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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 2-63115
CHENIERE ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4352386
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 SMITH ST. SUITE 1710 77002-4312
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
Registrant's telephone number, including area code: (713) 659-1361
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.03 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $19,446,458 as of November 22, 1996.
10,624,794 shares of the registrant's Common Stock were outstanding as of
November 22, 1996.
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CHENIERE ENERGY, INC.
INDEX TO FORM 10-K
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PAGE
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PART I
Items 1 and 2. Business and Properties.................................... 3
Item 3. Legal Proceedings................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............... 14
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters........................................................... 15
Item 6. Selected Financial Data........................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 16
Item 8. Financial Statements and Supplementary Data....................... 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 30
PART III
Item 10. Directors and Executive Officers of the Registrant............... 30
Item 11. Executive Compensation........................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management... 33
Item 13. Certain Relationships and Related Transactions................... 33
PART IV
Item 14. Exhibits, Consolidated Financial Statements and Reports on Form
8-K.............................................................. 34
SIGNATURES................................................................ 35
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PART 1
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
Cheniere Energy, Inc. ("Cheniere," together with Cheniere Operating (as
defined below), the "Company") is the owner of 100% of the outstanding common
stock of Cheniere Energy Operating Co., Inc. ("Cheniere Operating"). Cheniere
Operating is a Houston-based company formed for the purpose of oil and gas
exploration and exploitation. Cheniere Operating was incorporated in Delaware
in February 1996 under the name FX Energy, Inc.
On July 3, 1996 Cheniere Operating consummated the transactions (the
"Reorganization") contemplated in the Agreement and Plan of Reorganization
(the "Reorganization Agreement") dated April 16, 1996 between Cheniere
Operating and Bexy Communications, Inc., a publicly held Delaware corporation
("Bexy"). Pursuant to the terms of the Reorganization Agreement, (i) Bexy
transferred its existing assets and liabilities to Mars Ventures, Inc. ("Mars
Ventures"), a newly created, wholly owned subsidiary of Bexy; (ii) the
shareholders of Cheniere Operating transferred all the issued and outstanding
capital stock of Cheniere Operating to Bexy in exchange for approximately 8.3
million newly issued shares of Bexy common stock; (iii) Bexy distributed all
the issued and outstanding capital stock of Mars Ventures to the Original Bexy
Stockholders; and (iv) Bexy changed its name to Cheniere Energy, Inc.
Immediately following the reorganization, the former shareholders of Cheniere
Operating held 93 percent of the issued and outstanding stock of Cheniere, and
the Original Bexy Stockholders held the remaining seven percent of the
outstanding capital stock of Cheniere.
The Common Stock of the Company is traded on the over-the-counter market and
quoted on the OTC Bulletin Board (the "Bulletin Board") of the National
Association of Securities Dealers (the "NASD") (ticker symbol "CHEX") with
10,624,794 shares outstanding as of November 22, 1996. The Company has applied
for a Nasdaq SmallCap Market listing.
The Company's principal executive offices are located at Two Allen Center,
1200 Smith Street, Suite 1710, Houston, Texas 77002. The Company's telephone
number is (713) 659-1361.
GENERAL
The Company is currently involved in a joint exploration program which is
engaged in the exploration for oil and natural gas along the Gulf Coast of
Louisiana, onshore and in the shallow waters of the Gulf of Mexico. The
Company commenced its oil and gas activities in April 1996 through such joint
exploration program, and since July 3, 1996 has been publicly traded under the
name Cheniere Energy, Inc.
The Company is involved with one major project in the pre-drilling stage.
The Company entered into a joint exploration program pursuant to an
Exploration Agreement dated April 4, 1996 between FX Energy, Inc., now known
as Cheniere Operating, and Zydeco Exploration, Inc. ("Zydeco"), an operating
subsidiary of Zydeco Energy, Inc. (the "Exploration Agreement"), with regard
to a new proprietary 3-D seismic exploration project in southern Louisiana
(the "3-D Joint Venture"). The Company has the right to earn up to a 50%
participation in the 3-D Joint Venture. The Company believes that the 3-D
seismic survey (the "Survey") is the first of its size that crosses the
coastline within the Transition Zone of Louisiana, an area extending a few
miles on either side of the Louisiana State coastline. The Survey is to be
conducted over certain areas located within a total area of approximately 255
square miles running 5 miles south and generally 3 to 5 miles north of the
coastline in the most westerly 28 miles of West Cameron Parish, Louisiana (the
"Survey AMI"). Currently, the 3-D Joint Venture has permits and similar rights
to survey approximately 84% (210 square miles) of the Survey AMI and is
attempting to acquire rights to survey additional portions of the Survey AMI.
Accordingly, the 3-D Joint Venture does not currently have rights to survey
the entire Survey AMI and the extent of the Survey AMI which the 3-D Joint
Venture will be entitled to survey is dependent upon its ability to obtain
survey permits and similar
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rights. The 3-D Joint Venture will survey specific sections selected by it
within the areas covered by such permits and rights. See "--Permit and Lease
Status Within the Survey AMI." A seismic data acquisition contract has been
signed and the 3-D Joint Venture has begun to conduct the Survey.
On July 26, 1996, the Company signed a Letter of Intent with Poseidon
Petroleum, LLC ("Poseidon") to purchase Poseidon's 47% working interest in
undeveloped reserves in the Bonito Unit of the Pacific Outer Continental
Shelf, offshore Santa Barbara County, California (the "Poseidon Interest").
The parties are conducting due diligence and are negotiating a definitive
purchase and sale agreement and related documentation. The transactions
contemplated in the Letter of Intent may be terminated by either party upon
the occurrence of certain events and there can be no assurance that the
Company will successfully consummate such transactions. Moreover, if such
transactions are consummated, the Company expects that development of the
reserves will not occur for at least five years. There can be no assurance
that the Company will successfully develop the reserves or that production of
the reserves will be economically viable.
The Company has not yet established oil and gas production, nor has it
booked proven oil and gas reserves.
BUSINESS STRATEGY
The Company's objective is to increase the net value of its assets per share
by growing its oil and gas reserves in a cost efficient manner. The Company
intends to pursue this objective by following an integrated strategy that
includes the following elements:
. FOCUS ON FEW PROJECTS WITH LARGE RESERVE POTENTIAL.
Louisiana Gulf Coast Transition Zone. The Company's current activities are
focused within one area, the Transition Zone of Louisiana. The Company
believes that the Transition Zone, including the westernmost 28 miles of
Louisiana coastline that are within the Survey AMI, has significant
remaining undiscovered reserves. The 3-D Joint Venture therefore plans to
focus its efforts on certain areas, all located within The Survey AMI. In
addition, the substantial infrastructure along the Gulf Coast and in the
shallow Gulf of Mexico facilitates the timely development of oil and gas
discoveries at relatively attractive capital costs compared to those in
some other geographic regions. The Company's officers and the Zydeco staff
have extensive experience both onshore and offshore in the Gulf Coast and
believe the 3-D Joint Venture is well positioned to evaluate, explore and
develop properties in the area.
Offshore California. The Company has signed a Letter of Intent with
Poseidon to purchase Poseidon's 47% working interest in undeveloped
reserves in the Bonito Unit of the Pacific Outer Continental Shelf,
offshore Santa Barbara County, California. An independent reserve report is
being prepared to determine an estimate of the volume of undeveloped oil
and gas reserves attributable to the Poseidon Interest. The parties are
conducting due diligence and are negotiating a definitive purchase and sale
agreement and related documentation. The transactions contemplated in the
Letter of Intent may be terminated by either party upon the occurrence of
certain events and there can be no assurance that the Company will
successfully consummate such transactions. Moreover, if such transactions
are consummated, the Company expects that development of the reserves will
not occur for at least five years. There can be no assurance that the
Company will successfully develop the reserves or that the reserves will
yield sufficient quantities of oil and gas to be economically viable.
. MAINTAIN A SIGNIFICANT WORKING INTEREST IN EACH PROJECT. The Company has the
right to earn up to a 50% participation in the 3-D Joint Venture. Under the
terms of the Exploration Agreement, the Company must timely meet its payment
obligations to the 3-D Joint Venture in order to reach a 50% participation.
The Company does not intend to be an operator in the area, but intends to
maintain a significant working interest to better leverage its administrative
and technical resources and to better influence operator decisions.
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. UTILIZE THE LATEST EXPLORATION, DEVELOPMENT AND PRODUCTION TECHNOLOGY. The
Company intends to use the latest technology to enhance the efficiency and
economy of its exploration, development and production efforts. These
include the use of advanced 3-D seismic acquisition and processing
techniques in the Survey AMI.
. CONTROL OVERHEAD COSTS. The Company plans to maintain a small, but
experienced working staff, and to leverage their talents by focusing on a
relatively few projects which have high reserve potential in which it can
obtain a high working interest, and to employ outside consultants and seek
industry partners with the appropriate geographic and technical experience.
Currently, the Company has no employees other than its executive officers
and one administrative assistant.
THE 3-D JOINT VENTURE EXPLORATION PROJECT IN WEST CAMERON PARISH, LOUISIANA
TRANSITION ZONE
The Company's first exploration project is the 3-D Joint Venture, in which
the Company has the right to earn up to a 50% participation, in a new
proprietary 3-D seismic exploration project that the Company believes will be
the largest of its kind that crosses the coastline within the Louisiana
Transition Zone. The Survey AMI covers approximately 255 square miles situated
onshore and offshore over the most westerly 28 miles of the shoreline in West
Cameron Parish, Louisiana.
The 3-D Joint Venture must obtain permits or similar rights to survey the
areas located within the Survey AMI. Currently, the 3-D Joint Venture has
rights to Survey 51,360 net acres of Louisiana State Waters, pursuant to an
exclusive permit, approximately 23,000 acres of Federal OCS Waters and certain
privately held areas onshore which together constitute approximately 84% (210
square miles) of the Survey AMI and is attempting to acquire rights from
additional private owners. There can be no assurance that the 3-D Joint
Venture will successfully obtain rights to survey additional portions of the
Survey AMI. The 3-D Joint Venture intends to survey specific sections selected
by it within the areas covered by its permits and similar rights. See "--
Permit and Lease Status Within the Survey AMI." The Company believes that
survey sites located within the Survey AMI have the potential for containing
substantial undiscovered oil and gas reserves, based on the number and size of
existing fields in and around the Survey AMI, the low level of historical
exploration in the Survey AMI and the exploration success resulting from a
speculative 3-D seismic survey shot by an independent geophysical services
company in the adjacent Federal offshore area. An acquisition contract with
Grant Geophysical, Inc. has been signed and the 3-D Joint Venture has begun to
conduct the Survey.
3-D Joint Venture Exploration Agreement
Under the terms of the Exploration Agreement, Cheniere Operating is
obligated to pay 100% of the Seismic Costs (as defined below) up to $13.5
million (subject to adjustment as described in the following sentence) in
accordance with a fixed schedule of monthly payments, and 50% of the excess of
any such costs, to acquire a 50% working interest participation in the leasing
and drilling of all Prospects (as defined below) generated by Zydeco within
the Survey AMI. If premiums required for turnkey contracts cause total Seismic
Costs to exceed $13.5 million, Cheniere Operating will bear 100% of Seismic
Costs only up to $13 million, and Seismic Costs greater than $13 million will
be borne equally by Cheniere Operating and Zydeco. "Seismic Costs" are defined
in the Exploration Agreement to include the following, inter alia: costs paid
to third parties for acquiring and processing seismic data; turnkey contracts;
legal costs; options to lease land and leases of land; and the cost of seismic
permits including the seismic permit granted by the State of Louisiana
discussed below. See "--Permit and Lease Status Within the Survey AMI-Offshore
Area."
Under the terms of the Exploration Agreement, Zydeco will perform, or cause
to be performed, all of the planning, land, geologic and interpretative
functions necessary to the project and will design and oversee the acquisition
and processing of seismic data, interpret results, acquire leases and generate
Prospects. The term "Prospect" is defined in the Exploration Agreement as a
block of acreage suitable for exploration and includes the leasehold,
operating, nonoperating, mineral and royalty interests, licenses, permits and
contract rights relating thereto. Cheniere Operating has the right to review
all data and may elect to generate its own Prospects. Neither party to the 3-D
Joint Venture is permitted to sell or license the data without the other
party's approval.
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As described above, under the terms of the Exploration Agreement, Cheniere
Operating is obligated to make payments for the Seismic Costs into a joint
venture account (the "Joint Venture Account"). The Exploration Agreement
originally provided for an initial installment of $3 million to be paid by May
15, 1996, which was extended to June 14, 1996 by agreement of the parties.
Subsequent payments were due on the last day of each of the months of June
1996 through February 1997. Each of the payments was required to be in the
amount of $1 million with the exception of the payments at the end of
September 1996 and February 1997 which were required to be for $2 million and
$1.5 million, respectively (although the February 1997 payment may be reduced
to $1.0 million under certain circumstances described above).
Pursuant to the Second Amendment to the Exploration Agreement dated August
5, 1996, Cheniere Operating was required to make the payments due on June 30,
1996 and July 30, 1996 on August 5, 1996 and October 31, 1996, respectively.
