
proceeds of the note issued on June 27, 1996 (see Note 9) net of payments for
deferred offering costs.
NOTE 3 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- --------------
(Unaudited)
<S> <C> <C>
Raw materials ............ $ 77,314 $58,762
Work-in-process ........... 42,556 28,456
Finished goods ........... 14,580 --
----------- --------------
$134,450 $87,218
=========== ==============
</TABLE>
<PAGE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- --------------
(Unaudited)
<S> <C> <C>
Equipment ...................................... $70,850 $68,452
Computer software .............................. 18,431 13,621
Office furniture ............................... 2,374 2,373
----------- --------------
91,655 84,446
Less: Accumulated depreciation and amortization . 57,485 51,735
----------- --------------
$34,170 $32,711
=========== ==============
</TABLE>
F-10
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 - (Continued)
NOTE 4 -- PROPERTY AND EQUIPMENT - (Continued)
Depreciation expense amounted to $5,750, $5,224, $10,448 and $7,919 for
the six months ended June 30, 1996 and 1995 (unaudited) and for the years
ended December 31, 1995 and 1994, respectively.
NOTE 5 -- 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 9).
2. $121,200 from corporate receipts other than the private offering.
As of June 30, 1996 (unaudited), the stockholder has been paid $100,000.
In addition, the Company has assigned its proceeds from the Technology
Agreement (see Note 11) 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.
As at December 31, 1995, notes payable amounted to $670,921 and accrued
interest payable amounted to $293,604. At June 30, 1996 (unaudited), notes
payable amounted to $596,415 and accrued interest payable amounted to
$322,982.
Interest expense charged to operations amounted to $29,546, $32,700,
$64,356 and $62,387 for the six months ended June 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995 and 1994, respectively.
NOTE 6 -- 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 7). 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 16).
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.
NOTE 7 -- ACCRUED EXPENSES
Accrued expenses consist of:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- --------------
(Unaudited)
<S> <C> <C>
Accrued interest on long-term debt (Note 9) ........... $ 26,510 $ --
Royalties (Note 11) ................................... 30,183 29,854
Interest and penalties on unpaid payroll taxes (Note 6) 45,000 60,000
Others ................................................ 22,706 54,277
----------- --------------
$124,399 $144,131
=========== ==============
</TABLE>
F-11
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 - (Continued)
NOTE 8 -- DEFERRED REVENUE
Deferred revenue consists of two customer deposits which are expected to
be recognized as revenue in 1996.
NOTE 9 -- 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 16).
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- --------------
(Unaudited)
<S> <C> <C>
Note, payable on December 27, 1997 ..... $192,000 $192,000
Note, payable on January 22, 1998 ..... 528,000 --
Note, payable on June 27, 1998 (*) ..... 175,000 --
----------- --------------
895,000 192,000
Less: Current portion ............. -- --
----------- --------------
$895,000 $192,000
=========== ==============
</TABLE>
- ------
(*) Terms of the note are 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 16).
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.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 .................................................. $ --
1997 .................................................. 192,000
1998 .................................................. 703,000
-----------
$895,000
===========
</TABLE>
Interest amounted to $26,342 for the six months ended June 30, 1996
(unaudited).
F-12
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 - (Continued)
NOTE 10 -- 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:
<TABLE>
<CAPTION>
June 30, 1996 (Unaudited) December 31, 1995
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Long-term debt . $895,000 $764,800 $192,000 $160,800
========== =========== =========== ===========
</TABLE>
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.
NOTE 11 -- 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 $48,742, $31,777, $70,018 and $59,048 for the six
months ended June 30, 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 ("ROC") 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 fee of
$1,500,000 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-13
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 - (Continued)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
TECHNOLOGY AGREEMENT (CONTINUED)
Of the agreed $1,500,000, the Company, pursuant to separate agreements,
has agreed that ROC will pay $650,000 to two unrelated parties as follows:
1. $500,000 to ROC's parent company in consideration of the parent's
services and expenses incurred in negotiating the agreement and
establishing ROC.
2. $150,000 to an unrelated corporation in consideration of such
corporation's contribution to the development of software for the
computer image generator technology.
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 5).
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 $5,329, $21,530, $8,573 and $15,889 for the six months
ended June 30, 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 16) but no later than March 31,
1997.
2. $72,500 will be due and payable one year after the initial payments.
NOTE 12 -- REVENUES
Revenues consist of:
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Real time image generators . $ 32,610 $225,578 $267,428 $415,254
Consulting fees ........... 458,000 51,000 169,558 40,740
Parts and repairs ......... 51,674 34,583 40,325 5,838
----------- ----------- ----------- -----------
$542,284 $311,161 $477,311 $461,832
=========== =========== =========== ===========
</TABLE>
F-14
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 - (Continued)
NOTE 12 -- REVENUES - (Continued)
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:
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
United States .... $139,686 $260,161 $379,311 $405,718
Canada ........... 5,000 -- 27,000 35,000
Republic of China . 395,598 51,000 71,000 21,114
----------- ----------- ----------- -----------
$540,284 $311,161 $477,311 $461,832
=========== =========== =========== ===========
Revenues from major customers are as follows:
Customer A ....... 72.9% 39.5% 31.8% 24.3%
Customer B ....... 8.9% 16.4% 20.5% 18.8%
Customer C ....... 5.6% 8.9% 10.7% 18.1%
</TABLE>
NOTE 13 -- 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.
NOTE 14 -- 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 9). 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 9). 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 16), the balance of the warrants (3,000,000) will automatically convert
to warrants identical to those sold to the public.
NOTE 15 -- 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
F-15
<PAGE>
TELLURIAN, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 - (Continued)
NOTE 15 -- STOCK OPTION PLAN - (Continued)
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 Incentive Stock 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 Incentive Stock 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 Incentive Stock 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 Incentive Stock 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 Incentive Stock
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). Any termination provisions
of non-statutory stock options will be fixed by the board of directors or a
Committee thereof.
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 2006. 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 16 -- 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 1,850,000 five-year
warrants (to purchase 1,850,000 shares of $.01 par value common stock at
$6.00 per share) for $462,500. 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.
NOTE 17 -- 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 18 -- 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-16
<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
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ........................ 3
Summary Financial Data .................... 5
Risk Factors .............................. 6
Use of Proceeds ........................... 12
Dividend Policy ........................... 13
Capitalization ............................ 14
Dilution .................................. 14
Selected Financial Data ................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operation ................................ 17
Business .................................. 21
Management ................................ 28
Certain Transactions ...................... 31
Principal and Selling Stockholders ........ 33
Description of Securities ................. 34
Shares Eligible for Future Sale ........... 35
Underwriting .............................. 36
Warrant Holders ........................... 38
Additional Selling Stockholders ........... 39
Legal Matters ............................. 40
Experts ................................... 40
Additional Information .................... 40
Index to Financial Statements ............. F-1
</TABLE>
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.
==============================================================================
<PAGE>
==============================================================================
TELLURIAN, INC.
1,850,000 SHARES OF
COMMON STOCK
AND 1,850,000 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 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
II-1
<PAGE>
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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration fee $ 14,605.35
NASD Registration Fee ............................. 4,947.77
NASDAQ filing fees ................................ 15,000.00*
Blue Sky qualification fees and expenses .......... 50,000.00*
Printing of Prospectus and Certificates ........... 100,000.00*
Legal fees and expenses ........................... 100,000.00*
Accountants' fees and expenses .................... 50,000.00*
Fees and expenses of Transfer Agent ............... 5,000.00*
Miscellaneous ..................................... 110,446.88*
-------------
Total ........................................... $450,000.00*
=============
</TABLE>
- ------
* 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 A. Bruno, John C. Cioffoletti, Michael J. 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 Jericho Limited.
(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.
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
II-2
<PAGE>
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. The following exhibits have been previously filed unless
otherwise noted.
<TABLE>
<CAPTION>
Exhibit
No. Description
----------- -----------
<S> <C>
1 Amended 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 *
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
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.
10(t) Letter dated March 19, 1996 between Eye Wonder Studios and the Registrant.*
10(u) Consulting Agreement with J.W. Barclay & Co., Inc.*
10(v) Merger and Acquisition Agreement with J.W. Barclay & Co., Inc.*
11 Earnings per share - See notes to financial statements
21 Subsidiaries of Registrant - None
23 Consent of Miller, Ellin & Co.*
27 Selected Financial Data*
</TABLE>
- ------
* Filed herewith.
II-3
<PAGE>
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) 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-4
<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 27 day of September,
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:
<TABLE>
<CAPTION>
Signatures Titles Date
-------------------------- ------------------------------------- --------------------
<S> <C> <C>
/s/ Dr. Ronald Swallow Chairman of the Board, Chief September 27, 1996
------------------------- Executive Officer
Dr. Ronald Swallow
/s/ Stuart French President, Chief Financial and September 27, 1996
------------------------- Accounting Officer and a Director
Stuart French of the Company
/s/ Richard Swallow Secretary and a Director of the September 27, 1996
------------------------- Company
/s/ Richard Swallow
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
----------- ----------- --------
<S> <C> <C>
1 Amended 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 *
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
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.
10(t) Letter dated March 19, 1996 between Eye Wonder Studios and the Registrant.*
10(u) Consulting Agreement with J.W. Barclay & Co., Inc.*
10(v) Merger and Acquisition Agreement with J.W. Barclay & Co., Inc.*
11 Earnings per share - See notes to financial statements
21 Subsidiaries of Registrant - None
23 Consent of Miller, Ellin & Co.*
27 Selected Financial Data*
</TABLE>
- ------
* Filed herewith.
<PAGE>
Exhibit 1
1,850,000 Shares of Common Stock
and
1,850,000 Common Stock Purchase Warrants
TELLURIAN, INC.
AGREEMENT AMONG UNDERWRITERS
Dated: October , 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 1,850,000 Common Stock Purchase Warrants
plus the option to purchase up to an aggregate of 210,000 additional shares of
Common Stock and 277,500 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 Stock and $0.225 per
<PAGE>
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 our behalf and
2
<PAGE>
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 United 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 United 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 and not then sold, and any Securities so
released shall not thereafter be deemed reserved.
3
<PAGE>
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 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
4
<PAGE>
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.
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
5
<PAGE>
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
Stockholders as set forth in Section 6 of the Underwriting Agreement.
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(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 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
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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 United 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%) percent of the Securities purchased by us hereunder to accounts
over which we exercise discretionary authority. We, and any affiliate of ours
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<PAGE>
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.
16. Execution of Agreement. This Agreement has been executed by us and is
delivered to you in duplicate. Your confirmation hereof shall constitute this
9
<PAGE>
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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<PAGE>
1,850,000 Shares of Common Stock
and
1,850,000 Common Stock Purchase Warrants
TELLURIAN, INC.
UNDERWRITING AGREEMENT
Dated: October_____ , 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 1,850,000 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 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 277,500 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 which have heretofore
<PAGE>
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. 333-9741). 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 or any of its
properties, of any court or other governmental body.
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<PAGE>
(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 of business, and there has not been any material change in the
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<PAGE>
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 condition (financial or other), business,
4
<PAGE>
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 authorized,
5
<PAGE>
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 Shares at and for a price of $4.50 per
6
<PAGE>
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 277,500 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 be delivered (such date and time being herein
7
<PAGE>
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 in respect of the
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<PAGE>
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 Section 3 hereof; all fees and disbursements of counsel
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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 (which need not be audited) covering a
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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 185,000 warrants, in form and substance satisfactory to
your counsel, to purchase 185,000 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 the effective date of the
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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 $74,625 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 legal counsel to provide the Representative with a survey
to be updated at least annually.
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(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 customer as the soliciting broker. In addition,
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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 equitable remedies and
validly grants the power of attorney to __________________ and ________________
intended to be granted thereby.
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(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 stockholder of the Company and
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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 pending, threatened or contemplated to which the Company is or
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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 Stockholders, officers of the Company and public officials as to
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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 compared with
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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 results of operations of the
Company;
21
<PAGE>
(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 connection with
22
<PAGE>
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 any such director, officer or controlling person or any such
24
<PAGE>
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.
25
<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 shall be
26
<PAGE>
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 specified at or before the time this
27
<PAGE>
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 provision herein contained, this Agreement
28
<PAGE>
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
29
<PAGE>
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:_________________________________________
30
<PAGE>
SCHEDULE A
TELLURIAN, INC.
Underwriting Agreement dated October , 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 1,850,000
========= =========
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
1,850,000 Common Stock Purchase Warrants
TELLURIAN, INC.
SELECTED DEALER AGREEMENT
Dated: October , 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 1,850,000 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 4(a)
TELLURIAN, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 879674 10 9
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES that
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
TELLURIAN, INC. transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
(Jersey City, N.J.)
Transfer Agent
and Registrar
By
Authorized Officer
Dated
Secretary
President
[SEAL]
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The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF TRANS MIN ACT_____ Custodian______Under
(Cust) (Minor)
the ________ Transfers to Minors Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
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(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE)
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common shares
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represented by the within Certificate, and do hereby irrevocably constitute
and appoint
Attorney
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to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
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NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement or any change whatever. The signature of the person executing
this power must be guaranteed by an Eligible Guarantor Institution such as a
Commercial Bank, Trust Company, Securities Broker/Dealer, Credit Union, or a
Savings Association participating in a Medallion program approved by the
Securities Transfer Association, Inc.
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Exhibit 4(b)
AGREEMENT, dated this day of ________________, 1996 between
TELLURIAN, INC., a Delaware corporation (the "Company"), and CONTINENTAL STOCK
TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H :
WHEREAS, in connection with (i) the offering (the "Initial
Public Offering") to the public of up to 1,850,000 shares (the "Shares"), of the
Company's common stock, $.01 par value ("Common Stock"), which includes 450,000
shares to be sold by certain Selling Security Holders and 1,850,000 Common Stock
Purchase Warrants (the "Warrants"), entitling the holder of each Warrant to
purchase one share of Common Stock, (ii) the over-allotment option to purchase
up to an additional 210,000 shares of Common Stock and 277,500 Warrants (the
"Over-Allotment Option"), and (iii) the sale to J.W. Barclay & Co., Inc., its
successors and assigns ("Barclay" or the "Representative") of warrants (the
"Representative's Warrants") to purchase up to 140,000 shares of Common Stock
and 185,000 Warrants, such Warrants being identical to the Warrants being sold
to the public except as may be otherwise provided herein (the Warrants issuable
upon the exercise of the Representative's Warrants are referred to as the
"Common Stock Warrants"), the Company will issue up to 1,850,000 Warrants,
185,000 Common Stock Warrants and the Representative's Warrants (subject to
increase as provided in the Representative's Warrant Agreement); and
WHEREAS, the Company is obligated to issue an additional
3,000,000 Warrants to certain existing Warrant holders; and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants and the Common Stock Warrants
(collectively, the Warrants and the Common Stock Warrants shall be referred to
herein as the "Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer and exchange of certificates
representing the Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
thereunder of the Company, the Representative, the holders of certificates
representing the Warrants and the Warrant Agent, the parties hereto agree as
follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise
require:
(a) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to
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participate in the voting and in the distribution of earnings and assets of the
Company without limit as to amount or percentage.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located on the date hereof at Two
Broadway, New York 10004.
(c) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder hereof or
his attorney duly authorized in writing, and (ii) payment in cash or by check
made payable to the Warrant Agent for the account of the Company, of the amount
in lawful money of the United States of America equal to the applicable Purchase
Price.
(d) "Initial Warrant Exercise Date" shall mean in the case of
the Warrants ________________, 1996 and in the case of the Common Stock Warrants
______, 1997.
(e) "Initial Warrant Redemption Date" shall mean _______,
1997.
(f) "Purchase Price" shall mean $6.00 for the Warrants other
than the Warrants issuable upon exercise of the Representative's Warrants, whose
Purchase Price shall be equal to the lesser of ___% of the Purchase Price of the
Warrants then in effect and $___, subject in each case to modification and
adjustment as provided in Section 8, and further subject to Company's right,
with the prior written consent of the Representative, to decrease the Purchase
Price for a period of not less than 30 days on not less than 30 days prior
written notice to the Registered Holders.
(g) "Registered Holder" shall mean the person in whose name
any certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(h) "Subsidiary" or "Subsidiaries" shall mean any corporation
or corporations, as the case may be, of which stock having ordinary power to
elect a majority of the Board of Directors of such corporation (regardless of
whether or not at the time stock of any other class or classes of such
corporation shall have or may have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by the Company or
by one or more Subsidiaries, or by the Company and one or more Subsidiaries.
(i) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company of its authorized successor.
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(j) "Underwriting Agreement" shall mean the underwriting
agreement dated _____________ , 1996 between the Company and the Representative,
relating to the purchase for resale to the public of the Shares and the
Warrants.
(k) "Representative's Warrant Agreement" shall mean the
agreement(s) dated as of ______________, 1996 between the Company and the
Representative relating to and governing the terms and provisions of the
Representative's Warrants.
(l) "Warrant Certificate" shall mean a certificate
representing Warrants substantially in the form annexed hereto as Exhibit A.
(m) "Warrant Expiration Date" shall mean, unless the Warrants
are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New
York City Time) on ________________, 2001, or if such date shall in the State of
New York be a Saturday, Sunday, holiday or a day on which banks are authorized
to close, then 5:00 p.m. (New York City Time) on the next following day which in
the State of New York is not a Saturday, Sunday, holiday or a day on which banks
are authorized to close, subject to the Company's right, prior to the Warrant
Expiration Date, in its sole discretion, to extend such Warrant Expiration Date
on five business days prior written notice to the Registered Holders.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) One Warrant shall initially entitle the registered
holder of a Warrant to purchase at the Purchase Price therefor from the Initial
Warrant Exercise Date until the Warrant Expiration Date one share of Common
Stock upon the exercise thereof, subject to modification and adjustment as
provided in Section 8.
(b) Upon execution of this Agreement, Warrant
Certificates representing 4,850,000 Warrants to purchase up to an aggregate of
4,850,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 8) shall be executed by the Company and delivered to the
Warrant Agent.
(c) Upon exercise of the Over-Allotment Option, in whole
or in part, Warrant Certificates representing up to 277,500 Warrants to purchase
up to an aggregate of 277,500 shares of Common Stock (subject to modification
and adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Representative's Warrants as
provided therein, Warrant Certificates representing 185,000 Common Stock
Warrants to purchase up to an aggregate of 185,000 shares of Common Stock
(subject to modification and adjustment as provided in Section 8 hereof and in
the Representative's Warrant
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Agreement), shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the Board, Chief
Executive Officer, or President and by its Treasurer or an Assistant Treasurer
or its Secretary or an Assistant Secretary.
(e) From time to time until the Warrant Expiration Date,
the Warrant Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. Except as provided in Section 7 hereof, no Warrant Certificates shall
be issued except (i) Warrant Certificates initially issued hereunder, (ii)
Warrant Certificates issued upon any transfer or exchange of Warrants, (iii)
Warrant Certificates issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7, (iv) Warrant Certificates
issued pursuant to the Representative's Warrant Agreement (including Common
Stock Warrants in excess of the 185,000 Common Stock Warrants initially issuable
upon exercise of the Representative's Warrants and any Warrants issued as a
result of the anti-dilution provisions contained in the Representative's Warrant
Agreement), and (v) at the option of the Company, Warrant Certificates in such
form as may be approved by its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates evidencing the Warrants shall be
substantially in the form annexed hereto as Exhibit A (the provisions of which
are hereby incorporated herein), and may have such letters, numbers or other
marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage. The Warrant Certificates
shall be dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates).
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, Chief Executive Officer, or President and
by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
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of the Company who shall have signed any of the Warrant Certificates shall cease
to be such officer of the Company before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates, nevertheless, may be countersigned
by the Warrant Agent, issued and delivered with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be such
officer of the Company.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number
multiples thereof may be exercised commencing at any time on or after the
Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon
the terms and subject to the conditions set forth herein (including the
provisions set forth in Sections 5 and 9 hereof) and in the applicable Warrant
Certificate. A Warrant shall be deemed to have been exercised immediately prior
to the close of business on the Exercise Date, provided that the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, together with payment in cash or by check made payable to the Warrant
Agent for the account of the Company, of an amount in lawful money of the United
States of America equal to the applicable Purchase Price has been received in
good funds by the Warrant Agent. The person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of such securities as of the close of business on the Exercise Date. If Warrants
in denominations other than one or whole number multiples thereof shall be
exercised at one time by the same Registered Holder, the number of full shares
of Common Stock which shall be issuable upon exercise thereof shall be computed
on the basis of the aggregate number of full shares of Common Stock issuable
upon such exercise. As soon as practicable on or after the Exercise Date and in
any event within five business days after such date, if one or more Warrants
have been exercised, the Warrant Agent on behalf of the Company shall cause to
be issued to the person or persons entitled to receive the same, a Common Stock
certificate or certificates for the shares of Common Stock deliverable upon such
exercise, and the Warrant Agent shall deliver the same to the person or persons
entitled thereto. Upon the exercise of any one or more Warrants, the Warrant
Agent shall promptly notify the Company and the Representative in writing of
such fact and of the number of securities delivered upon such exercise and,
subject to subsection (b) below, shall cause all payments of an amount in cash
or by check made payable to the order of the Company, equal to the Purchase
Price, to be deposited promptly in the Company's bank account.
(b) If at the time of exercise of any Warrant commencing one
year after the date of issuance (i) the market price of the Company's Common
Stock is equal to or greater than the then
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Purchase Price of the Warrant, (ii) the exercise of the Warrant is solicited by
the Representative or another broker-dealer who is at such time is a member of
the National Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant
is not held in a discretionary account, (iv) disclosure of the compensation
arrangement is made in documents provided to the holders of the Warrants, and
(v) the solicitation of the exercise of the Warrant is not in violation of Rule
10b-6 (as such rule or any successor rule may be in effect as of such time of
exercise) promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), then the Representative shall be entitled to receive from the Company
upon exercise of each of the Warrants so exercised a fee (the "Exercise Fee") of
ten percent (10%) of the aggregate Purchase Price of the Warrants so exercised
commencing in the second year following the date of issuance. Anything to the
contrary in the foregoing notwithstanding, no Exercise Fee with respect to any
Warrants exercised shall be payable to the Representative if the payment of the
Exercise Fee with respect to such Warrants would be in violation of the General
Rules and Regulations promulgated under the Exchange Act, or the rules and
regulations of the NASD or applicable state securities or "blue sky" laws, or
the Warrants are Common Stock Warrants underlying the Representative's Warrants.
The procedures for payment of the warrant solicitation fee are set forth in
Section 5(c) below.
(c) (1) Within ten (10) days after the last day of each month
commencing with _______________ , 1997, the Warrant Agent will notify the
Representative of each Warrant Certificate which has been properly completed for
exercise by holders of Warrants during the last month. The Company and Warrant
Agent shall determine, in their sole and absolute discretion, whether a Warrant
Certificate has been properly completed. The Warrant Agent will provide the
Representative with such information in connection with the exercise of each
Warrant as the Representative shall reasonably request.
(2) The Company hereby authorizes and instructs the
Warrant Agent to deliver to the Representative the Exercise Fee promptly after
receipt by the Warrant Agent from the Company of a check payable to the order of
the Representative in the amount of the Exercise Fee. In the event that an
Exercise Fee is paid to the Representative with respect to a Warrant which the
Company or the Warrant Agent determines is not properly completed for exercise
or in respect of which the Representative is not entitled to an Exercise Fee,
the Representative will be instructed by the Warrant Agent to return such
Exercise Fee to the Warrant Agent which shall forthwith return such fee to the
Company.
While the Warrants are outstanding, the Representative and the
Company may at any time during business hours, examine the records of the
Warrant Agent, including its ledger of original Warrant certificates returned to
the Warrant Agent upon exercise of
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Warrants. Notwithstanding any provision to the contrary, the provisions of
Section 4(b) and 4(c) may not be modified, amended or deleted without the prior
written consent of the Representative.
(d) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip in lieu of fractional
interests. However, the Company shall pay the Registered Holder of any
fractional warrant interest an amount in cash based upon the average of the high
and low bid prices for the Common Stock on the Nasdaq SmallCap Market (or if
applicable NASDAQ National Market) during the ten day trading period immediately
preceding the date of exercise.
SECTION 5. Reservation of Shares: Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Common Stock which shall be issuable upon
exercise of the Warrants shall, at the time of delivery thereof, be duly and
validly issued and fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof, and
that upon issuance such shares shall be listed on each securities exchange, if
any, on which the other shares of outstanding Common Stock of the Company are
then listed.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will file a registration statement under the federal
securities laws or a post-effective amendment, use its best efforts to cause the
same to become effective, keep such registration statement current while any of
the Warrants are outstanding and deliver a prospectus which complies with
Section 10(a)(3) of the Securities Act of 1933, as amended, to the Registered
Holder exercising the Warrant. The Company will use its best efforts to maintain
appropriate approvals or registrations under state "blue sky" securities laws in
states where the Initial Public Offering is sold. With respect to any such
securities, however, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if shares of Common Stock
are to
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be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor, the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription of
exercise form, as the case may be, on the reverse thereof shall be duly endorsed
or be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and
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treat the Registered Holder of any Warrant Certificate as the absolute owner
thereof of each Warrant represented thereby (notwithstanding any notations of
ownership or writing thereon made by anyone other than the Company or the
Warrant Agent) for all purposes and shall not be affected by any notice to the
contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and (in the case of loss,
theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal aggregate number of Warrants.
Applicants for a substitute Warrant Certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of
Common Stock Deliverable.
(a) (i) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof, issue any
shares of Common Stock as a stock dividend to the holders of Common Stock, or
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such issuance, subdivision or combination being
herein called a "Change of Shares"), then, and thereafter immediately before the
date of such sale or the record date for each Change of Shares, the Purchase
Price for the Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (1) the product of (a) the Purchase Price in effect immediately before
such Change of Shares and (b) the total number of shares of Common Stock
outstanding immediately prior to such Change of Shares, by (2) the total number
of shares of Common Stock outstanding immediately after such Change of Shares.
(ii) Upon each adjustment of the Purchase Price pursuant to
this Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable immediately prior to such adjustment by
the Purchase Price in effect prior to such adjustment and dividing the product
so obtained by the applicable adjusted Purchase Price.
(b) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or as a result of
subdivision or combination), or in case of
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any consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants) or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant, the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance and shall forthwith file at the Corporate Office of the Warrant
Agent, a statement signed by its Chairman, Chief Executive Officer or President
and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary evidencing such provision. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 8(a). The above provisions of this Section
8(b) shall similarly apply to successive reclassifications and changes of shares
of Common Stock and to successive consolidations, mergers, sales or conveyances.
(c) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(e) hereof, continue to express the Purchase Price per
share and the number of shares purchasable thereunder as the Purchase Price per
share and the number of shares purchasable thereunder were expressed in the
Warrant Certificates when the same were originally issued.
(d) After each adjustment of the Purchase Price pursuant to
this Section 8, the Company will promptly prepare a certificate signed by the
Chairman, Chief Executive Officer or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant, after such
adjustment, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to each Registered Holder at his last address as it shall appear on the registry
books of the Warrant
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Agent. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity thereof. The affidavit of an officer of the
Warrant Agent or the Secretary or an Assistant Secretary of the Company that
such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(e) No adjustment of the Purchase Price shall be made as a
result of or in connection with the issuance or sale of shares of Common Stock
if the amount of said adjustment shall be less than $.05 for one share of Common
Stock; provided, however, that in such case, any adjustment that would otherwise
be required to be made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment that shall amount, together
with any adjustment so carried forward, to at least $.05 for one share of Common
Stock. In addition, Registered Holders shall not be entitled to cash dividends
paid by the Company prior to the exercise of any Warrant or Warrants held by
them.
SECTION 9. Redemption.
(a) Commencing on or after the Initial Warrant Redemption
Date, the Company may redeem all the Warrants at $.30 per Warrant on at least 30
days prior written notice to the Registered Holders of the Warrants, commencing
on the Initial Warrant Redemption Date; provided, however, that before any such
call for redemption of Warrants can take place, the Market Price of the Common
Stock for twenty (20) consecutive trading days ending within 10 days of the
notice of redemption shall be $9.25, subject to adjustment in the event of any
stock splits or other similar events as provided in Section 8 hereof. All
Warrants must be redeemed if any are redeemed. For purposes of this Section 9,
the "Market Price" of the Common Stock for any trading day means the last sale
price for the Common Stock on The Nasdaq SmallCap Market, or if no longer quoted
thereon, on the OTC Electronic Bulletin Board, in either case as reported by the
National Quotation Bureau Incorporated, or if the Common Stock is then quoted on
the Nasdaq National Market, the closing sale price thereon, or if the Common
Stock is then traded or admitted to unlisted trading privileges on a national
securities exchange, the closing sale price on that exchange.