Such payments have been timely made. At August 31, 1996, Cheniere Operating
had paid $4 million to the Joint Venture Account, and subsequently advanced
payments of $1 million each on September 4, 1996 and October 31, 1996. Total
such payments for Seismic Costs at October 31, 1996 were $6 million. Effective
October 31, 1996, the Company and Zydeco amended the Cheniere Agreement (Third
Amendment to the Exploration Agreement dated October 31, 1996) to delay the
timing of the remaining payments required to be paid consistent with Zydeco's
current expectations of the timing of costs to be incurred on the project. The
remaining payments are due on the last days of November 1996, and January,
February and March of 1997. A failure by Cheniere to make the November payment
on such date will be treated as a Discontinuance (as defined below). Each of
the payments is required to be in the amount of $2 million, with the exception
of the final payment due at the end of March 1997, which is required to be in
the amount of $1.5 million. Cheniere intends to make its future payments under
the amended Exploration Agreement, however, the Company does not have
sufficient capital to cover such payments and there can be no assurance that
the Company will secure the necessary funds.
In the event Cheniere Operating fails to make a scheduled payment into the
Joint Venture Account within 30 days after the date such payment is due (a
"Discontinuance"):
(i) The obligation and right of Cheniere Operating to make such payments
will terminate. Zydeco would have the right to complete the acquisition and
processing of seismic data with the cooperation or assistance of other
companies. In addition, Cheniere Operating's Prospect ownership interest
would be limited to the total amount of its contribution to the Joint
Venture Account, divided by twice the amount of funds expended for Seismic
Costs, expressed as a percentage. For example, if Cheniere Operating made a
total contribution of $6 million to the Joint Venture Account, prior to a
Discontinuance, and total Seismic Costs were $13.5 million, Cheniere
Operating's Prospect ownership interest would be limited to 22.2%;
(ii) If following a Discontinuance, Zydeco contributes funds that
otherwise were required to have been provided by Cheniere Operating under
the terms of the Exploration Agreement, Zydeco shall be entitled to receive
back such funds, together with interest thereon at the prime interest rate,
from revenues attributable to Cheniere Operating's interest in any Prospect
(including, without limitation, any working interest or overriding royalty
interest revenues from production or front end proceeds attributable to
such interest when owned by Cheniere Operating under the applicable
operating agreement or proceeds from the sale or license of seismic data);
(iii) Subject to (iv) immediately below, if a Discontinuance occurs, and
Zydeco does not itself fund the deficient Seismic Costs, Zydeco may sell,
trade, farm-out, lease, sublease or otherwise trade (collectively, a
"Trade") the aggregate (i.e., both that of Zydeco and Cheniere Operating)
Prospect interests to any party on arms' length terms. For this purpose the
aggregate Prospect interests includes all seismic data acquired, and
revenues from a Trade include seismic data sale or license proceeds. Any
revenues accruing from a Trade shall be applied toward the cost of
completing the project contemplated under the Exploration Agreement; and
(iv) Should Cheniere Operating have funded $8,000,000 or more prior to
the Discontinuance, then the parties will treat Cheniere Operating as
having earned a vested Prospect ownership interest of 25%, which
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shall not be subject to any Trade, and any revenues from a Trade, which
would in this instance cover a 75% Prospect ownership interest, shall be
shared 33 1/3% by Cheniere Operating and 66 2/3% by Zydeco.
Prospect Expenses (as defined below) are to be borne equally by Zydeco and
Cheniere Operating; provided, however, that in the event of a Discontinuance,
Cheniere Operating shall bear a percentage of the Prospect Expenses equal to
its Prospect ownership interest. "Prospect Expenses" are defined in the
Exploration Agreement as: lease bonuses and brokerage for leases; delay or
shut in rental payments on leases or interest acquired under the Exploration
Agreement; engineering costs; and certain other costs related to Prospects. If
Cheniere Operating fails to pay its share of Prospect Expenses within 30 days
of receipt of a bill therefor, it will be deemed to have declined to
participate in the Prospect and will have no interest or liability related to
the Prospect in question.
In the event that Zydeco incurs a contractual liability to a third party in
performing its undertakings under the Exploration Agreement, such contractual
liability shall be treated as a Prospect Expense. In the event that Zydeco
incurs a tort liability to a third party in performing its undertakings under
the Exploration Agreement, and such liability is a result of gross negligence
or willful malfeasance, such liability, and all attorneys fees and expenses
relating thereto, shall be solely Zydeco's responsibility. In the event that
Zydeco incurs a tort liability to a third party in performing its undertakings
under the Exploration Agreement, and such liability is not a result of gross
negligence or willful malfeasance, such liability, and all attorneys' fees and
expenses relating thereto, shall be borne equally by the Company and Zydeco.
Location and Hydrocarbon Potential of the Survey Area
The Survey AMI, which contains the specific areas to be covered by the
Survey, lies within a highly prolific natural gas region. Nevertheless, the
Transition Zone has been relatively less explored to date as compared to
exclusively onshore or offshore regions because of the relatively high cost
and logistical and technical difficulties associated with conducting modern
seismic surveys over the diverse environments encountered along the coast. An
additional impediment has been the difficulty of negotiating with
sophisticated landowners who control most of the area close to the Louisiana
coastline. The paucity of modern seismic data has limited the drilling
density: the spacing of exploration wells testing the primary objective
section, outside of the known fields, is less than one well per five square
miles. Importantly, recent declines in the cost of supercomputing workstations
which can be employed in processing and interpreting seismic data have made
projects such as this Transition Zone venture technically and economically
feasible.
The Louisiana Transition Zone contains the Miocene Trend which has produced
many of the largest oil and gas fields in the continental United States and
its territorial waters. Objectives within the Miocene Trend have excellent
reservoir characteristics and have historically exhibited multiple pay zones,
which can allow a single strategically placed well bore to drain multiple
reservoirs. Given the relatively low level of historical exploration and the
high recovery factors characterizing the Louisiana Transition Zone, the
Company believes that this zone has the potential for containing substantial
undeveloped oil and gas reserves. Miocene age reservoirs in fields overlapping
the Survey AMI have produced in excess of 3 trillion cubic feet (tcf) of
natural gas. Along the northeast quadrant of the Survey AMI the Mud Lake and
Second Bayou Fields have cumulatively produced more than 1.3 tcf of natural
gas to date, with more than 250 billion cubic feet (bcf) having been produced
from one well. In the southwestern quadrant of the Survey AMI, the West
Cameron Block 17 Field in the State and Federal waters has cumulatively
produced more than 980 bcf to date. Numerous other smaller, but still
significant, oil and gas fields surround and overlay the area.
Immediately to the south of the Survey Area, a successful industry drilling
program based partly on a speculative 3-D survey provides an analogy that
illustrates the remaining potential for new discoveries in an area already
densely shot with 2-D seismic, and the contribution which new 3-D seismic can
make. In 1989, a 3-D seismic survey shot by an independent geophysical
services company along the shallow Federal waters in the western part of the
Western Cameron area led to 3 new field discoveries. Together with another
discovery made
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coincident with the 3-D survey, these four new fields have produced
approximately 320 bcfe of natural gas to date from 15 boreholes. The middle to
lower Miocene reservoir section has excellent flow characteristics, as can be
seen by the per well recoveries, 21 bcfe of natural gas to date, in the area
of the adjacent shoot. In addition to the volumes produced from these
discoveries, additional reserves have been brought on through exploitation
wells drilled into existing fields.
The entire Survey AMI is located within an existing pipeline infrastructure.
As a result, it will generally be quicker and less costly to develop and
connect reserves found onshore and in the shallow offshore areas to markets
than would be the case for reserves found in deeper water areas. The Louisiana
Gulf Coast/Gulf of Mexico region enjoys easy access to the premium-priced
markets of the East Coast.
Permit and Lease Status Within the Survey AMI
The 3-D Joint Venture will survey only certain sections lying within the
Survey AMI. The area to be covered by the Survey is dependent upon the status
of permits granting the 3-D Joint Venture the right to Survey certain areas
and its ability to obtain such permits or similar rights in the future.
Offshore Area--State Waters Exclusive Permit and Federal Offshore Permits.
On February 14, 1996, the State of Louisiana awarded Zydeco the exclusive
right (the "Louisiana Seismic Permit", dated February 19, 1996) to shoot and
gather seismic data over the 51,360 net unleased acres of Louisiana State
waters (running out to a 3 1/2 mile limit located within the Survey AMI) in
the western half of West Cameron Parish. The term of the Louisiana Seismic
Permit is for 18 months and may be extended at Zydeco's option for an
additional 6 months by payment of an additional fee of $391,876.80. During
this term Zydeco has the exclusive right to nominate blocks of acreage for
leasing in the covered State waters.
The Survey AMI includes an area running southward up to 2 miles into Federal
waters. Zydeco's seismic contractor, Grant Geophysical, Inc., has received
approval from the U.S. Government to survey over approximately 23,000 acres of
Federal offshore lands located within the Survey AMI. Although Zydeco has no
exclusive rights regarding leases in the Federal waters, several offshore
lease blocks held by industry and covered by the Survey are scheduled to
expire within the next two years and may then be available for leasing.
Onshore Area--Prospective Permits, Lease Options, and Farmouts. Zydeco is in
negotiations to obtain variously, farmouts, seismic permits or lease options,
with owners of the mineral interests covering approximately 85,000 additional
acres of privately owned lands lying under the onshore portion of the Survey
AMI ("Onshore Area"). The outcome of these discussions will effect the exact
delineation of the areas which will be subject to the Survey within the Survey
AMI. As of this date, seismic permits or options covering over 54,000 acres of
the Onshore Area have already been obtained.
Technological Aspects of 3-D Seismic Shoot and Prospect Generation
The Company believes that recently developed seismic processing and
interpretation technology, including some key technology which Zydeco has
licensed for use in Southern Louisiana on an exclusive basis, has now evolved
to a point where quality control for a Transition Zone survey will be improved
significantly. The Survey will incorporate certain of these new techniques for
the first time in a major seismic survey. Moreover, the Company believes that
the areal extent of the Survey, which is unusually large for a shallow
water/onshore seismic survey should permit better imaging of the subsurface,
particularly of the deeper zones.
The design of the Survey has been led by Rudy Prince, Zydeco's Vice-
Chairman, who was formerly CEO and a founder of Digicon Geophysical Corp., a
seismic services company. A primary objective of the Survey is to provide for
accurate and consistent data sufficient for analysis of hydrocarbon indicators
in a depth range of 8,000-20,000 feet at an attractive price. The design will
employ technology referred to as "wavefield imaging", for which Zydeco has
obtained an exclusive license for use in the Louisiana Transition Zone (from
Wavefield
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Imaging, Inc.). The approach combines a relatively lower density array of
shots and receivers with 3-D prestack migration. Moreover, the Company
believes that the use of a single type of shot, dynamite, and a single type of
receiver, hydrophone, across the coastline, will simplify and improve seismic
processing across the different Transition Zone environments.
Data Acquisition. The Company believes that use of similar source (dynamite)
and receiver (hydrophone) components laid out in a symmetrical array across
the shoreline will eliminate the problems of integrating two different types
of data sets (land and marine) and improve data consistency. A limited amount
of airgun source data will be acquired in the Federal waters and around the
few producing fields. A primary consideration in the design, the relatively
deep zones of interest (8,000-20,000 feet), calls for long north-south
transects (up to 10 miles) to improve the quality of deep data.
Data Transmission, Processing and Interpretation. Data will be transferred
daily from the field crew to Zydeco's headquarters in Houston, where it will
undergo nearly real-time processing. This procedure will allow Zydeco to
closely monitor 3-D data quality and make adjustments to the acquisition
parameters if necessary. This new technology also significantly reduces the
delay time between the Survey itself and ultimate drilling decisions. In
combination with a reduced cost design for field data acquisition, Zydeco will
employ a proven technology, 3-D prestack migration, in seeking to obtain
superior quality subsurface images. To maximize quality control and minimize
delays Zydeco will process the data in-house. Having completed seismic
processing, Zydeco will also employ state of the art Computer Aided
Exploration (CAEX) interpretation techniques to locate and define drilling
prospects.
Schedule for the 3-D Joint Venture
While the Louisiana Seismic Permit, whose primary 18 month term expires in
August 1997, may be extended at Zydeco's option until February 19, 1998 by
payment of an additional fee of $391,876.80, Zydeco presently plans to adhere
to the schedule summarized below:
2nd Quarter 1996-1st Quarter 1997 --Onshore Permitting and Lease Optioning
3rd Quarter 1996-2nd Quarter 1997 --Conduct Seismic Survey and Simultaneously
Begin Processing & Interpretation of Data
Received
2nd Quarter 1997-3rd Quarter 1997 --Continue Survey, Processing &
Interpretation, and Identify Prospects
4th Quarter 1997 --Nominate and Bid State Leases, Exercise
Lease Options Onshore; Propose, Contract
for Drilling, and Commence Drilling of
First Prospects
Under the terms of the Louisiana Seismic Permit, the 3-D Joint Venture will
be liable to pay penalties of $783,753.60 in the event it fails to (i)
complete the acquisition of the seismic data covering the entire area subject
to such Permit or (ii) provide access to such data to the State of Louisiana
in a timely manner. Under the terms of the Exploration Agreement, any such
penalties payable under the Louisiana Seismic Permit shall be borne equally by
Zydeco and the Company. There can be no assurance that the 3-D Joint Venture
will complete its scheduled activities within the time period of the Louisiana
Seismic Permit. Failure of the 3-D Joint Venture to complete its scheduled
activities within the term of the Louisiana Seismic Permit would materially
and adversely affect the value of the Company's interest in the Joint Venture.
Zydeco and the Company have designated the entire Survey AMI (onshore and
offshore) as an area of mutual interest for five years ending May 15, 2001,
during which period the two companies may continue to drill, test, and develop
prospects within the Survey AMI. Any interest taken by either Zydeco or the
Company,
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during such period, in any agreement or arrangement which creates or effects
an interest in hydrocarbons in lands within the Survey AMI, or an acquisition
of a contractual right to acquire such an interest shall be deemed taken for
development under the Exploration Agreement. The party acquiring such an
interest must offer to the other party the right, which may be waived by such
other party, to participate in the rights and obligations associated with such
interest in proportion to their respective Prospect ownership interests.