(b) In the event the Company exercises its right to redeem all
of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, within ten (10) calendar days of the
aforementioned twenty (20) consecutive trading days and at least by the
thirtieth (30th) day before the date fixed for redemption, at their last address
as shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the
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Registered Holder receives such notice. At the time of the mailing to the
Registered Holders of the Warrants of the notice of redemption, the Company
shall deliver or cause to be delivered to the Representative a similar notice
telephonically and confirmed in writing together with a list of the Registered
Holders (including their respective addresses and number of Warrants
beneficially owned) to whom such notice of redemption has been or will be given.
(c) The notice of redemption, which may not be mailed until on
or after the Initial Warrant Redemption Date, shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificate shall be delivered and the redemption price shall be paid, (iv) that
the Representative is the Company's exclusive warrant solicitation agent and
shall receive the commission contemplated by Section 4(b) hereof, and (v) that
the right to exercise the Warrant shall terminate a 5:00 p.m. (New York City
Time) on the business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Warrants shall be the Redemption Date.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
p.m. (New York City Time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the Registered Holders shall be
mailed to such persons at their addresses of record.
(e) The Company shall indemnify the Representative and each
person, if any, who controls the Representative within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from the registration statement or prospectus referred to in Section 5(b) hereof
to the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the Company has agreed to
indemnify the Representative contained in Sections 6 and 7 of the Underwriting
Agreement.
(f) The Company shall as soon as practicable after the
Redemption Date, and in any event within 15 months thereafter, make "generally
available to its security holders" (within the meaning of Rule 158 under the
Act) an earnings statement (which need not be
12
<PAGE>
audited) complying with Section ll(a) of the Act and covering a period of at
least 12 consecutive months beginning after the Redemption Date.
(g) The Company shall deliver within five (5) business days
prior to the Redemption Date, copies of all correspondence between the
Securities and Exchange Commission ("Commission") and the Company, its counsel
or auditors and all memoranda relating to discussions with the Commission or its
staff with respect to such registration statement and permit the Representative
to do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
NASD. Such investigation shall include access to books, records and properties
and opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as Duke shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Representative, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustment, or with
respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of fact contained herein or for any action taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement, except for
its own gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and
13
<PAGE>
shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, Chief Executive Officer or
President (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action taken,
suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and save it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own gross negligence or willful misconduct),
after giving 60 days prior written notice to the Company. At least 30 days prior
to the date such resignation is to become effective, the Warrant Agent shall
cause a copy of such notice of resignation to be mailed to the Registered Holder
of each Warrant Certificate at the Company's expense. Upon such resignation the
Company shall appoint in writing a new warrant agent. If the Company shall fail
to make such appointment within a period of 60 days after it has been notified
in writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new warrant agent. Any new warrant agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company having a capital and surplus, as shown by its last published report to
its stockholders, of not less than $10,000,000 or a stock transfer company doing
business in New York, New York. After acceptance in writing of such appointment
by the new warrant agent is received by the Company, such new warrant agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named herein as the warrant agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file
14
<PAGE>
notice thereof with the resigning Warrant Agent and shall forthwith cause a copy
of such notice to be mailed to the Registered Holder of each Warrant
Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent or any new warrant agent shall be a successor warrant agent under
this Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its Subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of three years
from the date of exercise any Warrant Certificate received by it upon such
exercise, marked to indicate its cancellation thereof in accordance with Section
6(e) hereof.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental
agreement make any changes or corrections in this Agreement without the approval
of any holders of Warrants (i) that they shall deem appropriate to cure any
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained; (ii) that they may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Warrant Certificates; (iii) that they deem necessary or desirable to decrease
the Purchase Price as provided for in Section 1(f) hereof; or (iv) which may be
required by law; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders representing not less than 50% of the Warrants
then outstanding; provided, further, that no change in the number or nature of
the securities purchasable upon the exercise of any Warrant, or the Purchase
Price (other than a decrease in the Purchase Price as provided in Section l(f)
thereof) therefor, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate, other than such changes as are
specifically permitted or prescribed by this Agreement as
15
<PAGE>
originally executed. In addition, this Agreement may not be modified, amended or
supplemented without the prior written consent of the Representative, other than
(i) to cure any ambiguity or to correct any provision which is inconsistent or
which is a manifest mistake or error; (ii) to make any such change that is
necessary or desirable and which shall not adversely affect the interests of the
Representative; (iii) to decrease the Purchase Price as provided for in Section
1 (f) hereof; or (iv) except as may be required by law.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid, or delivered to a telegraph office for
transmission if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at 15 Industrial Avenue, Upper Saddle River, New Jersey
07458 Attention: Chief Executive Officer, or at such other address as may have
been furnished to the Warrant Agent in writing by the Company; and if to the
Warrant Agent, at its Corporate Office. Copies of any notice delivered pursuant
to this Agreement shall be delivered to the Representative at One Battery Park
Plaza, 23rd floor, New York, New York 10004, Attention: John Bruno, President,
or at such other addresses as may have been furnished to the Company and the
Warrant Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. The Representative is, and shall
at all times irrevocably be deemed to be, third-party beneficiaries of this
Agreement, with full power, authority and standing to enforce the rights granted
to it hereunder.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which
taken together shall constitute a single document.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the first date first above written. [SEAL]
TELLURIAN, INC. CONTINENTAL STOCK
TRANSFER & TRUST CO.
By: By:
-------------------- ------------------------
Stuart French Steven Nelson, President
President
17
<PAGE>
No. TI
VOID AFTER , 2001
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
TELLURIAN, INC.
WARRANTS
CUSIP 879674 11 7
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns
(the "Registered Holder") is the owner of the number of Redeemable Warrants the
"Warrants") specified above. Each Warrant initially entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Certificate and the Warrant Agreement (as hereinafter defined), one fully paid
and non-assessable share of Common Stock, $.01 par value, of Tellurian, Inc., a
Delaware corporation (the "Company"), at any time from _______________ , 1996,
and prior to the Expiration Date (as hereinafter defined), upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of Continental Stock
Transfer & Trust Company, Two Broadway, 19th floor, New York, NY 10004 as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$6.00, subject to adjustment (the "Purchase Price"), in lawful money of the
United States of America in cash or by check made payable to the Warrant Agent
for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated , 1996,
by and between the Company and the Warrant Agent.
The Purchase Price and the number of shares of Common Stock subject to purchase
upon the exercise of each Warrant represented hereby are subject to
modification or adjustment upon the occurrence of certain events as provided
for in the Warrant Agreement.
Each Warrant represented hereby is exercisable at the option of the Registered
Holder, but no fractional interests will be issued. In the case of the exercise
of less than all the warrants represented hereby, the Company shall cancel this
Warrant Certificate upon the surrender hereof and shall execute and deliver a
new Warrant Certificate or Warrant Certificates of like tenor, which the
Warrant Agent shall countersign, for the balance of such Warrants.
<PAGE>
The term "Expiration Date" shall mean 5:00 P.M. (New York City Time) on ,
2001. If such date shall in the State of New York be a Saturday, Sunday,
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:00 P.M. (New York City Time) the next following
day which in the State of New York is not a Saturday, Sunday, holiday or a day
on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to the
exercise of this Warrant unless a registration statement under the Securities
Act of 1933, as amended (the "Act"), with respect to such securities is
effective or an exemption thereunder is available. The Company has covenanted
and agreed that, if required by the Act, it will file a registration statement
under the Act, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment and payment of any
tax or other charge imposed in connection therewith or incident thereto, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered Holder
shall not be entitled to any rights of a stockholder of the Company, including,
without limitation, the right to vote or to receive dividends or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be redeemed
at the option of the Company at a redemption price of $.30 per Warrant, at any
time commencing after , 1997, provided that the Market Price (as defined
in the Warrant Agreement) of the Common Stock for twenty (20) consecutive
trading days and ending no more than ten (10) days prior to the Notice of
Redemption, as defined below, shall have averaged at least $9.25 per share,
subject in each case to adjustment in the event of any stock splits or similar
events. Notice of redemption (the "Notice of Redemption") shall be given at
least thirty days before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.30 per Warrant upon surrender of this Certificate.
Under certain circumstances, J.W. Barclay & Co., Inc., its successors and
assigns shall be entitled to receive, in connection with the exercise of the
Warrants represented hereby, ten percent (10%) of the Purchase Price of the
Warrants so exercised commencing on or after , 1997.
Prior to due presentment for registration of transfer hereof, the Company and
the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
<PAGE>
This Warrant Certificate shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of law
principles.
This Warrant Certificate is not valid unless countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: , 1996
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.)
as Warrant Agent
By:
TELLURIAN, INC.
By:
By:
Principal
Secretary
President
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such Securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by J.W. Barclay & Co., Inc. [ ]
2. The exercise of this Warrant was solicited by _______________ . [ ]
3. If the exercise of this Warrant was not solicited, please check the
following box. [ ]
Dated: X
----------------------------------------- ---------------------------
---------------------------
---------------------------
Address
---------------------------
Social Security or Taxpayer
Identification Number
---------------------------
Signature Guaranteed
---------------------------
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________________________ , hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(please print or type name and address)
_________________________________________ of the Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints__________
___________________________________________________________________ attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated: X
------------------------------------- -------------------------------
Signature Guaranteed
-------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION SIGNATURE PROGRAM.
<PAGE>
Exhibit 4(c)
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT
TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, EXCEPT AS PROVIDED HEREIN NEITHER THE WARRANTS NOR SUCH SECURITIES CAN
BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT, (ii) A NEW REGISTRATION STATEMENT, OR (iii) AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN
No. UW-___
UNDERWRITER WARRANT CERTIFICATE
Dated: October __, 1996
VOID AFTER 5:00 P.M., NEW YORK, NEW YORK LOCAL TIME
ON OCTOBER __, 2001
TELLURIAN, INC.
______ Underwriter Warrants to Purchase ______ Common Stock
Purchase Warrants
Tellurian, Inc., a Delaware corporation (hereinafter referred
to as the "Company"), hereby certifies that
- ------------- -
or registered assigns, is entitled to purchase from the Company at any time
after October __, 1996 and before 5:00 P.M. New York, New York local time on
October __, 2001 __________________ (______) Common Stock Purchase Warrants
(hereinafter referred to as the "Common Stock Purchase Warrants") of the Company
(such Common Stock Purchase Warrants being subject to adjustments as provided
herein) in accordance with the number indicated on the face hereof at the
purchase price of _________________ ($______) per Common Stock Purchase Warrant
(hereinafter referred to as the "Exercise Price"). The warrants represented by
this certificate were issued pursuant to a certain Underwriting Agreement dated
___________, 1996 between the Company and J.W. Barclay & Co., Inc. ("Barclay")
providing for the issuance of an aggregate of 140,000 warrants entitling Barclay
to purchase an aggregate of 140,000 shares of Common Stock of the Company
(herein referred to as the Underwriter Common Stock Warrants) and an aggregate
of 185,000 warrants entitling Barclay to purchase an aggregate of 185,000 Common
Stock Purchase Warrants of the Company (herein referred to as the "Underwriter
Warrants"). Each Underwriter Common Stock Warrant shall be exercisable for one
(1) share of Common Stock of the Company, and each Underwriter Warrant shall be
exercisable for one Common Stock Purchase Warrant of the Company. Such Common
Stock and Common Stock Purchase
<PAGE>
Warrants are further described in the Company's registration statement (the
"Registration Statement") (File No. 333-9741) filed with, and declared effective
by, the Securities and Exchange
Commission.
1. Exercise of Warrants. Upon presentation and surrender of this Warrant
Certificate, with the attached Purchase Form duly executed, at the principal
office of the Company, together with a certified or bank cashier's check payable
to the Company in the amount of the Exercise Price times the number of Common
Stock Purchase Warrants of the Company being purchased, the Company shall
deliver to the holder hereof, as promptly as practicable, certificates
representing the Common Stock Purchase Warrants being purchased (said Common
Stock Purchase Warrants being identical to the Common Stock Purchase Warrants
sold to the public pursuant to the terms of the aforesaid underwriting
agreement). This Underwriter Warrant may be exercised in whole or in part; and,
in case of exercise hereof in part only, the Company, upon surrender hereof,
will deliver to the holder a new certificate or certificates of like tenor
entitling said holder to purchase the number of Common Stock Purchase Warrants
as to which this Warrant Certificate has not been exercised.
2. Exchange and Transfer. This certificate may be exchanged at any time
prior to the exercise hereof, upon presentation and surrender to the Company,
alone or with other certificates of like tenor registered in the name of the
same holder, for another certificate or certificates of like tenor in the name
of such holder exercisable for the same aggregate number of Underwriter Warrants
as the certificate or certificates surrendered. The Underwriter Warrants and the
securities underlying same may not be transferred, hypothecated, or assigned
before ___________, 1997 [one year from the Effective Date] except to officers
of Barclay or to other members of the underwriting group or dealers in the
selling group or to partners or officers of such members or such dealers in the
selling group, with respect to the offering described in the Registration
Statement, and after such date, they may be sold, transferred, hypothecated or
assigned only subject to the provisions of Section 5 hereof.
3. Rights and Obligations of Warrantholders. The holder of this Underwriter
Warrant Certificate shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or in equity. The rights of the holder
of this certificate are limited to those expressed herein and the holder of this
certificate, by his or its acceptance hereof, consents to and agrees to be bound
by and to comply with all the provisions of this certificate, including without
limitation all the obligations imposed upon the holder hereof by Section 5. In
addition, the holder of this certificate, by accepting the same, agrees that the
Company and its warrant agent, if any, may, prior to any presentation for
registration of transfer, deem and treat the
2
<PAGE>
person in whose name this certificate is registered as the absolute, true and
lawful owner for all purposes whatsoever, and neither the Company nor the
warrant agent shall be affected by notice to the contrary.
4. Common Stock Purchase Warrants. The Company covenants and agrees that
all Common Stock Purchase Warrants delivered upon exercise of the Underwriter
Warrants will, upon delivery, be duly authorized and validly issued, and free
from all stamp taxes, liens, and charges with respect to the purchase thereof.
In addition, the Company agrees at all times to reserve and keep available an
authorized number of shares of its Common Stock sufficient to permit the
exercise in full of all Common Stock Purchase Warrants to be issued as a result
of the exercise of the Underwriter Warrants.
5. Disposition of Warrants or Underlying Securities. The holder of this
certificate and any transferee hereof or of the Common Stock Purchase Warrants
as well as the shares of Common Stock issuable upon the exercise of the Common
Stock Purchase Warrants), by his or its acceptance thereof, hereby agree that
(a) no public distribution of the Underwriter Warrants, the Common Stock
Purchase Warrants and the Common Stock will be made in violation of the
provisions of the Securities Act of 1933, or the Rules and Regulations
promulgated thereunder (such Act and Rules and Regulations being hereinafter
referred to as the "Act") and (b) during such period as delivery of a prospectus
with respect to the Underwriter Warrants or the Common Stock Purchase Warrants
issuable thereunder or the shares of Common Stock issuable upon the exercise of
the Common Stock Purchase Warrants may be required under the Act, any public
distribution of said securities will be preceded or accompanied by, and made in
a manner or on terms set forth in, a prospectus then meeting the requirements of
Section 10 of the Act and in compliance with all applicable state laws. The
holder of this certificate and any such transferee hereof further agree that if
any distribution of any of the Underwriter Warrants or securities underlying
same is proposed to be made by him or it otherwise than by delivery of a
prospectus meeting the requirements of Section 10 of the Act as set forth above,
such action shall be taken only after submission to the Company of an opinion of
counsel, reasonably satisfactory in form and substance to the Company's counsel,
to the effect that the proposed distribution will not be in violation of the Act
or of applicable state law. Furthermore, it shall be a condition to the transfer
of the Underwriter Warrants that any transferee thereof deliver to the Company
his or its written agreement to accept and be bound by all of the terms and
conditions of this certificate.
6. Registration. The Company further covenants and agrees as
follows:
(a) Upon receipt by the Company at any time during the period
3
<PAGE>
from ____________, 1997 to ____________, 2001 of a written request from the
holders of not less than fifty percent of the Underwriter Warrants and not less
than fifty percent of the Underwriter Common Stock Warrants, to qualify or
register the Underwriter Warrants, the Underwriter Common Stock Warrants and the
securities underlying the Underwriter Warrants and Underwriter Common Stock
Warrants in whole or in part, under the Act, the Company will, as promptly as
practicable, at the Company's sole cost and expense: (i) prepare and file under
the Act, a registration statement relating to the Underwriter Warrants, the
Underwriter Common Stock Warrants, and the securities underlying the same, (the
term "registration statement" as used in this Section 6(a) being deemed to
include any form which may be used to register a distribution of securities to
the public for cash, a post-effective amendment to a registration statement, or
a notification and offering circular pursuant to Regulation A when necessary to
perfect an exemption thereunder), (ii) prepare and file with the appropriate
Blue Sky authorities the necessary documents to register or qualify such
Underwriter Warrants, Underwriter Common Stock Warrants, and underlying
securities, (iii) deliver to each of the other holders of Underwriter Warrants,
Underwriter Common Stock Warrants, and underlying securities which may have been
issued upon exercise thereof written notice of its intention to register such
securities at least 30 days prior to the anticipated filing date, (iv) if
requested by any of such other holders of Underwriter Warrants, Underwriter
Common Stock Warrants or any securities which may have been issued upon exercise
thereof then in writing delivered to the Company within twenty (20) days of the
receipt of such written notice from the Company, include in such registration
statement all, or any part, of the Underwriter Warrants, Underwriter Common
Stock Warrants, and/or securities which may have been issued upon the exercise
thereof then held by such other holder, and (v) use its best efforts to cause
such registration statement to become effective and to keep such registration
statement and Blue Sky filings current and effective until such time as an
amendment is required to be filed pursuant to the provisions of Section 10(a)(3)
of the Act. In the event not all of the Underwriter Warrants, Underwriter Common
Stock Warrants and securities issuable upon exercise thereof shall have been
registered as provided above, the Company shall be obligated to file additional
registration statements in accordance with the terms set forth in this Section
6(a) to register the remaining balance of the Underwriter Warrants, Underwriter
Common Stock Warrants or securities issuable upon exercise thereof not so
registered, except that the expenses therefor shall be borne by the holders of
such securities in the event that the Company has previously borne the expenses
in connection with the registration of the Underwriter Warrants, Underwriter
Common Stock Warrants or the securities issuable upon exercise thereof pursuant
to this Section 6(a).
(b) In addition to the provisions in Section 6(a), in the event the Company
shall at any time during the period described in
4
<PAGE>
Section 6(a) seek to further register or qualify any of its securities or the
securities holdings of any of its controlling shareholders, on each such
occasion it shall furnish the holders of the Underwriter Warrants and the
Underwriter Common Stock Warrants and to the holders of any securities which may
have been issued upon exercise thereof, with at least 30 days' written notice
thereof and such holders shall have the option, without cost or expense, to
include their Underwriter Warrants, Underwriter Common Stock Purchase Warrants
and the securities underlying the same in such registration or qualification.
Such holders shall exercise the "piggy-back rights" under this Section 6(b) by
giving written notice to the Company within twenty (20) days from the receipt of
the written notice from the Company.
(c) All expenses in connection with preparing and filing any registration
statement under Sections 6(a) and (b) hereof (and any registration or
qualification under the securities or "Blue Sky" laws of states in which the
offering will be made under such registration statement) shall be borne in full
by the Company, subject to the last sentence of Section 6(a).
7. Indemnification and Notification.
(a) The Company will indemnify and hold harmless each holder of the
Underwriter Warrants, the Underwriter Common Stock Warrants, and the securities
which may have been issued upon the exercise thereof, and each person, if any,
who controls such holder within the meaning of Section 15 of the Act, from and
against any and all losses, claims, damages, expenses and liabilities caused by
any untrue statement of a material fact contained in any registration statement,
or contained in a prospectus furnished thereunder or caused by any omission to
state a material fact therein necessary to make the statements therein not
misleading provided, however, that the foregoing indemnification and agreement
to hold harmless shall not apply insofar as such losses, claims, damages,
expenses and liabilities are caused by any such untrue statement or omission
based upon information furnished in writing to the Company by any such holder
expressly for use in any registration statement or prospectus.
(b) Each holder of Underwriter Warrants, Underwriter Common Stock Warrants
and any securities which may have been issued upon exercise thereof will
indemnify the Company, and each person who controls the Company within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses and liabilities caused by an untrue statement of a material
fact contained in any registration statement, or contained in a prospectus
furnished thereunder or caused by an omission to state a material fact therein
necessary to make the statements therein not misleading insofar as such losses,
claims, damages, expenses and liabilities are caused by such untrue statement or
omission being based upon information furnished in writing to the Company by any
5
<PAGE>
such holder expressly for use in any registration statement or prospectus.
(c) Promptly after the receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
7, notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to the indemnified party otherwise
than under this Section 7. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof as provided herein, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to the indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable under this
Section 7 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. Adjustment. The exercise price, and the number of shares of Common Stock
issuable upon exercise, of the Common Stock Purchase Warrants purchasable upon
the exercise of the Underwriter Warrants are subject to adjustment from time to
time in accordance with the terms and provisions of that certain Warrant
Agreement dated ___________, 1996 between the Company and Continental Stock
Transfer & Trust Company (the "Warrant Agreement").
9. Survival. The various rights and obligations of the holder hereof and of
the Company as set forth in Sections 5, 6 and 7 hereof shall survive the
exercise of the Warrants represented hereby and the surrender of this
certificate, and upon the surrender of this certificate and the exercise of all
the warrants represented hereby, the Company shall, if requested by the holder,
deliver to the holder hereof its written acknowledgment of its continuing
obligations under said Sections. The holders of the Underwriter Warrants shall,
if requested by the Company, deliver to the Company their written acknowledgment
of their continuing obligations under said Sections.
10. Notice. All notices required by this certificate to be given or made by
the Company shall be given or made by first class mail of the United States
Postal Service, postage prepaid, addressed to the registered holder hereof at
the address of such holder as shown on the books of the Company; provided that
where notice is to be given pursuant to Sections 6, 7 and 8 hereof to a holder
of the Underwriter Common Stock Warrants or any securities which may have been
issued upon the exercise of the Underwriter Warrants or the Underwriter Common
Stock Warrants, who is not a
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<PAGE>
holder of an Underwriter Warrant certificate, such notice shall be given or made
in the manner noted above to the record owner of such securities at the address
of such owner as shown on the books of the Company.
11. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction, or mutilation of this certificate and,
in the case of any such loss, theft or destruction, upon delivery of an
indemnity agreement satisfactory in form and amount to the Company or, in the
case of any such mutilation, upon surrender and cancellation of this
certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new certificate of like tenor.
Dated: ___________, 1996 TELLURIAN, INC.
By:__________________________________
Stuart French, President
ATTEST:
________________________________
Richard Swallow, Secretary
7
<PAGE>
ASSIGNMENT
(To be executed by the registered holder to effect a transfer of
the within Warrant)
FOR VALUE RECEIVED, .... hereby sell, assign and transfer unto
(Name)
(Address)
the right to purchase ..................... Common Stock Purchase Warrants of
Tellurian, Inc. evidenced by the within warrant, together with all right, title
and interest therein, and do irrevocably constitute and appoint
attorney to transfer the said right on the books of said Corporation with full
power of substitution in the premises.
Dated, ..........................., 19 ....
Signature ................................
8
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
To: Tellurian, Inc.
The undersigned hereby exercises the right to purchase
_________________________ Common Stock Purchase Warrants of Tellurian, Inc.,
evidenced by the within Warrant according to the terms and conditions thereof,
and herewith makes payment of the purchase price in full.
Dated: ...................... , 19...
SIGNATURE ................................
9
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT
TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, EXCEPT AS PROVIDED HEREIN NEITHER THE WARRANTS NOR SUCH SECURITIES CAN
BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO SUCH
REGISTRATION STATEMENT, (ii) A NEW REGISTRATION STATEMENT, OR (iii) AN OPINION
OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN
No. UWS-___
UNDERWRITER COMMON STOCK WARRANT CERTIFICATE
Dated: October ___, 1996
VOID AFTER 5:00 P.M., NEW YORK, NEW YORK LOCAL TIME
ON OCTOBER ___, 2001
TELLURIAN, INC.
______ Warrants to Purchase ______ Shares of Common Stock
($.01 par value)
Tellurian, Inc., a Delaware corporation, (hereinafter referred to
as the "Company") hereby certifies that
- ------------- -
or registered assigns, is entitled to purchase from the Company at any time
after October ___, 1996 and before 5:00 P.M. New York, New York local time on
October ___, 2001, _______________________ (______) Shares of Common Stock, $.01
par value, (hereinafter referred to as the "Shares") of the Company (the number
and character of such shares being subject to adjustments as provided herein) in
accordance with the number of Warrants indicated on the face hereof at the
purchase price of $______ per share (hereinafter referred to as the "Exercise
Price"). The warrants represented by this certificate are referred to
hereinafter as "Underwriter Common Stock Warrants" and were issued pursuant to a
certain Underwriting Agreement dated October __, 1996 between the Company and
J.W. Barclay & Co., Inc. ("Barclay") providing for the issuance of an aggregate
of 140,000 warrants entitling Barclay to purchase an aggregate of 140,000 shares
of Common Stock of the Company (the Underwriter Common Stock Warrants) and an
aggregate of 185,000 warrants entitling Barclay to purchase an aggregate of
185,000 Common Stock Purchase Warrants of the Company (herein referred to as the
"Underwriter Warrants"). Each Underwriter Common Stock Warrant shall be
exercisable for one (1) share of Common Stock of the Company, and each
Underwriter Warrant shall be exercisable for one Common Stock Purchase Warrant
of the Company. Such Common Stock and Common Stock Purchase Warrants are further
described in
<PAGE>
the Company's registration statement (the "Registration Statement") (File No.
333-9741) filed with, and declared effective by, the Securities and Exchange
Commission.
1. Exercise of Warrants. Upon presentation and surrender of this
certificate, with the attached Purchase Form duly executed, at the principal
office of the Company, together with a certified or bank cashier's check payable
to the Company in the amount of the Exercise Price times the number of Shares
being purchased, the Company shall deliver to the holder hereof, as promptly as
practicable, certificates representing the Shares being purchased. This Warrant
may be exercised in whole or in part; and, in case of exercise hereof in part
only, the Company, upon surrender hereof, will deliver to the holder a new
certificate or certificates of like tenor entitling said holder to purchase the
number of Shares as to which this certificate has not been exercised.
2. Exchange and Transfer. This certificate may be exchanged at any time
prior to the exercise hereof, upon presentation and surrender to the Company,
alone or with other certificates of like tenor registered in the name of the
same holder, for another certificate or other certificates of like tenor in the
name of such holder exercisable for the same aggregate number of Shares as the
certificate or certificates surrendered. The Underwriter Common Stock Warrants
may not be sold, transferred, hypothecated or assigned before ____________, 1997
[one year from Effective Date of the Registration Statement] except to officers
of Barclay or to other members of the underwriting group or dealers in the
selling group, or to partners or officers of such members or such dealers, with
respect to the offering described in the Registration Statement, and after such
date, they may be sold, transferred, hypothecated or assigned only subject to
the provisions of Section 5 hereof.
3. Rights and Obligations of Warrantholders. The holder of this Underwriter
Common Stock Warrant Certificate shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or in equity; provided,
however, that in the event any certificate representing shares of the Company's
Common Stock is issued to the holder hereof upon exercise of some or all of the
Warrants represented hereby, such holder shall, for all purposes, be deemed to
have become the holder of record of such stock on the date on which this
certificate, together with a duly executed Purchase Form, was surrendered and
payment of the purchase price was made, irrespective of the date of delivery of
such share certificate, except that if at the date of surrender of such
certificate and payment of the purchase price, the transfer books for the shares
of Common Stock shall be closed, the holder of this certificate shall not be
deemed to have become the holder of record of such stock until the date on which
such books shall be opened. Unless required by law or by applicable rule of any
national securities exchange such transfer books shall not be closed at any
2
<PAGE>
one time for a period longer than 40 days. The rights of the holder of this
certificate are limited to those expressed herein and the holder of this
certificate, by the acceptance hereof, consents to and agrees to be bound by and
to comply with all the provisions of this certificate, including without
limitation, all the obligations imposed upon the holder hereof by Section 5. In
addition, the holder of this certificate, by accepting the same, agrees that the
Company and its warrant agent, if any, may, prior to any presentation for
registration of transfer, deem and treat the person in whose name this
certificate is registered as the absolute, true and lawful owner for a purposes
whatsoever, and neither the Company nor the warrant agent shall be affected by
notice to the contrary.