COMPETITION AND MARKETS
Competition in the industry is intense, particularly with respect to the
acquisition of producing properties and proved undeveloped acreage. The
Company competes with the major oil companies and other independent producers
of varying sizes, all of which are engaged in the exploration, development and
acquisition of producing and non-producing properties. Many of the Company's
competitors have financial resources and exploration and development budgets
that are substantially greater than those of the Company, which may adversely
affect the Company's ability to compete.
The availability of a ready market for and the price of any hydrocarbons
produced by the Company will depend on many factors beyond the control of the
Company, including the extent of domestic production and imports of foreign
oil, the marketing of competitive fuels, the proximity and capacity of natural
gas pipelines, the availability of transportation and other market facilities,
the demand for hydrocarbons, the political conditions in international oil
producing regions, the effect of federal and state regulation of allowable
rates of production, taxation and the conduct of drilling operations and
federal regulation of natural gas. In the past, as a result of excess
deliverability of natural gas, many pipeline companies have curtailed the
amount of natural gas taken from producing wells, shut-in some producing
wells, significantly reduced gas taken under existing contracts, refused to
make payments under applicable "take-or-pay" provisions and have not
contracted for gas available from some newly completed wells. The Company can
give no assurance that such problems will not arise again. In addition, the
restructuring of the natural gas pipeline industry has eliminated the gas
purchasing activity of traditional interstate gas transmission pipeline
buyers.
Producers of natural gas, therefore, have been required to develop new
markets among gas marketing companies, end users of natural gas and local
distribution companies. All of these factors, together with economic factors
in the marketing area, generally may affect the supply and/or demand for oil
and gas and thus the prices available for sales of oil and gas.
GOVERNMENTAL REGULATION
The Company's oil and gas exploration, production and related operations are
subject to extensive rules and regulations promulgated by Federal and state
agencies. Failure to comply with such rules and regulations can result in
substantial penalties. The regulatory burden on the oil and gas industry
increases the Company's cost of doing business and affects its profitability.
Because such rules and regulations are frequently amended or reinterpreted,
the Company is unable to predict the future cost or impact of complying with
such laws.
Production. In most, if not all, areas where the Company may conduct
activities, there may be statutory provisions regulating the production of oil
and natural gas under which administrative agencies may promulgate rules in
connection with the operation and production of both oil and gas wells,
determine the reasonable market demand for oil and gas, and establish
allowable rates of production. Such regulation may restrict the rate at which
the Company's wells produce oil or gas below the rate at which such wells
would be produced in the absence of such regulation, with the result that the
amount or timing of the Company's revenues could be adversely affected.
Regulation of Operations on Outer Continental Shelf. The Company plans to
acquire oil and gas leases in the Gulf of Mexico. The Outer Continental Shelf
Lands Act ("OCSLA") requires that all pipelines operating on or across the
Outer Continental Shelf (the "OCS") provide open-access, non-discriminatory
service. Although the Federal Energy Regulatory Commission ("FERC") has opted
not to impose the regulations of Order No. 509, in which the FERC implemented
the OCSLA, on gatherers and other non-jurisdictional entities, the FERC
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has retained the authority to exercise jurisdiction over those entities if
necessary to permit non-discriminatory access to service on the OCS. In this
regard, the FERC recently issued a Statement of Policy ("Policy Statement")
regarding the application of its jurisdiction under the Natural Gas Act of
1938 ("NGA") and the OCSLA over natural gas facilities and service on the OCS.
In the Policy Statement the FERC concluded that facilities located in water
depths of 200 meters or more shall be presumed to have a primary purpose of
gathering up to the point of interconnection with the interstate pipeline
grid. FERC has determined that gathering facilities are outside of its
jurisdiction. While it is not possible to determine what the actual impact of
this new policy will be, since FERC has determined that it will no longer
regulate the rates and services of OCS transmission facilities under the NGA,
it is possible that the Company could experience an increase in transportation
costs associated with its OCS natural gas production and, possibly, reduced
access to OCS transmission capacity.
Certain operations the Company conducts are on federal oil and gas leases,
which the Minerals Management Service (the "MMS") administers. The MMS issues
such leases through competitive bidding. These leases contain relatively
standardized terms and require compliance with detailed MMS regulations and
orders pursuant to the OCSLA (which are subject to change by the MMS). For
offshore operations, lessees must obtain MMS approval for exploration plans
and development and production plans prior to the commencement of such
operations. In addition to permits required from other agencies (such as the
Coast Guard, the Army Corps of Engineers and the Environmental Protection
Agency), lessees must obtain a permit from the MMS prior to the commencement
of drilling. The MMS has promulgated regulations requiring offshore production
facilities located on the OCS to meet stringent engineering and construction
specifications. The MMS has proposed additional safety-related regulations
concerning the design and operating procedures for OCS production platforms
and pipelines. The MMS has postponed its decision regarding the adoption of
these regulations in order to gather more information on the subject. The MMS
also has regulations restricting the flaring or venting of natural gas, and
has recently amended such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization except under certain limited
circumstances. Similarly, the MMS has promulgated other regulations governing
the plugging and abandonment of wells located offshore and the removal of all
production facilities. To cover the various obligations of lessees on the OCS,
the MMS generally requires that lessees post substantial bonds or other
acceptable assurances that such obligations will be met. The cost of such
bonds or other surety can be substantial and there is no assurance that the
Company can continue to obtain bonds or other surety in all cases.
In addition, the MMS is conducting an inquiry into certain contract
agreements for which producers on MMS leases have received settlement proceeds
that are royalty bearing and the extent to which producers have paid the
appropriate royalties on those proceeds. The Company believes that this
inquiry will not have a material impact on its financial condition, liquidity
or results of operations.
The MMS has recently issued a notice of proposed rulemaking in which it
proposes to amend its regulations governing the calculation of royalties and
the valuation of natural gas produced from federal leases. The principal
feature in the amendments, as proposed, would establish an alternative market-
index based method to calculate royalties on certain natural gas production
sold to affiliates or pursuant to non-arm's-length sales contracts. The MMS
has proposed this rulemaking to facilitate royalty valuation in light of
changes in the gas marketing environment. Recently, the MMS announced its
intention to reconsider the proposal and reopen the comment period. The
Company cannot predict what action the MMS will take on these matters, nor can
it predict at this stage of the rulemaking proceeding how the Company might be
affected by amendments to the regulations.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the FERC and the courts. The Company cannot
predict when or whether any such proposals may become effective. In the past,
the natural gas industry has been heavily regulated. There is no assurance
that the regulatory approach currently pursued by the FERC will continue
indefinitely.
Bonding and Financial Responsibility Requirements. The Company is required
to obtain bonding, or otherwise demonstrate financial responsibility, at
varying levels by governmental agencies in connection with obtaining state or
federal leases or acting as an owner or operator on such leases or of oil
exploration and
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production related facilities. These bonds may cover such obligations as
plugging and abandonment of unproductive wells, removal and closure of related
exploration and production facilities and pollution liabilities. The costs of
such bonding and financial responsibility requirements can be substantial and
there can be no assurance that the Company will be able to obtain such bonds
and/or otherwise demonstrate financial responsibility in all cases.
Natural Gas Marketing and Transportation. The FERC regulates the
transportation and sale for resale of natural gas in interstate commerce
pursuant to the NGA and the Natural Gas Policy Act of 1978 ("NGPA"). In the
past, the Federal government has regulated the prices at which oil and gas
could be sold. Deregulation of wellhead sales in the natural gas industry
began with the enactment of the NGPA in 1978. In 1989, Congress enacted the
Natural Gas Wellhead Decontrol Act (the "Decontrol Act"). The Decontrol Act
removed all NGA and NGPA price and nonprice controls affecting wellhead sales
of natural gas effective January 1, 1993. While sales by producers of natural
gas can currently be made at uncontrolled market prices, Congress could
reenact price controls in the future.
On April 8, 1992, the FERC issued Order No. 636, as amended by Order No.
636-A (issued in August 1992) and Order No. 636-B (issued in November 1992) as
a continuation of its efforts to improve the competitive structure of the
interstate natural gas pipeline industry and maximize the consumer benefits of
a competitive wellhead gas market. Interstate pipelines were required by FERC
to "unbundle," or separate, their traditional merchant sales services from
their transportation and storage services and to provide comparable
transportation and storage services with respect to all gas supplies whether
purchased from the pipeline or from other merchants such as marketers or
producers. The pipelines must now separately state the applicable rates for
each unbundled service (e.g., for natural gas transportation and for storage).
This unbundling process has been implemented through negotiated settlement in
individual pipeline services restructuring proceedings. Ultimately, Order Nos.
636, et al., may enhance the competitiveness of the natural gas market. Order
Nos. 636, et al. have recently been substantially affirmed by the U.S. Court
of Appeals for the D.C. Circuit.
It is unclear what impact, if any, increased competition within the natural
gas industry under Order No. 636 will have on the Company's activities.
Although Order No. 636 could provide the Company with additional market access
and more fairly applied transportation service rates, Order No. 636 could also
subject the Company to more restrictive pipeline imbalance tolerances and
greater penalties for violations of these tolerances.
The FERC has announced its intention to re-examine certain of its
transportation-related policies, including the appropriate manner in which
interstate pipelines release transportation capacity under Order No. 636, and
the use of the market-based rates for interstate gas transmission. While any
resulting FERC action would affect the Company only indirectly, the FERC's
current rules and policy statements may have the effect of enhancing
competition in natural gas markets by, among other things, encouraging non-
producer natural gas marketers to engage in certain purchase and sale
transactions. The Company cannot predict what action the FERC will take on
these matters, nor can it accurately predict whether the FERC's actions will
achieve the goal of increasing competition in markets in which the Company's
natural gas is sold. However, the Company does not believe that it will be
treated materially differently than other natural gas producers and marketers
with which it competes.
Recently, the FERC issued a policy statement on how interstate natural gas
pipelines can recover the costs of new pipeline facilities. While this policy
statement affects the Company only indirectly, in its present form, the new
policy should enhance competition in natural gas markets and facilitate
construction of gas supply laterals.
Oil Sales and Transportation Rates. The FERC regulates the transportation of
oil in interstate commerce pursuant to the Interstate Commerce Act. Sales of
crude oil, condensate and gas liquids by the Company are not regulated and are
made at market prices. However, the price a company receives from the sale of
these products is affected by the cost of transporting the products to market.
Effective as of January 1, 1995, the FERC implemented regulations establishing
an indexing system for transportation rates for oil pipelines, which would
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generally index such rates to inflation, subject to certain conditions and
limitations. These regulations could increase the cost of transporting crude
oil, liquids and condensate by pipeline. The Company is not able to predict
with certainty what effect, if any, these regulations will have on it, but
other factors being equal, the regulations may tend to increase transportation
costs or reduce wellhead prices for such commodities.
Environmental. The Company's operations are subject to numerous laws and
regulations governing the discharge of oil and hazardous materials into the
environment or otherwise relating to environmental protection. These laws and
regulations may require the acquisition of various permits before drilling
commences, restrict the types, quantities and concentration of various
substances that can be released into the environment in connection with
drilling and production activities, limit or prohibit drilling activities on
certain lands lying within wilderness, wetlands and other protected areas, and
impose substantial liabilities for pollution resulting from the Company's
operations. In particular, under the Federal Oil Pollution Act of 1990 ("OPA
90"), certain persons (including owners, operators, and demise charters of
vessels, owners and operators of onshore facilities, and lessees, permittees
and holders of rights of use and easements in areas in which offshore
facilities are located ("responsible parties")) may be held liable for various
costs and damages. These include removal costs and damages, damages to natural
resources and damages for lost profits, impairment to earning capacity, and
destruction of or injury to real or personal property. Liability can arise
when oil is discharged or poses a substantial threat of discharge into United
States waters. Liability under OPA 90 is strict, joint and several, unless one
of the specific defenses to liability applies, including an act of God, an act
of war or an act or omission of a third party. OPA 90 also requires certain
responsible parties to establish and maintain evidence of financial
responsibility sufficient to meet the maximum amount of liability to which the
responsible party could be subject under the liability limitation provisions.
Moreover, the recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. In addition, legislation has
been proposed in Congress from time to time that would reclassify certain oil
and gas exploration and production wastes as "hazardous wastes" which would
make the reclassified wastes subject to much more stringent handling, disposal
and clean-up requirements. If such legislation were to be enacted, it could
have a significant impact on the operating costs of the Company, as well as
the oil and gas industry in general. State initiatives to further regulate the
disposal of oil and gas wastes are also pending in certain states, and these
various initiatives could have a similar impact on the Company. See "Risk
Factors--United States Governmental Regulation, Taxation and Price Control."
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator
of the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage.
OPERATIONAL RISKS AND INSURANCE
The Company anticipates that any wells established by it will be drilled by
proven industry contractors under turnkey contracts that limit the Company's
financial and legal exposure. However, circumstances may arise where the
Company is unable to secure a turnkey contract on satisfactory terms. In this
case, the Company may decide to drill, or cause to be drilled, the applicable
test well(s) on either a footage or day rate basis and the drilling thereof
will be subject to the usual drilling hazards such as cratering, explosions,
uncontrollable flows of oil, gas or well fluids, fires, pollution and other
environmental risks. The Company's activities are also subject to perils
specific to marine operations, such as capsizing, collision, and damage or
loss from severe weather. These hazards can cause personal injury and loss of
life, severe damage to and destruction of property and equipment, pollution or
environmental damage and suspension of operations. In accordance with
customary industry practices, the Company intends to maintain insurance
against some, but not all, of such risks and some, but not
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all, of such losses. The occurrence of a significant event not fully insured
or indemnified against could materially and adversely affect the Company's
financial condition and operations. Moreover, no assurance can be given that
the Company will be able to maintain adequate insurance in the future at rates
it considers reasonable.
MAR VENTURES INC.
Prior to the Reorganization, the existing assets and liabilities of Bexy
were transferred to its wholly-owned subsidiary, Mar Ventures, Inc. ("Mar
Ventures"). As part of such Reorganization, the stock of Mar Ventures has been
distributed to the Original Bexy Stockholders. Buddy Young, the former
President and chief executive officer of Bexy, has agreed to indemnify the
Company, the former shareholders of Cheniere Operating and their respective
officers, directors, attorneys and other agents from and against all claims
which they may suffer, incur, or pay arising under or incurred in connection
with: (i) the operation of the business of Bexy prior to the closing of the
Reorganization; (ii) any error or omission with respect to a material fact
stated or required to be stated in the proxy materials filed by Bexy in
connection with the Reorganization or the registration statement filed by Mar
Ventures in connection with the distribution of its common stock to the
Original Bexy Stockholders; and (iii) certain taxes.
YOUNG CONSULTING AGREEMENT
Pursuant to a Consulting Agreement dated as of July 3, 1996 between Cheniere
and Buddy Young, the former President and chief executive officer of Bexy, the
Company engaged Mr. Young as a consultant to provide management of the Company
with advice regarding the management and business of the Company. Mr. Young
agreed to provide such consulting services to the Company for 2 years ending
on July 3, 1998 at a rate of $75,000 per year. Mr. Young is no longer an
employee of the Company and serves only in the capacity of a consultant.
EMPLOYEES
The Company has one full-time employee, an administrative assistant, other
than its executive officers.
PROPERTIES
The Company subleases its Houston, Texas headquarters from Zydeco under a
month-to-month sublease covering approximately 1,395 square feet at a monthly
rental of $1,100. The Company believes that this arrangement gives it the
necessary flexibility to adapt to the changing space requirements of its
business.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART 2
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
From 1989 through December 1993, there was no public trading market for the
Bexy Common Stock. In December 1993, the common stock of Bexy began trading on
the Bulletin Board. In connection with the Reorganization, the Company
divested itself of the assets relating to the business of Bexy prior to the
Reorganization and has shifted its focus to oil and gas exploration.
Simultaneously with the Reorganization, each three outstanding shares of
common stock of Bexy was converted to one share of Common Stock and the
stockholders of Cheniere Operating were issued shares of Common Stock equaling
approximately 93% of the then issued and outstanding shares of Bexy causing
the existing stockholders of Bexy to be diluted to approximately 7%. On July
8, 1996, the Common Stock began trading on the Bulletin Board (ticker symbol
"CHEX"). As the nature of the business and the Common Stock has changed as a
result of the Reorganization, this section describes the market price of the
Common Stock following the Reorganization on July 3, 1996.
The high ask and low bid prices of the Common Stock reported on the Bulletin
Board for the period from July 8, 1996 through August 7, 1996 were $6.00 and
$3.00, respectively. The corresponding high and low prices for the period from
August 8, 1996 through November 22, 1996 were $3.875 and $2.125. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not reflect actual transactions.
As of September 27, 1996 there were 766 record holders of the Common Stock
which does not include holders who hold their shares of the Common Stock in
"street name".
The Company has not paid any dividends since its inception and presently
anticipates that all earnings, if any, will be retained for development of the
Company's business and that no dividends on its Common Stock will be declared
in the foreseeable future. Any future dividends will be subject to the
discretion of the Company's Board of Directors and will depend upon, among
other things, future earnings, the operating and financial condition of the
Company, its capital requirements and general business conditions.
ITEM 6. SELECTED FINANCIAL DATA
The following income statement data and balance sheet data have been derived
from the financial statements prepared in accordance with generally accepted
accounting principles. The financial statements of Cheniere Energy, Inc. and
Subsidiary as of August 31, 1996 and for the year then ended have been audited
by Merdinger, Fruchter, Rosen & Corso, P.C. This information should be read in
conjunction with the financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
SEPTEMBER 1,
1995 TO
AUGUST 31,
1996
------------
Net operating revenues............................. $ --
(Loss) from continuing operations.................. (79,097)
(Loss) from continuing operations per share of
common stock...................................... (0.008)
(Loss) from discontinued operations................ (207,722)
Net (loss) per share of common stock............... (0.03)
Total Assets....................................... 5,145,310
Long-term obligations.............................. --
Total Liabilities.................................. 718,855
Total Shareholders' Equity......................... 4,426,455
Cash dividends declared per share of common stock.. --
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cheniere Operating was incorporated in Delaware in February of 1996 for the
purpose of entering the oil and gas exploration and exploitation business,
initially on the Louisiana Gulf Coast.
In March of 1996, Cheniere Operating entered into discussion with Bexy
Communications, Inc. ("Bexy") for a reorganization in order to give it a
presence in the public market.
On April 16, 1996, the Reorganization Agreement was entered into whereby the
Cheniere Operating stockholders would acquire control of Bexy in consideration
for the outstanding stock of Cheniere Operating.
Under the terms of the Reorganization Agreement, Bexy transferred its
existing assets of approximately $224,000 and its liabilities of approximately
$111,000 to Mar Ventures, Inc. ("Mar Ventures"), Bexy received 100% of the
outstanding shares of Cheniere Operating and the former shareholders of
Cheniere Operating received approximately 8.3 million newly issued shares of
Bexy common stock, representing 93% of the then issued and outstanding Bexy
shares. Cheniere Operating became a wholly-owned subsidiary of Bexy and the
principal business became oil and gas exploration. Bexy then changed its name
to Cheniere Energy, Inc. The Company distributed the outstanding capital stock
of Mar Ventures to the original holders of Bexy common stock.
The reorganization was accounted for as the recapitalization of Cheniere
Operating and the issuance of stock for the net assets of Bexy.
RESULTS OF OPERATIONS--AUDITED STATEMENTS YEAR ENDED AUGUST 31, 1996
The Company's operating results reflected a loss of $79,097, as there were
no revenues from continuing operations. General and Administrative expenses of
$73,814 comprised most of the loss.
The Company incurred one time losses of $207,722 from the discontinuance of
its former business in the television production and health information field.
Total losses were $286,819.
The Company's balance sheet reflected current assets of $1,097,980 with
liabilities of $718,855. Other assets reflect an investment of $4 million in
the 3-D Joint Venture. After fiscal year end, in early September 1996, and in
late October 1996, the Company made an additional payments of $1 million each
to the 3-D Joint Venture, such that an aggregate of $6 million has been paid
by the Company to the 3-D Joint Venture to date.
The Company's capital reflects sales of shares net of offering expenses of
$609,451 and distribution of net assets of $112,902.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company had working capital of $379,125. Operating
expenses and capitalized costs were financed by the sale of common stock and
Bridge Loan (as defined below) funding as revenues have yet to be generated.
It is anticipated that future liquidity requirements, including the commitment
to the 3-D Joint Venture which will amount to, at least, an additional $8
million, will be met by sale of equity, further borrowings and/or sales of
portions of the Company's interest in the 3-D Joint Venture. At this time, no
assurance can be given that such sale of equity, further borrowings or sales
of portions of the Company's interest in the 3-D Joint Venture will prove to
be successful. The Company has in the past failed to timely make certain
payments due to the 3-D Joint Venture. While the Company has in such instances
succeeded in obtaining waivers under, and amendments to, the Exploration
Agreement extending the due dates for such required payments, there can be no
assurance that the Company will successfully obtain similar amendments should
it fail to timely make required payments to the 3-D Joint Venture in the
future. The Company currently does not have sufficient capital to meet its
future payment requirements and there can be no assurance that the Company
will successfully secure the necessary funds. See "Business and Properties--3-
D Joint Venture Exploration Agreement."
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Since its inception, the Company's primary source of financing for operating
expenses and payments to the 3-D Joint Venture has been the sale of its equity
securities.
In May and June 1996, Cheniere Operating raised $2,883,000, net of offering
costs, from the sale of shares of its common stock (which were exchanged for
2,000,000 shares of the Common Stock following the Reorganization) to
"accredited investors" (as defined in Rule 501(a) promulgated under the
Securities Act of 1933, as amended (the "Securities Act")) pursuant to Rule
506 of Regulation D promulgated under the Securities Act ("Regulation D"). The
proceeds were used to fund the majority of Cheniere Operating's initial $3
million payment to the 3-D Joint Venture.
In order to finance a $1 million payment made to the 3-D Joint Venture on
August 9, 1996, the Company sold Common Stock pursuant to Regulation D and
Regulation S promulgated under the Securities Act ("Regulation S"). In July
1996, the Company sold 50,000 shares of the Common Stock to an "accredited
investor" pursuant to Rule 506 of Regulation D and the Company received
proceeds of $100,000 from such sale. In July and August 1996, the Company
conducted an offering of Common Stock pursuant to Regulation S. The Company
sold 508,400 shares of the Common Stock and received proceeds of $915,000, net
of placement fees, from such sale.
In late August 1996, the Company raised $1,000,000 from the sale of 100,000
units, each consisting of five shares of the Common Stock and a warrant to
purchase one share of the Common Stock, pursuant to Regulation S. The proceeds
were used to fund a $1 million payment to the 3-D Joint Venture made on
September 4, 1996.
Between fiscal year end at August 31, 1996 and October 31, 1996, the Company
raised $1,237,500 net proceeds from the sale of 588,027 shares of Common Stock
to accredited investors pursuant to Regulation D and certain other investors
pursuant to Regulation S. Proceeds received through October 31, 1996 were used
to fund a $1 million payment to the 3-D Joint Venture on that date.
In June 1996, Cheniere Operating borrowed $425,000 (the "Bridge Loan")
through a private placement of short term promissory notes with an initial
interest rate of 8% (the "Notes"). The Notes were due on September 14, 1996.
In connection with the placement of the Notes, Cheniere Operating issued
warrants, which following the Reorganization, were exchanged for an aggregate
of 141,666 and 2/3 warrants to purchase shares of the Common Stock, to the
holders of the Notes (the "Noteholders"), each of which warrants entitles the
holder to purchase one share of the Common Stock at an exercise price of $3.00
per share at any time on or before June 14, 1999. The Company has satisfied
all of its obligations under Notes in the aggregate principal amount of
$210,000 by paying the accrued interest on such Notes and by agreeing to issue
105,000 shares of the Common Stock at a price of $2.00 per share to the
holders of such Notes pursuant to Regulation D. In addition, prior to the
maturity of the Notes, an individual Noteholder (the "Remaining Noteholder")
purchased several outstanding Notes following which such Noteholder held Notes
in the aggregate principal amount of $215,000. In connection with a
modification of the Bridge Loan arrangements as between the Remaining
Noteholder and the Company, Cheniere Operating has issued a new promissory
note to the Remaining Noteholder with an interest rate of 13% per annum in
exchange for the Notes held by him. Such new promissory note is due on January
14, 1997. The Remaining Noteholder is also entitled to receive up to 21,500
additional warrants to purchase shares of the Common Stock for each month, or
partial month, any amounts remain due and payable after September 14, 1996, up
to a maximum aggregate number of 86,000 such additional warrants. Such
additional warrants will have an exercise price of $3.00 per share and will be
exercisable for 3 years from the date of issuance.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
CONTENTS
CHENIERE ENERGY, INC. AND SUBSIDIARY
Independent Auditors' Report.............................................. 19
Consolidated Balance Sheet................................................ 20
Consolidated Statement of Operations...................................... 21
Consolidated Statement of Stockholders' Equity............................ 22
Consolidated Statement of Cash Flows...................................... 23-24
Notes to Consolidated Financial Statements................................ 25-29
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INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CHENIERE ENERGY, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheet of CHENIERE
ENERGY, INC. AND SUBSIDIARY as of August 31, 1996 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CHENIERE
ENERGY, INC. AND SUBSIDIARY as of August 31, 1996 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C
Certified Public Accountants
New York, New York
September 16, 1996
19
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1996
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS
Cash............................................................ $ 1,093,180
Prepaid Expenses................................................ 4,800
-----------
TOTAL CURRENT ASSETS............................................ 1,097,980
-----------
PROPERTY AND EQUIPMENT, NET....................................... 46,830
-----------
OTHER ASSETS
Investment..................................................... 4,000,000
Security Deposit............................................... 500
-----------
TOTAL OTHER ASSETS.............................................. 4,000,500
-----------
TOTAL ASSETS.................................................... $ 5,145,310
===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES
Accounts Payable................................................ $ 275,975
Accrued Expenses and Taxes Payable.............................. 16,929
Loans Payable................................................... 425,000
Advance from Officers........................................... 961
-----------
TOTAL LIABILITIES............................................. 718,855
-----------
STOCKHOLDERS' EQUITY
Common Stock--$.003 Par Value Authorized 20,000,000 shares;
9,931,767 Issued and Outstanding............................... 29,795
Preferred Stock--Authorized 1,000,000 shares; None Issued and
Outstanding.................................................... --
Additional Paid-in-Capital...................................... 5,626,840
Retained Deficit................................................ (1,230,180)
-----------
TOTAL STOCKHOLDERS' EQUITY.................................... 4,426,455
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $ 5,145,310
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
Revenue............................................................. $ --
General and Administrative Expenses................................. 73,814
Interest Expense.................................................... 7,083
---------
Loss from Operations Before Other Income............................ (80,897)
Interest Income..................................................... 1,800
---------
Loss From Continuing Operations Before Income Taxes................. (79,097)
Provision for Income Taxes.......................................... --
---------
Loss From Continuing Operations..................................... (79,097)
---------
Discontinued Operations
Loss from operations of discontinued business (less applicable
income taxes of $0).............................................. (149,080)
Loss on disposal of business (less applicable income taxes of $0). (58,642)
---------
Loss From Discontinued Operations................................. (207,722)
---------
Net Loss............................................................ $(286,819)
=========
Loss Per Share...................................................... $ (.03)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTES TOTAL
-------------------- PAID-IN RETAINED RECEIVABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS EQUITY
---------- -------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance--September 1,
1995................... 1,558,947 $133,654 $ 992,831 $ (943,361) $(46,674) $ 136,450
Sales of Shares--Prior
to Reorganization...... 244,512 13,750 123,750 -- -- 137,500
Exchange of Shares--Due
to Reverse Split....... (1,202,514) (145,601) 145,601 -- -- --
Sale of Shares--At Time
of and Subsequent to
the Reorganization..... 9,330,822 27,992 5,087,011 -- -- 5,115,003
Expenses Related to
Offering............... -- -- (609,451) -- -- (609,451)
Repayment of Receivable. -- -- -- -- 16,439 16,439
Distribution of Net
Assets................. -- -- (112,902) -- 30,235 (82,667)
Net Loss................ -- -- -- (286,819) -- (286,819)
---------- -------- ---------- ----------- -------- ----------
Balance--August 31,
1996................... 9,931,767 $ 29,795 $5,626,840 $(1,230,180) $ -- $4,426,455
========== ======== ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of this report.