4. Warrant Stock. The Company covenants and agrees that all shares of
Common Stock delivered upon exercise of this Underwriter Common Stock Warrant
will, upon delivery, be duly authorized, validly issued, fully-paid and
non-assessable, and free from all stamp taxes, liens, and charges with respect
to the purchase thereof. In addition, the Company agrees at all times to reserve
and keep available an authorized number of shares of its Common Stock sufficient
to permit the exercise in full of all outstanding Warrants.
5. Disposition of Warrants. The holder of this certificate and any
transferee hereof or of the Shares issuable upon exercise hereof, by the
acceptance thereof, hereby agree that (a) no public distribution of the
Underwriter Common Stock Warrants or the Shares issuable upon exercise thereof
will be made in violation of the provisions of the Securities Act of 1933, or
the Rules and Regulations promulgated thereunder (such Act and Rules and
Regulations being hereinafter referred to as the "Act") and (b) during such
period as delivery of a prospectus with respect to such Warrants or Shares may
be required by the Act, any public distribution of the Warrants or the Shares
will be preceded or accompanied by, and made in a manner or on terms set forth
in, a prospectus then meeting the requirements of Section 10 of the Act and in
compliance with all applicable state laws. The holder of this certificate and
any such transferee hereof further agree that if any distribution of any of the
Warrants or the Shares is proposed to be made by them otherwise than by delivery
of a prospectus meeting the requirements of Section 10 of the Act as set forth
above, such action shall be taken only after submission to the Company of an
opinion of counsel, reasonably satisfactory in form and substance to the
Company's counsel, to the effect that the proposed distribution will not be in
violation of the Act or of applicable state law. Furthermore, it shall be a
condition to the transfer of the Warrants that any transferee thereof deliver to
the Company his or its written agreement to accept and be bound by a of the
terms and conditions of this certificate.
6. Registration. The Company further covenants and agrees as
3
<PAGE>
follows:
(a) Upon receipt by the Company at any time during the period from
_____________, 1997 to ______________, 2001 of a written request from the
holders of not less than fifty percent of the Underwriter Warrants and not less
than fifty percent of the Underwriter Common Stock Warrants, to qualify or
register the Underwriter Warrants, the Underwriter Common Stock Warrants and the
securities underlying the Underwriter Warrants and Underwriter Common Stock
Warrants in whole or in part, under the Act, the Company will, as promptly as
practicable, at the Company's sole cost and expense: (i) prepare and file under
the Act, a registration statement relating to the Underwriter Warrants, the
Underwriter Common Stock Warrants, and the securities underlying the same, (the
term "registration statement" as used in this Section 6(a) being deemed to
include any form which may be used to register a distribution of securities to
the public for cash, a post-effective amendment to a registration statement, or
a notification and offering circular pursuant to Regulation A when necessary to
perfect an exemption thereunder), (ii) prepare and file with the appropriate
Blue Sky authorities the necessary documents to register or qualify such
Underwriter Warrants, Underwriter Common Stock Warrants, and underlying
securities, (iii) deliver to each of the other holders of Underwriter Warrants,
Underwriter Common Stock Warrants, and underlying securities which may have been
issued upon exercise thereof written notice of its intention to register such
securities at least 30 days prior to the anticipated filing date, (iv) if
requested by any of such other holders of Underwriter Warrants, Underwriter
Common Stock Warrants or any securities which may have been issued upon exercise
thereof then in writing delivered to the Company within twenty (20) days of the
receipt of such written notice from the Company, include in such registration
statement a, or any part, of the Underwriter Warrants, Underwriter Common Stock
Warrants, and/or securities which may have been issued upon the exercise thereof
then held by such other holder, and (v) use its best efforts to cause such
registration statement to become effective and to keep such registration
statement and Blue Sky filings current and effective until such time as an
amendment is required to be filed pursuant to the provisions of Section 10(a)(3)
of the Act. In the event not all of the Underwriter Warrants, Underwriter Common
Stock Warrants and securities issuable upon exercise thereof shall have been
registered as provided above, the Company shall be obligated to file additional
registration statements in accordance with the terms set forth in this Section
6(a) to register the remaining balance of the Underwriter Warrants, Underwriter
Common Stock Warrants or securities issuable upon exercise thereof not so
registered, except that the expenses therefor shall be borne by the holders of
such securities in the event that the Company has previously borne the expenses
in connection with the registration of the Underwriter Warrants, Underwriter
Common Stock Warrants or the securities issuable upon exercise thereof pursuant
to this Section 6(a).
4
<PAGE>
(b) In addition to the provisions in Section 6(a), in the event the Company
shall at any time during the period described in Section 6(a) seek to further
register or qualify any of its securities or the securities holdings of any of
its controlling shareholders, on each such occasion it shall furnish the holders
of the Underwriter Warrants and the Underwriter Common Stock Warrants and to the
holders of any securities which may have been issued upon exercise thereof, with
at least 30 days' written notice thereof and such holders shall have the option,
without cost or expense, to include their Underwriter Warrants, Underwriter
Common Stock Purchase Warrants and the securities underlying the same in such
registration or qualification. Such holders shall exercise the "piggy-back
rights" under this Section 6(b) by giving written notice to the Company within
twenty (20) days from the receipt of the written notice from the Company.
(c) A expenses in connection with preparing and filing any registration
statement under Sections 6(a) and (b) hereof (and any registration or
qualification under the securities or "Blue Sky" laws of states in which the
offering will be made under such registration statement) shall be borne in full
by the Company, subject to the last sentence of Section 6(a).
7. Indemnification and Notification.
(a) The Company will indemnify and hold harmless each holder of the
Underwriter Warrants, the Underwriter Common Stock Warrants, and the securities
which may have been issued upon the exercise thereof and each person, if any,
who controls such holder within the meaning of Section 15 of the Act, from and
against any and all losses, claims, damages, expenses and liabilities caused by
any untrue statement of a material fact contained in any registration statement,
or contained in a prospectus furnished thereunder or caused by any omission to
state all material fact therein necessary to make the statements therein not
misleading provided, however, that the foregoing indemnification and agreement
to hold harmless shall not apply insofar as such losses, claims, damages,
expenses and liabilities are caused by any such untrue statement or omission
based upon information furnished in writing to the Company by any such holder
expressly for use in any registration statement or prospectus.
(b) Each holder of Underwriter Warrants, Underwriter Common Stock Warrants
and any securities which may have been issued upon exercise thereof will
indemnify the Company, and each person who controls the Company within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages, expenses and liabilities caused by an untrue statement of a material
fact contained in any registration statement, or contained in a prospectus
furnished thereunder or caused by an omission to state a material fact therein
necessary to make the statements therein not
5
<PAGE>
misleading insofar as such losses, claims, damages, expenses and liabilities are
caused by such untrue statement or omission being based upon information
furnished in writing to the Company by any such holder expressly for use in any
registration statement or prospectus.
(c) Promptly after the receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
7, notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to the indemnified party otherwise
than under this Section 7. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof as provided herein, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to the indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable under this
Section 7 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
8. Adjustment. Subject and pursuant to the provisions of this Section 8,
the Exercise Price and the number of shares of Common Stock issuable upon
exercise of the Underwriter Common Stock Warrants shall be adjusted from time to
time as follows:
(a) If the Company shall issue or sell either any of its shares of Common
Stock or any rights, options, warrants or obligations or securities containing
the right to subscribe for or purchase any shares of Common Stock ("Options") or
exchangeable for or convertible into shares of Common Stock ("Convertible
Securities"), at a price per share, as determined pursuant to Section 8(b)
herein, less than the Exercise Price of the Warrants then in effect on the date
of such sale or issuance, then the number of shares of Common Stock thereafter
purchasable upon exercise of each Underwriter Common Stock Warrant shall be
determined by multiplying the number of shares of Common Stock theretofore
purchasable upon exercise of such Warrant by a fraction, (x) the numerator of
which shall be the number of shares of Common Stock outstanding immediately
following the issuance of such shares of Common Stock, Options or Convertible
Securities plus the number of shares of Common Stock obtainable upon the
exercise of the Options and the conversion or exchange of the Convertible
Securities and (y) the denominator of which shall be the number of shares of
Common Stock outstanding immediately preceding the issuance of such shares of
Common Stock, Options, or Convertible Securities plus the number of shares of
Common Stock which the
6
<PAGE>
aggregate consideration received by the Company upon such issuance would
purchase on such date at the Exercise Price then in effect.
(b) The following provisions, in addition to other provisions of this
Section 8, shall be applicable in determining any adjustment under Section 8(a).
(1) In case of the issuance or sale of shares of Common Stock, part or
a of which shall be for cash, the consideration received by the Company therefor
shall be deemed to be the amount of gross proceeds of such sale of shares after
deducting therefrom all compensation paid and discounts allowed in the sale,
underwriting or purchase thereof by underwriters or dealers or others performing
similar services and all expenses incurred in connection therewith, plus the
amounts, if any, determined as provided in Section 8(b)(2).
(2) In case of the issuance or sale of shares of Common Stock wholly
or partly for a consideration other than cash, the amount of the consideration
other than cash received by the Company for such shares shall be deemed to be
the value of such consideration as determined by a resolution adopted by the
Board of Directors of the Company acting in good faith, irrespective of any
accounting treatment thereof. In case of the issuance or sale of shares of
Common Stock (otherwise than upon conversion or exchange), together with other
stock or securities or other assets of the Company for a consideration which is
received for both, the Board of Directors of the Company acting in good faith
shall determine what part of the consideration so received is to be deemed to be
the consideration for the issuance of such shares of Common Stock irrespective
of any accounting treatment thereof. If at any time the Company shall declare a
dividend or make any other distribution upon any stock of the Company payable in
Common Stock, then such Common Stock issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
(3) The price per share of any shares of Common Stock sold or issued
by the Company (other than pursuant to Options or Convertible Securities) shall
be equal to a price calculated by dividing (x) the amount of the consideration
received by the Company, as determined pursuant to Sections 8(b)(1) and 8(b)
(2), upon such sale or issuance by (y) the number of shares of Common Stock sold
or issued.
(4) If the Company shall at any time after the date hereof issue any
Options or Convertible Securities, the following provisions shall apply in
making any adjustment pursuant to this Section 8:
(i) The price per share for which Common Stock is
issuable upon the exercise of the Options or upon conversion or
7
<PAGE>
exchange of the Convertible Securities shall be determined by dividing (A) the
total amount, if any, received or receivable by the Company as consideration for
the issuance of such Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, by (B) the aggregate maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities.
(ii) In determining the price per share for which Common Stock is
issuable upon exercise of the Options or conversion or exchange of the
Convertible Securities as set forth in Section 8(b) (4) (i) and in computing any
adjustment pursuant to Section 8(a), (A) the aggregate maximum number of shares
of Common Stock issuable upon the exercise of such Options or conversion or
exchange of such Convertible Securities shall be considered to be outstanding at
the time such Options or Convertible Securities were issued and to have been
issued for such price per share as determined pursuant to Section 8(b)(4) (i),
and (B) consideration for the issuance of such Options or Convertible Securities
and the amount of additional consideration payable to the Company upon exercise
of such Options or upon the conversation or exchange of such Convertible
Securities shall be determined in the same manner as the consideration received
upon the issuance or sale of shares of Common Stock as provided in Sections 8(b)
(1) and 8(b) (2).
(iii) On the expiration of such Options or the termination of any
right to convert or exchange any Convertible Securities, the number of shares of
Common Stock issuable upon exercise of the Warrants shall forthwith be
readjusted to such number of shares of Common Stock as would have been obtained
had the adjustments made upon the issuance of such Options or Convertible
Securities been made upon the basis of the delivery of only that number of
shares of Common Stock actually delivered and the consideration actually paid
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities.
(iv) If the minimum purchase price per share of Common Stock
provided for in any Option or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change or a different
purchase price or rate shall become effective at any time or from time to time
(other than pursuant to any antidilution provision of such Options or
Convertible Securities), then, upon such change becoming effective the number of
shares of Common Stock subject to the Warrants shall forthwith be increased or
decreased to such number of shares as would have been obtained had the
adjustments made upon the granting or issuance of such Options or Convertible
Securities been made upon the basis of (A) the issuance of the number of shares
of Common Stock theretofore actually delivered upon the exercise of such Options
or upon the conversion or exchange of such Convertible
8
<PAGE>
Securities, and the total consideration received therefor, and (B) the granting
or issuance at the time of such change of any such Options or Convertible
Securities then still outstanding for the consideration, if any, received by the
Company therefor and to be received on the basis of such changed price or rate
of exchange or conversion.
(5) Except as otherwise specifically provided herein, the date of
issuance or sale of shares of Common Stock shall be deemed to be the date the
Company is legally obligated to issue such shares of Common Stock, or pursuant
to Section 8(b)(4), the date the Company is legally obligated to issue any
"Option" or "Convertible Security". If at any time the Company shall take a
record date for the purpose of determining the holders of Common Stock entitled
(A) to receive a dividend or other distribution payable in Common Stock or in
Options or Convertible Securities, or (B) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be deemed
to be the date of issue or sale of the shares of Common Stock, Options or
Convertible Securities deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the granting of
such right of subscription or purchase, as the case may be.
(6) The number of shares of Common Stock outstanding at any given time
shall not include treasury shares and the issue or sale of any such treasury
shares shall be considered an issue or sale of Common Stock for the purposes of
this Section 8.
(7) Notwithstanding any provision herein to the contrary, no
adjustment to the Exercise Price or in the number of Shares issuable upon
exercise of the Underwriter Common Stock Warrants shall be made pursuant to
Section 8(a) upon:
(i) the issuance or sale of shares of Common Stock pursuant to
the exercise of the Underwriter Common Stock Warrants or the Underwriter
Warrants or upon the exercise of Options or conversion or exchange of
Convertible Securities hereafter issued for which an adjustment has been made
pursuant to the provisions of Section 8 hereof; or
(ii) the increase in the number of shares of Common Stock subject
to any warrant, Option or Convertible Security referred to in subsections
8(b)(7)(i) hereof pursuant to antidilution provisions of such warrant, Option or
Convertible Security.
(c) If the Company shall at any time subdivide its outstanding shares of
Common Stock by recapitalization, reclassification or split-up thereof, the
number of shares of Common Stock subject to the Underwriter Common Stock
Warrants immediately prior to such subdivision shall be proportionately
increased, and if the
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Company shall at any time combine the outstanding shares of Common Stock by
recapitalization, reclassification or combination thereof, the number of shares
of Common Stock subject to the Underwriter Common Stock Warrants immediately
prior to such combination shall be proportionately decreased. Any such
adjustment and any adjustment to either Exercise Price pursuant to Section 8(f)
shall become effective at the close of business on the record date for such
subdivision or combination.
(d) If the Company after the date hereof shall distribute to all of the
holders of its shares of Common Stock any securities or other assets (other than
shares of Common Stock as to which an adjustment is made pursuant to Section 8
hereof or a distribution made as a dividend payable out of earnings or out of
any earned surplus legally available for dividends under the laws of the
jurisdiction of incorporation of the Company), the Company shall make such
equitable adjustment in the Exercise Price in effect immediately prior to the
record date of such distribution as may be necessary to preserve to the holders
of the Underwriter Common Stock Warrants rights substantially proportionate to
those enjoyed hereunder by such holders immediately prior to the happening of
such distribution. Any such adjustment shall become effective as of the day
following the record date for such distribution.
(e) No adjustment in the number of shares of Common Stock issuable upon the
exercise of the Underwriter Common Stock Warrants shall be required under
Section 8 unless such adjustment would require an increase or decrease in such
number of shares of at least 5% of the then adjusted number of shares of Common
Stock issuable upon the exercise thereof; provided, however, that any
adjustments which by reason of the foregoing are not required at the time to be
made shall be carried forward and taken into account and included in determining
the amount of any subsequent adjustment; and provided further, however, that in
case the Company shall at any time subdivide or combine the outstanding shares
of its Common Stock said percentage shall forthwith be proportionately increased
in the case of a combination or deceased in the case of a subdivision of shares
of its Common Stock so as to appropriately reflect the same. If the Company
shall make a record of the holders of its shares of Common Stock for the purpose
of entitling them to receive any distribution and shall thereafter and before
the distribution legally abandon its plan to pay or deliver such dividend or
distribution, then no adjustment in the number of shares of Common Stock subject
to the Underwriter Common Stock Warrants shall be required by reason of the
taking of such record.
(f) Whenever the number of shares of Common Stock purchasable upon the
exercise of the Underwriter Common Stock Warrants is adjusted, as provided in
Section 8, the Exercise Price shall be adjusted (to the nearest cent) by
multiplying the Exercise Price immediately prior to such adjustment by a
fraction (x) the numerator of which shall be the number of shares of Common
Stock
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purchasable upon the exercise of the Underwriter Common Stock Warrants
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock so purchasable immediately thereafter.
(g) In case of any reclassification of the outstanding shares of Common
Stock, other than a change covered by Section 8(c) hereof or which solely
affects the par value of such shares of Common Stock, or in the case of any
merger or consolidation of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or capital
reorganization of the outstanding shares of Common Stock), or in the case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety in connection with which the Company is
dissolved, the holders of the Underwriter Common Stock Warrants shall have the
right thereafter (until the Expiration Date or until thirty (30) days after
notice is given pursuant to the provisions hereof if the Company is to be
dissolved) to receive upon the exercise thereof, for the same aggregate Exercise
Price payable hereunder immediately prior to such event, the kind and amount of
shares of stock or other securities or property receivable upon such
reclassification, capital reorganization, merger or consolidation, or upon the
dissolution following any sale or other transfer, by a holder of the number of
shares of Common Stock of the Company obtainable upon exercise of the
Underwriter Common Stock Warrants immediately prior to such event; and if any
reclassification also results in a change in shares of Common Stock covered by
Section 8(c), then such adjustment shall be made pursuant to both Section 8(c)
and this Section 8(g). The provisions of this Section 8(g) shall similarly apply
to successive reclassifications, or capital reorganizations, mergers or
consolidations, sales or other transfers.
(h) If the Company shall distribute to all of its holders of Common Stock
any securities (which do not otherwise require any adjustment in the number of
Shares issuable upon exercise of this Warrant) or other assets (other than a
cash distribution made as a dividend payable out of earnings or out of earned
surplus legally available for dividends under the laws of the jurisdiction of
incorporation of the Company), the Board of Directors shall be required to make
such equitable adjustment in the Shares issuable upon exercise of this Warrant
and the Exercise Price thereof prior to the record date of such distribution as
may be necessary to preserve to the holders of the Underwriter Common Stock
Warrants rights substantially proportionate to those enjoyed hereunder
immediately prior to the happening of such distribution. Any such adjustment
made by the Board of Directors reasonably made in good faith shall be final and
binding on the holder hereof. Any such adjustment shall become effective as of
the record date for distribution.
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(i) If the Company after the date hereof shall take any action affecting
the shares of its Common Stock, other than action described in this Section 8,
which, in the good faith opinion of the Board of Directors of the Company, would
materially affect the rights of the holder of the Underwriter Common Stock
Warrants, then the Exercise Price and the numbers of shares of Common Stock
obtainable upon exercise of the Warrants shall be adjusted in such manner, if
any, and at such time as the Board of Directors of the Company, in good faith,
may determine to be equitable in the circumstances.
(j) The form of Underwriter Common Stock Warrants need not be changed
because of any change pursuant to this Section, and certificates for Underwriter
Common Stock Warrants issued after such change may state the same Exercise Price
and the same number of shares as is stated in form of certificates for such
Warrants initially issued pursuant to the aforementioned Underwriting Agreement.
However, the Company may at any time in its sole discretion (which shall be
conclusive) make any change in the form of Underwriter Common Stock Warrants
that the Company may deem appropriate and that does not affect the substance
thereof; and any Underwriter Common Stock Warrant thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
(k) The Company shall not be required to issue fractions of shares of
Common Stock on the exercise of the Underwriter Common Stock Warrants. If more
than one Warrant shall be surrendered for exercise at one time by the same
holder, the number of full shares which shall be issuable upon exercise thereof
shall be computed on the basis of the aggregate number of Warrants so exercised.
If a fraction of a share is issuable upon exercise of a Warrant, the Company
shall purchase such fraction based upon the then current market value of the
Common Stock.
(l) The Company shall provide notice to the registered holders of the
Underwriter Common Stock Warrants as follows:
(1) Upon any adjustment of the Exercise Price and the number of shares
issuable on exercise of an Underwriter Common Stock Warrant, then and in each
such case the Company shall give written notice thereof to the holders thereof,
which notice shall state the Exercise Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of a Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of the subject adjustments.
(2) In case at any time:
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(i) the Company shall pay any dividends payable in stock upon its
Common Stock or make any distribution (other than regular cash dividends) to the
holders of its Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization or reclassification
(other than a reclassification involving merely the subdivision or combination
of outstanding Common Stock) or merger or consolidation of the Company with, or
sale of all or substantially all of its assets to, another corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company;
then, in any one or more of such cases, the Company shall give written notice
thereof to the holders of the Underwriter Common Stock Warrants which shall
specify the date as of which the holders of Common Stock of record shall
participate in such dividend, distribution, or subscription rights, or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding up, as the case may be. Such notice
shall be given at least twenty (20) days prior to the action in question and not
less than twenty (20) days prior to the record date or the date on which the
Company's transfer books are closed in respect thereof. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of any
of the matters set forth herein.
(3) The Company shall cause copies of all financial statements and
reports, proxy statements and other documents as it shall send to its
stockholders to be sent by first-class mail of the United States Postal Service,
postage prepaid, on the date of mailing to such stockholders, to each registered
holder of Underwriter Common Stock Warrants at such holder's address appearing
on the records of the Company as of the record date for the determination of the
stockholders entitled to such documents.
9. Survival. The various rights and obligations of the holder hereof and of
the Company as set forth in Sections 5, 6 and 7 hereof shall survive the
exercise of the Underwriter Common Stock Warrants represented hereby and the
surrender of this certificate, and upon the surrender of this certificate and
the exercise of all the Warrants represented hereby, the Company shall, if
requested by the holder, deliver to the holder hereof its written acknowledgment
of its continuing obligations hereunder. The holders of the Warrants shall, if
requested by the Company, deliver to the Company their written acknowledgment of
their continuing obligations hereunder.
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10. Notice. A notices required by this certificate to be given or made by
the Company shall be given or made by first class mail of the United States
Postal Service, postage prepaid, addressed to the registered holder hereof at
the address of such holder as shown on the books of the Company; provided that
where notice is to be given pursuant to Sections 6, 7 and 8 hereof to a holder
of the Underwriter Warrants or any securities which may have been issued upon
the exercise of the Underwriter Warrants or the Underwriter Common Stock
Warrants, who is not a holder of an Underwriter Common Stock Warrant
certificate, such notice shall be given or made in the manner noted above to the
record owner of such securities at the address of such owner as shown on the
books of the Company.
11. Loss or Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant
Certificate and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of this Warrant Certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant Certificate of like tenor.
Dated: October __, 1996 TELLURIAN, INC.
By:______________________________
Stuart French, President
ATTEST:
- -----------------------------------
Richard Swallow, Secretary
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ASSIGNMENT
(To be executed by the registered holder to effect a transfer of
the within Warrant)
FOR VALUE RECEIVED, .... hereby sell, assign and transfer unto
(Name)
(Address)
the right to purchase .................... Shares of Common Stock of Tellurian,
Inc., evidenced by the within Warrant, together with a right, title and interest
therein, and do irrevocably constitute and appoint
attorney to transfer the said right on the books of said Corporation with full
power of substitution in the premises.
Dated, ..........................., 19 ....
Signature ................................
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PURCHASE FORM
(To be executed upon exercise of Warrant)
To: TELLURIAN, INC.
The undersigned hereby exercises the right to purchase
_________________ Shares of Common Stock of Tellurian, Inc., evidenced by the
within Warrant according to the terms and conditions thereof, and herewith makes
payment of the purchase price in full.
Dated: ...................... , 19...
SIGNATURE ................................
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Exhibit 5
LAW OFFICES
LESTER MORSE P.C.
111 Great Neck Road
Great Neck, New York 11021-5473
------
Telephone (516) 487-1446
Telecopier (516) 487-1452
September 30, 1996
Tellurian, Inc.
15 Industrial Avenue
Upper Saddle River, New Jersey 07458
Gentlemen:
You have requested our opinion, as counsel for Tellurian, Inc., a
Delaware corporation (the "Company"), in connection with the registration
statement on Form SB-2 (No. 333-9741) (the "Registration Statement"), under the
Securities Act of 1933 (the "Act"), filed by the Company with the Securities and
Exchange Commission.
The Registration Statement relates to (i) an offering of up to
2,085,000 shares (the "Shares") of common stock, par value $.01 ("Common
Stock"), of the Company and up to 2,127,500 redeemable common stock purchase
warrants (the "Redeemable Warrants"), each exercisable to purchase one share of
Common Stock (the aggregate of 2,127,500 shares of Common Stock issuable upon
exercise of the Redeemable Warrants being hereinafter referred to as the
"Warrant Shares"); (ii) an additional 3,000,000 warrants (and underlying warrant
shares) to be issued to certain security holders; and (iii) warrants (the
"Underwriter's Warrants") to purchase 140,000 shares of Common Stock (the
"Underwriter's Shares") and 185,000 warrants (the "Underwriter's Common Stock
Warrants"), each exercisable to purchase one share of Common Stock (the
aggregate of 185,000 shares of Common Stock issuable upon exercise of the
Underwriter's Common Stock Warrants being hereinafter referred to as the
"Underwriter's Warrant Shares.")
We have examined such records and documents and made such examinations
of law as we have deemed relevant in connection with this opinion. It is our
opinion that:
(1) The Shares, the Redeemable Warrants and Underwriter's Warrants
have been duly authorized and, when issued, delivered and paid
for in the manner described in the form of Underwriting
Agreement filed as Exhibit 1 to the Registration Statement,
will be legally issued and the Shares, when so issued,
delivered and paid for will also be fully paid and
nonassessable.
<PAGE>
Tellurian, Inc.
Page 2
(2) The Warrant Shares have been duly authorized, and when issued,
delivered and, paid for upon exercise of the Redeemable
Warrants in the manner described in the form of Warrant
Agreement filed as Exhibit 4(a) to the Registration Statement,
will be legally issued, fully paid, and nonassessable.
(3) The Underwriter's Shares, the Underwriter's Common Stock
Warrants and the Underwriter's Warrant Shares have been duly
authorized and, when issued, delivered and paid for in the
manner described in the Underwriter's Warrants filed as
Exhibit 4(c) to the Registration Statement, will be legally
issued, and the Underwriter's Shares and the Underwriter's
Warrant Shares, when so issued, delivered and paid for will
also be fully paid and nonassessable.
(4) The Redeemable Warrants, the Underwriter's Warrants and the
Underwriter's Common Stock Warrants have been duly authorized,
and when issued and paid for as set forth in the Registration
Statement, will be legally issued, fully paid and
nonassessable, and will constitute the valid and legally
binding obligations of the Company, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to the
availability of remedies (regardless of whether such
enforcement is considered in a proceeding in equity or at
law).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
LESTER MORSE P.C.
/s/ Steven Morse
------------------------------
Steven Morse
<PAGE>
Exhibit 10(c)
EMPLOYMENT AGREEMENT
AGREEMENT made as of _______________, 1996, by and between RONALD
SWALLOW residing at 64 Manor Drive, Ramsey, New Jersey 07446 (hereinafter
referred to as the "Executive") and TELLURIAN, INC., a Delaware corporation,
with principal executive offices located at 15 Industrial Avenue, Upper Saddle
River, New Jersey, 07458 (hereinafter referred to as the "Company").
W I T N E S S E T H:
WHEREAS, the Company is engaged inter alia in the business of design,
development and marketing of virtual reality products; and
WHEREAS, the Company desires to retain and employ the Executive for the
purpose of securing to the Company the experience, ability and services of the
Executive.