22
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss......................................................... $ (286,819)
Adjustments to Reconcile Net Loss to Net Cash Provided by
Operating Activities:
Depreciation..................................................... 4,503
(Increase) in Accounts Receivable................................ (5,600)
(Increase) in Prepaid Expenses................................... (4,800)
Decrease in Inventory............................................ 2,700
(Increase) in Security Deposit................................... (500)
Decrease in Other Assets......................................... 2,122
Increase in Accounts Payable..................................... 279,514
(Decrease) in Accrued Expenses and Taxes Payable................. 11,949
Increase in Advance from Officers................................ 961
----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......................... 4,030
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Furniture, Fixtures and Equipment.................... (50,999)
Investment....................................................... (4,000,000)
----------
NET CASH USED BY INVESTING ACTIVITIES.............................. (4,050,999)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock............................................. 5,252,503
Offering Costs................................................... (609,451)
Proceeds of Loan................................................. 425,000
Notes Receivable................................................. 16,439
Notes Payable.................................................... (7,519)
Distribution..................................................... (50,957)
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......................... 5,026,015
----------
NET INCREASE IN CASH............................................... 979,046
CASH--BEGINNING OF PERIOD.......................................... 114,134
----------
CASH--AUGUST 31, 1996.............................................. $1,093,180
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................................ $ --
Cash paid for income taxes............................................ $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
</TABLE>
During the year, the Company distributed the assets and liabilities of its
discontinued operations. The net noncash distribution was $61,945.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1--NATURE OF OPERATIONS
Cheniere Energy, Inc., a holding company ("Cheniere," together with Cheniere
Operating (as defined below), the "Company"), is the owner of 100% of the
outstanding common stock of Cheniere Energy Operating Co., Inc. ("Cheniere
Operating"). Cheniere Operating is a Houston-based company formed for the
purpose of oil and gas exploration and exploitation. The Company is currently
involved in a joint exploration program which is engaged in the exploration
for oil and natural gas along the Gulf Coast of Louisiana, onshore and in the
shallow waters of the Gulf of Mexico. The Company commenced its oil and gas
activities through such joint program in April 1996.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Cheniere
Energy, Inc. and its 100% owned subsidiary, Cheniere Energy Operating Co.,
Inc. Accordingly, all references herein to Cheniere Energy, Inc. or the
"Company" include the consolidated results of its subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Property and Equipment
Property and equipment are recorded at cost. Repairs and maintenance costs
are charged to operations as incurred. Depreciation is computed using the
straight line method calculated to amortize the cost of assets over their
estimated useful lives, generally seven years. Upon retirement or other
disposition of property and equipment the cost and related depreciation will
be removed from the accounts and the resulting gains or losses recorded.
Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances exceed FDIC insured levels at
various times during the year.
Cash Equivalents
The Company classifies all investments with original maturities of three
months or less as cash equivalents.
Income Taxes
Income taxes are provided for based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". Deferred income taxes are recorded to reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end.
Use of Estimates
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
25
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1996 consist of the following:
<TABLE>
<S> <C>
Furniture and Fixtures........................................... $26,006
Office Equipment................................................. 24,427
-------
50,433
Less Accumulated Depreciation.................................... 3,603
-------
Property and Equipment--Net...................................... $46,830
=======
</TABLE>
NOTE 4--REORGANIZATION
On July 3, 1996 Cheniere Operating consummated the transactions (the
"Reorganization") contemplated in the Agreement and Plan or Reorganization
(the "Reorganization Agreement") dated April 16, 1996 between Cheniere
Operating and Bexy Communications, Inc., a publicly held Delaware corporation
("Bexy"). Under the terms of the Reorganization Agreement, Bexy transferred
its existing assets and liabilities to Mar Ventures, Inc., its wholly-owned
subsidiary ("Mar Ventures"), Bexy received 100% of the outstanding shares of
Cheniere Operating and the former shareholders of Cheniere Operating received
approximately 8.3 million newly issued shares of Bexy common stock,
representing 93% of the then issued and outstanding Bexy shares. Immediately
following the Reorganization, the Original Bexy Stockholders held the
remaining 7% of the outstanding Bexy stock. In accordance with the terms of
the Reorganization Agreement, Bexy changed its name to Cheniere Energy, Inc.
Subsequently, the Company distributed the outstanding capital stock of Mar
Ventures to the original holders of Bexy common stock.
NOTE 5--INVESTMENT IN JOINT VENTURE
The Company has entered into a joint exploration program pursuant to an
Exploration Agreement between the Company and Zydeco Exploration, Inc.
("Zydeco"), an operating subsidiary of Zydeco Energy, Inc. (the "Exploration
Agreement"), with regard to a new proprietary 3-D seismic exploration project
in southern Louisiana (the "3-D Joint Venture"). The Company has the right to
earn up to a 50% participation in the 3-D Joint Venture. The Company believes
that the 3-D seismic survey (the "Survey") is the first of its size within the
Transition Zone of Louisiana, an area extending a few miles on either side of
the Louisiana State coastline.
The Survey is to be conducted over certain areas located within a total area
of approximately 255 square miles running 5 miles south and generally 3 to 5
miles north of the coastline in the most westerly 28 miles of West Cameron
Parish, Louisiana (the "Survey AMI"). The 3-D Joint Venture does not currently
have rights to survey the entire Survey AMI and the extent of the Survey AMI
which the 3-D Joint Venture will be entitled to survey is dependent upon its
ability to obtain survey permits and similar rights. Currently, the 3-D Joint
Venture has permits and similar rights to survey approximately 67% of the
Survey AMI and is attempting to acquire rights to Survey additional portions
of the Survey AMI. There is no assurance that the 3-D Joint Venture will
successfully obtain rights to survey additional portions of the Survey AMI,
nor that it will be successful in acquiring farmouts, lease options (other
than those already obtained), leases, or other rights to explore or recover
oil and gas.
Under the terms of the Exploration Agreement, the Company is required to
make monthly payments to the 3-D Joint Venture aggregating, at least, $13
million. The Company's potential participation in the 3-D Joint Venture could
be significantly reduced in the event of a failure by the Company to make such
required monthly payments when due.
26
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996
NOTE 6--NOTES PAYABLE
In June 1996, Cheniere Operating borrowed $425,000 through a private
placement of short term promissory notes with an initial interest rate of 8%
(the "Notes"). The Notes are due on September 14, 1996 (the "Maturity Date").
In connection with the placement of the Notes, Cheniere Operating issued
warrants, which, following the Reorganization, were exchanged for an aggregate
of 141,666 and 2/3 warrants to purchase shares of the Common Stock, to the
holders of the Notes (the "Noteholders"), each of which warrants entitles the
holder to purchase one share of the Common Stock at an exercise price of $3.00
per share at any time on or before June 14, 1999. A failure by the Company to
pay all amounts due and payable under the Notes by the Maturity date
constitutes an event of default thereunder. In such an event of default, the
interest rate applicable to any outstanding Notes would increase to 13%. In
addition, the holders of such outstanding Notes would be entitled to receive
up to an aggregate of 42,500 additional warrants (on similar terms) for each
month, or partial month, any amounts remain due and payable following the
Maturity date, up to a maximum aggregate number of 170,000 such additional
warrants. The proceeds from the placement of the Notes were applied toward
professional expenses and used for working capital.
NOTE 7--INCOME TAXES
At August 31, 1996, the Company had net carryforward losses of approximately
$1,020,000. A valuation allowance equal to the tax benefit for deferred taxes
has been established due to the uncertainty of realizing the benefit of the
tax carryforward.
Deferred tax assets and liabilities reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities at
August 31, 1996 are as follows:
<TABLE>
<S> <C>
Deferred Tax Assets
Loss Carryforwards............................................ $ 347,000
Less: Valuation Allowance...................................... (347,000)
---------
Net Deferred Tax Assets........................................ $ --
=========
</TABLE>
Net operating loss carryforwards expire starting in 2006 through 2011. Per
year availability is subject to change of ownership limitations under Internal
Revenue Code Section 382.
NOTE 8--WARRANTS
The Company has issued and outstanding certain warrants described herein.
The Company has issued and outstanding 141,666 and 2/3 warrants
(collectively, the "June Warrants"), each of which entitles the registered
holder thereof to purchase one share of Common Stock. The June Warrants are
exercisable at any time on or before June 14, 1999, at an exercise price of
$3.00 per share (subject to customary anti-dilution adjustments). The June
Warrants were originally issued by Cheniere Operating and were converted to
warrants of Cheniere following the Reorganization. The June Warrants were
issued to a group of 11 investors in connection with a private placement of
unsecured promissory notes of Cheniere Operating in the aggregate principal
amount of $425,000. The notes mature on September 14, 1996 (the "Maturity
Date"). In the event that the Company fails to pay all amounts due and payable
under the Notes by the Maturity Date, in addition to an increase in the
applicable interest rate, the holders of any outstanding Notes would be
entitled to
27
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996
receive up to an aggregate of 42,500 additional warrants (on similar terms)
for each month, or partial month, any amounts remain due and payable following
the Maturity Date, up to a maximum aggregate number of 170,000 such additional
warrants.
In consideration of certain investment advisory and other services to the
Company, pursuant to warrant agreements each dated as of August 21, 1996, the
Company issued warrants to purchase 13,600 and 54,400 shares of Common Stock,
(collectively the "Adviser Warrants"). The Adviser Warrants are exercisable at
any time on or before May 15, 1999 at an exercise price of $3.00 per share
(subject to customary anti-dilution adjustments).
In connection with the July and August 1996 placement of 508,400 shares of
Common Stock, the Company agreed to issue warrants to purchase 12,500 shares
of Common Stock to one of two distributors who placed the shares. Such
warrants are exercisable on or before the second anniversary of the sale of
the shares of Common Stock at an exercise price of $3.125 per share (subject
to customary anti-dilution adjustments).
In late August 1996, the Company sold 100,000 units, each such unit
consisting of 5 shares of Common Stock and a warrant to purchase one share of
Common Stock. Each such warrant is exercisable on or before September 1, 1999
at an exercise price of $3.125 per share (subject to customary anti-dilution
adjustments).
The Warrants do not confer upon the holders thereof any voting or other
rights of a stockholder of the Company.
NOTE 9--STOCK OPTIONS
The Company has granted certain options to purchase shares of Common Stock to
2 executives. Such options aggregate 300,000 shares at an exercise price of
$3.00 per share. The options vest and are exercisable as follows:
1) 75,000 options vest and become exercisable on June 1, 1997 and expire
June 1, 2001.
2) 75,000 options vest and become exercisable on June 1, 1998 and expire
June 1, 2001.
3) 150,000 options vest and become exercisable in equal annual
installments of 25% each on the first through fourth anniversary of July
16, 1996 and expire July 16, 2001.
In addition, the Company has granted options to the former President of the
Company. The holder has the option to acquire 19,444 and 2/3 shares of Common
Stock at an exercise price of $1.80 per share. The options expire November 11,
2003.
NOTE 10--COMMON STOCK RESERVED
The Company has reserved 322,166 and 2/3 share of Common Stock for insurance
upon the exercise of outstanding warrants (See Note 8).
The Company has reserved 319,444 and 2/3 shares of Common Shares for
insurance upon the exercise of outstanding options (See Note 9).
28
<PAGE>
CHENIERE ENERGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AUGUST 31, 1996
NOTE 11--DISCONTINUED OPERATIONS
As of March 1, 1996, the Company decided to discontinue its then present
operations in the television productions and health information business. The
assets and liabilities relating to the discontinued operations were
distributed on July 3, 1996. No assets or liabilities from the discontinued
operations are included in the consolidated balance sheet as of August 31,
1996.