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive as its Chairman and the
Executive hereby accepts such employment and agrees to serve as an executive
officer of the Company subject to and upon the terms and conditions set forth in
this Agreement.
ARTICLE II
DUTIES
(A) The Executive shall, during the term of his employment with the
Company and subject to the direction and control of the Company's Board of
Directors, perform such executive duties and functions as he may be called upon
to perform consistent with his employment hereunder as Chairman of the Board. As
Chairman, he shall be responsible for making all final decisions as to technical
and engineering matters.
(B) The Executive agrees to devote his full time and best efforts to
the performance of his duties for the Company; render such executive services
for any subsidiary or affiliated business of the Company; participate in the
direction of the Company's business and financial operations; and promote the
Company's relationships with its employees, customers and others in the business
community.
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ARTICLE III
COMPENSATION
(A) The Company shall pay to the Executive for all services to be
rendered pursuant to the terms of this agreement, a base salary at the rate of
One Hundred Eight Thousand ($108,000) Dollars per year, or $9,000 per month,
during each year of the term of this agreement, payable in accordance with the
Company's normal payroll procedures. However, such payments shall not be made
less frequently than on a monthly basis. In the event the Company's operations
are profitable, the disinterested board members may approve salary increases in
their sole discretion.
(B) At the end of each fiscal year covered by the term of this
agreement, commencing with the year ending December 31, 1997, the Company's
independent auditors will audit its financial statements and determine whether
the Company has achieved any income before taxes under generally accepted
accounting principles. In such event, the Company will pay into an executive
officer bonus pool an amount equal to 10% of pre-tax profits and the board of
directors will determine the amount of bonuses that will be paid from such pool
to each executive officer.
ARTICLE IV
WORKING CONDITIONS AND BENEFITS
(A) Executive shall be entitled to a paid minimum three (3) week
vacation during each year of his employment with the Company.
(B) The Executive is authorized to incur reasonable and necessary
expenses for promoting the business of the Company, including authorized
expenses for entertainment, travel and similar items. The Company shall
reimburse the Executive on a bi-monthly basis for all such expenses, upon
presentation by the Executive of an itemized account of such authorized
expenditures.
(C) The Executive shall be employed by the Company at executive offices
maintained by the Company in the New Jersey area and at no other location. The
Executive shall travel on the Company's behalf to the extent reasonably
necessary.
(D) The Company shall provide to the Executive during the term of this
agreement a motor vehicle for business use and shall pay for all costs, expenses
(including insurance, maintenance and like charges) in connection with such use.
(E) The Company shall provide the Executive during the term of this
agreement (and thereafter as provided for under Article VII(A)), with
hospitalization and major medical health and dental insurance providing coverage
for the Executive and his dependents as per the Company's standard plan(s). The
Executive shall permit the Company to have key man life insurance on his life in
the amount determined by the Board of Directors, with the
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Company as the beneficiary of such life insurance.
(F) The Company shall provide to the Executive to the full extent
provided for under the laws of the Company's state of incorporation and the
Company's By-Laws, indemnification for any claim or lawsuit which may be
asserted against the Executive when acting in such capacity for the Company,
provided that said indemnification is not in violation of any Federal or state
law, rule or regulation.
ARTICLE V
OTHER BENEFITS
(A) During the term hereof, the Executive shall be entitled to receive
such of the following other benefits of employment available to other members of
the Company's management: health and life insurance benefits, pension, profit
sharing and income protection or disability plans, in each instance, consistent
with his position.
(B) The Company shall use its best efforts to cause the Executive to be
nominated for election to the Company's Board of Directors each year during the
term of this agreement.
ARTICLE VI
TERM
The term of this agreement shall commence as of the date hereof and
continue until ___________, 2000 (four years after the completion of the
Company's public offering) unless this agreement is otherwise terminated
pursuant to the terms hereof.
ARTICLE VII
TERMINATION
(A) The Company may terminate this agreement subject to the
provisions of paragraph (C) upon written notice to the Executive if the
Executive becomes disabled and as a result of such disability is substantially
unable to perform his duties hereunder for a period of six (6) consecutive
months; such notice shall be forwarded to the Executive by the Company upon and
after a resolution of the Company's Board of Directors authorizing such
notification. Such notification shall provide that Executive and his dependents
will continue to be covered for life, dental and health insurance, at the
Company's sole expense, pursuant to the provisions of Article IV(E) until such
time as Executive is employed elsewhere with similar benefits. Such health and
dental insurance shall be the same insurance coverage provided or offered to the
other senior executives of the Company.
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<PAGE>
(B) The Company may terminate this agreement upon written
notice from the Company to the Executive if the Executive has willfully
committed acts of misconduct materially adversely detrimental to the Company.
Such notice shall be forwarded to the Executive by the Company upon and after a
resolution of the Company's Board of Directors authorizing such notification.
ARTICLE VIII
CONFIDENTIALITY AND NON-COMPETITION
(A) All information concerning the Company's products, advertising,
sales, marketing and other materials or articles of information, including
without limitation customer and supplier lists, data processing reports,
customer sales analyses, invoices, price lists or information, samples, or any
other materials or data of any kind furnished to Executive by Company or
developed by Executive on behalf of Company or at Company's direction or for
Company's use or otherwise in connection with Executive's employment hereunder,
are and shall remain the sole and confidential property of Company; if Company
requests the return of such materials at any time during or at or after the
termination of Executive's employment, Executive shall immediately deliver the
same to Company.
(B) During the term of this agreement and one (1) year after the
termination of his employment with Company for any reason whatsoever, Executive
shall not directly or indirectly induce or attempt to influence any employee of
Company to terminate his employment with Company and shall not engage in (as a
principal, partner, director, officer, agent, employee, consultant or otherwise)
or be financially interested in any business operating in the continental United
States which is involved in any product or service which is part of Company's
activities on the date of termination of his employment or is definitely planned
by Company on the date of termination of his employment. This restriction on
competition by Executive shall run for a period of one year from the date of
termination of his employment with respect to any product or service which is
part of Company's activities on the date of termination of his employment and
with respect to any product or service which is being definitely planned by
Company on the date of termination of his employment. However, nothing contained
in this paragraph shall prevent Executive from holding for investment no more
than five (5%) percent of any class of equity securities of a company whose
securities are traded on a national securities exchange. Within ten business
days of the termination of this Agreement by either party, notwithstanding the
reason for termination, Executive shall receive a payment equal to one-half of
his then salary in consideration of the Executive's covenant not to compete for
a period of one year after the termination of employment contained in this
paragraph (B). In the event that the Company elects not to make the payment to
the Executive in accordance with aforesaid terms, then the provisions contained
in this paragraph (B) of Article VIII shall be void and
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<PAGE>
of no further force and effect at the close of business on the tenth day
following the termination of this Agreement.
(C) During the term of this agreement and at all times thereafter while
the covenant not to compete is in effect in accordance with paragraph (B) of
this ARTICLE VIII, without the consent of the Board of Directors, Executive
shall not use for his personal benefit, or disclose, communicate or divulge to,
or use for the direct or indirect benefit of any person, firm, association or
company other than the Company, any material referred to in paragraph (A) above
or any information regarding the business methods, business policies,
procedures, techniques, research or development projects or results, trade
secrets, or other knowledge or processes used or developed by the Company or any
names and addresses of customers or clients or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive while in
the employ of Company.
ARTICLE IX
SEVERABILITY
If any provision of this agreement shall be held invalid or
unenforceable, the remainder of this agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE X
ARBITRATION
Any controversy, claim or dispute arising out of the terms of this
agreement, or the breach thereof, shall be settled by arbitration in New York
County under the rules of the American Arbitration Association and the award
rendered thereon shall be final, binding and conclusive as to all parties and
may be entered in any court of competent jurisdiction.
In the event Executive or the Company submits a claim, controversy or
dispute for arbitration, the Company shall continue to pay Executive his full
compensation (including salary and bonuses) until the matter has been settled by
arbitration in accordance with this Article X, but in no event shall such
Compensation exceed the amount payable to Executive under Article III and VII(C)
hereof. The arbitration panel shall not have the right to modify the terms of
this Agreement. The arbitration panel shall consist of three senior executives
of companies with sales in excess of $50,000,000 per year.
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ARTICLE XI
NOTICE
All notices required to be given under the terms of this agreement
shall be in writing and shall be deemed to have been duly given if delivered to
the addressee in person or mailed by certified mail, return receipt requested,
as follows:
If to the Company, addressed to:
Tellurian, Inc.
15 Industrial Avenue
Upper Saddle River, NJ 07458
With a copy to:
Lester Morse P.C.
111 Great Neck Road, Suite 420
Great Neck, NY 11021
If to the Executive, addressed to:
Dr. Ronald Swallow
64 Manor Drive
Ramsey, NJ 07446
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with this paragraph.
ARTICLE XII
BENEFIT
This agreement shall inure to and shall be binding upon the parties
hereto, the successors and assigns of the Company and the heirs and personal
representatives of the Executive.
ARTICLE XIII
WAIVER
The waiver by either party of any breach or violation of any provision
of this agreement shall not operate or be construed as a waiver of any
subsequent breach.
ARTICLE XIV
GOVERNING LAW
This agreement has been negotiated and executed in the State of New
Jersey and New Jersey law shall govern its construction and validity.
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ARTICLE XV
ENTIRE AGREEMENT
This agreement contains the entire agreement between the parties
hereto; no change, addition or amendment shall be made hereto except by written
agreement signed by the parties hereto. This agreement supersedes all prior
agreements and understandings.
IN WITNESS WHEREOF, the parties hereto have executed this agreement and
affixed their hands and seal the day and year first above written.
_____________________________
Dr. Ronald Swallow, Executive
TELLURIAN, INC.
By___________________________
Stuart French
President
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<PAGE>
Exhibit 10(d)
EMPLOYMENT AGREEMENT
AGREEMENT made as of _______________, 1996, by and between STUART
FRENCH residing at 565 Poplar Court, Wyckoff, New Jersey 07481 (hereinafter
referred to as the "Executive") and TELLURIAN, INC., a Delaware corporation,
with principal executive offices located at 15 Industrial Avenue, Upper Saddle
River, New Jersey, 07458 (hereinafter referred to as the "Company").
W I T N E S S E T H:
WHEREAS, the Company is engaged inter alia in the business of design,
development and marketing of virtual reality products; and
WHEREAS, the Company desires to retain and employ the Executive for the
purpose of securing to the Company the experience, ability and services of the
Executive.
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs the Executive as its President and the
Executive hereby accepts such employment and agrees to serve as an executive
officer of the Company subject to and upon the terms and conditions set forth in
this Agreement.
ARTICLE II
DUTIES
(A) The Executive shall, during the term of his employment with the
Company and subject to the direction and control of the Company's Board of
Directors and Chairman of the Board, perform such executive duties and functions
as he may be called upon to perform consistent with his employment hereunder as
President.
(B) The Executive agrees to devote his full time and best efforts to
the performance of his duties for the Company; render such executive services
for any subsidiary or affiliated business of the Company; participate in the
direction of the Company's business and financial operations; and promote the
Company's relationships with its employees, customers and others in the business
community.
1
<PAGE>
ARTICLE III
COMPENSATION
(A) The Company shall pay to the Executive for all services to be
rendered pursuant to the terms of this agreement, a base salary at the rate of
Eighty Four Thousand ($84,000) Dollars per year, or $7,000 per month, during
each year of the term of this agreement, payable in accordance with the
Company's normal payroll procedures. However, such payments shall not be made
less frequently than on a monthly basis. In the event the Company's operations
are profitable, the disinterested board members may approve salary increases in
their sole discretion.
(B) At the end of each fiscal year covered by the term of this
agreement, commencing with the year ending December 31, 1997, the Company's
independent auditors will audit its financial statements and determine whether
the Company has achieved any income before taxes under generally accepted
accounting principles. In such event, the Company will pay into an executive
officer bonus pool an amount equal to 10% of pre-tax profits and the board of
directors will determine the amount of bonuses that will be paid from such pool
to each executive officer.
ARTICLE IV
WORKING CONDITIONS AND BENEFITS
(A) Executive shall be entitled to a paid minimum three (3) week
vacation during each year of his employment with the Company.
(B) The Executive is authorized to incur reasonable and necessary
expenses for promoting the business of the Company, including authorized
expenses for entertainment, travel and similar items. The Company shall
reimburse the Executive on a bi-monthly basis for all such expenses, upon
presentation by the Executive of an itemized account of such authorized
expenditures.
(C) The Executive shall be employed by the Company at executive offices
maintained by the Company in the New Jersey area and at no other location. The
Executive shall travel on the Company's behalf to the extent reasonably
necessary.
(D) The Company shall provide to the Executive during the term of this
agreement a motor vehicle for business use and shall pay for all costs, expenses
(including insurance, maintenance and like charges) in connection with such use.
(E) The Company shall provide the Executive during the term of this
agreement (and thereafter as provided for under Article VII(A)), with
hospitalization and major medical health and dental insurance providing coverage
for the Executive and his dependents as per the Company's standard plan(s). The
Executive shall permit the Company to have key man life insurance on his life in
the amount determined by the Board of Directors, with the
2
<PAGE>
Company as the beneficiary of such life insurance.
(F) The Company shall provide to the Executive to the full extent
provided for under the laws of the Company's state of incorporation and the
Company's By-Laws, indemnification for any claim or lawsuit which may be
asserted against the Executive when acting in such capacity for the Company,
provided that said indemnification is not in violation of any Federal or state
law, rule or regulation.
ARTICLE V
OTHER BENEFITS
(A) During the term hereof, the Executive shall be entitled to receive
such of the following other benefits of employment available to other members of
the Company's management: health and life insurance benefits, pension, profit
sharing and income protection or disability plans, in each instance, consistent
with his position.
(B) The Company shall use its best efforts to cause the Executive to be
nominated for election to the Company's Board of Directors each year during the
term of this agreement.
ARTICLE VI
TERM
The term of this agreement shall commence as of the date hereof and
continue until ___________, 2000 (four years after the completion of the
Company's public offering) unless this agreement is otherwise terminated
pursuant to the terms hereof.