Revenues, related losses and income tax benefit associated with the
discontinued business are as follows:
For the period September 1, 1995 to February 29, 1996:
<TABLE>
<S> <C>
Revenue....................................................... $ 42,258
=========
Loss From Operations (Net of Income Tax Benefit of $0)........ $(149,080)
=========
For the period March 1, 1996 to July 3, 1996:
Revenue..................................................... $ 7,500
=========
Loss on Disposal (Net of Income Tax Benefit of $0).......... $ (58,642)
=========
</TABLE>
The Loss on Disposal consists of the loss from operations during the period
of disposal.
NOTE 12--COMMITMENTS AND CONTINGENCIES
1) The Company subleases its Houston, Texas headquarters from Zydeco under a
month-to-month sublease.
2) On July 26, 1996, the Company signed a Letter of Intent with Poseidon
Petroleum, LLC ("Poseidon") to purchase Poseidon's 47% working interest in
undeveloped reserves in the Bonito unit of the Pacific Outer Continental
Shelf, offshore Santa Barbara County, California. The parties are conducting
due diligence and are negotiating a definitive purchase and sale agreement and
related documentation. The transactions contemplated in the Letter of Intent
may be terminated by either party upon the occurrence of certain events and
there can be no assurance that the Company will successfully consummate such
transactions. Moreover, if such transactions are consummated, the Company
expects that development of the reserves will not occur for at least five
years. There can be no assurance that the Company will successfully develop
the reserves or that the reserves will yield sufficient quantities of oil and
gas to be economically viable.
NOTE 13--SUBSEQUENT EVENTS
Effective as of September 14, 1996, certain of the note holders described in
Note 6 converted their notes into common stock at a price of $2 per share. As
a result, 105,000 shares were issued to retire $210,000 of notes.
In addition, an individual note holder has purchased the promissory notes of
the remaining note holders. The holder thus holds notes totaling $215,000. As
per the terms of the notes, the interest rate on these outstanding notes has
increased to 13% per annum, effective September 14, 1996. The holder of the
notes is also entitled to receive up to an aggregate of 21,500 additional
warrants (as described in Note 6) for each month, or partial month, any
amounts remain due and payable after September 14, 1996, up to a maximum
aggregate number of 86,000 such additional warrants.
29
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
William D. Forster.......... 50 President, Chief Executive Officer and Director
Walter L. Williams.......... 68 Vice Chairman and Director
Keith F. Carney............. 40 Chief Financial Officer and Treasurer
Charif Souki................ 43 Secretary and Director
Efrem Zimbalist III......... 49 Director
</TABLE>
William D. Forster, 50, is currently President and Chief Executive Officer
of Cheniere. Mr. Forster was an investment banker with Lehman Brothers from
1975 to 1990 (11 years as a Managing Director), initially in the oil and gas
department for seven years, and then in various other areas. In 1990, he
founded his own private investment bank, W. Forster & Co. Inc. In 1994, he
became active again in the oil and gas business when he began to work together
with BSR Investments, Ltd., a Paris-based private investment company, to
provide financing for small energy companies. Mr. Forster is a director of
Equity Oil Company, a Nasdaq National Market company, and he serves on the
Board of Trustees of Mystic Seaport Museum. He holds a Bachelor of Arts degree
in economics from Harvard College and a Master of Business Administration
degree from Harvard Business School.
Walter L. Williams, 68, is currently Vice-Chairman of Cheniere. Prior to
joining Cheniere, Mr. Williams spent 32 years as a founder and later Chairman
and Chief Executive Officer of Texoil, Inc., a publicly held Gulf Coast
exploration and production company. Prior to that time he was an independent
petroleum consultant. He received a Bachelor of Science degree in petroleum
engineering from Texas A&M University in 1949 and is a Registered Engineer in
both the states of Louisiana and Texas. He serves on the board of directors of
Texoil, Inc. and has served as a Director and Member of the Executive
Committee of the Board of the Houston Museum of Natural Science.
Keith F. Carney, 40, is currently Chief Financial Officer and Treasurer of
Cheniere. Prior to joining Cheniere, Mr. Carney was a securities analyst in
the oil & gas exploration/production sector with Smith Barney, Inc. from 1992-
1996. From 1982-1990 he was employed by Shell Oil as an exploration geologist,
with assignments in the Gulf of Mexico, the Middle East and other areas. He
received a Master of Science degree in geology from Lehigh University in 1982
and a Master of Business Administration/Finance degree from the University of
Denver in 1992.
Charif Souki, 43, is currently the Secretary and a Director of Cheniere. Mr.
Souki is an independent investment banker with twenty years of experience in
the industry. In the past few years he has specialized in providing financing
for promising microcap and small capitalization companies with an emphasis on
the oil and gas industry. He holds a Bachelor of Arts degree from Colgate
University and a Master of Business Administration from Columbia University.
Efrem Zimbalist III, 49, a director of Cheniere, is President and Chief
Executive Officer of Times Mirror Magazines, a division of Times Mirror Co.,
and a Vice President of Times Mirror Co. He formerly served as vice president,
strategic development for Times Mirror Co. from 1993 to 1995. Previously he
served as Chairman and Chief Executive Officer of Correia Art Glass, Inc., a
family owned business. He also served five years as a senior engagement
manager at the management consulting firm of McKinsey and Co., Inc. in Los
Angeles. Mr. Zimbalist received a Bachelor of Arts degree in economics from
Harvard College and a Master's degree in business administration from Harvard
Business School.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Simultaneously with the reorganization of Bexy with Cheniere Operating (the
"Reorganization"), all of the officers of Bexy resigned from their respective
offices and were replaced by the current officers of the Company. As the
Company has divested itself of the assets relating to the business of Bexy
prior to the Reorganization and has shifted to a new business, this section
describes the compensation to be received by the executive officers of the
Company following the Reorganization on July 3, 1996. The Company presently
has no employment agreement with any of the Executive Officers.
William D. Forster, President and Chief Executive Officer of the Company,
and Charif Souki, Secretary of the Company, have not received any compensation
in the form of salary or options and the Company does not currently intend to
pay any such compensation to such officers until the Company has raised
significant additional capital. In addition, Mr. Forster and Mr. Souki have
not been reimbursed for any travel or entertainment expense incurred on behalf
of Cheniere, nor has any such expense been accrued. The Company provides an
apartment for the use of Mr. Forster and Mr. Souki during times they are in
Houston at a total cost of $4,800 per month. Directors receive no remuneration
for serving on the board of directors of the Company.
Walter L. Williams, Vice Chairman of the Company, began receiving a salary
of $120,000 per year on September 1, 1996. By resolution of the Board of
Directors of the Company dated July 3, 1996, the Company granted to Mr.
Williams certain options to purchase shares of the Common Stock as described
below. In addition, the Company granted 30,000 shares of the Common Stock to
Mr. Williams on July 3, 1996, which shares have not yet been issued. Keith F.
Carney, Chief Financial Officer and Treasurer of the Company, began receiving
a salary of $90,000 per year on July 16, 1996, the date of his appointment as
an officer of the Company. By resolution of the Board of Directors of the
Company dated July 23, 1996, the Company granted to Mr. Carney certain options
to purchase shares of Common Stock as described below.
31
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth certain
information with respect to individual grants of stock options made during the
fiscal year ended August 31, 1996 to each of the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERMS($)(1)
------------------------------- -------------------------------
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS OR BASE
OPTIONS GRANTED TO PRICE EXPIRATION 5% 10%
NAME GRANTED(#) EMPLOYEES ($/SH) DATE APPRECIATION($) APPRECIATION($)
- ---- ---------- ---------- -------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William D. Forster...... -- -- -- -- -- --
Walter L. Williams...... 75,000(2) 25.0 3.00 6/1/01 76,522 173,601
75,000(3) 25.0 3.00 6/1/01 91,598 213,461
Keith F. Carney......... 37,500(4) 12.5 3.00 7/16/01 38,261 86,801
37,500(4) 12.5 3.00 7/16/01 45,799 106,731
37,500(4) 12.5 3.00 7/16/01 53,714 128,654
37,500(4) 12.5 3.00 7/16/01 62,024 152,769
</TABLE>
- --------
(1) The indicated dollar amounts are the result of calculations based on the
exercise price of each option and assume five and ten percent annual
appreciation rates set by the Securities and Exchange Commission over the
term of the option and, therefore, are not intended to forecast possible
future appreciation, if any, of the Company's stock price.
(2) Each of these stock options vest and become exercisable on June 1, 1997
and expire five years from the date of grant.
(3) Each of these stock options vest and become exercisable on June 1, 1998
and expire five years from the date of grant.
(4) The Company granted Mr. Carney 150,000 stock options on July 23, 1996. The
options vest and become exercisable in equal annual installments of 25%
each on the first through fourth anniversaries of July 16, 1996, and
expire on the fifth anniversary of the date of grant.
AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUE
The following table sets forth certain information with respect to the
outstanding stock options as of August 31, 1996 for each of the named
executive officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 8/31/96 (#) AT 8/31/96 ($)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William D. Forster.......... -- -- -- --
Walter L. Williams.......... -- 150,000 -- 37,500(1)
Keith F. Carney............. -- 150,000 -- 37,500(1)
</TABLE>
- --------
(1) Market value of underlying securities at fiscal year-end 8/31/96 ($3.25),
minus the exercise price.
32
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Common Stock, of: (i) each person known by the Company to own
beneficially five percent or more of the outstanding Common Stock at November
22, 1996; (ii) each of the Company's directors; (iii) each of the executive
officers of the Company; and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO THE
OFFERING
---------------------------
PERCENTAGE
OF SHARES
NAME OF BENEFICIAL OWNER NUMBER OUTSTANDING
------------------------ --------- -----------
<S> <C> <C>
William D. Forster................................. 2,846,211(1) 26.8%
BSR Investments, Ltd............................... 2,602,000 24.5%
Charif Souki....................................... 0(2) --
Walter L. Williams................................. 30,000(3)(4) .3%
Keith F. Carney.................................... 0(3) --
Efrem Zimbalist III................................ 20,000 .2%
All directors and executive officers as a group (5
persons).......................................... 2,896,211(1)(2) 27.3%
</TABLE>
- --------
(1) Does not include 100,000 shares held by a trust for the benefit of Mr.
Forster's mother of which trust Mr. Forster is a 20% remainderman and of
which shares he disclaims beneficial ownership.
(2) Does not include 2,602,000 shares held by BSR Investments, Ltd., an entity
under the control of a member of Mr. Souki's immediate family, of which
shares Mr. Souki disclaims beneficial ownership.
(3) Does not include 150,000 shares of the Common Stock issuable upon the
exercise of options, not exercisable within 60 days of the date of this
Prospectus, held by each of Mr. Williams and Mr. Carney.
(4) The 30,000 shares of the Common Stock held by Mr. Williams have been
granted by the Company, but have not yet been issued.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BSR Investments, Ltd. ("BSR"), an entity holding approximately 24.5% of the
outstanding shares of the Common Stock, is under the control of a member of
the immediate family of Charif Souki, Secretary and a director of the Company.
Mr. Souki has been engaged, from time to time, as a consultant to BSR. In
addition, BSR has in the past provided certain financial advisory and other
services to the Company on an arm's length basis. Mr. Souki disclaims
beneficial ownership of all shares held by BSR.
33
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Financial Statements and Supplementary Data, Financial Statement Schedules
and Exhibits
PAGE
----
1. Consolidated Financial Statements
Independent Auditors' Report........................................ 19
Consolidated Balance Sheet.......................................... 20
Consolidated Statement of Operations................................ 21
Consolidated Statement of Stockholders' Equity...................... 22
Consolidated Statement of Cash Flows................................ 23-24
Notes to Consolidated Financial Statements.......................... 25-29
2. Consolidated Financial Statement Schedules
All consolidated financial statement schedules have been omitted because they
are not required, are not applicable or the information required has been
included elsewhere herein.
3. Exhibits and Financial Statement Schedules
EXHIBITS
--------
3.1 --Amended and Restated Certificate of Incorporation of Cheniere
Energy, Inc. ("Cheniere")*
3.2 --By-laws of Cheniere*
4.1 --Specimen Common Stock Certificate of Cheniere*
5.1 --Opinion of Dewey Ballantine*
10.1 --Exploration Agreement between FX Energy, Inc. (now known as
Cheniere Energy Operating Co., Inc. ("Cheniere Operating")) and
Zydeco Exploration, Inc.*
10.2 --First Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco Exploration, Inc.*
10.3 --Second Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco Exploration, Inc.*
10.4 --Third Amendment to the Exploration Agreement between FX Energy,
Inc. (now known as Cheniere Operating) and Zydeco Exploration, Inc.
10.5 --Form of Regulation D Subscription Agreement between Cheniere
Operating and certain "accredited investors"
10.6 --Form of Noteholders' Agreement ("Noteholders Agreement") between
Cheniere Operating and the holders of promissory notes in the
aggregate principal amount of $425,000.00*
10.7 --Form of Warrant Agreement governing warrants of Cheniere issued in
exchange for warrants of Cheniere Operating (which were issued
pursuant to the Noteholders Agreement)*
10.8 --Asset Transfer, Assignment and Assumption Agreement between Bexy
Communications, Inc. and Mars Ventures Inc.*
10.9 --Indemnification Agreement among Buddy Young, Cheniere, Cheniere
Energy Operating Co., Inc. and the Stockholders of Cheniere Energy
Operating Co., Inc. named therein*
10.10 --Form of Warrant Agreement between Cheniere and each of C.M. Blair,
W.M. Forster & Co., Inc. and Redliw Corp.*
10.11 --Consulting Agreement between Cheniere and Buddy Young regarding
reverse splits of the Common Stock*
21.1 --Subsidiaries of Cheniere*
23.1 --Consent of Dewey Ballantine (included in Exhibit 5.1)*
23.2 --Consent of Merdinger, Fruchter, Rosen & Corso, P.C.*
- --------
* Filed previously.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
CHENIERE ENERGY, INC.
/s/ William D. Forster
By:__________________________________
President and Chief Executive
Officer
Date: November 26, 1996
35
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.
-------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of Cheniere Energy, Inc. ("Cheniere")*
3.2 By-laws of Cheniere*
4.1 Specimen Common Stock Certificate of Cheniere*
5.1 Opinion of Dewey Ballantine*
10.1 Exploration Agreement between FX ENERGY, Inc. (now known as Cheniere Energy Operating Co., Inc.
(Cheniere Operating")) and Zydeco Exploration, Inc.*
10.2 First Amendment to the Exploration Agreement between FX Energy, Inc. (now known as Cheniere Operating) and Zydeco
Exploration Inc.*
10.3 Second Amendment to the Exploration Agreement between FX Energy, Inc. (now known as Cheniere Operating) and Zydeco
10.4 Third Amendment to the Exploration Agreement to the Exploration Agreement between FX Energy, Inc. (now known as Cheniere
Operating) and Zydeco Exploration, Inc.
10.5 Form of Regulation D Subscription Agreement between Cheniere Operating and certain "accredited investors"
10.6 Form of Noteholders' Agreement ("Noteholders Agreement 11) between Cheniere Operating and the holders of promissory
notes in the aggregate principal amount of $425,000.00*
10.7 Form of Warrant Agreement governing warrants of Cheniere issued in exchange for warrants of Cheniere Operating (which
were issued pursuant to the Noteholders Agreement")*
10.8 Asset Transfer, Assignment and Assumption Agreement between Bexy Communications, Inc. and Mars Ventures Inc.*
10.9 Indemnification Agreement among Buddy Young, Cheniere, Cheniere Energy Operating Co., Inc. and the Stockholders of
Cheniere Energy Operating Co., Inc. named therein*
10.10 Form of Warrant Agreement between Cheniere and each of C.M. Blair, W.M. Forster & Co., Inc. and Redliw Corp.*
10.11 Consulting Agreement between Cheniere and Buddy Young regarding reverse splits of the Common Stock*
21.1 Subsidiaries of Cheniere*
23.1 Consent of Dewey Ballantine (included in Exhibit 5.1)*
23.2 Consent of Merdinger, Fruchter, Rosen & Corso, P.C.*
__________________
* Filed previously.
</TABLE>
<PAGE>
Exhibit 10.4
[LETTERHEAD OF ZYDECO ENERGY, INC.]
October 31, 1996
Cheniere Energy Operating Company, Inc.
237 Park Avenue, Suite 2100
New York, NY 10017
RE: Third Amendment
Gentlemen:
I am writing with respect to that certain Exploration Agreement dated
April 4, 1996, by and between FX Energy, Inc., and Zydeco Exploration, Inc., as
amended by that certain First Amendment dated May 15, 1996, and that certain
Second Amendment dated August 5,1996 (the "Agreement"). For convenience, terms
defined therein shall have the same meaning when used herein. FX Energy, Inc.
("FX") has changed its name to Cheniere Energy Operating Co., Inc. ("Cheniere").
Section 2 of the Agreement originally provided:
FX shall pay the Seismic Funds to ZEI for deposit in the segregated
account described in Section 12.a on the following schedule.
DATE AMOUNT
-------- ----------
1996-05-15 $3,000,000.00
1996-06-30 1,000,000.00
1996-07-30 1,000,000.00
1996-08-30 1,000,000.00
1996-09-30 2,000,000.00
1996-10-30 1,000,000.00
1996-11-30 1,000,000.00
1996-12-30 1,000,000.00
1997-01-30 1,000,000.00
1997-02-28 1,500,000.00
1
<PAGE>
Cheniere Energy Operating Company, Inc.
October 31, 1996
Page 2
Through yesterday, October 30, 1996, Cheniere had paid $5,000,000.00. We
wish to provide an alternate schedule for the remaining payments, which is:
DATE AMOUNT
-------- ----------
1996-10-31 $1,000,000.00
1996-11-30 2,000,000.00
1997-01-31 2,000,000.00
1997-02-28 2,000,000.00
1997-03-31 1,500,000.00
Further:
1. Should Cheniere fail to make the payment of $2,000,000.00 due
November 30, 1996, by such date, such failure shall be treated
as a Discontinuance under Section 5 .
2. As to the payments due January 31, 1997, February 28, 1997, and March
31, 1997, the normal grace period shall apply.
3. The parties agree that the agreements by Zydeco to defer payments under
Section 2 do not obligate Zydeco to grant further waivers nor waive the
rights of Zydeco to have payments made at the times provided in the
Agreement, as modified hereby.
If I have correctly set forth our agreements, kindly so indicate by
executing one counterpart of this letter and returning it to the undersigned.
Yours very truly,
ZYDECO EXPLORATION, INC.
/s/ W. Kyle Willis
------------------
W. Kyle Willis
Vice President
ACCEPTED AND AGREED TO THIS
31ST DAY OF OCTOBER, 1996.
CHENIERE ENERGY OPERATING COMPANY, INC.
/s/ William D. Forster
- ------------------------
President
2
<PAGE>
EXHIBIT 10.5
THE SHARES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE DISPOSED OF FOR VALUE UNLESS A REGISTRATION STATEMENT HAS BECOME
EFFECTIVE WITH RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND SUCH
STATE SECURITIES LAWS OR PURSUANT TO AN OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO THE CORPORATION THAT THERE IS AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of the date of
acceptance set forth below, by and between CHENIERE ENERGY, INC., a Delaware
corporation, with offices located at 1200 Smith Street, Suite 1710, Houston
77002 (the "Company"), and the undersigned (the "Buyer").
WITNESSETH:
WHEREAS, the Buyer wishes to subscribe for and purchase shares of Common Stock
of the Company, par value $.003 per share (the "Common Stock"), upon the terms
and subject to the conditions of this Agreement, subject to acceptance of this
Agreement by the Company;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO SUBSCRIBE; SUBSCRIPTION PRICE.
(a) SUBSCRIPTION. The undersigned, intending to be legally bound, hereby
irrevocably agrees to purchase from the Company the number of shares of Common
Stock of the Company (the "Shares") set forth on the signature page of this
Agreement. This Agreement is submitted to you in accordance with and subject to
the terms and conditions described in this Agreement.
(b) ACCEPTANCE OF SUBSCRIPTION; CLOSING DATE. The Company has the right to
accept of reject this Agreement, in whole or in part, in the Company's sole
discretion. The Company shall have 10 days from the date of the execution and
delivery of this Agreement by the undersigned to the Company in which to accept
this Agreement. Payment for the Shares shall be in accordance with paragraph 3,
and the Shares shall be delivered to a place of your designation upon payment.
(c) SUBSCRIPTION PRICE. The subscription price of the Shares (the
"Subscription Price") to be paid to the Company shall be U.S. $_____ per share.
1
<PAGE>
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
(a) The Buyer is purchasing the Shares for its own account for investment
only and not with a view towards the public sale or distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"), and
with no present intention of dividing or allowing others to participate in this
investment.
(b) If the Buyer is an individual, the Buyer is an "accredited investor" as
that term is defined in Rule 501(a)(5) or (6) of Regulation D promulgated under
the Securities Act by reason that the Buyer is an individual (i) having an
individual net worth, or a joint net worth with the Buyer's spouse, at the time
of the purchase that exceeds $1,000,000, or (ii) who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with the
Buyer's spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year; or if the
Buyer is a corporation or other entity, the Buyer is an (_)"accredited investor"
as that term is defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
promulgated under the Securities Act.
(c) If the Buyer is a corporation or other entity, it was not organized for
the specific purpose of acquiring the Shares.
(d) The Buyer has such knowledge, sophistication and experience in
business, tax and financial matters that the Buyer is capable of evaluating, and
is familiar with, the merits and risks of an investment in the Shares and can
bear the substantial economic risk of an investment in the Shares for an
indefinite period of time and can afford a complete loss of such investment.
(e) The Buyer represents that its overall commitment to investments which
are not readily marketable is not disproportionate to the Buyer's net worth, and
the Buyer's investment in the Shares will not cause such overall commitment to
become excessive.
(f) If the Buyer is an individual, the Buyer has adequate means of
providing for his current needs and personal and family contingencies and has no
need for liquidity in his investment in the Shares.
(g) All subsequent offers and sales of the Shares by the Buyer shall be
made pursuant to registration of the Shares under the Securities Act and
applicable state securities laws or pursuant to a valid exemption from such
registration requirements.
(h) The Buyer understands that the Shares are being offered and sold to it
in reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Shares. The Buyer agrees that, if any of
the representations, warranties, agreements,
2
<PAGE>
acknowledgements or understandings deemed to have been made by it in connection
with its investment in the Shares is no longer accurate, it shall promptly
notify the Company and consult with the Company in order to determine an
appropriate course of action.
(i) The Buyer has carefully read this Agreement and, to the extent that the
Buyer believed necessary, has discussed the representations, warranties and
agreements which the Buyer makes by signing this Agreement and the applicable
limitations upon the Buyer's resale of the Shares with the Buyer's counsel.
(j) The Buyer and its advisors have been afforded the opportunity to ask
questions of the Company, and have received complete and satisfactory answers to
any and all such inquiries and has had access to such financial and other
information concerning the Company and the Shares as it has deemed necessary in
connection with its decision as to whether to make its investment. Without
limiting the generality of the foregoing, the Buyer has had the opportunity to
obtain and has reviewed (i) the Annual Report on Form 10-KSB for the year ended
August 31, 1995 of Bexy Communications, Inc., the Company's predecessor
("Bexy"), (ii) the Proxy Statement of Bexy dated June 13, 1996 relating to the
special meeting of Bexy's shareholders held on July 2, 1996, (iii) the Current
Report on Form 8-K of the Company dated July 26, 1996 and (iv) the Prospectus
relating to 2,844,211 shares of the Company's Common Stock dated October 11,
1996. The Buyer specifically acknowledges that it does not require and has not
requested to see any information with respect to the Company or this investment
other than the information described in clauses (i), (ii), (iii) and (iv) of
this Section 2(j). The Buyer understands that its investment in the Shares
involves a high degree of risk, and the Buyer is relying solely upon its own
knowledge and experience in business, tax and financial matters in making its
decision to purchase the Shares.
(k) The Buyer acknowledges that (i) none of the Company, any affiliate
thereof or any person representing the Company or any affiliate thereof has made
any representation to it with respect to the Company or the offering or sale of
the Shares, other than the information concerning the Company contained the
documents described in clauses (i), (ii), (iii) and (iv) of Section 2(j) above,
(ii) in making its investment decision the Buyer is not relying upon any
information given by the Company or any affiliate thereof or any person
representing the Company or any affiliate thereof other than the information
concerning the Company contained in clauses (i), (ii), (iii) and (iv) of Section
2(j) above and (iii) no representation has been made, and no information has
been furnished, to the Buyer in connection with the offering or sale of the
Shares that was in any way inconsistent with any other information with which
the Buyer has been provided.
(l) The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares.
(m) The address shown under the Buyer's signature at the end of this
Agreement is the principal residence of the Buyer, if the Buyer is an
individual, or the principal business address of the Buyer, if the Buyer is a
corporation or other entity.
(n) The Buyer has full power and authority to enter into this Agreement and
consummate the transactions contemplated by this Agreement, and the Buyer, if an
individual, is at least 21 years of age. This Agreement has been duly and
validly authorized, executed and delivered by or on behalf of
3
<PAGE>
the Buyer and is a valid and binding agreement of the Buyer enforceable in
accordance with its terms, subject as to enforceability to general principles of
equity and to bankruptcy or other laws affecting the enforcement of creditors'
rights generally.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
(a) ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business in the states in which such
qualification is required based on the nature and scope of the Company's
operations.
(b) CONCERNING THE SHARES. The Shares, when issued, delivered and paid for
in accordance with this Agreement and the Escrow Agreement, will be duly and
validly authorized and issued, fully paid and nonassessable. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Shares.
(c) SUBSCRIPTION AGREEMENT. The Company has full power and authority to
enter into this Agreement and consummate the transactions contemplated by this
Agreement. This Agreement, when accepted by the Company, shall have been duly
and validly authorized, executed and delivered on behalf of the Company and
shall be a valid and binding agreement of the Company enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to bankruptcy or other laws affecting the enforcement of creditors' rights
generally.
(d) NON-CONTRAVENTION. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the issuance of the Shares and
the other transactions contemplated by this Agreement do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the certificate of incorporation
or by laws of the Company, or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, or any existing applicable law,
rule or regulation or any applicable decree, judgment or order of any court,
United States federal or state regulatory body, administrative agency or other
governmental body having jurisdiction over the Company or any of its properties
or assets.
(e) APPROVALS. The Company is not aware of any authorization, approval or
consent of any governmental body which is required to be obtained by the Company
for the issuance and sale of the Shares to the Buyer as contemplated by this
Agreement.