ARTICLE VII
TERMINATION
(A) The Company may terminate this agreement subject to the
provisions of paragraph (C) upon written notice to the Executive if the
Executive becomes disabled and as a result of such disability is substantially
unable to perform his duties hereunder for a period of six (6) consecutive
months; such notice shall be forwarded to the Executive by the Company upon and
after a resolution of the Company's Board of Directors authorizing such
notification. Such notification shall provide that Executive and his dependents
will continue to be covered for life, dental and health insurance, at the
Company's sole expense, pursuant to the provisions of Article IV(E) until such
time as Executive is employed elsewhere with similar benefits. Such health and
dental insurance shall be the same insurance coverage provided or offered to the
other senior executives of the Company.
3
<PAGE>
(B) The Company may terminate this agreement upon written
notice from the Company to the Executive if the Executive has willfully
committed acts of misconduct materially adversely detrimental to the Company.
Such notice shall be forwarded to the Executive by the Company upon and after a
resolution of the Company's Board of Directors authorizing such notification.
ARTICLE VIII
CONFIDENTIALITY AND NON-COMPETITION
(A) All information concerning the Company's products, advertising,
sales, marketing and other materials or articles of information, including
without limitation customer and supplier lists, data processing reports,
customer sales analyses, invoices, price lists or information, samples, or any
other materials or data of any kind furnished to Executive by Company or
developed by Executive on behalf of Company or at Company's direction or for
Company's use or otherwise in connection with Executive's employment hereunder,
are and shall remain the sole and confidential property of Company; if Company
requests the return of such materials at any time during or at or after the
termination of Executive's employment, Executive shall immediately deliver the
same to Company.
(B) During the term of this agreement and one (1) year after the
termination of his employment with Company for any reason whatsoever, Executive
shall not directly or indirectly induce or attempt to influence any employee of
Company to terminate his employment with Company and shall not engage in (as a
principal, partner, director, officer, agent, employee, consultant or otherwise)
or be financially interested in any business operating in the continental United
States which is involved in any product or service which is part of Company's
activities on the date of termination of his employment or is definitely planned
by Company on the date of termination of his employment. This restriction on
competition by Executive shall run for a period of one year from the date of
termination of his employment with respect to any product or service which is
part of Company's activities on the date of termination of his employment and
with respect to any product or service which is being definitely planned by
Company on the date of termination of his employment. However, nothing contained
in this paragraph shall prevent Executive from holding for investment no more
than five (5%) percent of any class of equity securities of a company whose
securities are traded on a national securities exchange. Within ten business
days of the termination of this Agreement by either party, notwithstanding the
reason for termination, Executive shall receive a payment equal to one-half of
his then salary in consideration of the Executive's covenant not to compete for
a period of one year after the termination of employment contained in this
paragraph (B). In the event that the Company elects not to make the payment to
the Executive in accordance with aforesaid terms, then the provisions contained
in this paragraph (B) of Article VIII shall be void and
4
<PAGE>
of no further force and effect at the close of business on the tenth day
following the termination of this Agreement.
(C) During the term of this agreement and at all times thereafter while
the covenant not to compete is in effect in accordance with paragraph (B) of
this ARTICLE VIII, without the consent of the Board of Directors, Executive
shall not use for his personal benefit, or disclose, communicate or divulge to,
or use for the direct or indirect benefit of any person, firm, association or
company other than the Company, any material referred to in paragraph (A) above
or any information regarding the business methods, business policies,
procedures, techniques, research or development projects or results, trade
secrets, or other knowledge or processes used or developed by the Company or any
names and addresses of customers or clients or any other confidential
information relating to or dealing with the business operations or activities of
Company, made known to Executive or learned or acquired by Executive while in
the employ of Company.
ARTICLE IX
SEVERABILITY
If any provision of this agreement shall be held invalid or
unenforceable, the remainder of this agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE X
ARBITRATION
Any controversy, claim or dispute arising out of the terms of this
agreement, or the breach thereof, shall be settled by arbitration in New York
County under the rules of the American Arbitration Association and the award
rendered thereon shall be final, binding and conclusive as to all parties and
may be entered in any court of competent jurisdiction.
In the event Executive or the Company submits a claim, controversy or
dispute for arbitration, the Company shall continue to pay Executive his full
compensation (including salary and bonuses) until the matter has been settled by
arbitration in accordance with this Article X, but in no event shall such
Compensation exceed the amount payable to Executive under Article III and VII(C)
hereof. The arbitration panel shall not have the right to modify the terms of
this Agreement. The arbitration panel shall consist of three senior executives
of companies with sales in excess of $50,000,000 per year.
5
<PAGE>
ARTICLE XI
NOTICE
All notices required to be given under the terms of this agreement
shall be in writing and shall be deemed to have been duly given if delivered to
the addressee in person or mailed by certified mail, return receipt requested,
as follows:
If to the Company, addressed to:
Tellurian, Inc.
15 Industrial Avenue
Upper Saddle River, NJ 07458
With a copy to:
Lester Morse P.C.
111 Great Neck Road, Suite 420
Great Neck, NY 11021
If to the Executive, addressed to:
Stuart French
565 Poplar Court
Wyckoff, NJ 07481
or to any such other address as the party to receive the notice shall advise by
due notice given in accordance with this paragraph.
ARTICLE XII
BENEFIT
This agreement shall inure to and shall be binding upon the parties
hereto, the successors and assigns of the Company and the heirs and personal
representatives of the Executive.
ARTICLE XIII
WAIVER
The waiver by either party of any breach or violation of any provision
of this agreement shall not operate or be construed as a waiver of any
subsequent breach.
ARTICLE XIV
GOVERNING LAW
This agreement has been negotiated and executed in the State of New
Jersey and New Jersey law shall govern its construction and validity.
6
<PAGE>
ARTICLE XV
ENTIRE AGREEMENT
This agreement contains the entire agreement between the parties
hereto; no change, addition or amendment shall be made hereto except by written
agreement signed by the parties hereto. This agreement supersedes all prior
agreements and understandings.
IN WITNESS WHEREOF, the parties hereto have executed this agreement and
affixed their hands and seal the day and year first above written.
_____________________________
Stuart French, Executive
TELLURIAN, INC.
By___________________________
Dr. Ronald Swallow
Chairman of the Board
and Chief Executive Officer
7
<PAGE>
Exhibit 10(t)
TELLURIAN, INC.
6 DEMAREST PL.
WALDWICK, N.J. 07463
voice (201) 251-7770
fax (201) 251-7788
19 MARCH 1996 LETTER OF INTENT
Eye Wonder Studios
626 Wellard Rd.
Fenwick, Ontario
Canada LOC 1C0
Gentlemen,
Based on the accuracy of the business plans and other financial
information provided by Eye Wonder Studios, Tellurian hereby agrees to enter
into a Joint Venture Agreement with Eye Wonder, for the sole purpose of
establishing a Location Based Entertainment Center at Niagra, Canada.
For its part in the Joint Venture, Tellurian agrees to provide, at
cost, its skill and expertise in the field of high speed image generation, as
well as its virtual reality equipment. This includes, but is not limited to its
P-51 themed adventure. In return, Eye Wonder agrees to provide all funding for
the LBE at Niagra. Tellurian will assist in the securing of funds whenever
necessary.
It is understood that the two companies will remain separate
and distinct entities, joined in pursuit of this one project. New
projects will require additional agreements.
For its contribution, Tellurian desires an equity position and a seat
on the board governing this project.
If the proceeding meets with your general approval and correctly states
our general agreement, kindly affirm by signing a copy of this letter in the
space provided and return by FAX ASAP.
Very Truly Yours,
Tellurian, Inc.
By /s/ Stu French
---------------------------
Stu French, President
Approved and Agreed:
EYE WONDER STUDIOS
By /s/ Robert Winterford
--------------------------
Robert Winterford,
<PAGE>
Exhibit 10(u)
FINANCIAL CONSULTING AGREEMENT
AGREEMENT made the ____ day of _________, 1996 by and between
J.W. Barclay & Co., Inc. (herein referred to as "Consultant"), and
Tellurian, Inc. (herein referred to as "Client").
WHEREAS, Client desires to obtain Consultant's consulting services in
connection with Client's business and financial affairs, and Consultant is
willing to render such services as hereinafter more fully set forth.
NOW, THEREFORE, the parties agree as follows:
1. Client hereby engages and retains Consultant and Consultant hereby
agrees to use its best efforts, to render to Client the consulting services
hereinafter described for a period of two years commencing as of, and
conditioned upon the closing of the underwriting contemplated in the
Registration Statement on Form SB-2 (No. 333-9741) filed by Client with the
Securities and Exchange Commission.
2. Consultant's services hereunder shall consist of consultations with
Client concerning the management and financing of Client's business as Client
may from time to time request during the term of this consulting agreement.
3. Consultant's services may include, at the request of the Client,
attendance at meetings of the Client's Board of Directors and review, analysis
and report on proposed investment opportunities, short term and long term
investment policies, evaluation of the Client's managerial and financial
requirements, assistance in preparation of budgets and business plans, advice
regarding sales and marketing and review and advice with respect to future
public or private financings. Client agrees that Consultant shall not be
prevented or barred from rendering services of similar or dissimilar nature for
or on behalf of any person, firm or corporation other than Client. Nothing
herein shall require the Consultant to provide any minimum number of hours of
consultation services to the Client, and the amount of time to be devoted by
Consultant in performing services hereunder shall be within the discretion of
Consultant. Consultant agrees to keep confidential any nonpublic information
concerning Client which is imparted to Consultant by Client and which is
identified as confidential or proprietary by Client in writing and to use the
same only for the purposes of this agreement. Materials prepared for Client
pursuant to this agreement are to be the property of Client.
<PAGE>
4. Client agrees to pay to Consultant for its services hereunder the sum of
_________________________________________ ($______) Dollars per year for each
year of the term of this Agreement. Said fee shall be paid in full upon the
execution hereof.
This agreement has been executed and delivered in the State of New York and
shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed as of the day and year first above written.
J.W. BARCLAY & CO., INC.
By:__________________________________
TELLURIAN, INC.
By:_________________________________
3
<PAGE>
Exhibit 10(v)
October __, 1996
Tellurian, Inc.
15 Industrial Avenue
Upper Saddle River, N.J. 07458
Re: Mergers and Acquisitions Agreement
Gentlemen:
You have agreed that J.W. Barclay & Co., Inc. (the
"Consultant") may act as financial consultant or finder for you in
various transactions in which Tellurian, Inc. (the "Company") may
be involved, such as mergers, acquisitions, joint ventures, or
similar transactions. The Company hereby agrees that in the event
that the Consultant shall first introduce to the Company another
party or entity, and that as a result of such introduction, a
transaction between such party or entity and the Company is
consummated, (a "Consummated Transaction"), then the Company shall
pay to the Consultant a fee as follows:
a. 7% of the first $1,000,000 of the consideration
paid in such transaction;
b. 6% of the consideration in excess of $1,000,000
and up to $3,000,000;
c. 5% of the consideration in excess of $3,000,000
and up to $5,000,000;
d. 4% of the consideration in excess of $5,000,000
and up to $7,000,000;
e. 3% of the consideration in excess of $7,000,000
and up to $9,000,000; and
f. 2 1/2% of the consideration in excess of
$9,000,000.
The fee due to Consultant shall be paid by the Company in cash
at the closing of the Consummated Transaction, without regard to
whether or not the Consummated Transaction involves payment in
cash, in stock, or a combination of stock and cash, or is made on
an installment sale basis. By way of example, if the Consummated
Transaction involved securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party,
or securities of another entity if the Company is the selling
party) having a value of $5,000,000, the cash consideration to be
paid by the Company to the Consultant shall be $200,000.
<PAGE>
In the event that for any reason the Company shall fail to pay
to the Consultant all or any portion of the fee payable hereunder
when due, interest shall accrue and be payable on the unpaid
balance due hereunder from the date when first due through and
including that date when actually collected by the Consultant, at
a rate equal to 4 points over the average prime rate of banks in
New York City, computed on a daily basis and adjusted as announced
from time to time.
This agreement shall be effective on the date hereof and shall
expire on the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the
Company shall, within 180 days immediately following the
termination of the five year period provided above, conclude a
Consummated Transaction with any party introduced by the Consultant
to the Company prior to the termination of said five year period,
the Company shall also pay the Consultant the fee as provided
herein.
The Company represents and warrants to the Consultant that the
engagement of the Consultant hereunder has been duly authorized and
approved by the Board of Directors of the Company and this letter
agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company.
This agreement has been executed and delivered in the State of
New York and shall be governed by the laws of such state, without
giving effect to the conflicts of laws rules thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be signed as of the day and year first above written.
J.W. BARCLAY & CO., INC.
By:__________________________________
AGREED:
TELLURIAN, INC.
By:____________________________
2
<PAGE>
EXHIBIT 23.1
MILLER, ELLIN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INTERNATIONAL PLAZA
750 LEXINGTON AVENUE, NEW YORK, N.Y. 10022-1200
------
(212) 750-9100
------
FAX: (212) 750-2727
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Prospectus constituting part of
this Registration Statement on Amendment No. 1 to Form SB-2 of Tellurian, Inc.
of our report dated March 29, 1996, except Note 1 which is July 2, 1996 and Note
10 which is dated August 2, 1996, relating to the financial statements of the
Company for the years ended December 31, 1995 and 1994.
We also consent to the reference to us under the heading "Experts".
MILLER, ELLIN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
October 1, 1996
<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 JUNE 30, 1996
(UNAUDITED) AND STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<CASH> 283,372 39,130
<SECURITIES> 0 0
<RECEIVABLES> 168,602 5,000
<ALLOWANCES> 0 0
<INVENTORY> 134,450 87,218
<CURRENT-ASSETS> 698,447 139,159
<PP&E> 91,655 84,446
<DEPRECIATION> 57,485 51,735
<TOTAL-ASSETS> 932,932 223,560
<CURRENT-LIABILITIES> 2,078,051 2,004,669
<BONDS> 0 0
0 0
0 0
<COMMON> 16,000 16,000
<OTHER-SE> (2,056,119) (1,989,109)
<TOTAL-LIABILITY-AND-EQUITY> 932,932 223,560
<SALES> 542,284 477,311
<TOTAL-REVENUES> 542,284 477,311
<CGS> 82,059 339,220
<TOTAL-COSTS> 82,059 339,220
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 55,888 64,356
<INCOME-PRETAX> (95,010) (699,665)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (95,010) (699,665)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (95,010) (699,665)
<EPS-PRIMARY> (.06) (.48)
<EPS-DILUTED> (.06) (.48)
</TABLE>