4
<PAGE>
(f) ADVERTISING. The Shares are not being offered or sold by any form of
general solicitation or general advertising.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
(a) TRANSFER RESTRICTIONS. The Buyer acknowledges that (i) the Shares to
be issued to it hereunder have not been and are not being registered under the
provisions of the Securities Act or any applicable state securities laws (except
as provided in the Registration Procedures set forth in Section 5 of this
Agreement), and may not be offered, sold, pledged or otherwise transferred
unless (A) the Shares are subsequently registered under the Securities Act and
all applicable state securities laws or (B) the Buyer shall have delivered to
the Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Shares may be sold or
transferred pursuant to a valid exemption from such registration requirements;
(ii) the Shares are and will be "restricted securities" (as defined in Rule 144
promulgated under the Securities Act); (iii) any sale of the Shares made in
reliance on Rule 144 promulgated under the Securities Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Shares under circumstances in which the seller,
or the person through whom the sale is made, may be deemed to be an underwriter,
as that term is used in the Securities Act, may require compliance with some
other exemption under the Securities Act or the rules and regulations of the
Securities and Exchange Commission (the "SEC") thereunder; and (iv) neither the
Company nor any other person is under any obligation to register the Shares
(other than pursuant to the Registration Procedures set forth in Section 5 of
this Agreement) under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
(b) RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that "stop
transfer" instructions shall be placed against the Shares on the
transfer books of the Company and that the certificate(s) evidencing
the Shares shall bear the following legend:
The securities evidenced by this certificate have
not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), or any applicable
state securities laws and may not be offered for sale,
sold or otherwise disposed of for value unless a
registration statement has become effective with respect
to such securities under the Securities Act and any
applicable state securities laws or pursuant to an
opinion of counsel reasonably acceptable to the corporation
that there is an applicable exemption from the registration
requirements of the Securities Act and applicable state
securities laws.
(c) FORM D. The Company agrees to file a Form D with respect to the Shares
as required under Regulation D of the Securities Act.
5. REGISTRATION PROCEDURES.
5
<PAGE>
(a) Within 90 days after the issuance of the Shares, the Company shall
prepare and file or cause to be filed with the SEC a registration statement (the
"Registration Statement") with respect to all of the Shares (such Shares shall
be referred to as "Registrable Shares"). The Company shall thereafter use
diligence in attempting to cause the Registration Statement to be declared
effective by the SEC and shall thereafter use diligence to maintain the
effectiveness of the Registration Statement until the earlier to occur of (i)
the date which is two years from the effective date of the Registration
Statement, or (ii) the date on which all of the Registrable Shares have been
sold by the Buyer.
(b) Following effectiveness of the Registration Statement, the Company
shall furnish to the Buyer a prospectus as well as such other documents as the
Buyer may reasonably request.
(c) The Company shall use diligent efforts to (i) register or otherwise
qualify the Registrable Shares covered by the Registration Statement for sale
under the securities laws of such jurisdictions as the Buyer may reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements as may be required, (iii) take such
other actions as may be necessary to maintain such registrations and/or
qualifications in effect at all times while the Registration Statement is
likewise maintained effective and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Shares for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (I) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 5(c), (II) subject itself to general taxation in any such
jurisdiction, (III) file a general consent to service of process in any such
jurisdiction, (IV) provide any undertakings that cause more than nominal expense
or burden to the Company or (V) make any change in its certificate of
incorporation or bylaws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders.
(d) The Company shall, following effectiveness of the Registration
Statement, as promptly as practicable after becoming aware of any such event,
notify the Buyer of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to the
Buyer or as the Buyer may reasonably request.
(e) Following effectiveness of the Registration Statement, the Company, as
promptly as practicable after becoming aware of any such event, will notify the
Buyer of the issuance by the SEC of any stop order or other suspension of
effectiveness of the Registration Statement at the earliest possible time.
(f) Following effectiveness of the Registration Statement, the Company will
use diligence either to (i) cause all the Registrable Shares covered by the
Registration Statement to be listed on a national securities exchange and on
each additional national securities exchange on which similar securities issued
by the Company are then listed, if any, if the listing of such Registrable
Shares is then permitted under the rules of such exchange, or (ii) secure the
quotation of all the Registrable Shares
6
<PAGE>
covered by the Registration Statement on the Nasdaq Market, if the listing of
such Registrable Shares is then permitted under the rules of such Market, or
(iii) if, despite the Company's best efforts to satisfy the preceding clause (i)
or (ii), the Company is unsuccessful in satisfying the preceding clause (i) or
(ii) and without limiting the generality of the foregoing, to arrange for at
least two market makers to register with the National Association of Securities
Dealers, Inc. as such with respect to such Registrable Shares.
(g) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Shares not later than the effective date of the Registration
Statement.
(h) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Buyer of the Registrable Shares pursuant to the Registration
Statement.
(i) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 5 that the Buyer shall furnish to the
Company such information regarding itself as the Company may reasonably request
to effect the registration of the Registrable Shares and shall execute such
documents in connection with such registration as the Company may reasonably
request.
(j) The Buyer agrees to cooperate with the Company in any manner reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder.
(k) The Buyer agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 5(d) or 5(e), the
Buyer will immediately discontinue disposition of Registrable Shares pursuant to
the Registration Statement covering such Registrable Shares until the Buyer's
receipt of the copies of the supplemented or amended prospectus and, if so
directed by the Company, shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in the Buyer's possession of the prospectus covering such Registrable
Shares current at the time of receipt of such notice.
(l) All expenses, other than (i) underwriting discounts and commissions,
(ii) other fees and expenses of investment bankers and (iii) brokerage
commissions, incurred in connection with registrations, filings or
qualifications pursuant to this Section 5, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees and
the fees and disbursements of counsel to the Company, shall be borne by the
Company.
(m) To the extent permitted by law, the Company will indemnify and hold
harmless the Buyer, the directors, if any, of the Buyer, the officers, if any,
of the Buyer, each person, if any, who controls the Buyer within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any underwriter (as defined in the Securities Act) for the
Buyer, the directors, if any, of such underwriter and the officers, if any, of
such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act (each, an
"Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively, "Claims") to which any of them may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations in the Registration Statement, or any post effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact
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contained in the Registration Statement or any post effective amendment thereof
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,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
any state securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (the matters in the foregoing clauses
(i) through (iii) are hereinafter collectively referred to as the "Violations").
Subject to the restrictions set forth in Section 5(o) with respect to the number
of legal counsel, the Company shall reimburse the Buyer and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnity
contained in this Section 5(m) (I) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto; (II) with respect to any preliminary prospectus shall not
inure to the benefit of any person from whom the person asserting any Claim
purchased the Registrable Shares that are the subject thereof (or to the benefit
of any person controlling such person) if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus was timely made
available by the Company; and (III) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Shares by the Buyer.
(n) The Buyer agrees to indemnify and hold harmless, to the same extent and
in the same manner set forth in Section 5(m), the Company, each of its
directors, each of its officers who signs the Registration Statement, each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act, any underwriter and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder or underwriter within the
meaning of the Securities Act or the Exchange Act (each such person and each
Indemnified Person, an "Indemnified Party"), against any Claim to which any of
them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by the Buyer expressly for use in connection with such Registration
Statement or such prospectus; and the Buyer will reimburse any reasonable legal
or other expenses reasonably incurred by any Indemnified Party in connection
with investigating or defending any such Claim; provided, however, that the
indemnity contained in this Section 5(n) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Buyer, which consent shall not be unreasonably withheld;
provided, further, that the Buyer shall be liable under this Section 5(n) for
only that amount of a Claim as does not exceed the net proceeds to the Buyer
as a
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result of the sale of Registrable Shares pursuant to such Registration Statement
or such prospectus. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Shares by the Buyer.
Notwithstanding anything to the contrary contained herein the indemnity
contained in this Section 5(n) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
(o) Promptly after receipt by an Indemnified Person or Indemnified Party
under Section 5(m) or 5(n) of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is made against any indemnifying
party under this Section 5, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying parties;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. Except as provided in the preceding sentence, the Company shall pay
for only one separate legal counsel for the Indemnified Persons. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 5,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnity required by this Section 5 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
(p) PIGGYBACK REGISTRATION. After the registration under Section 5(a)
hereof, and for a period ending two years from the date hereof, if the Company
at any time proposes to register any of its securities under the Securities Act
(other than a registration effected solely to implement an employee benefit
plan, a transaction to which Rule 145 of the SEC is applicable or any other form
or type of registration in which the Buyer's Registrable Shares cannot be
included pursuant to SEC rule or practice), it will give written notice to the
Buyer of its intention to do so. If such registration is proposed to be on a
form which permits inclusion of the Buyer's Registrable Shares, upon the written
request (stating the intended method of disposition of such securities) of the
Buyer given within thirty (30) days after transmittal by the Company to the
Buyer of such notice, the Company will, subject to the limits contained in this
Agreement, use its best efforts to cause all such Registrable Shares of the
Buyer to be registered under the Securities Act and qualified for sale under any
state securities law, all to the extent requisite to permit such sale or other
disposition by the Buyer, except that if the Company receives a written opinion
of a managing underwriter that the inclusion of any of all of such Registrable
Shares would adversely affect the marketing of the securities to be sold
pursuant to such registration statement the Company shall not be required to
register any or all of such Registrable Shares. Sections 5(b) through 5(o)
hereof shall apply to any registration in which the Buyer participates, and in
such event, the term "Registration Statement" shall mean the registration
statement filed in connection with such registration.
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6. TRANSFER AGENT INSTRUCTIONS.
Promptly following the delivery by the Buyer of the aggregate Subscription
Price for the Shares in accordance with Sections 1(b) and (c) hereof, the
Company's transfer agent will be instructed by the Company to issue one or more
certificates representing in total the Shares, bearing the restrictive legend
specified in Section 4(b) of this Agreement, registered in the name of the Buyer
or its nominee and in such denominations as shall be specified by the Buyer
prior to the Closing Date. The Company warrants that no instruction other than
such instructions referred to in this Section 6 and stop transfer instructions
to give effect to Section 4(a) and (b) hereof will be given by the Company to
the transfer agent and that the Shares shall otherwise be freely transferable on
the books and records of the Company as and to the extent provided in this
Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement to comply with all applicable federal and state
securities laws upon resale of the Shares. If the Buyer provides the Company
with an opinion of counsel reasonably satisfactory in form, scope and substance
to the Company that registration of a resale by the Buyer of any of the Shares
in accordance with Section 4(a) is not required under the Securities Act or
applicable state securities laws, the Company shall permit the transfer agent to
issue one or more share certificates in such name and in such denominations as
specified by the Buyer.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Shares to
the Buyer pursuant to this Agreement is conditioned upon:
(a) The receipt and acceptance by the Company in its sole and absolute
discretion of this Agreement, as evidenced solely by delivery by the Company to
the Buyer of this Agreement duly executed by the Company;
(b) Delivery by the Buyer to the Escrow Agent of good funds as payment in
full of an amount equal to the Subscription Price for the Shares in accordance
with Sections l(b) and (c) hereof; and
(c) The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement and the performance by the Buyer on or
before the Closing Date of all covenants and agreements of the Buyer required to
be performed on or before such Closing Date.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the Shares
from the Company is conditioned upon:
(a) Delivery by the Company to the Buyer of this Agreement duly executed by
the Company in acceptance thereof and delivery of the Shares to the Escrow
Agent; and
(b) The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement and the performance by the Company on
or before the Closing
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Date of all covenants and agreements of the Company required to be performed on
or before such Closing Date.
9. NO OFFER TO SELL.
This Agreement shall not be construed or interpreted as any offer by the
Company to sell the Shares. The Company shall have no obligation to accept this
Agreement if offered by the Buyer and may in the Company's sole discretion elect
to reject this Agreement. The Company shall have no obligation or liability to
the Buyer or to any other party if the Company in its sole and absolute
discretion determines not to accept this Agreement.
10. GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York (without giving effect to principles of conflicts
of law). The Buyer hereby consents to and agrees to submit to the jurisdiction
in the United States of America of the Supreme Court of the State of New York
located in New York County or of the United States District Court for the
Southern District of New York for any action or proceeding brought by the
Company arising under or by reason of this Agreement or relating to the sale of
the Shares and to the venue of such action or proceeding in such courts.
11. TRIAL BY JURY.
The Buyer hereby waives trial by jury in any action or proceeding
involving, directly or indirectly, any matter (whether sounding in tort,
contract, fraud or otherwise) in any way arising out of or in connection with
this Agreement or the Shares issued hereunder.
12. MISCELLANEOUS.
A facsimile transmission of this signed agreement shall be legal and
binding on all parties hereto. This Agreement and the rights and obligations
hereunder are not transferable or assignable by the Buyer. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by mail or delivered personally or by
courier and shall be effective five (5) days after being placed in the mail, if
mailed, or upon receipt, if delivered personally or by courier, in each case
addressed to a party at such party's address shown in the introductory paragraph
or on the signature page of this Agreement or such other address as may be
provided by a party in accordance with this Section 12.
13. ENTIRE UNDERSTANDING.
This Agreement (including any attachments hereto) constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes any and all prior agreements,
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whether written or oral. This Agreement may be amended only in a written
document duly executed by both parties hereto.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or
one of its officers thereunto duly authorized as of __________________, 1996.
Name of Buyer: _________________________________
Signature (if Buyer
is an individual): _________________________________
Signature (if Buyer
is a corporation or By: _________________________________
other entity): Name:
Title:
Address: _________________________________
_________________________________
_________________________________
Number of Shares: _________________________________
Price per Share: US $_________________________________
Aggregate Subscription
Price: US $_________________________________
IRS Taxpayer No.: _________________________________
This Agreement has been accepted by the Company as of ___________ ___, 1996.
CHENIERE ENERGY, INC.
By: _____________________________
Name:____________________________
Title:___________________________
Address for Delivery of Shares:
_______________________________
_______________________________
_______________________________
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